Danish regulator orders recalculation of solvency ratio as part of ongoing inspection into the unrated insurer

Unrated insurer Gefion has updated its solvency ratio to just 105% amid an ongoing inspection into the carrier by the Danish regulator.

The Danish Financial Supervisory Authority found how Gefion was calculating its solvency ratio was overstating its position. It means that its previously stated solvency ratio of 130% is no longer valid.

Gefion had to take a range of measures to report that ratio of 130%, including increasing its levels of reinsurance, and a capital injection of around £4.7m. This was necessary after Gefion reported a solvency ratio of just 72% in its Solvency and Financial Condition Report for 2018 – well short of the 100% required under the legislation.

The DFSA began its inspection of Gefion in November 2018, and in April this year demanded the insurer restate both its 2017 annual report and its 2018 half-year results.

Specifically, the regulator was unhappy with using the loss-absorbing capacity of deferred taxes to beef up its solvency ratio.

In a statement the regulator said: “It was the opinion of the Danish Financial Supervisory Authority that Gefion Insurance A/S did not fulfil the necessary requirements to be able to reduce its Solvency Capital Requirement with the loss-absorbing capacity of deferred taxes.”

Having recalculated its solvency ratio to 105%, the DFSA revealed it is still inspecting Gefion.

Gefion sank to an underwriting loss in 2018, and has recently vowed to pull business with unprofitable intermediaries.

The unrated insurer had enjoyed massive growth last year, with gross written premiums in the first half of 2018 up 60% on the same period the previous year.  

Gefion response

Responding to the regulator’s actions, Gefion stated it does not agree with the decision.

The insurer stated: “Gefion Insurance has argued that it will be possible for the company to raise sufficient capital, and the company will therefore be able to continue to do business even in a hypothetical 200-year event.

“In the period April 2018 to May 2019 alone, capital increases of EUR 12.3 million have been completed. Furthermore, Gefion Insurance is still in on-going discussions about further capital increases.

“However, in the current situation, it has not been possible to convince the DFSA of this and Gefion Insurance has therefore chosen to take note of the order, even though Gefion Insurance is still of the opinion that it – in line with other insurance companies – has had no reason to change its practice due to a lack of common European guidelines in the area.

“Gefion Insurance is now looking forward to the DFSA’s up-coming conclusion of the very long and thorough ordinary inspection of Gefion Insurance, which the DFSA has carried out. An inspection that has taken place in a close and open collaboration between the parties.

“Gefion Insurance looks forward to concluding on the process so that the necessary decisions can be made, and the company can focus on its continuing operations and consolidation together with our business partners and investors for the benefit of our more than 600,000 insurance customers.”