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)!

FTSE results and spare capital - St James's Place

More results on the drip here, this time from St James's Place - pretty sterling effort on EV and IFRS front, however I was more interested in their 2012 year-end take on Solvency II. They are retaining their view that not only will there not be an adverse impact on their balance sheet, but there will be a reduction in capital required (p27).

Not sure whether this factors in any shenanighans around contract boundaries and recognition of future profits which still seem to be up in the air - bearing in mind their product base, I'm guessing changes in these would matter, but if the forecast is "less capital requried", good luck to them!