THIS PAPER FOCUSES ON THE REVISED                  GUIDELINES             OF THE      REPORTING                  &       D...
Respondents’ Comments and EIOPA’s ResponseImplementation and maintenance costs                                Quarterly re...
updated with volatile elements and only on a best effort basis.             Best effort and legal hook for financial stabi...
TEMPLATE NAME                  RESPONDENTS CONCERNS                                                    EIOPAS OPINION     ...
TEMPLATE NAME                      RESPONDENTS CONCERNS                                                 EIOPAS OPINION Spe...
some guidelines which will only apply to Solo and Group undertaking using an internal model or a partial internal model to...
about SYNTEL:                                                                              Syntel provides custom outsourc...
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Solvency II Reporting & Disclosure


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Solvency II Reporting & Disclosure

  1. 1. THIS PAPER FOCUSES ON THE REVISED GUIDELINES OF THE REPORTING & D I SC LOSUR E R EQUIR EM ENT S, S P E C I F I C A L LY Q U A N T I TAT I V E R EQU I R EM EN T S, AS O U T L I N ED BY THE EIOPA IN JULY 2012. Solvency II Reporting & DisclosureA Brief Analysis of EIOPA’s Final Report on Consultation Papers
  2. 2. TABLE OF CONTENTS1 FOREWORD2 RESPONDENTS’ COMMENTS AND EIOPA’S RESPONSE3 SPECIFIC ISSUES ON THE TEMPLATES RAISED BY RESPONDENTS AND EIOPA’S RESPONSE4 COMMENTS FROM INSURANCE AND REINSURANCE STAKEHOLDERS’ GROUP (IRSG)5 DRAFT GUIDELINES ON QUALITATIVE REPORTS6 SUMMARY7 SYNTELS SOLUTION Foreword On July 9, 2012, the European Insurance and Occupational EIOPA does not expect any major material changes in the Pensions Authority (EIOPA) published its Final Report on templates due to Omnibus II discussions and the level 3 Public Consultations No. 11/009 and 11/011 on the Proposal Implementing measures, but changes may occur in the fol- for the Reporting and Disclosure Requirements. lowing templates: The two consultation papers were published by EIOPA on • Own funds November 8, 2011 and December 21, 2011, regarding report- • Solvency Capital Requirements (SCR) specific risk modules ing and disclosure requirements as part of Pillar III of the • Life technical provisions Solvency II framework. This report consists of the comments • Activity by country • Templates applicable to ring fenced funds (RFF) received from the respondents during the public consultation, along with EIOPA’s response. In addition to this, further clarifications will need to be developed for the use of templates of technical provisions EIOPA has included the draft guidelines including the dif- ferent sections and its content on Solvency and Financial and SCR calculations, to be defined by implementing mea- sures. Condition Report (SFCR) and the Regular Supervisory Report (RSR), reporting under pre-defined events and The European Markets Infrastructure Regulation (EMIR) undertaking’s processes for Reporting & Disclosure. It has consultation package will enforce the Reporting & Clearing also added explanatory text in the final report to help the obligation for over the counter (OTC) derivatives and undertakings understand the rationale of the guidelines. common rules for Central counterparties and for Trade Repositories. EMIR may lead to revising templates on The package published in this Final Report includes: derivatives, so EIOPA believes that it is imperative to align • Feedback statement for CP No. 11/009 and for CP No. Solvency II Reporting and Disclosure requirements with the 11/011 Reporting Requirements of EMIR to reduce the burden on • Updated Excel templates covering solo, groups and financial undertakings. stability • Updated Summary documents covering solo, groups and EIOPA has also published the Quantitative Reporting financial stability Templates (QRTs) with supporting opinions on the com- • Updated LOGs covering solo, groups and financial stability ments received during open consultations. • Updated proposal for the SFCR and narrative RSR, report- ing under pre-defined events and the undertakings’ processes for Reporting & Disclosure • Comments template ©2012 SYNTEL, INC.
