Tuesday, 16 August 2011

FTSE Insurers - last interim result (I think!) and Solvency II progress

Resolution/Friends Life, the darlings of the disclosure world, released their half year results today (there is a location check on the way through on this URL, but don't be put off, it's a Guernsey thing!). This of course compliments the other FTSE Insurers' releases which I have blogged on previously.

As ever, Resolution are very forthright on most aspects of their raison d'etre, including Solvency II preparations - they note the following;
  • "The implementation of the EU Solvency II Directive continues to be a key focus of attention for the Group...Friends Life group is closely involved with the industry in lobbying on key areas where uncertainty remains"
  • £24 million of cost booked in respect of Solvency II and finance system developments, complimented by "overall [Solvency II] implementation programme is on track against its plans and budget" 
  • "the Group believes that [Solvency II] will have a favourable capital impact on the Friends Life group relative to current Pillar 1 solvency requirements"
  • "Disappointingly, there is a lack of clarity on the final position with respect to Solvency II, and the implementation date looks likely to be delayed" - no commitment on date, unlike some of the others
  • “participated in the EIOPA stress test exercise” and are “closely engaged in the development of the tax proposals including any changes arising as a result of Solvency II”.
  • "The Group has been accepted into the FSA’s pre-application process"
  • "Providers, in anticipation of the higher capital requirements under Solvency II, have been adjusting their pricing which is leading to increasing margins." reinforced later specifically on annuities
  • Solvency II considerations down as a "key driver" in the context of the cash generation result - presumably in the context of how much they can pay away and how much must be retained, though I could be wrong
  • German product range directly affected by "the impact of Solvency II [which] is expected to limit market participants' ability to provide traditional with-profits product offerings."
The comment that "The Group assesses strategic developments and opportunities on a Solvency II basis" was perhaps the most fascinating part - how you do this without clarity on the suite of transitional measures, Omnibus II elements etc is beyond me.

As a post script, Phoenix also posted interims, albeit a little later than the others - again, a lot of disclosure on Solvency II, quotes as below;

The Group remains actively engaged in supporting the development of Solvency II through industry consultation and participation in FSA and ABI industry forums. 

Both the European Council and the European Parliament have proposals to amend the timescales for the implementation of Solvency II and there appears to be growing political momentum towards delaying full implementation until 1 January 2014. At the present time however, there is no certainty that this will happen and the Group continues to plan for implementation on 1 January 2013.

The Group remains on track to deliver an approved partial Group internal model and has been accepted into the FSA internal model pre-application process following the submission of the pre-application process qualifying criteria template in 2010. In respect of the resources the FSA will devote to the pre-application process it has stated that it will concentrate on a small population of firms representing a significant market share and which it regards as having the highest potential impact on its objectives. The Group is included in this category and remains in continuous and constructive dialogue with the FSA.

The Group's actuarial IT systems transformation project will deliver a single actuarial modelling platform across the business, transforming modelling capability and efficiency and underpinning development of the Solvency II internal model and Own Risk and Solvency Assessment.

"We continue to target full Solvency II readiness by the end of 2012.Our Internal Model Self Assessment Template has been approved by the FSA and we are on track to meet the Internal Model Application Process date of 1 April 2012."

On 23 March 2011, HMRC issued a technical note on 'Solvency II and the Taxation of Insurance Companies' outlining changes to the taxation of UK insurance companies with effect from 2013. The Group has been actively involved in consulting with HMRC and HM Treasury on the detail of the new rules, with the aim of ensuring that the Group's policyholders and shareholders are as far as possible not adversely affected by the changes.

The consultation process is still on-going in relation to certain aspects of the new rules, and as a consequence of this and the complexity of the proposed changes it has not been possible to estimate their potential future impact on the deferred tax balances shown in these interim financial statements. Draft legislation is expected in the second half of the year and its estimated impact on the deferred tax balances will be considered and disclosed in the year end financial statements.

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