Complex reporting caused by Solvency II risks putting investors off insurance sector

LONDON, Tuesday 25 April, 2017 — The insurance sector is at risk of being further marginalised by investors as performance reporting becomes more complicated as a result of Solvency II, according to a report published jointly by Autonomous Research and Willis Towers Watson. Based on the analysis of the reporting statements of 31 European insurers, the report finds Solvency II has forced apart the sector’s accounting and solvency reporting, making it harder for investors to have a clear picture of how individual insurers are performing.

The report finds that Solvency II falls significantly short as a profit performance and cash generation metric that can replace embedded value (EV). The urgency of this issue is further underlined by the rapidly shrinking publication of useful EV data in Europe and the fact that the reformation of IFRS (new proposals expected to be published in May) is unlikely to help for many years.

Andrew Crean, Managing Partner at Autonomous Research, said: “Solvency II has helped provide a clearer picture of capital adequacy for European insurers, providing some guidance as to when dividends may be a risk or additional capital may be returned. However, Solvency II disclosures have not always considered the investor perspective, creating issues for external users in understanding performance and the dividend paying capacity.”

A clear explanation of the ‘investor story’ in cash terms with a more coherent link between IFRS, EV and Solvency II is essential to sustaining the sector rating, according to the report.

Kamran Foroughi, Director at Willis Towers Watson, said: “Solvency II is obscuring the transition from IFRS earnings, to cash and on to dividends. This risks driving up the sector’s cost of equity, particularly if markets dislocate and concerns emerge about the capital security. In 2008/09, lack of transparency on cash and capital contributed to the sector’s implied cost of equity hitting 20%.”

In order to address the current lack of transparency, the report’s conclusions stress the need for the insurance industry to aid investors by disclosing Solvency II free surplus and sensitivities and an explanation of whether Solvency II or IFRS is the biting constraint when it comes to cash remittances and dividend paying capacity.

Kamran Foroughi commented: “Unfortunately for the insurance industry, the Solvency II and IFRS projects are heading in different directions for the foreseeable future and on their own will not meet investor requirements. In response, we have developed standardised templates for the insurance industry which should help address this gap.”


In this joint publication between Autonomous and Willis Towers Watson, we have analysed the Solvency II statements of 31 European insurers through a single template in order to highlight the disparate and incomplete state of current disclosures. Neither the upcoming Solvency II prescribed “SFCR” disclosures to be published in May/ June nor the long-term reformation of IFRS will meet investor needs. We propose some standardised templates to improve Solvency II as a profit performance / cash generation metric.


Autonomous Research was established in 2009 and aims to be a leading independent research provider on financial companies globally. We are a true partnership with no outside investors. We are unconflicted – we do not advise corporates, nor do we engage in proprietary trading activities or asset management. We are fully focused on servicing our clients with high quality research and execution capabilities across the capital structure.”


Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 40,000 employees serving in more than 140 countries. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more


Andrew Collis: +44 7932 725 267 |

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