Legal and General - Counting the cost of Solvency II

Spotted by his Lordship John Walton this morning, L&G  appear to have broken the mould by dropping some substantive Solvency II comment into their Q3 IMS, notably that they have booked £129m of costs in project spend.

They also go on to plead unhappiness on the inability of the rules as they stand to encourage the provision of long-term capital to the wider economy, echoing DG Faull's rollocking letter to Sr Bernadino the other week on longer-duration debt instrument capital costs, though are clearly only interested in UK investment opportunities as opposed to loading up on fruity Eurozone government debt (good on you!).

Of course the Solvency II preparation costs of most of the big-boys have been covered on this blog before, and £129m feels suitably light for a UK-focused business in comparison to some of its more complicated competitors. That said, with the FSA offering some hope of a transition to "ICA+" rather than dual running ICA and IM SCR for the next x years, how much leverage does this sort of investment buy a firm down at Canary Wharf when it comes to meeting the transitional criteria?

Look forward to seeing a bit more of these disclosures over the next week or so now we are in IMS season, but not counting on it!

FTSE Insurers - more revealing on Solvency II preparations in the interims

Old Mutual and Pru announced their half years today - much more information around Solvency II preparations than presented by Aviva, L&G and St James's Place earlier in the week;

Old Mutual

Capital - "The Group issued a £500 million 10 year Tier 2 bond in June 2011, which is expected to be compliant with the anticipated Solvency 2 requirements and qualifies as Tier 2 capital for FGD purposes."

Important uncertainties - "The discussion on the treatment of EPIFP (Expected Profits In Future Premiums), as to whether it should be fully eligible to be treated as Tier 1 capital under Solvency 2 continues. No consensus has yet been reached between the different European bodies.

We await the completion by regulators of the initial equivalence assessments of the first three non-EEA jurisdictions, one of which is Bermuda. Results are due in November. "

Liquidity premia assumptions - "In deriving the liquidity premia at 30 June 2011, we have reviewed emerging Solvency II matching premium guidance and a comparison of the yields of similar durations on South African government bonds and bonds issues by state-owned enterprises. At those durations where swap yields are not available, e.g. due to lack of a sufficiently liquid or deep swap market, the swap curve is extended using appropriate interpolation or extrapolation techniques."

Economic capital, risk management and Use Test - "The iCRaFT project is progressing to plan and is on track to deliver the requirements for Solvency 2 compliance. Despite the ongoing uncertainty in respect of certain Solvency 2 detailed implementation measures we remain confident in our current design. We are now entering a phase of the project, in which we will demonstrate the extent that we have embedded the new tools and risk management processes. This marks a significant milestone in the project and ensures that the iCRaFT deliveries are being integrated into business processes and are adding insight in our key risk decisions. This will place us in a favourable position for the ‘Use Test’ requirements under Solvency 2."

Prudential

General - "We are supportive of the risk-based approaches to capital management provided the metrics used are appropriate. Along with our European peers, we do have concerns about the potential volatility which Solvency II could introduce and the degree of prudence built in to the proposed calibrations for the standard formula. We are engaging directly with our peers, politicians and regulators to ensure a fair and reasonable outcome before the regime becomes law."

Lobbying - "Prudential is actively participating in shaping the outcome through our involvement in industry bodies and trade associations, including the Chief Risk Officer and Chief Financial Officer Forums, together with the Association of British Insurers (ABI) and the Comité Européen des Assurances (CEA)."

Key Risk - "There is also a possibility that depending on the outcome reached on a number of key issues, the effect of the measures finally adopted could be adverse for the Group, including potentially a significant increase in capital required to support its business."

Solvency II costs- "A total of £27 million of Solvency II implementation costs were incurred in the first half of 2011 (2010: £22 million) as we continue to make progress in preparing for this change." 

"Central outflows increased to £141 million in half year 2011 (2010: £118 million). Higher tax receipts in the first half of 2011 were offset by increased net interest payments, following the additional debt  raised in 2011, and higher Solvency II implementation spend."