  3. 3. Respondents’ Comments and EIOPA’s ResponseImplementation and maintenance costs Quarterly reporting and fourth quarter reportingRespondents raised concerns over the heavy costs involved in Respondents believe regulators should have the authority tochanging IT systems for reporting purposes. Another related exempt those companies with a stable risk profile from quar-concern was the additional resources required to maintain the terly reporting. Also, fourth quarter reporting templates willsystems in all company functions. duplicate the process, as annual reports need to be submitted nine weeks after the quarterly submission.EIOPA acknowledges the implementation and maintenancecosts of the reporting package, but it should be considered As per EIOPA, considering the adequate supervision ofwithin the overall context of Solvency II. EIOPA believes that undertakings, quarterly reporting will be restricted to minimalrevised package expected in 2013 will represent an appropriate information needed under Solvency II. EIOPA has also iden-balance between the costs for the undertakings and the needs tified several areas where it was able to reduce the reportingof supervisory authorities to ensure the protection of policy- burden, including the threshold and criteria related to quar-holders and the assessment of financial stability. terly reporting.Eighteen month time frame for implementation In the current package, the template Assets D1, D2O andIf XBRL is chosen as the new technical format for reporting D2T are quarterly templates only and will be resubmitted intemplates, undertakings may require up to two years to imple- annual deadlines if there are any material valuation changesment and test the required systems. The respondents urged after the due date for the fourth quarter reporting.EIOPA to finalize the reporting templates as early as possible. Standard codes to be used in the reportingEIOPA understands the concerns over the timing of Respondents expressed concern over how the required codesSolvency II implementation. However, its limitations are due will be maintained, such as codes for reinsurers, issues, issuerto its dependency on a number of external factors, includ- group, issuer sector and Omnibus Directive II (OMDII) and the implementingmeasures. These external factors are under discussion and are EIOPA acknowledges the concerns in this area. However,expected to lead the changes in the Reporting package. complete harmonization of codes is not possible at the present time. At an initial level, EIOPA will develop and maintain aProportionality in general common identifier (code) of the reinsurance undertakings butRespondents have asked for a clear definition of materiality for the rest, codes available in the market will be used.thresholds in several templates. This request has emerged asthey believe that the principles of proportionality and materi- Technical provisions by line of business for financialality were not adequately considered in the general reporting stability informationrequirements, as well as in the amount of information to be Re-introducing technical provisions at a group level by line ofreported. business was a concern for the respondents.Threshold of €6 billion for financial stability information EIOPA understands this concern, and will not require tech-Respondents have raised concerns around the low threshold nical provisions by line of business for groups. However,of €6 billion, citing that this might have a negative impact on Technical Provisions items will be requested from the balancesmall and medium-sized countries. sheet on a quarterly basis for both individuals and groups.Considering the industry concerns, EIOPA has stated that Quarterly Solvency Capital Requirement for financialthis threshold will be increased to €12 billion in assets, in the stability informationSolvency II balance sheet. Another concern was related to quarterly reports of SCR on a “best effort” basis, especially if there are any volatile elementsDeadlines for financial stability information included. Some of the respondents believe there is no need forRespondents were concerned about the short deadlines for a quarterly reporting of solo SCR or group SCR for micro-groups, which will lead to difficulties in preparing consolidated prudential purposes, while others were in favor of it — espe-data. cially for financial stability analysis.EIOPA will be allowing one additional week for group con- EIOPA reiterated the importance of quarterly informationsolidation for the Financial Stability reporting. on solvency capital requirement of undertakings for financial stability purposes. EIOPA stated that SCR should only be
  4. 4. updated with volatile elements and only on a best effort basis. Best effort and legal hook for financial stabilityThis can be based on their use test for the undertakings, using informationInternal Model. Standard Model users should re-calculate the Respondents requested clarity or guidance on the content ofvolatile components of SCR to report the overall SCR on a the “best effort” principle. They also wanted additional detailsbest effort basis. on the legal hook, in case of a separate data request for finan- cial stability purposes.Statutory accounts for financial stability informationReporting of quarterly statutory accounts (P&L and balance EIOPA acknowledges the need for guidelines on the bestsheets) was a concern raised by respondents, since many insur- effort principle for financial stability reporting and will provideers disclose semi-annual information only. more detailed guidelines in the near future.Considering industry concerns, EIOPA has mandated that Replying to the industry’s concerns on the legal hook forP&L information should be requested on a semi-annual basis financial stability information, EIOPA clarified that specificand not quarterly. EIOPA believes that semi-annual reporting reporting requirements for financial stability are based onwill not be very taxing. Article 