Legal & General and Aviva’s safety cushion boosted but Europe outpaces

UK insurers Legal & General and Aviva lifted the bonnet on their capital engines today, showing thicker safety buffers but still lagging European peers.

L&G said the sale of its Dutch business and funds platform Cofunds helped boost solvency II coverage ratio to 180% from 171% in December.

Aviva’s regulatory capital cushion was 172% of the European regulators’ requirement, working out as a £12 billion surplus.

L&G’s surplus is worth £7 billion, although UBS said stripping out adjustments the unofficial solvency ratio fell to 88% and would “be a source of uncertainty” for the company.

The two insurance giants revealed the data as compulsory EU rules came into force this week, demanding all insurers shine a light on their cashflows and dividend capacity. The shares were muted, with L&G down 0.5% and Aviva up 0.9%.

Solvency II reporting requirements, which started in January 2016, are driven by EU regulations designed to protect policyholders against a banking-style crash in insurance.

UK insurers have long criticised the regime for unfairly putting them behind their European counterparts, which have fewer long-term pension promises on their books.

Groups like L&G and Prudential have previously called on the UK’s Prudential Regulation Authority to overhaul the system, which would bolster solvency ratios.

“We have a gold-plated regulatory system whereas the Europeans don’t and are not playing by the same rules,” said Panmure Gordon’s insurance analyst Barrie Cornes.

Germany’s Allianz has a capital buffer of 212% and Axa of France has 196%. Euro reinsurers are even higher, with Munich Re reporting a 267% ratio and Scor on 225%.