98% of Top 100 Insurers have sufficient capital to cover SCRs

But the quality of many disclosures was disappointing, with over a quarter publishing Quantitative Reporting Templates (QRTs) containing obvious errors.

LCP’s survey out today, examining the first ever set of Solvency II disclosures for insurers across the UK and Ireland, found that 98% of firms surveyed had sufficient capital to cover their Solvency Capital Requirement (SCR).

Although insurers are generally sufficiently capitalised, the buffers firms have in place to protect against balance sheet volatility may not be enough to prevent them from having to recapitalise over the short term. The survey found of the total firms, nearly a quarter (23%) would need to recapitalise following a loss equal to their Minimum Capital Requirement.

Cat Drummond, LCP Partner and author of the report, said: “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.”

Key findings of LCP’s analysis also include:

  • The average ratio of excess funds eligible to cover the Solvency Capital Requirement was 206%. The highest ratio was disclosed by Gresham, part of the Aviva Group, whose eligible own funds were nearly 12 times its regulatory capital as at 31 December 2016.
  • Two firms disclosed that they had insufficient capital to cover their SCRs as at 31 December 2016.
  • The report also finds that motor insurers typically have the least financial headroom, compared with other insurers.
  • Brexit is on the agenda for many insurers, with some firms setting up internal steering groups to ensure they are well placed to access the European Market after the UK leaves the EU.
  • Uncertainty around the Ogden discount rate used to calculate personal injury compensation payments poses a material risk to some insurers, with two firms disclosing that the recent change required them to recapitalise significantly.
  • Some firms’ SFCRs are not compliant with Solvency II regulations, with particular areas of weakness including disclosure around sensitivity testing of the SCR and uncertainty within technical provisions.
  • Over a quarter of firms published QRTs containing errors, the most common pitfalls including: incorrect figures, missing information and inconsistencies with the narrative reports, which could undermine a key aim of Solvency II to bring greater transparency.