BaFin’s president praises flexibility offered by SII during coronavirus turmoil

Written by Adam Cadle

12/05/2020

BaFin’s President Felix Hufeld has praised the flexibility offered by Solvency II (SII) especially during the coronavirus pandemic.

Speaking at the 2020 BaFin Annual Press Conference today, Hufeld said underfunding will not be an issue and the situation is not a threat to life insurers’ continued existence.

“You might be wondering how the coronavirus pandemic is affecting life insurers,” he said.

“The persistently low interest rate environment remains the biggest problem for the industry. And the crisis is placing an additional burden on the investments of these undertakings. However, the situation is not a threat to their continued existence as things stand today. Solvency ratios will drop – this was revealed in a survey we conducted at a selected number of life insurers. But this will not lead to underfunding for any of these undertakings. This is also thanks to the flexibility offered by Solvency II, which sets out transitional provisions that are extremely helpful for us – and for the industry in particular.

“The crisis can have a short-term impact on liquidity, too: if there is a slump in new business or if insurance policies are terminated or premium payments are deferred, the stable flow of income that insurers usually have could be disrupted. This is not yet a cause for concern for us – but we are keeping a close eye on the situation even more than before.”

Looking towards the future, Hufeld said nobody knows whether the turbulence we are currently seeing, particularly on the assets side, will continue for some time.

“We don’t know either how quickly assets will stabilise. Are we dealing with short-term volatility? If so, the impact of the crisis will be limited as we have the regulatory tools to deal with this. But if valuations and default risk on the markets are changing in the medium or long term, this would have a more severe impact on capital.”

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