Cranfield's Female FTSE Board Report 2012 - Grey Suits or Golden Skirts?

Having enjoyed tremendously the debate generating the momentum behind boardroom diversity recently (in particular that the debate hasn't managed to get any more 'diverse' than the subject of gender!), I read with great interest the Cranfield International Centre for Women Leaders research on progress regarding gender diversity on FTSE Boards.

While some amongst us still think of diversity in rather confused tones (Mr. R. Burgundy representing the traditional country club view here), attempts to evidence its worth to corporates began to gather last year.

2011 had put the topic of boardroom diversity firmly in the zeitgeist of corporate governance thought, thanks in no small part to an early leg-up from Lord Davies (specifically for women on boards) which was further sponsored by the FRC in both word and, later in the year, deed. This has recently been supersized by the European Commission Viviane Reding publicly on International Women's Day (classy), with the onset of gender quotas for EU-headquartered boards now looking increasingly likely.

My immediate interest only really extended to Level 2 system of governance advice from CEIOPS, as well as the fit and proper person article of the Solvency II Directive itself (article 42), and whether affirmative action as recommended by Davies and Reding this late in the day compromises compliance with article 42.1a ("professional qualifications, knowledge, and experience").

However, coverage of the truly lamentable levels of gender diversity have poured in from Singapore, Germany, Canada and the States (and indeed this article looks enviously across the Atlantic at the progress in gender diversity driven by quotas in mainland Europe, while simultaneously highlighting the horrific numbers from Japan), so it may be that the 'appropriateness' cart needs to come before the 'Solvency II compliance' horse in any case.

Back to the Cranfield research, I picked up on the following noteworthy elements:

Introduction by Women and Equalities Minister

• "Growing evidence" that more diverse boards perform better, yet none is cited
• Frequent references to "we" as in "women" - made me feel like an intruder for reading it!
• "...there can be no excuses for having a male-only board" - I would venture "contractual" as one reasonable excuse Ms May, bearing in mind the document acknowledges throughout that turnover will be slow!
• Lord Davies referenced as the "key driving force" with no doubt - I hope the authors of 15-20 years of Cranfield research papers felt appropriately slighted
• Lazily references the FRC's amendments to the Corporate Governance Code on the principle of "boardroom diversity" - the more influential the person, the more I am personally offended by the confusion between diversity per se and gender diversity. I am Manx, from working class stock, and state-school educated - from a FTSE board demographic perspective that is surely 'diverse', regardless of my gender!

Research

• Overall numbers of female executives are still abject for both FTSE 100 and FTSE 250 (p12) - an increase of 7 executive directors over a 13 year period
• The one organisation with a female CEO and CFO is...a fashion house (you couldn't make it up!).
• Of the insurers, there is one female executive director and no female chair (though that rings true for all but one FTSE 100 company)
• States aggressively (p13) that companies are "spectacularly unsuccessful" at promoting women once they have initially been hired
• Another weird reference to the gender disillusive "we" regarding the number of female directorships (p15) - I'm pretty certain that we all 'have' those directors!
• Arbitrarily comments that, now there are at least 50% of FTSE 100 companies have at least one female director that "we are moving away from tokenism" (p15) - I'm sure that the females on boards over the last decade are flattered by that
• An odd congratulations in bold is thrown out to Wolseley for hiring two female NEDs in the last year (p16), thus catapulting themselves up the FTSE 100 charts for gender diversity.
• Highlights the 9 FTSE 100 companies with no female board members (p16) - having looked through that list, they are predominantly miners/energy firms which you might struggle to call "UK" firms if they weren't listed here, and take their corporate governance requirements proportionally seriously (well highlighted in this article, driven by the same Cranfield Dr!).
• One brilliant scheme is drawn out in the Rolls Royce case study on p21 regarding "reverse mentoring" - this seems like the kind of scheme which, gender diversity aside, would help open some board members eyes to the realities facing their staff on a daily basis, and I would love to know more on the subject.
• 29 of the 47 new directors had no prior FTSE 350 experience (p24) - again, this draws back to my immediate concerns on Fit and Proper under Solvency II. This is supplemented by Christine Tacon's biography on p26.
• Confused coverage of BAE's case study, where the research (p34) talks of their "internal diversity targets", while BAE specifically reference "gender diversity" earlier in the piece.
• FTSE 250 chairs are told (p37) they "...should realise the benefits of boardroom diversity" and that "...ignoring the issue is no longer acceptable from a governance perspective" - again, what type!
• The Mitie case study talks of having a "diversity board" which is not only focused on gender, which sounds admirable.

