UK: Insurance Market Update - The Deloitte View For Life Insurers, December 2011

Last Updated: 27 January 2012
Article by Deloitte Financial Services Group

Most Read Contributor in UK, August 2017

Welcome to this December edition of the Insurance Market Update in which we focus on Solvency II reporting.

The European Insurance and Occupational Pensions Authority (EIOPA) recently published its public consultation on the Level 3 guidelines and Quantitative Reporting Templates (QRTs) for the reporting and disclosure aspects of Solvency II. With most insurers currently working to finalise their capital model implementation and embedding Solvency II in their day-to-day business, it is time to tackle the reporting challenges. Whilst some companies would prefer to delay the design of their Pillar 3 reporting until the guidelines are final, this may not allow sufficient time for the requirements to be addressed. EIOPA does not expect to make any significant changes from the latest draft quantitative reporting requirements and hence, it is now a good time for insurers to prepare their Pillar 3 reporting templates.

In this edition, Andrew Holland gives an overview of the Solvency II reporting requirements with particular focus on EIOPA's Level 3 consultation papers. He discusses the main areas that might prove challenging for insurers and areas where the Solvency II reporting burden might prove less onerous than the current FSA requirements. He also discusses the Solvency II narrative reporting and how insurers could align them with their existing reporting processes.

As always we look forward to receiving your feedback. Your comments and suggestions for future themes or topics are welcome.

One step closer to the new world of regulatory reporting


With only two years to go until Solvency II is formally imposed upon European insurers and reinsurers, the European Insurance and Occupational Pensions Authority (EIOPA) has recently published its public consultation on the Level 3 guidelines and Quantitative Reporting Templates (QRTs) for the reporting and disclosure aspects under the new regulatory regime. EIOPA expects that the quantitative reporting requirements exposed for comments should not change substantially from this point and it is keen to see this assumption confirmed from the consultation responses. As expected, the narrative reporting requirements cover more detail in certain areas than those in the draft Level 2 measures, but do not fundamentally change the nature and content of the disclosure as Level 3 measures are subordinate to Level 2 measures.

Most insurers have entered the completion phases of their capital models implementation and embedding work and will be shifting their attention towards addressing reporting challenges in the near future. To implement the desired transparency of the new regime in practice, EIOPA has proposed requirements that generate a significant volume of data and at a fairly detailed level of granularity. Therefore a significant effort will be needed to achieve full compliance with these requirements. We anticipate material changes to most insurers' processes and systems, particularly for group reporting, to enable them to collate, validate and submit the data in the timescales envisaged. Table 1 summarises the different reporting requirements.

To collect this data efficiently and effectively, EIOPA are taking steps to implement eXtensible Business Reporting Language (XBRL). XBRL is a language for the electronic communication of business and financial data which is revolutionising business reporting around the world. XBRL's impact on financial reporting and data exchange has been compared to the impact of barcodes on merchandising. Like the barcode, XBRL is a system for coding and decoding information.

Recent developments

Two EIOPA consultation papers were released on 8 November 2011:

  • The first covered the draft proposals on QRTs which define the revised templates – these follow the January 2011 (pre-consultation) versions; and
  • The second covered draft guidelines on the narrative reporting, pre-defined events and reporting processes that elaborate further on specific elements from the Solvency II Directive (Level 1) and draft delegated act (Level 2).

The templates do not include the full set of information which will need to be reported for Solvency II. EIOPA will issue further requirements in December 2011 (not yet published at the time of this article) on information required for financial stability purposes. Finally, local regulators will issue national specific requirements in mid 2012 and may issue further informal consultation before this point. These last templates are expected to pick up specific national matters, such as reporting on with-profits funds, P&I clubs and additional profit and loss analysis (for instance in the case of UK insurance undertakings).

EIOPA's aim is to finalise the templates by the mid 2012. Achievement of this target will depend on finalisation of the Level 2 implementation measures, although we understand that discussions are being held on whether a final version of the templates can be confirmed prior to this if the Level 2 measures are delayed.

Consultation process

The consultation period is open for comment with a deadline of 20 January 2012. Similarly to past consultations, some of the participants are likely to channel responses via bodies such as the CFO Forum or the ABI. It is likely that comments will have more weight where a number of industry participants respond together and where practical alternatives to EIOPA's proposals are suggested.

As we have done for nearly all of previous consultation papers on Solvency II matters1, Deloitte member firms within the EU will discuss a collective response and continue to input our views directly to EIOPA for a disclosure regime that remains faithful to the principles of the Level 1 Directive and that does not generate an excessive administrative burden for EU insurers.

