Wednesday, 13 March 2013

Preliminary full year results - Solvency II implementation costs and opinions

Now the UK preliminary full year results are starting to flow in, we can get more visibility on what was spent in last year's Solvency II phoney war. This is a topic I have covered for the last two years on this Blog (here touches on previous disclosures in particular) and bearing in mind most of the UK's Big Rigs are in the habit of disclosing the sums spent on preparation, it gives a good feel for where the implementation costs tally may finally get to.

So read on if you are interested in seeing if 2012, just like the popular 'Lovely Day' singer, was the year that the...errrr....Bill Withers (?)

Legal and General
  • "Delivered the core components" of Solvency II, though there remains "much uncertainty" - go figure!
  • £50m spent on Sol II and "other strategic projects" (no further split available) - this figure was £56m last year
  • Costs of £32m (£30m previous year) for Solvency II
  • Expect costs to fall by "around 50%" for the next two years
  • "Rephased our implementation project to minimise costs"
  • EC calibrated to 1-in-1,250 (S&P 'A' rated)
  • In the AR&A, they add that they "...remain at the forefront for internal model approval"
  • £76m spent on (predominantly) Solvency II in 2012, as opposed to £56m in 2011 - 2012 was of course the year that they dropped out of IMAP, so the spend dropped in the second half of the year
  • Original provision for Sol II released from MCEV this year was £34m!
  • Economic Capital coverage of 182%
  • £117m spent on Sol II specifically, against £96m last year
  • "Well placed" for ICAS+ review 
Standard Life
  • £112m spent on Sol II, RDR and other restructuring (no further split available) - was down as £59m specifically on Solvency II in 2011
  • Economic capital at risk managed to 99.93%, and currently at over 160%
  • "Given the delay to the Solvency II go-live date", focusing on embedding ORSA and internal model during 2013
  • No coverage of project spend - same as last year
  • £48m of Solvency II implementation costs in 2012 (£55m previous year)
  • "...expects to engage in the initial stage of the FSA's proposed Individual Capital Adequacy Standards Plus (ICAS+) regime"
  • Solvency II "may" provide a more risk-based capital framework, but "...we now know that it will not be implemented before December 31st 2015"
  • "Continue to evaluate [their] options, including consideration of the Group's domicile"
  • "...remain focused on preparing for implementation" despite uncertainty
And over to continental Europe;


  • "...adoption in 2014 is no longer guaranteed"
  • EC coverage of 199%, calibrated to 99.5% VaR over 1 year - was previously calibrated to 99.97%, and Solvency II is used as rationalisation for the y-o-y change
  • Rated 'strong' by S&P for ERM, and have had their internal model positively rated by them
  • "Will take advantage of the delay in the implementation of Solvency II" to industrialise balance sheet production and internal model processes

  • "..some uncertainty remains" around Solvency II, and they are banking on "at least two further years" delay
  • Note that "...the risk that our Life primary insurers may not meet the capital requirements cannot yet be entirely excluded"
  • Confident that "new opportunities...will exceed the challenges"
  • Targeting 1.75 x 99.5% VaR over 1 year as their Economic Capital Target - this is a "...conservative approach, offering a high degree of security"
  • Currently hold 129% of that figure
  • Perhaps more significantly from an internal model perspective, hold 225% of 99.5% VaR over 1 year - if we considered that "conservative", I wonder what we might consider "liberal"?
  • Economic capital ratio (calibrated by their internal model to ultimately deliver the required SCR percentile) of 159%, unchanged y-o-y, despite a lot of positive capital management activity (p33)
  • Solvency I ratio is 150% (p31), up significantly on last year's 119%

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