10 September 2013

Risk.net: More UK insurers to publish economic capital data next year

Increasing numbers of UK insurers are expected to publish economic capital data over the next 12 months as they seek to prepare investors for risk-based capital reporting. When Solvency II is implemented, insurers will be required to make their Solvency Capital Requirement publicly available.

A recent survey of 21 UK insurers by Towers Watson found that 19 already have an internal economic capital framework in place. However, only three currently publish their economic capital data. One other firm intends to publish figures at year-end 2013, and a further nine are undecided. But some of these undecided firms are likely to publish economic capital data in the next 12–18 months to educate analysts and investors in advance of Solvency II implementation, say experts.

When Solvency II is implemented, insurers will be required to make their Solvency Capital Requirement publicly available. As most UK firms will be using an internal capital models to calculate this, experts say it makes sense for firms to start publishing risk-based capital data now, such as that produced by their internal economic capital model, as a test run for when publication becomes a legal requirement.

Firms will have their own particular motivations for publishing. Individual companies will determine what capital measurements to publish in line with their overarching strategy, and shy away from releasing internal data if they feel that investors and analysts already have sufficient information to make appropriate judgements about their business, says David Honour, London-based principal adviser at KPMG. These include factors such as the relative stability of the ratio, its relative importance in the context of the entity's business strategy and operations, and its comparison or interpretation by the market against future Solvency II requirements, he adds.

UK firms may be reluctant to publish economic capital data because of comparability concerns arising from the differences in economic capital models. Some insurers align their economic capital model to the UK's current Individual Capital Assessment regime, while others align it to their expectations of how Solvency II will be calibrated and some use a hybrid model.

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