Capital generation and return metrics in Europe

The disclosure of capital generation metrics, that represent the change in a valuation metric over time (e.g. the growth in Solvency II Own Funds over a financial year), have become increasingly popular in recent years, with many firms disclosing a Solvency II earning metric or Solvency II capital generation metric on a regular basis.  These metrics are useful for a variety of purposes, from benchmarking against competitors and understanding the stability of drivers of capital generation, to assessing the capacity for paying dividends and making distributions.

This paper provides an introduction to Solvency II-based valuation metrics and to capital generation and return metrics, and sets out the results from an analysis into Solvency II-based capital return metrics. The analysis is based on public data for a sample of the largest insurance groups in Europe over a two-year period, from year-end 2018 to year-end 2020.