Is there a danger that some companies are simply "playing" at it by loading up on female NEDs 'Golden Skirt' style like our Norwegian friends? Indeed, does playing at it bring any of the mooted diversity benefits, or just leave the same grey suits making the same hubristic strategic mistakes that we witness at the peak of every bubble?

Certainly the easiest way to bump up the quotas is to bring in some NEDs, and that is certainly the tactic evidenced throughout the Cranfield research. Aviva for example made the expected commitment to get their (at the time 23%) ratio of female directors up to 25% (fatten them up peut etre?), followed quickly by the appointment of another female NED allocated to the corporate responsibility committee.

If gaining NED roles is still a battle, then what hope for cleansing the executive suite? Deutsche Bank of course had their spectacular CEO stir the pot early last year some breathtakingly facetious remarks on making the boardroom prettier (with his own Head of Diversity biting back by passing him of as a "gentleman of the old-school", touche!). Forbes also recently threw their two'penneth worth in with a piece detailing why women will never become CEOs (which refreshingly is not afraid to throw accusations of 'nu school sexism' into the mix).

And what purpose does gender diversity (or indeed any diversity), forced or otherwise, actually serve? Eradication of Groupthink, which it would appear is sufficient enough to simply mention for it to be a problem (PS beautifully rebutted here)? Could it help curb executive pay, as both the High Pay Commission and the UK Prime Minister alluded to? Would it counter the evidence that men are naturally bigger liars (2nd story down), and can gravitate to top jobs off the back of this trait, rather than talent or career contribution? Could it even equalise the rather shabby pay gap (here as well)that somehow manages to stay below the lobbyists' radar?

However, I am looking at the topic from a rather blinkered Solvency II perspective at the moment, so I only question do I, as a buyer of insurance, really need the board of Pension Provider plc to be diverse enough to understand me and my plight as a consumer and a stakeholder (p7), or just pay me the right amount on time? 

InsuranceERM's Roundtable on Solvency II - extracting value and meeting challenges

InsuranceERM have kindly taken their pay barrier off the outputs of the Roundtable they hosted with Deloitte, bringing some of the talking heads we know and love and discussing the challenges of Solvency II, as well as the struggle to extract value from the project.

I thought the following was worthy of comment (too much effort to attibute to each commentator, so read the article if something tickles your fancy!);

From the value section;

• Suggestion that small/medium sized insurers required "education" on risk management to attain the awareness and levels of larger firms (patronising but fair?)
• Comment tha "documentation probably isn't as good as it should be" - the FSA would certain concur, based on their speech last month, and indeed the deal they cut with Lloyds last week.
• All references to ORSA centre on the ORSA Report/"Record of the ORSA Process", rather than the process itself. This is very natural (I fight it on a daily basis), but if it is a continuous assessment process, then we must redouble our efforts to talk of it as such, and not as a reporting process.
• Strange comment that non-executive directors feel they are being asked to do too much ("act like executive directors"). Appreciating this is a once-in a career suite of legislative activity, it's not that bad for a few days work, get on with it!
• Big statement made about Boards having internal model knowledge "before Solvency II came in" - I suspect the depth and breadth of what the Board needs to know about their models will be one of the hardest knowledge gaps to bridge for the 70-odd model applicants, so surprised to hear someone so dismissive.
• On Risk Appetite, a comment that ORSA is "forcing boards to actually reflect and achieve concensus around risk appetite" (which I would be mortified if Boards didn't already do), followed by a mention of monitoring "unused risk-bearing capacity" in one's risk profile, which I really like.
• One guy notes that UK capital requirements are not driven by regulatory capital, but rather ratings agency capital (or economic capital/overall solvency needs by another name) - while its a big statement, it is probably fair, bearing in mind where the big boys have calibrated their EC measures (all at or around AA - coincidence?).
• Quite a disappointing section on diversification benefits, which pretty much touched on M&A, and not much else

