David Rule, the PRA’s Executive Director of Insurance Supervision at the arm of the Bank of England (BOE), has now published a Solvency II capital ratio roll forward template, which will be used to help understand life insurer capital generation. There is a clear inference that insurers could follow this or similar template in their Solvency II supplementary reporting, helping to improve Solvency II as a profit performance and cash generation metric.
This is a welcome development, according to Willis Towers Watson, as the insurance sector has been at risk of being marginalised by investors as performance reporting became more complicated and less transparent due to Solvency II.
David Rule spoke at the Bank of America Merrill Lynch CEO Conference on Wednesday 26 September, where he addressed a number of live issues concerning the regulator’s supervision of insurers. In his speech, he disclosed key details regarding the roll forward template which provides an explanation of the movement in Solvency II capital ratios from one year-end to the next.
This development follows the recommendations of Andrew Crean, Managing Partner at Autonomous Research, and Kamran Foroughi, Senior Director at Willis Towers Watson, in their April 2017 White Paper Solvency II: One Step Forward, Two Steps Back. In the paper, they highlighted the lack of information provided to the market by insurers on their movement in Solvency II capital positions over time, and the subsequent BOE / PRA roundtable on Solvency and Financial Condition Reports in September 2017 chaired by David Rule and attended by Willis Towers Watson and Autonomous Research.
In response to this PRA development, the authors of the White Paper commented:
Andrew Crean, Managing Partner at Autonomous Research, said: “With the demise of detailed embedded value reporting in Europe, investors are shifting over to Solvency II metrics to understand the cash and free capital generation capacity of European insurers. To date, the lack of clear and consistent disclosure of how Solvency II free surplus is generated each year hampers our ability to understand the drivers of capital formation. Inevitably, this weighs on the sector's cost of capital.”
Kamran Foroughi, Senior Director at Willis Towers Watson, said: “This is a timely publication by the Bank of England. In preparation for year-end 2018 Solvency II reporting, insurers can now present to the market a clear explanation of the movement in Solvency II capital ratio. We hope that insurers both in the UK and across the European Union seize this opportunity to improve engagement with investors.”
More information about David Rule’s speech and the roll forward template can be found here
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