Solvency II analysis highlights market softening and reduced financial strength in the Irish insurance market

LCP’s latest Solvency II report “From insight to action: Managing risk in an era of uncertainty” reveals a slight dip in overall market solvency coverage from 198% to 194%.

This was driven by Irish insurers, whose average ratio fell from 196% to 178%, citing higher dividends, market conditions and changes in risk profile as key drivers to the reduction. After three years of double-digit gross written premium growth, early signs of market softening are starting to come through.

Key risks discussed in the report include:

• Geopolitical risk: Continues to be a key theme in SFCRs. While many insurers focused on the conflicts in Ukraine and the Middle East, others acknowledged broader instability including rising nationalism and protectionism.
• Cyber risks and climate change risks: These remain top concerns for insurers. However, there is a clear shift toward action: many are strengthening cyber exposure management, while others are advancing catastrophe modelling and climate risk monitoring.
• Emerging risks: The most commonly mentioned are ‘forever chemicals’, and social risk. Many firms reported using structured frameworks, such as risk registers and scenario testing to better assess emerging risks.

Recommendations for firms include:

• Maintain capital resilience: Monitor capital strategies to maintain solvency strength in a softening market.
• Formalise emerging risk governance: Establish structured frameworks including cross-functional working groups and board−level oversight.
• Maintain pricing discipline: In response to softening rates, reinforce pricing adequacy, optimise reinsurance structures, and monitor shifts in exposure to protect underwriting margins.

Wendy Kriz Evans, Principal in LCP’s Insurance Consulting practice, commented: “This year’s Solvency II analysis paints a picture of a market at a turning point. After a period of sustained premium growth, we’re now seeing early signs of softening, particularly in specialist lines where competition is intensifying.

It’s encouraging to see firms shifting from awareness to action, with many investing in operational resilience, refining their risk frameworks, and taking proactive steps to address emerging threats.”

Matthew Pearlman, Partner in LCP’s Insurance Consulting practice, added: “Insurers that embed climate and cyber risks into their core risk frameworks will be better positioned to navigate regulatory and market shifts. While inflation continues to be the most widely cited risk, this is now seen as part of the ongoing business environment, rather than a short-term concern.”