From the challenges section;

• Beautifully timetabled comment regarding the FSA and Lloyds "not delaying their timetables" - obviously didn't get the inside track on that one!
• One personal concern tabled that "given the level of resources in the FSA, the tier-one approval process may well drag out longer" - obviously DID get the inside track!
• "Many UK firms are targeting IMAP in the fourth quarter of this year" - so now we know?
• Guarded comment about regulators needing to be open and honest "about the basis and whether reliefs and concessions are going to be extended" regarding IMAP.
• Good comment regarding contingency plans for failed model applications - "capital loadings will come into play, rather than having to revert back to a standard formula", which is easy to forget when constructing said plans
• Another less well trodden discussion regardin the FSA compelling an organisation without resource to use an internal model - not certain of likelihood, but always good to be reminded of the Standard Formula not being a safety blanket in that respect.
• Nice piece on difficulties for groups, with "parents and subsidiaries running at different speeds depending on where they are located", followed on by regulatory arbitrage comment - is the FSA effective enough to coax the less well armed regulators to work at their speed?
• One commentator with a US presence noted he is participating lobbying the NAIC on ORSA and its value (it would certainly help the equivalence argument no end if they could get that one to stick, and it's already going well).
• Ends with one of my pet peeves, the CRO/Actuary debate - one commentator nails it with the CROs needing to be "broad-based business leaders with a high level of financial literacy", as opposed to an actuary, while another commends the "wave" of actuarial CROs, but is generous enough to say he can see it "broadening out a little bit" - thanks pal!

IRM Solvency II Special Interest Group - Risk Comittee effectiveness

Bit of an odd one this presentation, on the basis that the survey clearly contains a mixture of genuine Board-delegated Risk Committees, and some executive risk committees, but it contains some insights which may be of use regarding membership, agenda content, meeting regularity and methods of assessing effectiveness. In addition, one of the IRM Directors pitches in with a presentation on the topic, which is good food for thought, in particular if your Boards have delegated any matters to the Risk Committee for Solvency II.

IRM Solvency II Special Interest Group - making Risk Function more relevant

The IRM guys always put on a good show with their Special Interest Group activity for Solvency II, and generally has relevance outside of the Insurance industry. Couple of interesting subject matters for the last two, my notes below.

Developing the Risk Function to be Board-relevant (under Solvency II) - international flavour in presenters, so bear that in mind when you look at the slides!

• Jose Morago presentation - Aviva's EU Risk Director has a nice slide on educating and supporting the Board on risk responsibilities, but on the Risk function's "four distinct personalities", I would disagree that the function "leads the optimisation of the insurer's risk/capitalisation profile" (advises, certainly, but leads?). The personalities seem to be light on review and challenge activity as well, and there is a fair amount of risk jargon, which Boards are never keen on in my experience.
• Kendra Felisky presentation - While Jose went with Risk function as "Officer, Business Leader, Teacher and Advisor", Kendra has the second line of defence as "Assess, Monitor, Support and Challenge", which I concur with, and goes on to comment that "Our job is to enable to Board to do their job", which I would also subscribe to. She has a rather dated slide showing what the Risk function was compared to what it is/needs to be (you'd need a time machine to remember the 'old' Risk function!), and a good slide on levels of participation in risk management, and MI requirements. The slide on how to talk to the Board recommends 'no jargon' (which cuts across Jose's terminology a bit!), and the section on Key Risk reporting seems to be focused on risk mitigation and elimination, rather than optimisation.
• Pierre-Andre Camps presentation - Feels like a lot is lost in translation on these slides, so have a leaf through, but don't hang your hat on anything.

