Solvency II analysis shows
climate change leapfrogging Brexit as key risk for insurance industry

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LCP’s analysis of Solvency II reporting from the top 100 UK and Ireland non-life insurers has highlighted that climate change is leapfrogging Brexit as a key risk for the industry.

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 responses, 49% think that cyber risk is also a key issue as more firms become vulnerable to cyber-attacks and data fraud. Conduct 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.

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.

Other findings of the report include:

  • Insurers continue to be generally sufficiently capitalised, with eligible own funds that are, on average, more than double their Solvency Capital Requirement (SCR);
  • 61% of firms saw an increase in their eligible own funds ratios between their 2018 and 2019 year ends 
  • Motor insurers continue to be among the least well capitalised, with property and medical expense insurers being among the most well capitalised; 
  • Investment allocations, in aggregate, have not changed materially since the 2018 year end, but there have been large changes for some individual firms.

Commenting on the analysis, Cat Drummond, Partner at LCP, said:

“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.”

“With the PRA recently indicating that there are significant gaps in the industry’s capability to evaluate climate-related scenarios it is perhaps no surprise that climate change has leapfrogged Brexit as a key industry risk. However, with the end of the transition period looming we expect Brexit to remain high on Board agendas for a number of firms over the next year.”

Solvency II: Risk, Resilience and Recovery

Solvency II: Risk, Resilience and Recovery

September 2020

Our fourth annual review of Solvency II reporting by 100 of the top non-life insurers across the UK and Ireland.

Access the findings