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The fresh data showed UK life insurers in a particularly bad light, with big gaps between their reported capital positions and their positions once temporary measures are stripped out.
Investors have for years looked at bank capital on a “fully loaded” basis, which strips out the benefits of transitional measures that ease the path from one set of capital rules to another.
Until now, that comparison has not been available for insurers. But the latest batch of data released under the EU’s new Solvency II capital rules allows investors to make the same distinction for the first time.
Legal & General said late last week that stripping out temporary measures pushed its Solvency II capital ratio (a measure of the funds available as a proportion of the minimum required) down from 163 per cent to 88 per cent.
But the group downplayed the change. Jeff Davies, Legal & General chief financial officer, said: “This does not affect our ability to grow or pay dividends. There is a small unwind of the transitionals that has to be funded each year, but it is a very small percentage drag.”
The transitional measures, which came into force at the start of 2016, are due to expire in 2032.
Insurers in continental Europe rely far less on transitional capital, say analysts, because of the type of business they write. Not all of them have released their full Solvency II numbers.
UK life insurers are affected more than most in the sector because of the way that annuities, one of their core products, are treated by the Solvency II rules.
Full article on Financial Times (subscription required)