Survey findings on  making the Risk function Board relevant (35 participants, so small sample)

• Only half have their CRO communicating directly with the Board on risk matters- surely explains the necessity of this event!
• Horrifically, almost half said risk papers are "noted with a short discussion" at Boards - is the problem that all papers are not 'risk papers', hence it can be siloed as a talking point?
• Half said the process of implementing Solvency II affects their ability to becoime relevant to the Board - that is definitely a bad development all round
• Three-quarters said there is no action plan or training programme to aid the Risk function in communicating and presenting to Boards.
• A third of attendees report to a CRO, while a quarter report to a CEO (I find that instinctively high)
• Not surprised by smattering of risks not covered by the attendees' functions - smaller companies are unlikely to cover financial and non-financial categories, and the categories with least coverage tend to lean towards having expert ownership and established controls (ALM in particular).
• Over half felt they had overlap with either Actuarial or Compliance
• A worrying number are not directly delivering testing and validation of the internal model. Understandable on the design/implementation/documentation front, but surely testing and validation?

Lloyds of London on Solvency II - Annual Report content

Hot on the heels of their delay in submitting their IMAP pack to the FSA, Lloyds of London pushed out their annual report today - as ever, a riveting read in general (and emphasises the scale of Nat Cat activity last year), but I concentrated more on the Solvency II side. They noted;

• "… we have made excellent progress to ensure that, whatever its final implementation date, the Lloyd’s market will be operating to the standards required of Solvency II by January 2013" (p8) - no mention of the IMAP delay, although this could of course work in their favour when looking to achieve this target.
• "Lloyd’s preparations for Solvency II advanced well in 2011, both within the Corporation and the market, and the entire programme across all relevant parts of the business is on track" (p22) - again, odd when IMAP activity has been postponed 3 months!
• "...Solvency II may have a positive impact on the reinsurance sector by increasing demand for reinsurance products" (p49) - same message put out by Swiss Re.

They also note good progress on the ORSA process and reporting front;

• "Lloyd’s has also further developed its approach to the Own Risk and Solvency Assessment (ORSA) – which aligns all of the activities Lloyd’s uses to manage risks and ensure the right level and type of capital. This alignment improves the quality of management information and the resulting decisions. In 2011, we produced a series of pilot reports to enable senior management to review the ORSA’s proposed structure and content. A live report was finalised and approved by the Franchise Board during the first quarter of 2012. In future, the report will be produced at least annually." (p30)

And finally a nice piece of disclosure on economic capital;

• "The capital provided by every member is assessed according to the Lloyd’s Individual Capital Assessment (ICA) capital setting framework. When agreed, each ICA is then ‘uplifted’ (by 35% for 2011) to provide an extra buffer to support Lloyd’s rating and financial strength. This uplifted ICA, which is the Economic Capital Assessment (ECA), is used to determine members’ capital requirements subject to prescribed minimum levels. The FSA oversees the annual review of syndicate ICAs by the Corporation, which reviews the historical performance, business plans and risk appetite of that syndicate in assessing the adequacy of the capital level proposed." (p69).

Whether all of this is good enough to allow them to achieve their objective of avoiding parallel running ICA and the internal model in 2013 is anyone's guess, but let's wish them good luck.  

Early IMAP submission postponement - knock on effects?

Having seen the comments of the FSA's man (p4) on those firms scheduled for early internal model application assessment (namely that "it is vitally important that submission slots are adhered to"), it seemed more than coincidental that the Lloyds of London application, due in at the end of April, has been pushed back 3 months.

Not sure of the drivers behind it (indeed it is worded like they are doing the FSA a favour!), but the recent release of this PwC document on "learning from the early movers" seems prescient, particularly around bridging gaps in preparedness! Alternatively, this article suggests that avoiding dual runs of ICA and internal model in 2013 has driven the delay.

Regardless, while the FSA have gone to some lengths in the IMAP industry presentation to ask for adherence to timescales, pleading personnel poverty, is there a danger that such a big player getting reassigned this early on will have knock on effects for other applicants?

