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

Background

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.

Conclusion

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.

Footnote

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.