Solvency II capital optimisation – evidence from the 2021 SFCRs

Capital optimisation under Solvency II remains an important topic for insurers.

The extent to which firms can reduce the proportion of tier 1 restricted capital in their Eligible own funds to meet the SCR is an important part of capital management.

The chart shows the shift in the capital structure of a sample of 26 European insurance groups that published their Solvency II disclosures ahead of the official publication date in 2022.

Solvency II insurance group Tier Capital 2016 - 2022 .png

Most of the groups in the sample (19) reduced the proportion of tier 1 restricted capital between 2016 (or earliest available year) and 2021.

The sample seems to suggest that there isn’t a distinct advantage of using an internal model or partial internal model in reducing tier 1 unrestricted capital; all but 3 of the 19 firms use the standard formula.

Of those groups that increased the use of tier 1 restricted capital, two use an internal model (Munich Re and RSA) and one a partial internal model (NN).

It is also evident that the use of tier 3 capital remains relatively limited.

The full data set (QRTs and SFCRs) for +350 European insurance groups is available on Solvency II Wire Data.

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