16 June 2017
As the dust begins to settle on the first wave of SFCRs, two things are becoming clear; most SFCRs are not yet fully compliant with the Solvency II requirements; and some firms have a way to go to get the most value out of their public reporting.
We are analysing the reports of the top insurers across the UK and Ireland, and will be publishing our findings in the coming weeks. This article focuses on the themes emerging so far.
Chapter XII of the Solvency II Delegated Act sets out what should be included in an SFCR. With nearly 100 separate requirements, firms must work hard to ensure they comply with what’s needed. Those who don’t will be open to criticism from regulators, analysts, the media and other interested parties. Pitfalls we've seen include:
- Not including a summary at the beginning of the report
- Not reporting the amount of expected profit included in the future premiums allowed for within the technical provisions
- Failing to include the jurisdiction in which their outsourced service providers are located
- Disclosing public QRTs in single units, rather than thousands (resulting in figures that are a thousand times too big)
Making an impression
Firms have taken a wide range of approaches to the “look and feel” of their Solvency II public reporting. This could be driven by many factors, including marketing budgets or the engagement of senior management. Whatever the position, the resulting SFCRs range from “bare bones” documents to colourful publicity tools full of corporate branding, artwork and pizzazz.
- The average SFCR runs to around 50 pages of content (excluding QRTs), with some providing fewer than 20 pages and others well over 100 pages
- On average, the capital management section is the shortest of the five core areas, despite having more compliance requirements than the others
- About a quarter of SFCRs are plain documents, with little or no corporate branding
- Only a handful of (typically larger) insurers have spent time aligning the design of their SFCRs with their annual report and accounts
Open to interpretation
Whilst some of the Delegated Act’s requirements are very prescriptive, others are less clear and have been interpreted differently by firms. For example:
- Some firms have provided chapter and verse on the results of stress and sensitivity testing undertaken for their key risks and the expected impact on capital strength. Others have provided only a high level description of the work undertaken, with no quantitative impacts disclosed.
- Whilst most have described the key drivers of uncertainty within the technical provisions, few have attempted to quantify the level of this uncertainty
- Some have set out the MCR calculation explicitly, whereas others simply describe the key principles of the mathematical approach
We are helping firms understand emerging market practice, identify where they may be non-compliant and find out how they can make the most of their public disclosures.
For more information or if you would like to discuss your firm’s SFCR, please contact me