Quick Solvency II Technical Reporting Guide. Pillar 3: What, Who and When

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1 Quick Solvency II Technical Reporting Guide illar 3: What, Who and When

2 Contents Introduction 2 Solvency II in Brief 2 Who will be subject to Solvency II? 3 What are the Solvency II key requirements? 3 illar 3: What, Who and When 4 What? 4 Solvency and Financial Condition Report (SFCR) 4 Regular Supervision Report (RSR) 4 Reporting Format 4 Who? 5 When? 5 Solvency II Reporting Framework Timeline 7

3 Introduction Solvency II is an EU legislative initiative aiming to strengthen and harmonise the European insurance market by introducing new, stronger requirements on capital adequacy and risk management for insurers in Europe. The Solvency II regulatory framework consists of three key aspects, known as pillars, covering the financial requirements, risk management and transparency of direct life and non-life insurance undertakings and reinsurance undertakings in the EU. According to recent industry research 1, the Solvency II illar 3 reporting requirements are proving to be one of the biggest challenges facing insurers in the implementation of the directive. Considering the tight turnaround times and the amount of data that is required to be collated, analysed and reported, the illar III will undoubtedly represent a major operational obstacle for firms in To help businesses understand the key Solvency II requirements and in particular the illar 3 reporting obligation, we have prepared this Quick Solvency II Technical Reporting Guide which provides a concise summary of the principal regulations and their practical application. Solvency II in Brief The Solvency II Directive was initially adopted by the European Council in November 2009, and is expected to come into force on 1 January Solvency II will apply across all 27 EU member states affecting all insurance and reinsurance companies regardless of their size or legal form, excluding pension funds. The core objective of the directive is to increase protection for policyholders by reducing the risk of an insurer s insolvency and the probability of consumer loss or market downfall. To achieve this, the regime introduces a new set of regulatory rules by incorporating the Three illars of Solvency II: Figure 1: The Three illars of Solvency II SOLVENCY II illar I illar II illar III Capital (Quantitative) Requirements Risk Assessment (Qualitative) Requirements Regulatory reporting and transparency Valuation of assets, liabilities, technical provisions and available capital Calculation of minimum capital requirements (MCR) and solvency capital requirements (SCR) Establishes governance requirements for risk management, internal controls, audit and outsourcing Conducts its own risk and solvency assessment (ORSA) covering business risk profile, compliance with CR and any deviations Information disclosure and reporting to supervisory authorities and public Quantitative reporting template (QRT) including capital position, high level financials, assets, liabilities, revenue/expenses, business analysis, etc. Reporting to regulators on a quarterly basis 1 EY (2014), 2014 European Solvency II Survey, available at: (accessed on: 27/10/14) 2

4 Who will be subject to Solvency II? All European direct life and non-life insurance undertakings and reinsurance undertakings with annual gross premium income exceeding 5m or a total value of gross technical provisions greater than 25m, will fall within scope of the Solvency II regulatory regime. What are the Solvency II key requirements? The Three illars of Solvency II are intended to tackle market volatility and systemic risk by establishing tighter capital, leverage and liquidity requirements to ensure European insurers have sufficient reserves to withstand sudden financial disruptions or economic slowdown. To meet these requirements, insurance companies must: erform market-based valuations of their assets and liabilities on a security-by-security basis Calculate their Minimum Capital Requirement (MCR) and Solvency Capital Requirement (SCR) Build a risk exposures profile by conducting their Own Risk and Solvency Assessment (ORSA) Refer to the required identification codes provided by EIOA for mapping and reporting purposes Collate look-through data on investment funds to identify the ultimate parent hierarchy, assets and their resulting exposures ublish annual Solvency and Financial Condition Report (SFCR) and submit the Regular Supervision Report (RSR) to their regulators on a quarterly/annual basis Complying with this wide set of requirements involves a complex process of collating, analysing and mapping a vast amount of data, which also presents a number of reporting challenges for both insurers and their thirdparty service providers. Figure 2: Solvency II Key Data Requirements Third-party Service roviders (e.g. Asset Managers, Custodians, Administrators, etc.) illar I Granular Data Requirements If possible, investment data need to be at security level No predefined regulatory format illar II Continuous Data Requirements Ensure more continuous recording of investmentrisk exposures to the firm illar III Comprehensive Data Requirements Investment data required to be disclosed and reported by non-standard instrument classification MCR/SCR ORSA QRT Solvency II Regulatory Reporting rivate and ublic Disclosure Source: J Morgan Asset Management (2012), Solvency II reporting: The three pillars, available at: getdoc/ (accessed on: 24/10/14) 3

5 illar 3: What, Who and When The third of the Three illars, reporting and disclosure are integral to the new regulatory framework. Solvency II will apply new transparency requirements to firms covering both quantitative and qualitative obligations. What? The Solvency II illar 3 reporting rules focus on two main narrative reports, the Solvency and Financial Condition Report (SFCR) and the Regular Supervision Report (RSR), and include over 60 separate quantitative templates. Solvency and Financial Condition Report (SFCR) The SFCR requires public disclosure of a limited number of quantitative templates and qualitative data, and is expected to be made available to the public. The SFCR will need to be published within three or four months of a company s financial year end. The report will also have to be prepared in accordance with the EIOA s prescribed format including key information on: Business and erformance System of Governance Risk rofile Regulatory Balance Sheet Capital Management Regular Supervision Report (RSR) The RSR is required to be submitted privately to the regulator including all quantitative templates and a detailed set of qualitative data. The frequency of the regular supervision reporting will depend on the strength of the Supervisory Review rocess (SR) and may vary between different jurisdictions. In the UK, for example, the regulator expects a summary every year, with a full RSR update every three years. EIOA s Consultation aper 58/09 (C58) specifies that the regulator in each EU member state must require the RSR to be submitted at least every five years. The RSR covers key data on: Balance Sheet remium Claims and Expenses Own Funds Variation Analysis SCR and MCR, Assets Technical rovisions Reinsurance Group Reporting In the UK, in addition to the Solvency II illar 3 reporting requirements, the RA will also expect companies to provide financial stability reporting. Reporting Format Insurers are required to submit both quantitative and qualitative information in electronic form. Reporting languages and formats will depend on the systems used by individual regulators, the most common reporting formats being Excel and XBRL. 4