Late post script - Lloyds FD put some words out in relation to the delayed application, justifying it after some FSA 'backtracking' on application completeness.

Omnibus II - delay to September long enough?

You know what it's like - no Omnibus delays for ages, and then three come along at once (boom boom)! From January to April, April to July, and now announced today, July to September, the basic logistics of bifurcation in 2013 are starting to look decidedly ropey, even if 2014 go-live is still achieveable at a push.

Frankly, once you factor in the complexity of the trialogue procedure and the rather savage nature of clashes to date in ECON, its probably best for this one to simmer over summer after a good three months of Council, Parliament and the Commission kicking it round.

PS The procedure file has definitively been changed to reflect the change to the September Plenary - lets hope the Parliament enjoy their summer holiday more than the guys picking up the project tabs!

FTSE Insurers, Solvency II and Capital Adequacy - Resolution

There's enough disclosure in Resolution's releases today to choke a donkey, with preliminaries and slides full of the usual treats - this is probably the last of the major moheicans, so I'll probably do a round up post for my own benefit, though you can click through on the links on this post to get to the earlier ones.

On the Solvency II front they disclose £55m of project spend avec finance transformational costs, which is the same ball park as most competitors (L&G, Standard Life and Pru all within a couple of million). Their comment on p7 that "The current legislative draft looks less favourable for the UK industry with the treatment of matching premium and contract boundaries, in particular, being more onerous than the last quantitative impact study (QIS5) undertaken by the industry", feels like it pre-dates the ECON vote from last week, and they have comment scattered throughout on impact of Solvency II on capital management strategy, with-profits distribution and annuities. Some more substantial comment on project progress is on p63.

On the capital front, their disclosures are a little muddier than in their excellent analyst day presentation from last year which helps identify something approaching their "economic capital" measure (although this is not your conventional insurance business of course, and like Zurich, has an interesting major outsourcing angle). On p24 of that slideshow they look at Solvency II aggressively in the context of potential for cash returns, but no sign of that aggression today.

They also disclose in today's slides that they have already generated substantial capital savings through an optimisation programme (dividend-inspired rather that Solvency II-driven I dare say!)

FSA Business Plan for 2012/13 - probably a quiet year...

The FSA fired out their business plan for next year today. Of interest for the insurers amongst us is p30;

• We will extend our work with the largest firms to deepen our assessments of insurers’ business models and their resilience under a range of conditions.We will maintain our focus on understanding the financial impacts of stressed market conditions, including through use of standardised stress testing and reverse stress testing.
• As part of our supervisory work on Solvency II, we will continue our assessment of firms’ progress towards meeting the new standards, including through detailed reviews of insurers’ risk management arrangements and proposed internal models

Specifically on the Solvency II front (p32)

Continue to work with the Treasury, the European Commission and EIOPA on the negotiation of Omnibus II, Level 2 and Level 3 of the Solvency II directive;
Continue to work with the insurance industry to keep firms up to date with policy developments so they can effectively prepare for implementation;
Conduct our consultations to transpose Solvency II into UK rules and a new draft Handbook by 1 January 2013;
Develop and deliver the design and build of the processes required for implementation on 1 January 2014 and beyond, where policy developments allow us to do this;
Work with firms on the implications of the change from a paper based to an electronic reporting process;

Deliver the required training and support internally and externally.
Provide UK-specific regulatory reporting templates, with supporting systems and materials for firms and FSA staff to complement the EU-wide material; and

Finally, on page 51

• We will continue to reform our conduct regulations, where necessary, to implement the requirements of the Solvency II Directive while maintaining appropriate levels of consumer protection. The bulk of this work is expected to be in relation to our rules on permitted links (COBS 21) and on with-profits (COBS 20), with the revised rules intended to be included in the Handbook at the start of 2013. Some aspects are dependent on the completion of work currently being carried out by EIOPA.

Pretty quiet year ahead then all in all...

