How External Requirements Affect the InsuranceIndustry : An Investigation on Swedish Insurance Companies’Adjustments to Solvency II

Sammanfattning: The financial sector stands for an important part of society’s fundamental infrastructure andnational economy. Previous financial crises indicate the importance of having a well-regulatedfinancial market. Former directives of regulating the insurance industry had insufficient solvencyregulations and were lacking in risk management. Therefore, the regulatory framework SolvencyII, the successor to Solvency I, has been established on the European market. The objective ofSolvency II is to ensure consumer protection by ensuring insurance companies properly reflectthe risks their businesses are vulnerable to.The regulatory framework Solvency II came into force in the turn of 2015/2016. However, it hasbeen on every insurers’ agenda for years and preparations have been done. It is therefore ofinterest to investigate how Swedish insurance companies have adjusted to Solvency II at an earlystage after the transition.This has been investigated by conducting interviews with mainly Chief Risk Officers and RiskManagers at Swedish insurance companies. As a complement, a questionnaire was distributed toasset and capital managers, having insurers as customers, regarding their perception of insurers’changes in investment behaviors.The findings of this study imply that insurance companies have had a compliance focus to adoptthe regulation rather than a business focus. No indications of adjustments to corporate businessstrategy has yet been noticed. However, some companies have developed a risk culture withinthe organizations. The extensive reporting and calculations of capital that Solvency II entails, haslead to implementations of new systems and processes for companies. It is further noticed thatSwedish insurance companies use the standard model for calculating the capital requirements.Solvency II has lead to increased understanding of the trade-off between capital, risk, and returnby holding a risk-adjusted capital. Also, an increased engagement of employees in the riskmanagement process has been noticed. The companies are aligned with the ORSA process, sinceit is one of the requirements, and are aware of the potential benefits the ORSA process cancontribute to. Lastly, this study indicates an improved risk awareness and culture within theinsurance companies by educating existing employees and employing new competentemployees.