9  https://www.bankofengland.co.uk/prudential-regulation/publication/2017/solvency-2-solvency-and-financial-condition-reportroundtables  8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Another key area where investors and analysts want better and more consistent disclosure is the drivers of the change in insurer’s SCR coverage ratio from one reporting date to another. I think of this as the ‘Solvency II P&L’. But Solvency II itself does not address measurement of changes in capital position over time. There is a reporting gap and insurers are closing it with their own content, leading to a mixed picture across the sector. Again, this is an area where insurers and industry groups could usefully develop some template approaches. As supervisors, we are also keenly interested in understanding how insurers generate capital, now and in the future. This is at the core of our analysis of the sustainability of an insurer’s business model. In particular, we want see the change in the SCR coverage ratio due to the risks and returns in the business split out from the effects of changes in broader market and economic variables and changes in modelling approach or assumptions or management actions. I have set out more detail in the Appendix. I have mentioned two areas – market risk sensitivities and a Solvency II ‘P&L’ – where insurers could improve the quality and consistency of disclosures. It is a concern that we still see evidence of analysts and investors not fully understanding insurers’ Solvency II balance sheets.

In more stressed market conditions complexity and lack of transparency might lead investors to turn away from regulatory measures of risk and rely on simpler but cruder approaches. Progress towards an International Capital Standard should help. More generally, it is vital that insurers maintain discipline in underwriting, reserving and capital management, notwithstanding tough trading conditions in some parts of global insurance markets. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  Appendix: Breakdown of insurer capital generation used for PRA business model analysis This Appendix sets out a generic break-down of the change in an insurer’s capital surplus over the Solvency Capital Requirement (SCR) from one reporting date to the next, used by the PRA to understand how an insurer generates Solvency II capital. The example shown is for a life insurer. Separate reporting of capital generated from new business as opposed to existing business is key. Supervisors also find it valuable to see this split by material product line. Separating out the effect of the Risk Margin and Transitional Measures on Technical (TMTP) provisions means supervisors can see the underlying business returns. Experience variations and changes in operating assumptions are combined into one line item, alongside the line for economic variance. Each combines several possible items to show the result of market factors or those items under management control. Here this also includes the insurance assumptions built into the pricing of business and feeds into the assessment of management forecasting. This item could sensibly be split further at the cost of simplicity.