ORSA Presentation to Society of Actuaries in Ireland by Towers Watson

Nice and swift - TW's finest laid on a presentation to the Society of Actuaries over on the Emerald Isle on engaging the business in Solvency II through the ORSA.

Not really anything to dispute in this, bearing in mind we have had all the guidance that the EU institutions are prepared to give on the matter, but some interesting reference points on

• ORSA-type activity in other jurisdictions,
• Operationalising (my made-up word, not theirs!) risk appetite,
• Creating a positive risk culture,
• Modelling considerations, plus a nice slide on the difference in scope between "current actuarial models" that just spew out TPs and internal models 
• An ORSA 'health check'

Obviously cheaper to administer these views/tools yourselves than call the lads in, but if your wallet can stand it, they clearly know their onions!

Listed Insurers and capital adequacy - Generali

Onto the home straight with these now, as most of the UK Tier 1's and the larger mainland European have already presented their preliminaries for 2011, but Generali kindly pushed their disclosures out yesterday, which made for interesting reading on the capital adequacy/transition to Solvency II front. I had blogged last summer that these guys may be stretching it on the capital front on the basis of some numbers touted by the FT, so I have been looking forward to these!

In the main report, they draw out the following;

• Solvency I coverage down to 117% at 2011 year end (from 132% at end 2010) - similar to Aviva, they throw together a pro-forma estimate for end-February to show that the year-end number was something of an "exceptional volatility" fluke, and suggest it is back around 130% again (p76).

In their analyst presentation, they are a lot more forthcoming on both regulatory and economic capital, and cover the following;

• "Restoring capital adequacy" slide on p5 shows the need for the pro-forma capital recovery mentioned above.
• Same slide shows economic capital was as low as 124% before the post-year end recovery (not disastrous bearing in mind they are calibrated to 1 year VaR at 99.95%, the same as Aviva and Zurich, and the same ballpark as Old Mutual).
• Analysis of change in the Solvency 1 Margin (p33) shows how both the ratio and the amount have been decimated y-o-y - relatily small dividend element, so that should be safe I guess.
• Economic Capital ratio change (p35) sees them also reference a more generous area of the PDF in order to give context to the level of coverage (only 124% covered at year end using AA rating as the calibration, but 159% covered using BBB rating). I'm guessing things look rosier at 99.5% for everyone else as well though fellas!
• A slide covering the Solvency I change between 2010 year end and the improved pro-forma number at the end of February 2012. They gain €1.1bn from "Italian anti-crisis legislation", which I'm guessing is bond-related, and amplifies why the economic issues in that area of the Eurozone have to be catered for.
• Some stress tests on the Solvency I ratio on p74 - useful for consideration

You might also get some use out of their EEV report if you are knee deep in sensitivity/scenario testing, and they go to the trouble of defining some of the terminologies we know and love in their methodology section (particularly nice effort on internal capital on p30)

Risk Appetite Statements and Solvency II project planning - Milliman and Ireland, douze points!

Not content with hustling the Irish insurance industry towards quality (legally required) Risk Appetite Statements this time last year, Mike Claffey has repeated the trick with another quality breakfast briefing on reviewing those very same risk appetite statements!

I like his approach to defining tolerances (acceptable variances) and limits (hard maximum/minimums gross and net of controls), which most practitioners should be able to roll with (alternative ideas are covered in a recent post), as well as a glorious slide with my old favourite, the 3 StDevs!

There is of course a suite of utility here for non-Ireland based practitioners, particularly for ORSA (scenario testing, business planning, financial condition reporting etc etc), so I recommend a leaf through, and to get hooked up to Mike's twitter feed if you haven't already done so.

Of as much utility to anyone who has been slow off the mark with their Solvency II planning (or who has been waiting, fingers crossed for a 2015 kick-off!) is a presentation by another of Milliman's finest on what to do in 2012 to avoid Solvency II project failure.