6 Solvency II Reporting rocedure in the UK The UK regulatory authority, RA has introduced a new electronic system to handle the collection and analysis of data for the implementation of Solvency II. The system will support three reporting formats: QRTs Qualitative returns NSTs in XBRL in DF in Excel initially (may move to XBRL in the future) Firm submits QRTs NSTs Qualitative returns Feedback provided to firms on validation and plausibility Re-submissions may be required or further explanation requested Collections system Secure Web ortal XBRL processor Validation lausibility EIOA RA Supervision Source: Fairhead, G., (2014), Solvency II Regulatory Reporting, available at: (accessed on: 24/10/14) Who? illar 3 of Solvency II includes more than 60 quantitative forms, but not all will apply to every insurance firms some, for instance, will apply only to groups. Levels of reporting under Solvency II will depend, therefore, on the structure of the business and will vary between life and non-life as well as solo and group. More details on the reporting requirements for different types of firm are provided in the next section. When? Firms making up at least 80% of the national market share will be required to submit quantitative and qualitative information to their local regulators on annual basis, with at least 50% of firms by market share also required to report quarterly data. In addition, groups with total assets exceeding 12bn will have to report on both quarterly and annual basis. Figure 3: Solvency II Reporting Thresholds Annual quantitative Quarterly quantitative Narrative submissions submissions submissions Life solo firms 80% of the national 50% of the national 80% of the national market market market Non-life solo firms 80% of market by gross 50% of market by gross 80% of market by gross non-life premiums non-life premiums non-life premiums Groups Total group assets Total group assets Total group assets > 12bn > 12bn > 12bn Source: EIOA (2013), EIOA Final Report on ublic Consultation No. 13/010 On the roposal for Guidelines on Submission of Information to National Competent Authorities, available at: EIOA_13_415_Final_Report_on_C10.pdf 5

7 Figure 4: illar 3: What and when to report SOLO SOLO GROU GROU ANNUAL QUARTERLY ANNUAL QUARTERLY Basic Information Balance sheet Assets and liabilities by currency Detailed list of assets Detailed list of derivatives - open position Life and Health Similar to Life Techniques Technical rovisions - Best Estimate by country Life and Health Similar to Life Techniques Technical rovisions Non-life Technical rovisions - Best Estimate by country Non-life Technical rovisions Own funds Solvency Capital Requirement - for undertakings on Standard Formula or artial Internal Models Solvency Capital Requirement - for undertakings on artial Internal Models Solvency Capital Requirement - for undertakings on Full Internal Models Solvency Capital Requirement - Market risk Solvency Capital Requirement - Counterparty default risk Solvency Capital Requirement - Life underwriting risk Solvency Capital Requirement - Health underwriting risk Solvency Capital Requirement - Non-life underwriting risk Solvency Capital Requirement - Non-life catastrophe risk Solvency Capital Requirement - Operational risk Minimum Capital Requirement - Undertakings other than composites Minimum Capital Requirement - Composite undertakings Entities in the scope of the group Insurance and reinsurance solo requirements Other regulated and non-regulated financial entities including insurance holding companies solo requirements Contribution to group technical provisions 6

8 Solvency II Reporting Framework Timeline SII Directive 31 March 2015 SII Transposition 1 January 2016 SII Implementation Guidelines Jun Sep 2014 Guidelines 1 ublic Consultation February 2015 Guidelines 1 ublication Dec 2014 Mar 2015 Guidelines 2 ublic Consultation July 2015 Guidelines 2 ublication Implementing Technical Standards October 2014 ITS 1 ublication Dec 2014 Mar 2015 ITS 2 ublic Consultation June 2015 ITS 2 ublication July 2014 Final taxonomy for preparatory phase July 2015 Final SII taxonomy Taxonomy April 2015 December 2014 Candidate Final SII taxonomy Draft SII taxonomy Solvency II Reporting Solutions XBRL-enabled Excel By far the simplest and most cost-effective solution for your Solvency II obligations, Excel templates embedded with XBRL tagging allow you to continue working in Excel as normal, while at the same time addressing the technical requirements of Solvency II. Good quality systems of this type include the means to automatically reflect changes in the XBRL taxonomy as they occur, allowing you to roll forward your reportable data rather than re-keying each period from scratch. Some of these solutions work as a desktop application, some are cloud-based portals Arkk offers both types of solution depending on your business requirements. For more information please call our London office on +44 (0) or our Dublin office on +353 (0)

9 About Arkk Solutions Arkk Solutions is a leading vendor in regulatory and statutory reporting software. Our products are used and trusted by many of the world s leading companies. A common theme with all our solutions is a simplified user experience. Our software allows users to carry on business as usual and enables the reporting process to be run in Excel. The complexities of ixbrl, XBRL and XML are handled by the software, taking your Excel reports and converting them to the required format for submission to the relevant Authority. enquiries@arkksolutions.com enquiries@arkksolutions.com London 67 Charlotte Road, London EC2A 3E Dublin 12 Lower Hatch Street, Dublin