A survey by consulting firm Lane Clark & Peacock (LCP) has examined the first set of Solvency II disclosures for 100 of the top non-life insurers in the UK and Ireland, and there’s more to it than meets the eye.
While LCP found that 98% of firms surveyed had sufficient capital to cover their solvency capital requirement (SCR), the buffers in place may not be enough to avoid having to recapitalise soon. Of the total firms, 23% would need to recapitalise following a loss equal to their minimum capital requirement.
“Firms need to spend more time reviewing their public disclosures to ensure that their QRTs pass muster. Not only is accuracy essential in reporting to ensure compliance, but it saves time in the long run and reduces the risk of public embarrassment,” said Cat Drummond, LCP partner and author of the report.
LCP’s analysis also revealed that the average ratio of excess funds eligible to cover SCR was 206%. It said the highest ratio was disclosed by
Aviva Group’s Gresham, whose eligible funds were nearly 12 times its regulatory capital as of December 31, 2016.
Two companies disclosed that they had insufficient capital to cover their SCRs, while some firms’ solvency and financial condition reports (SFCRs) were not compliant with Solvency II regulations. Over a quarter of firms published quantitative reporting templates (QRTs) containing errors.
The report also cited the UK’s departure from the European Union, saying it is on the agenda for many insurers and that some firms have set up internal steering groups to ensure they are well placed to access the European market post-Brexit.
It added that uncertainty around the Ogden discount rate poses a material risk to some insurers. Two firms disclosed that the recent change required them to recapitalise significantly. The study also showed that motor insurance providers typically have the least financial headroom.
“Next year’s SFCRs will include discussions of how the Solvency II measures have moved since last year. It will be interesting to see how well those firms with lower levels of capital coverage now can weather future storms that lie ahead,” noted Drummond.
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