The insurance industry is financially strong after the pandemic but needs to be better prepared for the new climate change reporting regulations from the government coming down the tracks.
LCP’s fifth annual analysis of Solvency II reporting from the top 100 UK and Ireland non-life insurers shows that while insurers appear to have coped financially with the impact of the pandemic, only 6% of firms referenced the TCFD (Taskforce on Climate-related Financial Disclosures) despite the UK government plans for these to be mandatory in the coming months. This is in the context of last year’s “Dear CEO” letter from the Prudential Regulatory Authority, (PRA) which says that firms should have fully embedded their approaches to managing climate-related financial risks by the end of this year.
- Insurers continue to be well capitalised in the wake of COVID-19, with average eligible own funds ratios averaging 208%.
- The proportion of firms holding ancillary own funds has doubled over the last two years from 5% to 10%.
- Total aggregate investments and cash has increased from £184bn to £194bn over 2020, having been broadly stable over the preceding four years.
- The proportion of firms considering cyber risk as a key risk has increased from 49% to 63% over the last year. In contrast, the proportion of firms considering Brexit as a key risk continues to fall and is now only 30%, compared to 42% last year.
On the whole, the insurance industry has weathered the immediate fallout from the pandemic. The industry now needs to make sure it isn’t behind the curve when it comes to climate risks. While the pandemic and cyber risk have rightly been key considerations over the past year, the scope of the new regulations on climate change means that insurers will need to quickly re-prioritise their action plans to ensure they are ready for when the new requirements go live.
To read our early insights report, ‘Solvency II: Risk, Resilience and Recovery’ published in September 2020, please click here.
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