35 of EIOPA regulation. This regulation allows the authority to collect all the necessary information to monitorThe balance sheet items, including balance sheet total and and assess market and reserve, are no longer requested because this willbe reported quarterly on a Solvency II basis for supervisory Lapse rates for financial stability informationpurposes. Respondents stated that the lapse rates — including the vol- ume and number of lapsed contracts — would not provideDetailed list of assets and look-through principle useful information to EIOPA.Respondents — especially fund managers — voiced theirconcern about confidentiality, costs of provision of rating and EIOPA acknowledges that these are not perfect measures, butavailability of investment returns at a group level. They were the undertaking will have to provide these numbers on a bestalso concerned about the look-through principle of investment effort basis. This will then be used by EIOPA as an indicatorfunds. for the potential liquidity drain due to policyholder’s behavior for the life insurance business.EIOPA argued that in a principle-based regime, a reduction ofprescribed constraints should be balanced with a higher degree Duration of liabilities for financial stability informationof information to supervisory authorities for effective supervi- Respondents questioned the usefulness of this information andsion. Addressing the industry’s concerns, EIOPA has raised argued that it would be difficult to calculate, especially on athe threshold from 20% to 30% for quarterly reporting. Hence, group basis.undertakings, which hold 30% of their portfolio in investmentfunds, are now mandated to conform to quarterly reporting. EIOPA concluded that it requires this information on a best effort basis to keep an eye on the interest rate sensitivity indi- cator.Specific Issues on the Templates raised by Respondents and EIOPA’s Response TEMPLATE NAME RESPONDENTS CONCERNS EIOPAS OPINION • Lack of any additional benefits while disclosing both • Only the Solvency II balance sheet should be disclosed accounting balance sheet and Solvency II balance both at solo and group level sheet • Now considering the quarterly submission of balance Balance Sheet • Publicly disclosing Solvency II balance sheet with sheet to report the quarterly own funds a narrative statement explaining differences will be sufficient • In favor of introduction of a threshold for the European • As per the directive, information from all EEA branches Economic Area (EEA) branches reporting is required to be reported, so no thresholds have been established Country K1 • At non-EEA branches, the thresholds were removed due to minor impact. • Where impact is significant, the information on all non- EEA branches is required
  5. 5. TEMPLATE NAME RESPONDENTS CONCERNS EIOPAS OPINION • Questions regarding the complexity of the own funds • Introduction of amendments to this template to reflect template, quarterly frequency, level of public disclosure the requirements, including modified fields and an and treatment of non-EEA entities additional specific template on participations withOwn Funds materiality thresholds • Now considering relevance at a group level, quarterly own-funds requirements were kept as-is • Variation analysis split by LOB • Revision of the templates • Technical Provision (TP) reporting on accident and • Allowing both accident basis and underwriting basis for underwriting basis TP reporting • The split of analysis between periods and detailed • Removed detailed breakdown on reinsurance breakdown on reinsurance recoverables recoverables requirementVariation Analysis • Concerns about the request of cash flow information • Information on technical flows to be required on an • Cost and timeline issues accrual basis instead of a cash-flow basis • The split per period was kept with information by LoB on Non-Life, but for Life, a breakdown between Life and Health will be sufficient • Necessity of a tool by EIOPA to help undertakings • A tool for the calculation of SCR may be considered calculate SCR in future, but it will not be used for reporting purposes; • Applicability of the templates using internal model in an undertaking will use the template SCR-B2A forMCR / SCR case an estimate of SCR is requested, especially the reporting an estimate of SCR level of detail of the catastrophic risk template • Introduction of the counterparty default risk SCR template • Deletion of some columns including delta, rating from • EIOPA agreed on this concern and templates were Asset D1 modified accordingly • Assets of unit-linked products should not be reported • Considering its importance in supervision of theAssets • Simplification in reporting of investment funds using the “prudent person” principle, Asset D1 was detailed out look-through approach and the threshold of Assets D4 was increased from • Assets to be reported on a consolidated basis for the 20% to 30% whole group • Request for guidance on simplification and clarification • Simplifications were anticipated in the legislation of the best effort basis regarding quarterly reporting itself and the guidelines on the valuation of TechnicalTechnical Provisions and for revisiting threshold regarding the split of run-off Provision will be developed furtherNon-Life triangles by material currency • Reinsurance triangles were retained as it is but • Questions regarding the rationale behind reinsurance salvages and subrogation triangles were removed trianglesTechnical Provisions • Request for simplified guidelines on quarterly reporting • Further guidelines will be developed in ActuarialLife and clarification on the meaning of “best efforts” guidelines • Request for information on reinsurers’ credit rating, • Introduction of no materiality threshold in these eventual costs and materiality thresholds templates but templates Re-J1 (Facultative covers) and Re-J2 (Outgoing Reinsurance Program in the nextReinsurance reporting year) were simplified