Other key risks

Firms’ SFCRs provide useful insights into the key risks facing non-life insurers in the UK and Ireland.

BREXIT

The proportion of firms that considered Brexit as a key risk has continued to decrease. Out of the 100 insurers considered, only 30% considered Brexit as a key risk compared to 42% last year.

While many companies have already implemented their strategy to minimise the impact of Brexit, such as transferring business to their European entities, and applying for the Temporary Permissions Regime (TPR), many cite continued uncertainties on future trade agreements with other countries and wider economic uncertainty as risks. Some firms also mentioned uncertainty on the future regulatory landscape, for example:

Ageas mentioned that the UK government’s review of the calculation of the solvency capital requirement poses a significant risk if the outcome results in a deviation from the Solvency II regime, such that the UK is not granted ‘equivalent country’ status.
SCOR UK reported that there is considerable uncertainty on unforeseen regulatory changes in the UK post-Brexit.

The proportion of firms that mentioned cyber risk as a key operational risk has increased from 49% to 63% over the year. 22% of the insurers also mentioned that, as a result of the pandemic, there is greater focus on IT and cyber security issues given the increased reliance on technology. We expect cyber risk to continue to be a key feature of the SFCRs as there is greater awareness of the key issues, partly driven by a number of recent high-profile cyber attacks.

Admiral reported that the Group is exposed to increased IT, information security, data protection and privacy risks as a result of remote working.
Aspen disclosed that the transition to a work from home model for most employees resulted in an increase in the risk of business operations being disrupted due to, amongst others, cyber attacks and data security incidents.
Assurant (the parent of Assurant GI and London GI) mentioned that risk of fraud and cyber attacks increased as a result of working from home.
HCC International recognised IT security / fraud issues in its pandemic risk register.
SCOR UK noted that it observed increased external cyber attacks since the start of the pandemic, although no attempts against it have been successful.

The proportion of firms that considered “silent” risk or non-affirmative cyber risk as a key risk has not changed from last year, at only 6%.

CYBER RISK

CONDUCT RISK

The proportion of firms that considered conduct risk or regulatory risk as a key risk increased over the year from 46% to 62%.

On 22 September 2020, the FCA published the final findings of its general insurance pricing practices market study, which followed its Interim Report published in October 2019. The FCA found that the home and motor insurance markets are not working well and do not deliver good outcomes for all consumers. New rules will be implemented by the end of 2021 which, among other measures, prevents firms from “price walking", where discounts are offered to new policyholders but where any losses are recovered on renewals by increasing the price year on year. The CBI is also proposing similar actions, in particular, a ban on “price walking”, following a report it published in July 2021.

UKI and The Scottish Widows Group (where Lloyds Bank GI and St Andrew’s are subsidiaries) mentioned that they are supportive of the FCA’s aims, but the latter mentioned that it anticipates short-term challenges for insurers as the market finds a new sustainable pricing.

Only 12% of firms mentioned the risk of breaching data protection laws, a slight decrease from 14% last year.

29% of the insurers in our sample mentioned their diversity and inclusion initiatives, a slight increase from 23% last year. The majority refer to diversity requirements in the appointment of board members, but some firms mentioned broader diversity and inclusion initiatives across the business, such as ensuring equitable access to opportunities.

AIG UK reported that, through its diversity, equity and inclusion framework, it is creating a workplace that nurtures inclusivity, where everyone feels they belong and can bring their whole selves to work. It also mentioned that all its executives and the HR team received training on racial sensitivity and inclusive leadership, with personal commitments to various actions.
British Gas disclosed that its board ensures diversity in the recruitment process and actively promotes diversity at all levels in the business through its Diversity Policy.

DIVERSITY & INCLUSION

RATING ENVIRONMENT

Some firms also highlighted the impact of changes in the rating environment on their business.

Sabre highlighted that heavy price discounting by its competitors, partly due to the impact of COVID-19, has negatively impacted its competitiveness at points during 2020.

Other firms, however, reported a favourable rating environment.

Lloyd's reported that the Lloyd’s market saw a period of sustained risk adjusted rate increases on renewal business – at 10.8% for 2020. It also reported the drive to ensure sustainable profits led to several syndicates exiting or re-underwriting certain lines of business, and curbing risk appetites in poorer performing lines.
XL Re Europe noted that the impact of COVID-19 and elevated loss activity in aviation and casualty lines led to positive rate changes across all lines of business and above what was expected for the year.

Some firms also identified other key risks in their SFCRs that provide further insight into the risks firms are currently facing:

UKI mentioned that its reserves are exposed to the risk of changes in claims development patterns and claims inflation resulting from the pandemic. The firm has developed additional claims inflation scenarios, which look at 100 basis point changes in the claims inflation assumed in the actuarial best estimate over the next two years.
Wren mentioned that it has seen increased exposure to cladding-related claims, where new notifications continue to be made following the Grenfell Tower fire in June 2017. It disclosed that a number of these notifications, although precautionary in nature, have the potential to develop into significant claims.
Only three firms mentioned delivering IFRS 17 as a key risk (UKI, Euro Insurances and Hannover Re). This number remains unchanged from last year.