Solvency II – EIOPA Latest Statistics – Analysis
The European Insurance and Occupational Pensions Authority (EIOPA) published its latest quarterly set of statistics on the European insurance sector in mid-November. The set is based on Solvency II regulatory reporting and is the next in the series of statistics on solo undertakings that began on 28 June. The statistics contain country aggregates for balance sheet, own funds, capital requirements, premiums, claims and expenses. The set also shows distributions of key variables based on reporting from solo insurance and reinsurance undertakings for Q1 2017.
The assets on the Solvency II balance sheet are split among investments, assets held for unit-linked business and other assets. In particular, investments held by insurers are to ensure they have sufficient ongoing funds to fulfil policy claims. Government bonds (30.85%) and corporate bonds (29.91%) are the two biggest assets classes in this quarter, totalling 67.76% of investments. The remaining third comprises equities, collateralised securities, property and deposits, among other things, but not unit-linked business. Note that under Solvency II reporting, equity and bond investments are categorised and identified under investments, except where they are held indirectly as collective investment undertakings or are treated as holdings in related undertakings and thus reported under those categories instead.
On the liabilities front, total liabilities consist overwhelmingly of technical provisions (88.4%) and are split into life, health (life), health (non-life), non-life (excl. health), and unit-linked and index-linked. Other liabilities (10.7%) include debt such as subordinated liabilities and financial liabilities other than debts owed to credit institutions.
EIOPA has reported the Solvency II statistics for gross written premiums (non-life) in terms of market size. France tops the table at some €35 bn, with Germany in second place at approx. €33 bn. The UK is fourth, after the Netherlands, at circa €22 bn. EIOPA is currently working to eliminate national differences in reporting life premiums under Solvency II.
Solvency II requires insurers to hold sufficient capital as well as assets, to meet their obligations to policyholders (minimum capital requirement, or MCR, and the solvency capital requirement, or SCR). The MCR is recalculated quarterly according to a set formula so as not to jeopardise policyholders’ interests, while the SCR is calculated at minimum annually using either the standard formula, or by a model approved by the supervisory authority. EIOPA has reported MCR and SCR ratios by country, including weighted average and interquartile distribution, for Q1 2017. Malta tops the SCR league table at 385%, while the UK languishes second from the bottom at just 152% with only Latvia below at 142%. Malta also leads the MCR league table with 954%. The UK holds 457% of MCR, coming in at 23rd of 29 countries (the EIOPA list includes Norway and Lichtenstein, as well as EU member states).
EIOPA has additionally released its first set of statistics based on solo annual data with reference to year-end 2016. All statistics can be found at https://eiopa.europa.eu/Pages/Financial-stability-and-crisis-prevention/Insurance-Statistics.aspx