Climate change leapfrogging Brexit as key risk for the insurance industry
LCP’s fourth annual review of Solvency II reporting from the top 100 non-life insurers across the UK and Ireland provides insights into the financial strength of the insurance industry as well as the ‘3Cs’, Conduct, Cyber and Climate Change emerging as key additional risks ahead of Brexit.
Overall, financial strength has continued to improve during 2019, a trend that has been seen in each round of Solvency II reporting since firms’ 2016 year ends. The majority of firms (65%) said they expected to be able to continue to meet regulatory capital requirements in the wake of the pandemic, with the remaining 35% either silent or saying that there was still too much uncertainty to confirm the position.
- 49% of firms think that climate change is a key risk, a significant increase from last year when only 13% of firms thought this was a priority. Only 42% considered Brexit as a key risk, compared with 65% last year;
- With technology playing such an important part in insurers’ COVID-19 response, 49% think that cyber risk is also a key issue as more firms become vulnerable to cyber-attacks and data fraud;
- Conduct risk is another area that has risen up the agenda in the wake of the FCA setting out its expectations of insurers’ treatment of consumers during the pandemic;
- Insurers continue to be generally sufficiently capitalised, with eligible own funds that are, on average, more than double their Solvency Capital Requirement (SCR);
- Motor insurers continue to be among the least well capitalised, with property and medical expense insurers being among the most well capitalised;
While our report shows insurers’ financial strength has continued to improve each year since 2016, the impact of COVID-19 threatens to set this back, and the full impact on firms may not be understood for many years to come.
To read our early insights report, ‘Solvency II: Capital Resilience in Uncertain Times’ published in June 2020, please click here.
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