COMMENTPaul Sharma has over 20 years of experience as a top UK, EU and global regulator of banks and insurance companies. He was involved in the design of Solvency II since its early stages and chaired the ‘London Working Group’, which, in 2002, authored the “Sharma Report” – a pivotal document in shaping the thinking and design of Solvency II. In this exclusive article for Solvency II Wire he addresses one of the Directive’s most controversial and contested principles: the treatment of Long-Term Guarantees (LTG) under a market consistent regime. Mr Sharma argues that public disclosure is the most effective way of ensuring the LTG measures are used effectively and appropriately.
1 thought on “LTG disclosure is the way”
Very good article.
One point though in your reference to UK insurers having weathered the crisis well because they already had market consistent measures. The one area where UK regulation wasn’t at all market consistent was annuity business and the discounting of liabilities back by corporate bonds – hence the large bulk of the effect of the credit spread widening, which was the main effect of the credit crisis, on assets was absorbed on the liability side of the balance sheet. Retrospectively that’s been justified as market consistent(ish) via concepts of liquidity premia but that wasn’t really the thinking at the time: and had the original pre-crisis version of Solvency II been in place pre-crisis then there would have been massive problems for the UK insurers, and a likely fire sale of corporate bonds.
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