Following the first annual reporting deadline under Solvency II, we look at the quality of the Own Funds on Irish company balance sheets.
All companies
The figures below are based on an analysis of 46 Solvency and Financial Condition Reports (SFCRs), which cover all the major players in the Irish insurance market. The headline statistic is that Tier 1 unrestricted Own Funds account for 93.7% of capital on Irish insurers' balance sheets, as shown in Figure 1. Tier 1 restricted (1.1%), Tier 2 (2.9%), and Tier 3 (0.8%) make up the remainder of basic Own Funds. The small level of ancillary Own Funds (1.5%) shows that very few companies have applied to include additional ancillary items on their balance sheets.
Figure 1
Life industry
It is useful to consider companies selling life business in isolation. We have included 25 published SFCRs within this category.
Firstly, in Figure 2, we look at domestic life companies selling in Ireland. For these companies, a minimum of 90% of Own Funds is Tier 1 unrestricted capital. Please note that Irish Life redeemed 200m of Tier 1 restricted capital in February 2017. Thereafter their Own Funds were 100% Tier 1 unrestricted capital.
Figure 2
In fact, as seen in Figure 3, all these domestic companies are covering 100% of the Solvency Capital Requirement (SCR) using Tier 1 unrestricted capital.
Figure 3
We see a similar picture in Figures 4 and 5 for the cross-border life market in Ireland, with very few cases of lower-quality capital on the balance sheet. Again, all the companies examined cover the SCR using 100% Tier 1 unrestricted capital.
Figure 4
Figure 5
Non-life industry
We have focussed our analysis initially on domestic non-life companies selling in Ireland. When we look at non-life companies, in Figures 6 and 7, there are more cases of lower tiered items on their balance sheets. Some examples include:
- RSA holds 90 million of unpaid and uncalled ordinary share capital which is classified as ancillary Own Funds
- FBD has a 70 million subordinated bond which is classified as Tier 2 capital
- Liberty holds 40 million of uncalled and unpaid share capital which is classified as ancillary Own Funds
Figure 6
FBD and RSA make some use of Tier 2 capital to back the SCR. Aside from these, all companies back the SCR using 100% Tier 1 unrestricted capital.
Figure 7
Reinsurance industry
Amongst the reinsurers in Ireland, there is typically a very high proportion of Tier 1 unrestricted capital. Partner Re, Beazley Re, RGA International Re, and Hannover Re also include some lower forms of capital on their Solvency II balance sheets.
Hannover Re (Ireland) has an uncalled subordinated loan of 214 million which is classified as ancillary Own Funds, in addition to subordinated Own Funds of 340 million which are classified as Tier 2 capital.
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Figure 8
Partner Re Ireland did not have sufficient capital to cover the SCR at year-end 2016. This is disclosed in the SFCR report and the capital shortage has since been rectified. In all other cases, the reinsurers back the SCR using 100% Tier 1 unrestricted capital, as shown in Figure 9.
Figure 9