Methodology Paper: Solvency and Financial Condition Reports (SFCR) - The body-mass-index of the life insurance industry

In the study about the Solvency and Financial Condition Reports (SFCRs) - that have to be disclosed under the Solvency II Directive (Art. 51) – we take a closer look at eight different figures that are calculated and rated:

1. Transparency, expressed on a point scale (from -2 to 19);
2. Solvency ratio, expressed as a percentage of existing capital out of insurance
   liabilities;
3. Expected profits, as a percentage of profit (calculated in future premiums) out of
   the total own funds;
4. Market risk, as a percentage out of total risk;
5. Government bonds, as a percentage of out of total assets;
6. Diversification; showing how well diversified the portfolio is;
7. Surplus funds; showing the additional profits not yet disbursed to policyholders;
   and
8. Risk margin, as a percentage of provisions covered in addition by a third party.

These figures (or metrics) are explained in the sections below. Each figure or metric is then assigned a colour reflecting “traffic lights”:

• “Green” figures indicate a situation that is quite good from the perspective of a policy holder;
• “Yellow” figures express a potential of optimization while the situation is nevertheless still acceptable; and
• “Red” is a sign for a problem that should be solved; or
• “Light Grey” is used to indicate an unreasonable high solvency ratio.

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