Overview of the proposed regulations from Basel III and Solvency II

In addition to the aforementioned standards and Basel II to Solvency II to stop the encroachment of a banking crisis on insurance companies. The solvency were therefore developed and will continue to 1 Come into force in January 2013. With the regulations, insurance companies are held to an economic management. Basic structure of this standard work is the amount of capital insolvency, the requirements for risk management and reporting requirements. Basically, the capital requirements are accompanied by a minimum capital requirement, which the equity of an insurance shall not be exceeded. These must always be the intrinsic value of a company are determined by accounting for all assets are valued at the current value and should be mitigated by the company’s liabilities.

Furthermore, the present value of all assets under consideration of a shock scenarios to be calculated. This could be the one shares value fall by 40%. The resulting net asset value of the company sets the capital requirements for the insurance industry and for individual companies. Introduced in this context, lower limits are different types of insurance companies. Between Solvency II and Basel III are as mentioned to observe various interactions. Many insurance companies are regarded simply as conservative investment strategists who prefer safe assets and the portfolio mix in only risky investment partially. Core investments are fixed income securities. Banks are, however speculatively oriented.


The interaction between the two divisions is therefore a major threat to the financial sector give. This is to be feared that Solvency II will have a diametrically opposed to the investment behavior of insurance companies. Because Solvency II must be looked at short-term investments. Furthermore, the definition of long-term nature of the sector and the banks for the sector of insurance is to be differentiated. For insurance companies, with a horizon of 15-20 years to be expected, which is completely undercut by banks. Furthermore, it is observed that due to the tightening of capital requirements of banks, a tightening of the debt has narrowed and liquidity standards should be introduced.

However, the effect of Basel III capital ratios negatively affect the profitability of the equity. It can be assumed that profitability will decline in the European sector as part of increased capital requirements by 4% and in the American sector by three percentage points. To counter this there is the increase in cost of equity. The additional charges could be passed on to the consumer in compliance with the competitive situation. This has also meant an increase in interest expense for companies, as the cost of equity of the bank only cost increase is possible aspects. In principle, of an increased need of approximately € 291 billion equity are considered in the European banking sector. It is feared that that will reduce the credit supply of banks will rise and speak, the demands on the debtor credit ratings. As part of this will increase the commitment fees for the granting of credit lines. Because they are added to the total assets in the leverage ratio.

This consequently also increases the capital requirements of banks. All the aforementioned regulations, ultimately causing an increase in the cost of corporate loans. Since the reciprocal effects in the regulations are not yet clear, the effects described here represent only a forecast give. addition, Germany is characterized by either homogeneity of the financial sector. So there are major differences between banks and savings banks. On the one hand, the capital ratios of the savings amount to approximately 9.9% in December 2010, while there were some banks in late 2011 a capital shortfall of about € 5 billion. The respective group must therefore advance the impact of the impending financial market regulations work out and mark out the consequences for the Group.

In particular, the qualitative impact on the Group and the impact on interest expenses are forecast. Note also that corporate financing is harder to make in the future only. In particular, the structure of the due date is subject to a diversification and requires long-term finance. Nevertheless, companies are also set and view straight from financing an attractive business, so the impact of the regulations will only fall significantly lower than for comparable companies poor credit ratings.

As alternatives, there is the issue of a bond is give. this with regard to the time of issue of safe and affordable financing to investigate. In addition, capital market activities should be planned early in order to implement within a reasonable time frame rates on loans and issuance costs. Long-term loans can also be provided through loans on insurance companies. This means a long-term credit solution and independence in terms of additional burden of an economic nature are loans in this context as part of a long-term debt financing long-term loans by insurance companies through intermediaries (generally within a bank). This is not an investment, because the note is due solely to create documentation of the contract and to raise capital. Obligations under a listing are eliminated with this type of instrument.

In summary, it can be said that the new regulations increase the regulation of credit institutions with the requirements of quality and quantity of capital and liquidity standards, and introduce the limit of indebtedness to banks. In addition, the insurance industry is regulated. This can lead to different legal consequences. One could be that the loans are expensive and insurance companies in the future to be major investors. These would have to change their investment behavior and get the security-oriented investments to riskier investments. Financing alternatives within a group must be checked. These include: debt is a valuable alternative to replace a long-term loans or to complete. The financing through promissory notes should be considered.

Basically, the regulation of a sector is a federal intrusion into private business environment. However, no mistaking that has just thrown the sector previously indicated, the financial crisis. To that extent, the increased regulation by the legislature is reasonable and necessary to stabilize the market and to promote quality and quantity. For companies with good credit standing in the middle segment, there should be little impact from the regulation. The banks will request additional information from companies in the future as hitherto, to counteract the bad debts. The commitment fees will also increase and unexpected rise in new orders of magnitude.