How asset managers can data-mine 3,500 insurers

Channels: SAA/ALM, Managers, Outsourcing, Regulation

Companies: Aviva, Eiopa, Credit Agricole Assurances, Natixis Life, Achmea

Solvency II reports are giving investment managers a goldmine of data and narrative by which to analyse underwriters and win a competitive edge. David Walker explains how.

Among all the acronyms peppering insurance asset management, one that managers may find most useful is ‘QRT’.

It denotes ‘quantitative reporting template’, a set of data sheets that EU insurers subject to Solvency II had to complete and publish for the first time from May to July. Twelve months hence they will produce a second set.

The QRTs have in the region of 1,000 data cells, and provide a comprehensive overview of insurers’ businesses.

For this reporting cycle, the period they cover most commonly is the 2016 calendar year.

Alongside QRTs insurers must also compile solvency and financial condition reports (SFCRs), which are further documents containing narrative and data that variously overlap, complement and explain the pure figures in the QRTs. There is also private direct-to-regulator reporting that insurers must do.

A non-exhaustive list of QRT data includes: balance sheets including investments; solvency positions including capital to meet requirements; what types of cover insurers write (and where); claims and expenses; technical provisions; a decomposition of risks facing the insurers, and whether they use long-term guarantee and other measures under Solvency II.

QRTs arm insurers to evaluate each other — though not all (yet) realise the reams of public data available — and are goldmines for asset managers seeking business with insurance groups and their subsidiaries, which must publish QRTs separately to their parents.

Insurance Risk Data, a new service offered by the publishers of Insurance Asset Risk, centralises the SFCRs in one online platform, and has data for the largest and most important insurers, and all their subsidiaries, and analytical tools to view and map the pivotal data points.

We highlight below the various QRTs and data points giving significant competitive advantage to investment managers, whether to analyse underwriters in depth, or to unearth ‘conversation starters’ with clients and prospects.

Balance Sheet

This template shows assets and liabilities, including general account investments, categorised into 12 asset classes – segmenting listed from unlisted equities, sovereign from corporate bonds, though not by credit rating – and, separately, unit-linked assets.

This balance sheet template integrates alternatives including infrastructure within an ‘other’ category, but shows investment property separately.

The breakdown will not reveal which funds/managers an insurer uses, nor the currency denomination of investments, though the underwriter may discuss this in its SFCR.

Many SFCRs also have further breakdowns of investments, and discussions of investment plans, beyond the 12 sub-divisions in the QRTs.

In this first reporting year QRTs provide an investment allocation snapshot, which through simple maths can produce proportional exposures.

One sees, for instance that in the Netherlands the Achmea BV group has a €1.1bn ($1.3bn, or 2.5%) exposure to property, but that various of its subsidiaries – Achmea De Friesland Zorgverzekeraar, Achmea N.V Hagelunie, Achmea Reinsurance Company N.V. and Achmea Zorgverzekeringen N.V. for instance – have none yet, and that Germany’s Aachen Muenchener Versicherung seems amenable (9.4%) to using funds for investments.

Next year’s QRTs will reveal a brief time series (2016/17) of allocation changes, which will grow each year.

Asset managers can hone their discussions with insurance groups by examining the investments of subsidiaries (in ‘solo’ reports), and engage directly with the relevant subsidiaries if the parent allows.

A comparison of fund-based investments by some of the entities within the Aviva group is below.

Premiums, claims and expenses by line of business

This QRT shows entities’ re/insurance gross and net premiums, claims, changes in technical provisions and expenses, by 16 non-life and eight health/life business lines.

While perhaps not all directly relevant to managers, these templates still uncover which business lines insurers are entering or exiting; the 12-month sales of unit-linked business; and by some deducing, the approximate value of fresh exposures to payment protection orders (PPOs), which may require long-dated investments.

The QRT below shows fresh business, claims and expenses data, over 2016 by lines of life re/insurance, for Natixis Life.

Natixis Life Premiums, Claims and Expenses Data for Life Re/Insurance, 2016 (€ ‘000). Source: Natixis Life quantitative reporting template in Insurance Risk Data database. Data as at 31 December 2016

Premiums, claims and expenses by country

Discovering from these templates the five countries, worldwide, in which insurers do most of their business may not seem pivotal knowledge for asset managers, either.

But knowing that an underwriter has written large volumes of fresh business in a certain jurisdiction may give an edge to managers serving other clients in that same region.

The country-level breakdown of fresh business across five countries – from France to Monaco - for Credit Agricole Assurances is in the chart below.

Credit Agricole Assurances Premiums and Claims by Country (€ ‘000)

Own funds

These templates give a comprehensive breakdown of volume of own funds categorised by tiers (tier 1 unrestricted to tier 3), concluding with the volume of (tiered) eligible own funds the insurer can use to meet its solvency and minimum capital requirements (MCR, SCR), and its resulting MCR / SCR ratios.

Again, this data is not crucial for managers, yet it is helpful to know.

Low MCR and SCR ratios typically show insurers in greater distress.

A higher SCR ratio – denoting eligible capital outweighing the least capital that regulators require —  may signify an underwriter with more headroom to consider delving into asset classes whose purchase requires it to have more spare capital.

A chart showing the stretch of SCR ratios of German insurers on the Insurance Risk Data service, and the EU average SCR ratio and German average, from the European Insurance and Occupational Pensions Authority (Eiopa) is shown below.

SCR Ratios of German Insurers and Eiopa EU- and Germany- Average Ratios (%) Source: Analysis of German insurers’ quantitative reporting templates by Insurance Risk Data. Data as at 31 December 2016.

Solvency Capital Requirement

These templates show the absolute value, and by deduction proportional, of an insurer’s exposure to different kinds of risk — its SCR.

All types of risk, except for ‘diversification’, sum to the entity’s gross risk. A benefit for ‘diversification’ reduces that number.

Through this an asset manager can work out whether a subsidiary contributes disproportionately to the group’s market (investment) risk, and whether investments comprise a large proportion of total business risk.

Managers can combine this knowledge with asset allocation patterns to generate fruitful deductions, and talking points.

Again, the levels and types of Solvency II risk that an insurance group and its sub-divisions face in their businesses can differ markedly. The chart below displays the capital requirement for market (investment) risk as a proportion of total SCR, for various entities in the Länsförsäkringar group, plus the group-level number, as at the end of 2016.

Selected Länsförsäkringar Entities' Market Risk SCR (% of total SCR)

All SFCR reports and associated quantitative reporting templates (QRT) will soon be available as part of a new insurance risk data service. This service combines European insurers' financial and regulatory filings, including the new Solvency II disclosures, into a single, comprehensive and user-friendly database ideal for market/peer analysis, research and benchmarking. To find out more please email david.walker@insuranceerm.com or phil.manley@fieldgibsonmedia.com.