to avoid duplication of information; the frequency of template RE-J2 was revised • Excessive and burdensome reporting at different levels, • As per Article 216 of SII Directive, all reporting such as groups and sub-groups templates must be reported at this level • Query as to whether all IGTs should be reported — • Definitions of “significant” and “very significant” will particularly those which terminated during the period; be clarified separately during the overall Solvency IIIntra Group proposal that the definitions of “significant” and “very package and the college will be able to modify these significant” should be risk-based definitions considering the group specificities; all IGTsTransactions (IGT) • Suggest that transactions should be reported in the including terminated during that period need to be currency of the group, rather than the currency of the reported. transaction • Transaction reporting in the currency of the group suggestion was accepted by EIOPA and the LOGs were updated to include this • In favor of non-standardization of Risk Concentration • Risk Concentration reporting will be done through RC Reporting and concern about the viability of the template, and will be applicable for all insurance groups template in terms of achieving the intended purpose without ant exemptions. But additionally qualitativeRisk Concentration • Proposal that it should be reported on a qualitative information can be reported basis aligned with quantitative reporting • Removed the requirement of public disclosure in this case, considering the concerns of industry
  6. 6. TEMPLATE NAME RESPONDENTS CONCERNS EIOPAS OPINION Specific Comments on • Excessive amount of information for public information • Revision of the content of the SFCR and some of the Narrative Reporting • Duplication of reporting information between SFCR and required information has been moved to the narrative QRTs part of RSR and DisclosureComments from Insurance and Reinsurance Stakeholders’ Group (IRSG)IRSG submitted two documents with its comments, one with general and main concerns and another regarding more specificconcerns. The application of the proportionality principle, the external audit requirements and the local reporting requirementswere highlighted as general concerns.IRSG raised principle concerns including the detailed list of assets, deadlines under financial stability information, quarterlyreporting and disclosure.EIOPA acknowledged these concerns and stated that they are following a balanced approach considering the costs and benefitsof such requirements. They also stated that the exemptions and application of thresholds and materiality principle has beenrevised in the current package published with this final report.The second document addressed some specific issues raised by IRSG, which are mentioned below: SPECIFIC ISSUES EIOPA’S OPINION & COMMENTS Underwriting year versus • EIOPA clarified that reporting on Technical Provisions should be done using either accident year or accident year for TP Reporting underwriting year. Variation Analysis • EIOPA engaged in a discussion with stakeholders and the current proposal represents a balanced approach between supervisory needs and stakeholders. Reinsurance • The templates were divided to make them simpler. Technical Provisions • The Technical Provisions templates were revised and adequately amended including deletion of some of the information (e.g. the “salvage and subrogation” triangles) and clarification was added in others. SCR and MCR Templates • Undertakings using an internal model should fill in the general template, not the templates specific to the risk modules Ring-Fenced Funds (RFF) • RFF requirements were kept as they were, as it is expected that the templates related to RFF will be revised in the future as the matching premium may impact RFF treatment. Group Risk Concentration • The templates for the groups were revised and made clearer. The template G20 has been removed since Templates there is no longer a requirement of SCR adjustments for Intra group Transaction (IGT). The disclosure of the Risk Concentration Template is no longer required, but narrative information should be included in the SFCR. Narrative Guidelines • The concerns on the narrative reporting were addressed, a structure was introduced to identify the requirements for Solo and Groups, and the disclosure information was revised.Draft Guidelines on Qualitative ReportsThis report also aims to elaborate details for undertakings’ qualitative reporting and disclosure requirements pertaining to thecontent of the Solvency and Financial Condition Report (SFCR), Regular Supervisory Report (RSR), reporting in the case ofPredefined Events (PDE) and undertakings’ own processes for public disclosure and supervisory reporting.The guidelines are aligned to maintain harmonization between public disclosure and supervisory reporting. However, in addi-tion to the implementing measures, further clarification and detail are necessary. These details will be required to specify theminimum content of selected sections of the reports.The guidelines detailed in this final paper are in line with the structure of the SFCR and RSR as set out in the directive.Guidelines for Solo and Group undertakings have been mentioned in their respective sections. Guidelines under the Solo sec-tion will apply to all undertakings, including Solo and Group when they are producing their respective SFCR/RSR. There are
