Publication

Solvency II report

Insurance Solvency II

Our seventh annual review of the Solvency II public reporting for 100 of the top UK and Irish non-life insurers provides insights into the financial strength of the insurance industry, including the impact of inflation, the Russian invasion of Ukraine, and other key emerging risks.

Navigating evolving and emerging risks

LCP has 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.

Key highlights:

The financial strength of the market remains strong, with the average eligible own funds ratio across our sample being 180%.
Total gross written premium (GWP) has increased 14% since last year to £148bn at the 2022 year-end, likely due to hardening rates across many lines of business, driven by persistent high inflation.
96% of firms mentioned inflation within their discussion of risk, however, fewer than half discussed their approach to quantifying the risk to their business.
Discussions of climate change and cyber risk remain prevalent in SFCRs, with these risks being mentioned by 79% and 76% of insurers respectively. Other emerging risks we have seen recognized this year include AI, digitisation and people risk.

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Comment

It is good to see that the top insurers’ financial strength is growing. An important aspect of the SFCR is reporting on the risks that firms face, and this is shown in the increasing emphasis on climate change and other emerging risks like cyber risk and people risk. However, we believe that many firms could increase the quality of the narrative supporting of these risks. In particular, very few firms mentioned using stress and scenario testing to quantify these risks.

Matthew Pearlman Partner and author of the report