When I set up and ran Investor Relations at Standard Life, I would have the results months before publication. In those days it was all hard copy, and I was almost paranoid about it. If I was out of the office and wanted to edit the draft release, the results pack never left my briefcase, and the briefcase never left my sight. The idea of market sensitive numbers slipping out early was unthinkable.

That is why the recent OBR episode, where its latest outlook appeared before the Chancellor stood up, really caught my eye. If the process around the release is that loose, it raises questions about how much weight we should put on the content, including the £22bn of “headroom”.

That £22bn has clearly reassured markets, but it is still defined around a single central OBR forecast. Once you look at the uncertainty bands, the OBR itself suggests there is only about a 59% chance that the fiscal rules are actually met. Precise number, modest standard.

In UK life insurance, the nearest concept is a capital buffer. Under Solvency UK, a 100% solvency ratio already means capital is set for roughly a one in 200 year event. UK life insurers, on average, sit around 200% solvency, which implies a much higher probability of staying solvent, not something close to 59%.

So on one dial we have £22bn of fiscal headroom that might only deliver a 59% chance of success. On the other dial we have capital buffers that are designed to survive very extreme scenarios by construction.

In my latest Substack (link in the comments) I argue that UK life insurers deserve far more trust than their share prices imply, and that the OBR should borrow from the insurance toolkit when it talks about headroom and risk.

Not investment advice.

#FTSE #OBR #insurers #investing