Nicely split into pillars, the priorities all seem fair, although one would expect 2012 to be the tying-up process, rather than commencement, of Pillar 1 activity on data requirements, documentation etc (or else what did you spend your cash on last year!). I also don't think targeting 14 weeks for results turnaround is necessary at present, bearing in mind the commission have got transitionals built in to their draft Level 2 text to give us until 2017 to get to this turnaround time (these guys may know something I don't however)...

For Pillar 2, the list of "required policies" in the slideshow looked very light indeed, but this may be becasue it is focused on 2012 priorities - Remuneration Policy can probably wait until 2013, eh! The other pieces on ORSA and Pillar 3 are all fair, so don't be afraid to check off against these, whether in Ireland or elsewhere.

Well done lads, and keep up the good work.

Bank of England and Solvency II - Tucker's Luck

Joining in with the rather boorish cacophony of UK-sponsored protectionist racket on Solvency II, one of the Bank of England's big hitters put his two-penneth worth in this week in a speech to the ABI.

Whilst his observations on the general train of thought being that insurers are not a threat to financial stability and that AIG was a "complete aberration" certainly ring true with the Geneva Association/IAIS lobbying line on SIFIs, and that all and sundry are "dismayed" with the costs to-date, I was a little less enamoured with his problems with "microregulators 'approving' specific models".

If his issue is one of staffing it at the FSA, and the likelihood of those best placed to assess being priced out of the market, fair enough, but the issue of "regulators drowning in data" could be quite easily solved by not asking for so much in the Self-Assessment Templates!

FTSE results and spare capital - Legal and General

We must be entering the final straight in terms of UK disclosures (I think I've got most of them already) - L&G entered the fray today with their preliminaries, and had the following Solvency II-relevant items to disclose:

• IGD coverage of 220% - touch down on last year, but up in absolute terms from £3.7bn to £3.8bn - interesting that they declare it post dividend, unlike Prudential yesterday (the focus on how cash generative the L&G model is in their report might explain this relative flashiness!)
• Spend on Solvency II  (and other investment projects) up to £56m from £39m in the previous year
• "Countercyclical dampeners" highlighted as a key area in which L&G are engaged in the debate at EU level 

I may try and round these disclosures up into a nice table once the last few put their heads above the parapet.

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

Prudential

• 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"

Munich Re

• "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%)."

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  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."

NAIC's Spring National Meeting - "Go ORSA, it's your birthday"

Kindly summarised by these lads, the NAIC's Spring National Meeting seems to have breathed life into the Stateside ORSA project, with the ORSA Manual (from p12) tabled in November now approved by the plenary, and a 15 company ORSA pilot group due to report at end of June. Feel free to drop me a line if you want any ideas! The legislative side of it (through an ORSA Model Act) is mooted to take a year, but from what point it is not clear - this article seems to have plenty of insight in this regard however.

Also relative was the NAIC's desire to set up an ERM training program for staff - sounds like a smart idea if ORSAs are in the offing, so should be interesting to see what they come up with

FSA Speech on the Solvency II Policy Landscape - Omnibus-man's holiday?

Not sure what the delay was on this speech, delivered at the FSA Industry Briefing day on the 27th Feb was (more likely an RSS feed fault rather than regulatory inertia!), from being published. Some useful summarising of the legislative impasse for anyone who needs Board briefing material.

Of more interest was this particular quote regarding Omnibus II's legislative path;

"I would not like to commit as to whether or not I expect that to happen before the summer recess of the Parliament but certainly once we have the voted-upon Parliament text we will have a clearer idea as to how far away the different parties are from reaching a consensus"

I can't be miles away by suggesting that if this isn't through by July, we have a problem! That being the case, does the lack of commitment speak volumes as to the differences between the competing interests in the trialogues?

Geneva Association Paper on Capital Allocation - More Capital = More Stability?

Very nice and very concise paper from our chums at the Geneva Association, using Solvency II/Swiss Solvency Test backdrop to challenge the appropriateness/perversity of increasing capital requirements in order to instill/achieve improved confidence, and the exponential costs of looking for incremental improvements in confidence, covering some normal and fat tail distribution angles, and the ultimate overall cost to society in seeking 100% confidence - well worth a read.

