Until 7 May, insurers were required to disclose for the second time data on their financial strength that go far beyond the figures stated in their annual reports. For the benefit of consumers, the European regulatory framework for the supervision of insurance companies “Solvency II”, introduced in 2016, obliges insurers to annually provide information on their financial situation.
The crucial information in the Solvency and Financial Condition Reports (SFCR) is the solvency ratio, which must be at least 100. If an insurer has a solvency ratio of 100, this means that the insurer has sufficient eligible own funds to offset the losses that will occur within the next year with a probability of at least 99.5 percent. This calculation even includes the assumption of extreme market situations which are assumed to occur only once every 200 years. The solvency ratio is calculated either as pure (SQR) or as reported (SQA) solvency ratio, either without the use of transitional measures (SQR) or with transitional measures (SQA). The transitional measures are a concession to the lobby of endowment insurers which can expect less stringent rules for 16 years.
A year ago, Bund der Versicherten (BdV) and analyst Dr. Carsten Zielke (Zielke Research Consult GmbH) examined the SFCR reports of all 84 life insurers active in Germany. The result was that 23 insurers would not comply with the required solvency ratio of at least 100 without being taking transitional measures into account. The poor quality and lack of transparency of the reports is also frightening: some companies hide the important figures in a jumble of data, most reports are more than 100 pages long. Only 17 companies have submitted a comprehensive, comprehensible and understandable solvency report. Five insurers (two of which have a pure solvency ratio of less than 100) also provide each other with subordinated loans in order to improve their solvency ratios. However, they do not make this cascade risk transparent in the related SFCR reports. Also disappointing: Only one life insurer (Concordia) comments on the climate effects of its investment policy.
But that is not all: several German insurers are lagging behind their European competitors in terms of public transparency with regard to their special funds. Some German insurers report special funds under holdings, others under collective investment schemes. While both approaches are in line with EIOPA’s requirements for the consolidation of special funds, they conceal the real risks of the investments to the end consumer. In order to enable a breakdown of the assets behind special funds, these would have to be shown proportionately in the various asset classes. EIOPA should take decisive action against national differences and inconsistencies in SFCR reports in the second round of publications. For the benefit of consumers, uniform consolidation rules must apply throughout Europe to ensure maximum transparency.
Analysis of Zielke Research Consult GmbH: https://www.check-deine-versicherung.de/ranking
Bund der Versicherten: Solvency reports under scrutiny: https://www.bundderversicherten.de/stellungnahmen/solvabilitaetsberichte