We analyse the Solvency II results from the largest UK life insurers' interim statements and some continental European counterparts.
This article sets out a short summary of recent Solvency II half year 2018 disclosures. Our focus has been the large UK life insurers but we have also included three of the larger continental European insurers.
The analysis above shows that it has been a relatively mixed first half of the year. AXA, Allianz, Aegon, Prudential, Phoenix and Legal & General saw increases in ratio, while Standard Life Aberdeen, Aviva and LBGI saw decreases. Only AXA, Aegon, Prudential and Phoenix saw increases in surplus.
The reduction in surplus was typically due to the relationship between the operating return and the return of capital to shareholders or debtholders as non-operating variances, including market variances, were generally limited. Allianz was one exception to this as there were significant management actions impacting the surplus. AXA and Phoenix also had debt issuances in the first half of the year, giving surplus increases.
The Aviva fall in surplus is due to £0.8 billion dividends (the full year 2017 dividend, which was not allowed for in the YE17 results), £0.6 billion share buy-back and a £0.4 billion debt repayment. The operating return of £0.9 billion covered only the dividend portion of this. Similarly, the Legal & General net operating return only just covered the full year 2017 dividend payment.
Prudential had an operating return of c. £1 billion more than the 2017 dividend payment, which contributed to its rise in surplus.
This is a similar story for Aegon, which also benefited from the divestment of Aegon Ireland, market movements in US and UK and other management actions. Allianz and AXA accrue for dividends and hence half of the anticipated 2018 dividends are allowed for in their HY18 surplus numbers. The AXA surplus is enhanced by debt issuance and the IPO of the US business. The main driver of the Phoenix result was also a £0.5 billion debt issuance.
It is also noted that the AXA ratio is expected to be c. 190-200% post the acquisition of XL Group, which will bring it back in the target range of 170-230%.
The sensitivity of Solvency II surplus to changes in assumptions and market conditions is relatively similar to YE17 and there were no surprises in new business values and margins.
In summary, there are no major surprises in the results to date and analysts typically delivered “in-line” statements. To date, there has been limited disclosure on the potential impacts of the Prudential Regulatory Authority’s (PRA’s) consultation paper on the treatment of equity release mortgages (CP13/18). Phoenix has stated an estimated reduction in surplus of around £0.2 billion, albeit any strain “would be expected to unwind over time as the transitional benefits run-off” and hence there is no expectation of impacts on cash generation targets. Aviva states that it is “too early to assess the full impact of the updates on our solvency position and the extent to which these impacts can be mitigated by management actions”. Legal & General states that the “LTM (Last Twelve Months) portfolio characteristics and low exposure means that we do not expect the [consultation paper] to have a material impact on our solvency position”. Just Group made a statement on the day of release of the paper noting that it was looking forward “to playing a full part in an open consultation”. More may be expected in the Just Group interim announcement in September.
If you have any questions or comments on any of the above, please contact Nick Ford or your usual KPMG contact.
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