Gunther Schwarz, partner of Bain & Company, said: "Our analysis exposes considerable weaknesses in the solvency ratios and risk-adjusted profitability of European insurers under Solvency II".

The authors said that "aggressive action" needed to be taken after they conducted their study into the repercussions of Solvency II for major insurers operating in the life, health and property and casualty sectors in Germany, France, Italy and the UK.

The simulation model analysed the risk-adjusted profitability ratios and the extent to which an insurer's assets were covered by its solvency capital.

The findings showed that 21 per cent of British companies have a solvency ratio of less than 100 per cent, due to the higher share of long-term annuity insurance in the UK. However in the property and casualty market, British insurers measured up comparatively well. Just 8 per cent had solvency ratios of less than 100 per cent, despite the fact that capital requirements in this segment are due to rise by more than 200 per cent under the Solvency II regime.

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