OREANDA-NEWS. Delta Lloyd's EUR1bn rights issue will not herald a wave of similar equity raisings from other European insurers, as the firm appears to be particularly heavily affected by the impact of the new Solvency II (SII) regime, Fitch Ratings says. But it does highlight the potential for capital requirements to increase significantly under SII, reinforcing our expectation that some firms will remain conservative in their approach to managing capital.

We believe Delta Lloyd's business mix and capital management strategy, combined with the relatively tough stance of the Dutch regulatory regime, make it an outlier in terms of the impact of SII. In particular, the firm's annuity business means it is heavily exposed to longevity risk, which is hit hard under SII.

We do not expect any other large European insurers to face the same combination of challenges and we therefore do not expect any more of the major firms to announce rights issues in the near term as a result of SII. But SII ratios will typically be lower and more volatile than solvency metrics under the current regime, so some insurers may choose to extend measures to strengthen capital, including limiting dividends to shareholders.

We believe UK life insurers are on track to report relatively strong SII capital levels as they announced substantial interim dividend increases with their 1H15 results. We do not believe these increases would have been announced if there had still been significant uncertainty about likely SII capital levels.

In contrast, German life insurers' capital levels under the new regime could be weaker, and without transitional measures to phase in the new capital requirements there would have been a EUR12bn shortfall at end-2014 according to a survey by the regulator, BaFin. While some investors may look through these transitional benefits to judge insurers' capital positions on a "fully loaded" SII basis, regulators will allow for the benefits of transitional measures.

We recognise the benefits of transitional measures from a regulatory perspective, but they mean that SII will initially not be a fully risk-based approach. We will continue to focus on our own Prism factor-based capital model for our primary assessment of insurers' capital adequacy. Under this risk-based approach we would expect an insurer that achieves a particular SII coverage ratio through transitional measures to have a lower Prism score than one achieving the same ratio without transitional measures.