The global pandemic continues to be a key area of focus for firms. This year, 55% of insurers disclosed their estimates of the financial impact of the pandemic on their business.

Uncertainty around COVID-19 is still a key theme. Insurers appear to have a better understanding of their direct exposures to the pandemic compared to last year’s SFCRs, but material uncertainty remains regarding the longer-term indirect economic impacts. Insurers are now considering the lessons that can be learned, such as tightening policy wordings or exiting classes such as contingency.

There has been a jump in the proportion of firms mentioning climate change this year, with 60% of SFCRs flagging this, compared to 48% last year. This is still a much lower proportion than we would expect, given the rapid developments in this area and increased regulatory focus. In particular, only 6% of firms referenced the TCFD (Taskforce on Climate-related Financial Disclosures) recommendations in their SFCRs. This is despite the UK Government’s plan to implement mandatory TCFD-aligned disclosures for UK insurers, as set out in its Interim Report of the UK’s Joint Government-Regulator TCFD Taskforce.

More firms are now considering cyber and regulation as key risks. This is not surprising giving the increased reliance on technology during lockdown and increased regulatory scrutiny in recent years.

There has also been an increase in the proportion of firms discussing diversity and inclusion initiatives from 23% last year to 29% this year, a lot of which is focussed on Board diversity in particular.

Despite COVID-19, financial strength of the market remains strong, with the average eligible own funds ratio across our sample being 208%, compared to 209% last year.

However, many firms have relied on capital support from their parent companies and shareholders over the last year to maintain a strong solvency position. In addition, the amount of Tier 2 and Tier 3 own funds has increased over 2020, and the proportion of firms holding ancillary own funds has doubled from 5% to 10% over the last two years. This increased reliance on lower quality capital to support Solvency II balance sheets may be indicative of firms continuing to feel the squeeze from the economic fallout of the pandemic.