FTSE results and spare capital - Old Mutual

UK results season - my favourite time of year (note to self: get out more). Old Mutual have put their goodies in the window today, and while not disclosing how much Solvency II project spend they have laid out in the last year, they have been very bullish on project preparations to date, for example;

• "The Group comfortably met the recent stress tests required under the EU-wide Solvency II project"
• "In tests there was no scenario when the Group's capital reduced below the SCR level. "
• "We were the first major UK retail group to submit Group QIS5 results and the Self Assessment Questionnaire on the internal model to the FSA" - not such a boast now the FSA have ripped the template up!

They also indicate the most material uncertainties left in the EC/EIOPA/Parliament squabbling,which is very refreshing - latter seems most perturbing on their front;

·         "Discussions on the treatment of EPIFP (Expected Profits In Future Premiums) have moved in a positive direction and we believe they are likely to be eligible as Tier 1 capital under Solvency II".

·         "Bermuda was included in the first of three groups of non-EEA jurisdiction equivalence assessments. EIOPA‟s findings from this assessment were inconclusive and will be revisited this year. The equivalence of South Africa will be reviewed in 2012 as part of the second group of assessments".

·         "The latest draft regulations have suggested that a short contract boundary may be applied to some of the Group‟s long-term unit-linked insurance business. We believe this proposal is not aligned with an economic balance sheet valuation of this business and we have raised concerns about this definition with the FSA and other bodies".

The bits on capital are just as lively as those released to date (captured here and here), with some shenanighans regarding what is in and what is out for FGD surplus purposes on bond capital where they have followed Aviva's "but if we show it like this it's better..." philosophy!

Their FGD requirement actually came down y-o-y unlike Aviva's, though this was by virtue of "required capital" falling by more than the "available capital" fell by (if that makes sense!). Most bizarrely, the UK-specific regulatory capital coverage went from 2.8x to 5.1x to 2.0x between Dec-10/Jun-10/Dec-11 - no idea what to think about that!

Interesting post-script in light of the multiple moves on Boardroom diversity (or "gender diversity" as it might as well be called) is that they have ticked off a couple of boxes with a new NED hire. As I recall they have committed to a gender-specific target by 2014-15, and this obviously gets them going. I'm certain the 30% club might like to see more executive directors however... 

Late Post-script - Annual Report and Accounts and Annual Review and Summary Financial Statements published at the end of March contains all the ORSA-related disclosure materials one could want (p74-88)

FTSE results and spare capital - Aviva

Just when you thought, after first AEGON and then the Pru, the EU exodus was about to start at the thought of Solvency II compliance costs, up front the lads at Aviva with their results today, accompanied by their UK CEO stating they were committed to being part of UK plc 'hook line and sinker'.

Regardless of whether such an EU-centric company has anywhere else to go is another matter, but it is refreshing that such regulatory arbitrage is not near the top of everyone's agenda (at least not publicly!).

The view also seems somewhat perverse when you look at the numbers - IGD surplus is down seismically y-o-y (although the sneaky pro-forma IGD estimate for end of Feb highlights how much of that was due to grumpy markets), but of more interest from an overall solvency needs perspective, their economic capital coverage is also well down, sitting at around 125% at year end. Again, they have thrown a quick-and-dirty pro-forma in to show the number at 145-150% at end of February.

As they are calibrated to AA rated (p8), this is ample for SCR coverage I guess, but the cynic in me suspects that capital efficiency must be putting HQ moves on everyone's agenda, particlarly when you look at the £96m bill for their Solvency II preparations last year (p 31)!

Omnibus II - Plenary vote delayed by 3 months

The worst kept secret has finally been revealed, namely that the EU Parliament's Plenary session to clear Omnibus II has been postponed by 3 months to July (good spot Gideon) - obviously makes that session more of a coronation if they are going to get it cleared before the summer holidays, so lets hope the guys in ECON get their job done later this month and the 'Trialogers' don't waste too much time between then and July.