  7. 7. some guidelines which will only apply to Solo and Group undertaking using an internal model or a partial internal model tocalculate the SCR.SummaryEIOPA has clarified the respondents’ concerns by providing simplified guidelines and supporting explanations, addressing therespondents’ common concerns, such as: • Heavy costs involved in implementing and maintaining reporting systems • Consolidations of reporting data at a Group level • Additional and excessive information required for supervisory reporting • Complexity of quantitative reporting templates • Duplication of required information at different frequency levelsHowever, EIOPA has also cited its dependency on multiple external factors including the OMDII discussion. The report-ing and disclosure requirements and templates finalized in this report will be reflected in a technical standard to be draftedby EIOPA and endorsed by the European Commission (EC), subject to amendments and future developments of any legallybinding Union acts.EIOPA believes an updated package on Reporting and Disclosure Requirements should be provided to undertakings forthem to begin their preparations for Reporting Requirements. EIOPA expects the Final Package on Reporting & DisclosureRequirements to be published in 2013, including the changes due to Draft Technical Standard, updated Reporting guidelinesand XBRL guidelines. However, this will result in limited lead time to implement reporting systems. Undertakings should startworking on its Solvency II reporting initiative as early as possible.An overview of these guidelines necessitates undertakings to invest significant efforts in providing data to fill in the quantita-tive reporting templates. These efforts will lead to a well-regulated and supervised insurance regime, where regulators acrossthe European Union will have a better understanding of the undertakings’ solvency position. Undertakings will have to alsoapprise the public about its business and financial condition through a public disclosure. This will infuse a confidence amongthe stakeholders of the undertakings.The amendments made during this consultation process results in simplified templates which will reduce the burden of under-takings. Yet there are templates to be revised and clarified, but EIOPA has cited that it will clarify and ease the guidelines fur-ther. Considering many of the simplified templates and guidelines, undertakings should initiate the Reporting system imple-mentation at their earliest.Syntel’s SolutionSolvency II is not only a compliance requirement, it’s an data mart and data health check on Quantitative Reportingopportunity. It requires a behavioral change across the orga- Templates (QRTs).nization, and IT support is necessary at all levels. Syntel’sstrong Solvency II domain expertise enables insurers through This will be done by managing key risk and early warningbusiness analysis, Solvency II readiness check, technical solu- indicators for data governance, and creating custom-builttion implementation, training and consulting. dashboards for administrative, management or supervisory body (AMSB). Syntel will also define and implement a road-Syntel can transform this challenge into an opportunity map on reporting strategy, focusing on its scalability, availabil-by leveraging a thorough understanding of the Solvency II ity, ease of use and compatibility.ecosystem as well as the skills and knowledge to guide youthrough the Solvency II compliance and implementation pro- For more information, on how Syntel can streamline yourcess. Solvency II compliance initiative while minimizing business impact, visit us at can establish and implement a technical architecture thatensures Solvency II compliance, as well as help implement acost-effective reporting solution that includes a Solvency IIReferences
  8. 8. about SYNTEL: Syntel provides custom outsourcing solutions to Global 2000 corporations. Founded in 1980, Syntels portfolio of services includes BPO, complex application development, management, product engineering, and enterprise application integration services, as well as e-Business devel- opment and integration, wireless solutions, data warehousing, CRM, and ERP. We maximize outsourcing investments through an onsite/off-shore Global Delivery Service, increas- ing the efficiency of how complex projects are delivered. Syntels global approach also makes a significant and positive impact on speed-to-mar- ket, budgets, and quality. We deploy a customThis document is being provided as a convenience and for informa-tional purposes only; they do not constitute an endorsement or an delivery model that is a seamless extension ofapproval by Syntel of any services or opinions of the corporation ororganization or individual. It is a summarization of several industry your organization to fit your business goals and ainterpretations in respect of a regulation. Syntel’s own views on thesubject are a result of knowledge of this industry space in general proprietary knowledge transfer methodology toand are not contextualized to an individual or a firm’s need to complywith such regulation. Syntel recommends a proper and careful obser-vation of the final paper published on EIOPA website. Use of any guarantee knowledge continuity.such information by the user is voluntary and should not be reliedupon unless an independent review of its accuracy and complete-ness has been performed. All data and information is provided “as is”for personal informational purposes only, and is not intended for trad-ing purposes or advice. Syntel does not verify any data and disclaimsany obligation to do so. SYNTELSyntel and its affiliates expressly disclaim the accuracy, adequacy, orcompleteness of this document and shall not be liable for any errors, 525 E. Big Beaver, Third Flooromissions or other defects in, delays or interruptions in such docu-ment, or for any actions taken in reliance thereon. Neither Syntel nor Troy, MI 48083any of our information providers will be liable for any damages relat- phone 248.619.3503ing to your use of the information provided herein. info@syntelinc.comSyntel or its content providers have exclusive proprietary rights in theinformation provided. You agree not to copy, modify, reformat, down-load, store, reproduce, reprocess, transmit or redistribute any data orinformation found herein or use any such information in a commer-cial enterprise without obtaining prior written consent. v i s i t S y n t e l s w e b s i t e a t w w w . s y n t e l i n c . c o m