Insurance market remains strong but faces new challenges: LCP
LCP’s seventh annual analysis of Solvency II reporting has revealed that the financial strength of the UK and Ireland’s largest non-life insurers remains robust, with the average eligible own funds ratio standing at 180%.
The report indicates that the total eligible own funds for these insurers increased from £97 billion at the end of 2021 to £101 billion at the end of 2022.
While the industry’s financial health appears strong, insurers continue to grapple with a variety of challenges. In particular, inflation emerged as a top concern, mentioned by 96% of firms in their Solvency and Financial Condition Reports (SFCRs).
The Ukraine invasion and cyber risk were also significant worries, with 85% and 76% of firms, respectively, acknowledging these threats.
Moreover, the report highlighted a growing emphasis on emerging risks such as climate change, cyber risk, and people risk.
Interestingly, only 9% of firms identified AI, digitisation, or technological developments as emerging risks, and many did not fully recognise the disruptive potential or opportunities presented by these advancements.
LCP predicts that AI risks will gain prominence in the insurance industry as rapid technological changes continue to reshape the landscape.
People risk, particularly related to recruitment and retention challenges, was another notable theme in the SFCRs. LCP anticipates that this issue will climb higher on the industry’s agenda, as its potential repercussions on other risk areas are often underestimated.
Matthew Pearlman, Partner at LCP and author of the report, commented on the findings, stating, “It is good to see that the top insurers’ financial strength is growing. An important aspect of the SFCR is reporting on the risks that firms face, and this is shown in the increasing emphasis on climate change and other emerging risks like cyber risk and people risk. However, we believe that many firms could increase the quality of the narrative supporting these risks. In particular, very few firms mentioned using stress and scenario testing to quantify these risks.”
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