Major UK life insurers appear on track to report strong capital positions under Solvency II, despite a lack of detailed disclosure in their latest results, according to Fitch Ratings.

The half-year results released over the last few weeks were the last significant scheduled opportunity for insurers to provide more detail on their likely Solvency II capital positions before the regime is due to become effective in January 2016.

However, Fitch Ratings said insurers made a point of not divulging Solvency II metrics, which it described as a sensible approach, as regulatory conclusions on companies’ internal models are not due until December.

Fitch said this may have disappointed investors hoping for detailed guidance, but despite the lack of hard numbers, other factors suggest initial Solvency II capital levels are likely to be strong.


These factors include the Prudential Regulation Authority’s recent emphasis that transitional benefits are a valid part of the Solvency II regime and should be considered as capital, including when insurers assess their capacity for paying dividends to shareholders.

Fitch Ratings also noted that major insurers announced substantial interim dividend increases with their results, and said this is consistent with their growth in cash generation.

The ratings agency said: "But given their conservative approach to capital management, we do not believe these increases would have been announced if there had still been significant uncertainty over likely Solvency II capital levels."

It added that Solvency II requirements are significantly less onerous than initially planned, notably through the introduction of the matching adjustment, which reduces asset charges on illiquid assets held to back annuities, and through transitional arrangements, which phase in the new requirements over many years.

According to the ratings agency, it is clear many insurers will take advantage of the transitional measures, even if they would have a strong capital position without them.

Fitch Ratings said: "However, while we recognise the benefits of transitional measures from a regulatory perspective, they mean that Solvency II will initially not be a fully risk-based approach.

"Where an insurer uses transitional measures, Solvency II will start with some elements on a non-risk-based Solvency I basis, and move only gradually over many years to the full risk-based Solvency II basis."