Inflation and the Russian invasion of Ukraine have appeared as new issues for Insurers according to LCP’s annual analysis of Solvency II reporting.
However, despite the fact that both inflation and the invasion have had a big impact on economic stability, this wasn’t reflected as much as expected in insurer reporting, according to the latest findings in Solvency II: Growing Financial Strength, LCP’s sixth annual analysis of Solvency II reporting from the top 100 UK and Ireland non-life insurers.
Overall, 78% of firms mentioned the conflict and 60% described the effect on their own underwriting and investment exposures. A few firms gave detailed disclosures on the wider effects on their business. While 77% of firms mentioned inflation within their discussion of risk, fewer than half noted it as a key risk and 15% of insurers didn’t reference inflation at all. Of those that did discuss inflation, fewer than a quarter provided any sensitivities showing the effect of inflation on their results. LCP is urging firms to be clearer in their Solvency II reports about the emerging risks for their own business, and how they are managing them.
Other key findings in the report include:
• The financial strength of the market remains strong, with the average eligible own funds ratio across our sample being 206%, compared to 214% for the same firms last year.
• Total aggregate investments and cash has increased by £8bn to £199bn over 2021.
• More firms covered climate change this year, now up to 77% compared to 60% last year. But few reference the TCFD (Taskforce on Climate-related Financial Disclosures) recommendations in their reporting. This is despite the UK Government’s plan to implement mandatory TCFD aligned disclosures for UK insurers.
• Increasing numbers of firms refer to cyber risk (77%), and many cite this in particular relation to the Russian invasion of Ukraine.
• 16% of firms still consider Brexit as a key risk, around half of the figure last year.
Cat Drummond, Partner in LCP’s Insurance Practice and co-author of the report, commented: “The insurance industry continues to be financially robust as it emerges from the effects of the pandemic. However, the firms do need to make sure they pay full attention to the emerging risks of volatile inflation, and the effects of the Russian invasion of Ukraine.
“While the large majority of firms disclose both of these risks, we believe they can do more to better articulate their understanding of the wider implications (including downstream effects), how they are managing these risks and how they might impact their financial strength going forwards. “