Austria’s insurance undertakings have further improved their levels of own funds in order to be able to absorb the risks arising from their activities. This was the finding of the current review of insurance companies’ Solvency and Financial Conditional Reports (SFCRs) that have been analysed by the Austrian Financial Market Authority (FMA). The median of the own funds of all 37 insurance undertakings licenced in Austria as of the reporting date of 31.12.2017 stood at 251.5 % of the Solvency Capital Requirement (SCR). This represents a 14% improvement over the values from the previous year (2016: 237 %). The Austrian insurance sector is therefore considerably higher than the European median of 214 %[1].
In addition to the level of own funds, the FMA as part of its supervisory and inspection focuses also focuses specially on the consistent identification of risks by insurance undertakings. “Internal models and transitional measures shall not be allow to lead to risks being presented in a distorted manner or their being played down. The figures reported by insurance undertakings must be meaningful for the supervisor, the market, and customers alike.”, remarked the FMA’s Executive Directors, Helmut Ettl and Klaus Kumpfmüller. Insurance undertakings are required to publish their SFCR on their website.
Solvency Capital Ratios (SCRs) have been identified in accordance with the European Solvency II Regime since 2016. Solvency II permits various transitional measures for calculation until 2012, and also provides insurance undertakings with the possibility of applying internal models instead of the uniform standard formula. Internal models must be approved in advance by the FMA. Currently there are four insurance undertakings in Austria that identify their SCR on the basis of a partial internal model, with a further two their basis their SCR in full on an internal model. 17 undertakings currently are making use of transitional and other measures with regard to long-term obligations. A hypothetical calculation of the coverage level, following the deduction of measures in relation to long-term obligations, leads to a ratio of 235.2 % (median). This reduction by 16 % is driven by a few insurance undertakings, whose own funds base the FMA monitors particularly closely. Figured published by the European Insurance and Occupational Pensions Authority (EIOPA) show that the coverage ratios in the Austrian market are therefore considerably less dependent on such measures that those of the European market as a whole[2].
The FMA’s analysis showed that as of the reporting date of 31.12.2017, all 37 licenced insurance undertakings in Austria have an SCR of at least 100 %. 31 undertakings have an SCR of over 200 %, with a further five undertakings having an SCR of over 150 % with the only undertaking with an SCR of below this threshold having a ratio of 142.3 %. Compared with the previous year, 21 undertakings were able to disclose a higher ratio, while 16 undertakings disclosed a lower ratio. The detailed analysis shows the significant drivers of own funds requirements. From the SCRs identified using the standard formula, 81 % was based on market risk, i.e. the risk arising from a change in the market value of financial investments. Only 3 % was based on counterparty risk.
A positive highlight was that 92 % of the eligible own funds of all insurance undertakings was held as the highest quality class of own funds (Tier 1 capital). Only eight undertakings take into account Tier 2 capital, with only three undertakings identifying Tier 3 capital.
In the SFCR the financial stability of the insurance undertakings are not taken into account in purely quantitative terms. The SFCR also contains an overview about the quality of their governance and their internal control system. FMA Executive Board Members Helmut Ettl and Klaus Kumpfmüller remarked, “The market as well as insurance customers receive a comprehensive overview of the company’s financial stability. Many years of experience have shown us in the FMA that bare figures alone often do not suffice. Prudent governance and good organisation are equally important. We therefore place particular value on governance and risk management.”
Journalists may address further enquiries to:
Mr. Stefan Maier
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[1] https://eiopa.europa.eu/Publications/Insurance%20Statistics/SQ_Accompanying%20note.pdf
[2] https://eiopa.europa.eu/Publications/Reports/2017-12-20%20LTG%20Report%202017.pdf Note: EIOPA uses the weighted average of the ratios.