Quantitative Reporting Templates

Most of the QRTs have largely the same content and structure as those versions from the informal consultations with the industry. However a significant minority carry some important changes, both increasing the reporting burden in places and reducing it in others (for example in the cases of group reporting and public disclosure respectively). Other reporting requirements are still challenging due to the nature and granularity of the information required (for example in the case of assets templates). Separate reporting for material ring fenced funds is proposed for the primary templates.

These cover balance sheet, technical provisions, Solvency Capital Requirements (SCR) and own funds. Those insurers holding separate with-profits funds will therefore have to provide additional disclosure. Figures 1 and 2 provide a high level overview of the different reporting templates.

Group reporting

One of the most important changes in the consultation papers is that group reporting of QRTs will be required on a quarterly basis, compared with the semi-annual requirement in the previous informal consultation. Quarterly reporting will cover the balance sheet (in certain circumstances), premiums and claims, own funds and the main assets list. This is likely to be a significant challenge, considering that this will be the first time such a substantial volume of quantitative data has had to be reported to the group regulator, particularly for groups operating across a large number of jurisdictions and for those using different reporting platforms. Data extraction from different business units is likely to be the key challenge and a pre-requisite for success will be establishing a common understanding and definitions for each of the cells in the QRTs. EIOPA has provided explanations and definitions within documents supporting each template ('LOG' files) which will help to a certain extent. However, these will need to be expanded and tailored to a much greater level of specification to avoid different interpretations across the entities of the same group.

Public disclosure

Public disclosure has been limited to the key templates and is only required annually. For UK firms, this means that the amount of regulatory reporting which is published should be reduced from the current FSA returns. The draft reporting rules on the specific national templates will shed some light on this potential reduction of the administrative burden for UK insurers. Any additional reporting requested specifically by the FSA, whilst allowing the regulator to address local matters, will have to respect the aim of harmonised reporting across the EU.

Asset templates

One of the most significant challenges that insurers are facing relates to the very detailed and granular data required on assets. Despite significant industry opposition, detailed asset templates have been retained in the proposed reporting pack, including unit-linked assets.

EIOPA explains in the consultation papers that:

  • It views the costs of setting up the requirements of these templates as primarily a one-off with little ongoing burden; and
  • These templates are deemed to be required for the implementation of a proper risk management system and they would bring business benefits at the same time as satisfying a regulatory demand.

Based on the developments to date, we expect that the detailed asset requirements will be retained in the final regulations. Insurers should be discussing these requirements with their asset managers and establish a plan to deliver this data. Many of the attributes requested may not have previously been used in the business, so it is important to quickly identify any data gaps in order to allow more time to resolve them with the data providers.

Narrative reporting

The structure of narrative reporting under Solvency II can be seen in Figure 2 below.

We consider that there are significant benefits to realise by aligning the narrative reporting under Solvency II with existing reporting processes. For much of the disclosure, existing sources, or those currently being developed can be leveraged to avoid having to write a completely new disclosure. However, we have found that the disclosure does need to be tailored for its intended audience. For example, disclosure from the annual report which is prepared with shareholders or potential shareholders in mind, may need to be adjusted to make it relevant and comprehensible to the user group Solvency II reporting is aimed at, including the regulator and policyholders.

In Figure 2, we have indicated our view of the degree of effort required to draft the sections of the SFCR and RSR given the source documentation and current disclosure which is already likely to be available for UK insurers.

The proposed guidelines released in the November 2011 consultation papers provide further detail on the contents of the SFCR and RSR without altering the broad thrust of the requirements.

It is worth noting that the reporting to the supervisor is envisaged to be a suite of reports, rather than one single report. It would include the SFCR, RSR and ORSA supervisory report as well as including all the quantitative reporting templates.


Whilst the Solvency II reporting requirements are still in draft form with a number of key issues still outstanding, insurers are now in a better position to design and implement their processes and systems to ensure compliance. Of course, these implementation activities will need to retain flexibility when developing reporting solutions to accommodate the finalised requirements when these are known.

Some UK insurers have already made significant progress in their design for Pillar 3 reporting and disclosure whilst the majority have decided to defer this work until the requirements are final. The publication of these consultation papers offers the degree of finality that many desired and further deferral of this implementation work could increase the risk of failing to deliver a functioning and compliant reporting solution by the time the regulations demand it.


1 Deloitte did not comment on certain CEIOPS/EIOPA consultation papers in the past due to the conflict with its role as the appointed advisor of the European Commission to assess the impact of the Level 2 implementing measures

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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