SFCR - Section C - Risk profile

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 Risk Profile section.

Required content

The Risk Profile section is required to include the following:

  • A description of the material risks to which the undertaking is exposed, including any material changes over the reporting period
  • A description of the measures used to assess each risk, including any material changes over the reporting period
  • A description of material risk concentrations
  • A description of mitigation techniques and monitoring processes
  • A description of how assets have been invested in accordance with the ‘prudent person principle’
  • For liquidity risk, the total expected profit included in future premiums
  • Risk sensitivities, including a description of the methods used, the assumptions made and the outcomes
  • Any other material information

This information should be given for underwriting risk, market risk, credit risk, liquidity risk, operational risk, and any other material risks. There is also a sub-section for any other information.

Key differences

The main area of variation was the sensitivities:

  • Fewer than 40% of firms in our review included quantitative descriptions of sensitivities in this section of the SFCR; many others simply stated whether they remained solvent under stressed conditions
  • The magnitude of the stresses applied varied among firms and in most cases, were less severe than the stresses prescribed under the standard formula
  • The most common sensitivities included related to interest rates, spread movements, falls in equity, mortality, expenses and lapses
  • Other sensitivities included European windstorms, currency movements, motor premium rates, combined stresses (doomsday scenarios or severe market downturns) and cyber risk

Figure 1 - Percentage of firms showing common sensitivities in the Risk Profile section of their SFCR

Over time we might expect there to be some convergence of the types and sizes of sensitivities included in the SFCR and in the absence of specific guidance from the European Insurance and Occupational Pensions Authority (EIOPA), direction may come from elsewhere. For example, the Prudential Regulation Authority’s (PRA’s) recent consultation, CP7/17, proposes to collect information on the impact of 9 prescribed market sensitivities on firm’s balance sheets every 6 months. While this is unrelated to the SFCR’s and only applies to firms holding material quantities of assets exposed to market risk, it wouldn’t be surprising if firms mirror these sensitivities in their SFCR’s for convenience.

Another area of inconsistency was the level of detail provided on risk mitigation and monitoring. At one end of the spectrum we have firms who devoted a single comment to each sub-risk identified or provided a few general comments for an entire risk category. At the other end we have firms who provided details of key risk indicators, monitoring frequency and who is responsible for each sub-risk.

We also found some areas where firms are taking a somewhat relaxed view of the requirements. Our review found that:

  • Fewer than 60% of firms commented on material risk concentrations to which they were exposed
  • 24% of firms did not comment on using the Prudent Person Principle as part of their investment strategy. Those who did comment typically stated compliance rather than giving detailed descriptions of their investment strategy
  • 28% of firms made no reference to the total expected profit in future premiums as required in the liquidity subsection (3 Life companies, 2 Mutuals and 2 Health insurers)
  • Only 20% of firms commented on material changes to both their risk exposure and the risk measures used
  • While most firms included comments on other material risks and any other information, only 76% of included a specific ‘Other Material Risks’ section and only 56% had a specific ‘Any Other Information’ section

Figure 2 - Percentage of firms missing required information


Risks commonly identified in the ‘Other material risks’ section included Conduct, Reputational, Strategic, Legal, Governance, Group and Reinsurance risk.

Key takeaways

The addition of information on risk profile to firms’ public disclosures is certainly a step in the right direction, but it may take a while longer for us to see consistency in the level of detail within each section. The findings from our review show that:

  • There is significant variation in the level of detail included on each risk category within the risk profile section
  • The sensitivities are a particular source of disparity, with firms providing different levels of detail and performing different sensitivities. Over time, we might expect there to be some convergence on the size of the sensitivities and the amount of detail shown
  • Direction on which sensitivities to perform may well come from the PRA, such as the prescribed market sensitivities proposed to be collected every 6 months in consultation paper CP7/17
  • A well-structured approach to the risk profile section may help ensure that all required content is included

Read more

You can read more of our findings on the different sections of the SFCR by clicking on the links below.

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