Ecclesiastical subsidiary's solvency ratio hits 215% with internal model

Published in: Risk, Risk management, Capital management, Regulation, Solvency II, UK, Brexit, SFCR

Companies: Ecclesiastical Insurance Office

Switching from a standard formula to an internal model in 2018 meant a subsidiary of UK-based Ecclesiastical Insurance boosted its solvency coverage ratio from 192% to 215%.

Using an internal model meant the solvency capital requirement (SCR) for Ecclesiastical Insurance Office (EIO), a non-life subsidiary of Ecclesiastical Insurance, fell 12% from £292.4bn ($380bn) to £256.9bn.

This 12% drop is based on analysis by Insurance Risk Data (IRD), a database from the publisher of InsuranceERM.

The eligible funds that EIO had to cover the SCR declined by a more modest 1%, from £561.5bn to £551.9bn.

The subsidiary attributed the mild fall in eligible funds to recent market volatility. It said this had impacted retained profit.

The greater decrease in its SCR was “primarily driven by the move from a standard formula SCR calculation to using an approved internal model, which more accurately captures the company’s unique risk profile,” EIO said in its 2018 solvency and financial condition report (SFCR).

EIO’s SFCR is one of nearly 600 documents captured so far by Insurance Risk Data. The deadline for solo entities publishing SFCRs is today.

Group insurers have a few more weeks’ grace to publish theirs. The data in all SFCRs will be processed into Insurance Risk Data, adding to the nearly 150 entities whose data is already live on the database.

The capital EIO had to hold against its non-life underwriting risk reduced by one-quarter from £172.9bn in 2017, while its SCR for counterparty default risk was sliced by 65% from £28.3bn.

EIO said its full internal model gave “better allowance for the relationships between the component risks” of the non-underwriting SCR, “which leads to higher diversification benefit than under standard formula”.

The drop in the SCR for counterparty risk fell “largely due to greater diversification between components within the internal model,” the insurer added.

The benefit that business diversification gave to EIO’s overall SCR increased by 42%, to £134.4bn – again mainly thanks to the internal model.

Ecclesiastical’s life subsidiary, meanwhile, has stuck with the standard formula for Solvency II calculations.

Looking into 2019, EIO listed market volatility and Brexit among two ongoing risks.

In order to counter the risk posed by Brexit, EIO said it has applied to the Central Bank of Ireland to approve its Ireland office as a third country branch, and had received “authorisation in principle”.

EIO did not reply to a request for further comment at the time of publication. 

Insurance Risk Data, a database a database from Field Gibson Media, InsuranceERM’s publisher, combines European insurers' financial and regulatory filings, including the Solvency II SFCR disclosures, into a single, comprehensive and user-friendly database that is ideal for market/peer analysis, research and benchmarking.

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David Walker