10 November 2009
Published in: Corporate strategy, Capital - models, Regulation - supervision
Use Solvency II to hone corporate strategy, says business school
Firms must capitalize on the regulatory requirements created by Solvency II, according to a study produced by EDHEC Business School's Financial Analysis and Accounting Research Centre, which highlights the contributions made by an economic capital model to the management of the company.
The study, Solvency II: An internal opportunity to manage the performance of insurance Companies, is sponsored by Swiss Re and was today released in English, having been published in French in July. It notes that insurers will be required to make heavy investments in Solvency II and the objective of the study is therefore "to show how, by having these investments respond to objectives more inherent to the company, these Solvency II constraints can be capitalized on."
The 168-page study builds a management tool for a fictitious insurance company subject to Solvency II requirements. "We then highlight the contributions this tool makes to the perfecting of the strategy of the company," it says, "in particular for the definition of policy for asset allocation, management of capital, asset/liability management, hedging of risks and the launch of new products."
According to Philippe Foulquier, author of the study and director of the EDHEC Financial Analysis and Accounting Research Centre: "Making the cost of capital part of the measure of performance is likely to impose a certain management discipline on both executive and operational managers, as capital does not come without a cost."