Solvency II, Pillar III (Reporting and Disclosure) - Every cloud has a silver lining
The third pillar of Solvency II is high on the list of priorities with the majority of Insurers around Europe.This short blog looks at the latest developments in the UK market in the Pillar III area.
Indeed, the challenges are numerous - not just for insurers but regulators alike, ranging from data availability, tactical vs. strategic reporting solutions (of which there are a bewildering array of providers), availability of resources, the associated costs and the provision of training to Boards and Finance teams.
2015 being a preparatory period for category 1, 2 and 3 insurers in the UK, preparations are well underway for annual submission of the Quantitative Reporting Templates (QRTs) by 01 July 2015 for data as at 31 December 2014. This is then to be followed by quarterly QRTs by 25 November 2015 for data as at 30 September 2015 (Q3).
Testing and on-boarding of the QRTs onto the UK regulators' (Prudential Regulation Authority) Data Collection System is due to commence soon (Q1 2015). Priority is to be given to undertakings in the preparatory period. This will provide a good test of the PRA's readiness of its processes and the undertakings understanding of the new system.
Undertakings would need to ensure they have the latest taxonomy release in their XBRL tool for submission to the PRA. The current preparatory taxonomy is V.1.5.2.b (at the time of writing). EIOPA are considering an additional release by the end of February 2015. Undertakings would need to review the EIOPA website for updates.
Tool for Undertakings
EIOPA has helpfully released a free to download "simple and basic" XBRL tool (Tool for Undertakings) to assist small to medium sized insurers during the infancy period of Solvency II - Eurofiling. The tool will eventually be decommissioned as SII, Pillar III matures and thus undertakings do have to eventually consider a vendor solution. It is worth noting that the tool will be open source and thus reusable.
National Specific templates
The PRA consulted on 11 Life and Non-Life national specific templates and accompanying LOG files (instructions on completion of the templates) under CP16/14 which address idiosyncrasies of the UK market. At present, these are due annually, on a solo basis and in excel format. The consultation closed on 07 November 2014.
The PRA further consulted on 2 Society of Lloyd's NSTs in CP24/14 which closed on 30 January 2015.
The responses are due in Q1 2015.
Regulatory reporting exemptions (noted in CP24/14)
Undertakings designated by the PRA as category four and five (solo and as part of a group) may be eligible for exemptions from quarterly reporting. Certain templates though would still need to be submitted i.e. Basic information about the firm, content of the submission, minimum capital requirement template, and at Q2 - own funds and balance sheet templates.
Regulatory reporting - Internal model outputs (noted in CP24/14)
Undertakings using an approved internal model or partial internal model to calculate their Solvency Capital Requirement are expected to report the modelling outputs using templates provided by the PRA on an annual basis.
This applies to Life undertakings, General insurance undertakings and the Society of Lloyd's.
Level 2, Set 2 - Implementing Technical Standards
EIOPA launched a public consultation on Set 2 of the ITS on 02 December 2014. This includes the full suite of the reporting templates. This consultation is to run for 3 months.
It includes guidelines on narrative reporting i.e. Public Solvency and Financial Condition Report - SFCR and Private Regular Supervisory Report - RSR.
Further, it covers various thresholds for completion of a sub-section of the QRTs - the thresholds are covered in the LOG files, for example, quarterly template S.06.03 (Look through approach on Collective investments) is not required to be reported if the proportion of collective investments is less than 30% of total investments reported on the balance sheet.
SFCR dispensation (noted in CP23/14)
Undertakings can apply for a confidentiality waiver from certain sections of the SFCR if by publicly disclosing certain information, it could lead competitors to gain significant undue advantage or there are obligations to policyholders/other counterparties binding the undertaking to secrecy/ confidentiality.
Undertakings with non-December year end would have to report on a different timeline to the PRA. The PRA has published a reporting timeline on its website.
There are many challenges firms are facing in the Pillar III area not least the many updates to keep track of. Communication with the undertakings usual supervisory contact much early on in the process is essential.
In addition, undertakings should regularly check EIOPA's websites for updates.
Communication is key! Better days are coming...