Which reinsurance structure is likely to be most capital efficient for term assurance products under Solvency II?

Solvency II, the new European regime for the supervision of the insurance industry, is on the horizon.  Firms are investing significant resources in preparation for its implementation in 2014 and it is expected to have far-reaching consequences for the way insurers manage their business.

As part of our preparation we have carried out an assessment of which reinsurance structure appears to be most capital efficient for term assurance products in the Solvency II world from the perspective of a life insurance company.  Therefore we compare the Solvency Capital Requirement (SCR) for the following structures which have been popular in the reinsurance market in recent times:

• Original Terms with upfront cash financing
• Net Level Premium
• Risk Premium