A HIGH-LEVEL SUMMARY OF OUR KEY CONCLUSIONS
We have now completed our fifth review of the Solvency II public reporting for 100 of the top UK and Irish non-life insurers.
We have analysed the Solvency and Financial Condition Reports (SFCRs) and public Quantitative Reporting Templates (QRTs), where insurers and reinsurers are required to disclose key metrics relating to financial robustness and details of how they manage their businesses.
In line with our previous reviews, we considered:
- The Solvency II balance sheets and regulatory capital positions of insurers.
- The key risks insurers are exposed to.
- Market-wide observations that may help with benchmarking insurers against their peers.
- Key changes over the last year and emerging trends.
Our key conclusions are:
Capital and investments
- Insurers continue to be well capitalised in the wake of COVID-19, with an average eligible own funds ratio of 208%.
- Several firms have relied on capital support to improve solvency. This highlights the reliance firms have on their parents and shareholders to maintain their financial strength in uncertain times.
- The proportion of firms holding ancillary own funds has doubled over the last two years from 5% to 10%.
- Total aggregate investments and cash has increased from £184bn to £194bn over 2020, having been broadly stable over the preceding four years.
- Equity exposures continue to reduce, with both the proportion of aggregate investments in equities and the number of firms investing in equities reducing.
ESG and climate change
- Many firms now confirm that ESG considerations form part of their investment strategies. Some have made explicit commitments to reduce their exposure to carbon-intensive sectors, whilst others discuss updating their strategies to include new ESG criteria and increasing their expectations of their investment managers in this area.
- The proportion of firms discussing climate change in their SFCRs continues to increase and is now 60%, compared to 48% last year. This is still lower than we would expect given the rapid developments in this area and increased regulatory focus.
Other key risks
- The proportion of firms that considered cyber risk as a key risk has increased from 49% to 63% over the last year, and the proportion that considered regulatory risk has increased from 46% to 62%. In contrast, the proportion of firms that considered Brexit as a key risk continues to fall and is now only 30%, compared to 42% last year.
- 29% of firms mentioned diversity and inclusion initiatives. This was mostly focussed on diversity on the Board, but some firms also discuss initiatives across the business more widely.
COVID-19 reporting
- 55% of insurers provided quantitative analysis of the impact of COVID-19 on their business.
- Motor insurers have reported profits due to COVID-19 whilst those insurers with high exposure to business interruption and event cancellation policies have reported losses.
- Some firms reported taking actions to mitigate pandemic risk, such as tightening policy wording or exiting classes such as contingency.
- 30% of firms mentioned initiatives to support policyholders and wider commitments to social responsibility during the COVID-19 pandemic. These included initiatives to “give back” to their policyholders, especially from firms that have benefitted financially from the pandemic.
- 20% of firms mentioned support provided to their employees during the pandemic, including financial support and mental health support.
- 63% of firms mentioned cyber risk as a key operational risk, up from 49% last year, with 22% specifically mentioning a greater focus on IT and cyber security as a result of the pandemic.
AT A GLANCE
Average (mean) eligible own funds ratios:
Total eligible own funds
increased from £81bn at 2019 year end to £85bn at 2020 year end
15% of firms
disclosed receiving capital injections or other capital support from their parents or shareholders during 2020, which has improved their capital coverage
10% of firms now hold ancillary own funds, compared to 5% two years ago
Total aggregate investments and cash across our sample increased by £10bn over 2020
62% of firms considered conduct or regulatory risk to be a key risk, up from 46% last year
60% of insurers mentioned climate change, up from 48% last year
29% of insurers mentioned their diversity and inclusion initiatives in their SFCRs, a slight increase from 23% last year
30% of insurers considered Brexit to be a key risk, down from 42% last year
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