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Banks set to sell off insurance arms due to capital requirements threat

Monday 29 March 2010 - by Iain Anderson

Banks may sell off their insurance arms due to stringent capital requirements being brought in under the Solvency II directive according to a new report by Deloitte.

The report, due to be released in May, is being finalised by former UK regulator Dr Oonagh McDonald and looks at a range of regulatory pressures on the banks and the interplay between the Solvency II regime for insurers – set to be introduced from 2012 – and the capital requirements set out for banks by the Basel III arrangements.

Solvency II also covers the insurance operations of banks and aims to implement solvency requirements that better reflect the risks that companies face and deliver a supervisory system that is consistent across all EU member states.

McDonald says: “Some of the banks may well sell off their insurance operations. Many are actively questioning the reasons for continuing to own an insurance operation given the enhanced capital needs.”

She says it is likely that some banks will choose to set up tied or white-label arrangements in order to continue to offer insurance products.


The report will argue that EU markets with a long history of successful bank-based insurance operations will continue to offer bancassurance – including France and Spain. However, McDonald believes that other territories may be quicker to abandon current arrangements.

McDonald says: “While France and Spain have been able to create significant profitability from bancassurance, other markets, including the UK and Germany, have seen greater difficulties for their banking sectors through the financial crisis and they may look to offload operations as a result of the higher capital needs. 2011 will be a crucial year.”

The report says bank boards need to make fundamental decisions about their operations in future.


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