Solvency II could have indirect impact on Canadian market, spur M&A activity

Solvency II will likely not have a direct impact on the Canadian reinsurance market, but European parent companies with Canadian branches will likely impose the requirements of the regulatory regime on their Canadian subsidiaries, said Gale Guerra, senior financial analyst at A.M. Best Company.
Guerra offered an overview of the status of the Canadian reinsurance industry during A.M. Best’s 2011 Insurance Market Briefing-Canada, held in Toronto on Sept. 8.
In the global reinsurance market, Solvency II is at the top of reinsurers’ regulatory agenda, Guerra said.
Meeting the steep requirements under Solvency II will likely pose a much larger challenge to smaller reinsurers.
“This could be a motive for M&A activity for the larger companies with the resources to become Solvency II compliant,” Guerra told the audience of 250 delegates. “Smaller companies with fewer resources may find they have some vulnerabilities in meeting the requirements and some of the larger companies may jump on that.”
The Office of the Superintendent of Financial Institutions has said it is taking a wait-and-see approach before deciding which, if any, elements of Solvency II it will incorporate into Canada’s regulatory regime. But that doesn’t necessarily mean Canadian reinsurers will be spared.
“Again, Solvency II doesn’t directly impact Canadian insurers and reinsurers, however I think because the Canadian reinsurance market has quite a few global reinsurers, and the Canadian operations are a subset, I think the European parent companies will impose some of the Solvency II requirements on their Canadian subsidiaries,” she said.