Tuesday, 13 March 2012

FTSE (and other) results and spare capital - Prudential, Munich Re, Standard Life

...and the result keep raining in! Hot on the heels of Old Mutual, Aviva, and a bunch of others all bundled together, a few more preliminaries of those we know and love slipped out today. Highlights below;

Standard Life
“significantly de-risked our business…well placed to operate in the currently proposed Solvency II environment”
  • P63 - £59m spent on Solvency II (£64m last year)
  • P32 - Solvency cover down from 206% to 173%, mostly due to subordinated debt shenanighans last year
  • P34 - £55m spent on Solvency II (£45m last year)
  • P63 - "Our capital position remains strong. We have continued to place emphasis on maintaining the Group’s financial strength through optimising the balance between writing profitable new business, conserving capital and generating cash. We estimate that our IGD capital surplus is £4.0 billion at 31 December 2011 (before taking into account the 2011 final dividend), with available capital covering our capital requirements 2.75 times. This compares to a capital surplus of £4.3 billion at the end of 2010 (before taking into account the 2010 final dividend)." Note - not sure of the necessity to qualify "pre-dividend", but normally means something cheeky!
  • "Therefore, in parallel to continuing our preparation for eventually implementing the Solvency II rules, we also evaluate actions to mitigate the possible negative effects. We regularly review the range of options available to us to maximise the strategic flexibility of the Group. Among these options is consideration of optimising the Group’s domicile, including as a possible response to an adverse outcome on Solvency II."
  • Tracts of explanatory text on p63-64 on Solvency II status, most pertinent being "...the Solvency II rules relating to the determination of the liability discount rate and to the treatment of US business remain unclear and Prudential's capital position is sensitive to these outcomes"

  • "The economic solvency ratio thus totals 111% (136%), a year-on-year decline of 25 percentage points that is largely ascribable to the very low interest rates and high volatility on the capital markets. Nevertheless, the figure still clearly reflects Munich Re's capital strength – Munich Re's economic risk capital, which produces the solvency ratio described above, corresponds to 1.75 times the capital that is likely to be necessary under Solvency II based on the Group's internal risk model. Munich Re's available financial resources therefore add up to 194% of the required risk capital under Solvency II. "
  • "As part of its active capital management, Munich Re intends to buy back an outstanding subordinated bond and to issue a new subordinated bond. Owing to restrictions resulting from US legislation, offers will only be made to investors resident outside the USA. It is not possible to provide further written information at present, also for legal reasons. This new bond is designed to be compliant with the existing (Solvency I) and anticipated future (Solvency II) supervisory regime, and to meet current rating agency requirements." (i.e. More subordinated bond activity having substantial impact on balance sheets, as found at Aviva and Old Mutual)
  • P140 "Though the economic solvency ratio of 111% (136%) is 25 percentage points lower than for the previous year, it reflects Munich Re’s capital strength. Munich Re’s economic risk capital, which produces the solvency ratio described above, corresponds to 1.75 times the capital that is likely to be necessary under Solvency II according to our internal risk model. Were we not to apply the safety cushion of 75% to the value at risk with a confidence level of 99.5% and merely to comply with the Solvency II standard, the economic solvency ratio would be 195% (238%)."

  • P154 "Our long-term target of a 15% return on our risk-adjusted capital (RORAC ) after tax across the capital-market and insurance cycle applies unchanged, but it will be difficult to achieve given the current low-interest-rate environment. As soon as the requirements of Solvency II and the new IFRS s for insurance contracts and financial instruments have been finalised, we will gear our target performance measures to the key indicators from this new framework with its strong economic focus."

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