The unrated Danish insurer reported a solvency coverage ratio of just 72% in its Solvency and Financial Condition Report for 2018, forcing the executive management team to take action

Gefion has fallen below the required solvency coverage ratio (SCR) under Solvency II, reporting an SCR of just 72% for 2018, well short of the 100% required under the legislation.

The Danish insurer reported total eligible own funds to meet the SCR of DKK128.7m (£15.3m) compared to a solvency requirement of DKK178.7m. The insurer did, however, meet its minimum capital requirement (MCR) of DKK59.9m with eligible own funds to meet the MCR of DKK66.0m for a minimum coverage ratio of 110%.

While such a solvency level does not declare the business insolvent, falling below the SCR level does lead to regulatory intervention, and the insurer has since boosted its solvency with a range of measures.

The insurer stated in its SFCR: “The Executive Management has taken the necessary Management actions to re-establish a solvency ratio above 1.25 [125%]. The Company has increased the level of reinsurance with an existing reinsurer, which both improves the SCR and own funds significantly as at 30 April 2019.

“Together with a capital injection of DKK 39.6m as at 6 May 2019 these Management actions have led to a re-establishment of the solvency ratio to 1.30 [130%] as at 6 May 2019.”

This injection of shareholder capital follows on from a €2m boost to its capital reserves at the end of April 2018, and since then the insurer has been seeking external investment.

In its latest SFCR Gefion stated: “Gefion Insurance has appointed an external capital advisor to support the capital structure of the Company with the purpose of obtaining increased efficiency of capital management.

“Furthermore, the Company is currently engaged in negotiations with potential third-party institutional investors with a view to further increasing the share capital of the Company before the end of 2019.”

Underwriting Losses

The latest revelations mark the continuation of a tumultuous few months for Gefion, with the insurer revealing in its annual report that it had slipped to an underwriting loss for 2018.

The Danish carrier, which recently had to restate its accounts amid regulatory intervention, admitted it’s underwriting result was ‘unsatisfactory’ as the combined operating ratio fell from 98.7% in 2017 to a loss making 101.8% in 2018.

Now Gefion, which had been through a period of booming growth, is determined to get improved results, and has vowed underwriting action if necessary – including withdrawing from underperforming broker/MGA business.

The insurer has said that it “expects 2019 to be a year of consolidation with no growth and a stable or slightly declining premium volume”.

While this will lead to less capital needing to be held in reserves, it will also lead to a decrease in the reconciliation reserve that makes up part of the capital base, and also contributes towards solvency capital levels.