The first public submissions of the Solvency and Financial Condition Report (SFCR) for the majority of firms were published in late May this year. In this series of blogs we present the key findings of our analysis of each section of the SFCR. The focus of this blog is the Business and Performance section.
The Business and Performance section is required to include the following:
- Information on the business and structure, including material lines of business, material geographical areas and significant events occurring over the reporting period
- Qualitative and quantitative information on underwriting performance
- Qualitative and quantitative information on investment performance
- Information on other material income and expenses incurred over the reporting period
- Any other material information
The approach to reporting underwriting performance is quite varied. Many firms, especially those reporting on an IFRS basis, used operating profits as a measure of underwriting performance. Mutuals, for whom operating profits are not applicable, typically showed premiums, claims, expenses and change in technical provisions as per the QRT. Simply regurgitating the QRT information does not feel that valuable and the better SFCRs justified the chosen measure of underwriting performance.
One area of variation is the level of description on the key contributors to the performance. The regulations do ask for qualitative as well as quantitative information, which only 68% of our reviewed firms provided. The level of detail on key contributors varied widely.
Figure 1 - Proportion of firms including description of key contributions to underwriting performance
Information on underwriting performance should be considered at an aggregate level and by material line of business and geographical area where relevant. While firms generally split their quantitative results by line of business and geographical area, many firms, particularly the life ones, tended to restrict their qualitative information to an aggregate level.
Investment performance is less varied due to there being more detail available on what must be reported. However, a surprising 44% did not split investment returns by asset class, despite it being required by the regulations. Again the regulations asked for qualitative information on the investment performance and 16% did not provide it. At the other end of the spectrum, 25% of firms supplemented information on their performance with details of their investment strategy, which is not strictly required.
As yet, there is no consensus on what to include in the ‘Other information’ section. Information here tended to be quite specific to the individual firms and included details of regulatory changes, share issues and intragroup transactions.
Finally, it is worth noting that for 2016 reporting a comparison against the previous year’s performance was not required. Although some firms that report under IFRS17 did include a comparison in this year’s SFCRs, from next year comparisons will be required and we may see more information on a Solvency II basis included in this section.
- A more consistent approach to reporting underwriting performance is required if the SFCRs are to provide useful comparisons between firms in future.
- Investment performance is not always reported to the detail required by the regulations
- Next year’s SFCRs will include additional performance comparisons, which should add significant insight
You can read more of our findings on the different sections of the SFCR by clicking on the links below.