The current conditions of the insurance market, i.e. the dynamics of interest rates and the progress of technological innovation, can constitute a driving factor for the industry consolidation, especially with regard to mergers between small companies. This is the opinion of Salvatore Rossi, president of IVASS and general manager of the Bank of Italy, who spoke on Friday at the opening of the second international conference on the new prudential requirements of Solvency2.
In particular, focusing on future decisions on monetary policy, Rossi underlined that "probably, in the end, interest rates somehow they will normalize compared to the current, very low levels”.
When this happens, added the number one of the Insurance Supervisory Institute, "it will be positive for insurers, in particular for companies in the Life branch", but the timing will prove to be "crucial: sudden rises can be dangerous”, in particular because they would reduce the value of the bonds in the portfolios of the companies; a gradual rise in rates, on the other hand, would bring certain benefits.
At the same time, “many companies could be induced to change their business model to offer products with a stronger financial component. SMEs are less equipped and more exposed to storms: this too could be a boost to consolidation".
In any case, according to Rossi, the process of consolidating the sector can be positive but it shouldn't be excessive, because it would be to the detriment of the competition and could re-propose the risk, never completely eliminated on the financial markets, of the "too big to fail" actor.
For Solvency2, the President of IVASS said that, in the application of the new rules by insurance companies, it is necessary to use a principle of proportionality for small companies, in particular for the second and third pillars of the new legislation, which concern governance and reporting.
The Supervisory Institute “believes that proportionality is a good principle that deserves to be discussed”, Rossi pointed out to representatives of the insurance industry and international regulators, including Gabriel Bernardino, president of the European sector authority (Eiopa).
IVASS has been thinking for a long time about the best way to apply the principle of proportionality to small businesses "and on the basis of previous fruitful experiences, we believe it is useful to involve the industry in this evaluation process right from the start and for this reason we will soon launch a consultation on the subject”, concluded Rossi.
