29 September 2014

Risk.net: Firms to shun early disclosure of Solvency II numbers

A survey by KPMG suggests the answer is not many. The consultancy spoke to a sample of multinational insurers and its research indicates that insurers will be holding back from disclosing estimated Solvency II numbers for at least another year.

KPMG spoke to 11 quoted insurance companies in the UK and continental Europe, of which more than half said they will make Solvency II disclosures as late as the end of 2015 or early 2016, preferring to wait until the rules and guidance under the directive are fully clarified and (where relevant) until regulators have approved the firm's internal model.

The sample group is relatively small but their answers give a snapshot of insurers' thinking about financial disclosures in the run-up to Solvency II implementation in 2016.

"There is still a lot of uncertainty about where the rules will land," says Ferdia Byrne, a partner at KPMG, based in London. "Also, those insurers going through the internal model approval process don't know where the regulator is going to set the bar for approval and whether supervisors will accept the way the firms have calculated their capital requirements."

Firms that are awaiting approval of internal models do not expect the process to finish until late in 2015 and seem reluctant to disclose estimated figures before then, he says. Some regulators such as the UK's Prudential Regulation Authority (PRA) are understood to be setting tougher-than-expected standards and have told firms that approval of their model cannot be taken for granted.

The possibility of models failing the approval process was flagged in a recent speech by Mark Carney, governor of the Bank of England, of which the PRA is part. In an address to the Institute and Faculty of Actuaries on September 25, he spoke of the demands of the approval process. "This rigour has a purpose," he told delegates. "The dangers of using poorly designed models were made all too clear in the banking sector. So the Bank won't hesitate to withhold approval of inadequate or opaque models."

Most respondents to KPMG's survey said that when they do start to report Solvency II numbers in financial reports, the information will be limited. Although insurers will be required to report extensively to regulators as part of the Pillar III requirements of the directive with much of the information they provide being publicly available, only a small part of that information looks likely to be included in their direct communications with investors.

The only metrics that all the respondents to the survey said they intend to report were Solvency II own funds, the solvency capital requirement (SCR) and their capital surplus (own funds minus the SCR). No firm said it will disclose forward projections of capital requirements.

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