In this series of blogs we’ve looked in detail at each section of the Solvency and Financial Condition Report (SFCR). We’d like to finish by considering a question often asked when a SFCR is signed off by the Board: “Who is going to read this document?”
Who it’s not for
Firms are required to submit Regulatory Supervisory Reports (RSRs) to the Prudential Regulation Authority (PRA), which contain everything in the SFCR plus additional information which isn’t publicly reported. With their access to this more detailed information, we might ask ourselves whether the PRA are really interested in the SFCR or whether they’ll even look at it. Sure, they could check that the SFCRs are in line with regulations, but don’t they have better things to do?
If the regulators aren’t interested in the SFCR, then who is it aimed at? The fact that it’s publicly available might suggest policyholders, but will someone buying car insurance or term assurance read a document that is on average 40 pages in length? It seems unlikely…
Who it is for
For listed companies, one group that certainly will be interested is analysts looking to get a better understanding of a firm. For the biggest players they may have this information already in financial statements, market briefings etc. but for analysis of other firms, this will be a useful and insightful document. Like an Own Risk and Solvency Assessment (ORSA), it will also be helpful for new non-executive directors (NEDs) and executives to get a good understanding of the business.
If you sell insurance to trustees or corporates, the SFCR will be a really useful document to demonstrate your strengths in finance, governance and risk, and a well-styled, clearly communicated document may be a real asset in attracting new business. Having said that, the SFCRs we reviewed probably have a long way to go to be useful for this group, suggesting that firms are erring on the side of caution…
Tell them everything…but not everything
…and caution may be advisable. Trustees and corporate customers won’t be the only ones interested in a firm’s finances, governance and risk, and potential acquirers will also be looking at SFCRs to gain an understanding of these areas. Firms therefore face something of a balancing act to provide enough information to attract new business without giving too much away.
Another group that will definitely be reading your SFCR is your competitors, and care needs to be taken with the level of detail included. The requirements often ask for ‘how’ things have been done, and it is noticeable that many firms have been cautious, simply stating that they have done something rather than explaining how.
Finally, firms must consider the level of disclosure of assumptions for the valuation. Previously, life firms reported this in their PRA returns, but with the move to reporting on a best estimate basis, firms have been reluctant to divulge too much information.
How we can help
With everything we’ve seen so far, it’s clear that firms need to consider carefully what they put into their SFCR and think strategically when pulling it together.
Barnett Waddingham have carried out a review of a number of SFCRs, as well as working with firms to produce them. We can provide an independent review that will look at all aspects to ensure that you have a well-written, clear and useful document that will be an asset to your business.
You can read more of our findings on the different sections of the SFCR by clicking on the links below.