UK: Solvency II Reporting And Disclosure Requirements - The Final Advice On Level 2 Implementing Measures

Summary

The final advice on implementing measures ("Level 2") for the reporting and disclosure aspects of Solvency II describes the content and reporting of the public Solvency and Financial Condition Report ("SFCR") and the private Report to Supervisor ("RTS"). The content remains largely unchanged from the Consultation Paper 58 issued in July 2009 ("CP 58") and there is now more clarity over the group reporting requirements and timescales.

As expected, a number of matters will be addressed when the Committee of European Insurance and Occupational Pensions Supervisors ("CEIOPS") provides the standards, recommendations and guidelines for European supervisors ("Level 3") in 2011, including the Quantitative Reporting Templates ("QRTs") and scope of the external audit, making it challenging for insurers to make progress in addressing some of the requirements.

Content And Structure Of The Reporting

Both the SFCR and RTS must follow a prescribed structure covering Business and Performance, System of Governance, Risk Management, Regulatory Balance Sheet, Capital Management and, where applicable, the Internal Model. In broad terms, the private RTS requires information on the following example areas which are not required in the public SFCR: business strategy, legal and regulatory issues; variance against plan; projections of future solvency needs; and future risk exposure.

Certain sensitive items have been moved from the public to private reporting in the final advice from the position proposed in CP 58, particularly around management's discussion and analysis of performance. However, sensitive disclosures are required in the SFCR such as capital add-ons and details of any breaches during the period of the Solvency Capital Requirement ("SCR").

There is greater clarity on the group reporting requirements, the final advice states that the single group-wide SFCR allows groups to replace the various solo SCFR and the group SCFR by a single report.

A number of matters has been left until Level 3, as expected, including the structure and content of the QRTs and which subset of them will be required to be disclosed publicly and which are required on a quarterly basis privately to the supervisor.

Solvency II Reporting Timeline

Reporting Timescales

The final advice confirms the reporting timelines as set out in the chart above. There is a transitional period in the first two years of the regime to give insurers more time to prepare both the annual and quarterly disclosure. Also there is an extension for the group level reporting of six weeks.

Despite concerns raised by the industry, the timescale for the quarterly reporting is four weeks after the quarter end beyond the transitional period. There is an explicit requirement for Q4 reporting which will result in quantitative Q4 disclosure being made to the supervisor 10 weeks in advance of the annual quantitative disclosure. As a consequence, insurers will need to be able to explain any differences between the quarterly QRTs and annual QRTs to the supervisor.

Whilst the advice is not explicit on when the Solvency II reporting is first required, we have assumed that this will be for the first reporting period end after the implementation date of 31 October 2012. What is explicit is that no comparative information will be required, either for the first or subsequent reporting periods.

External Audit

The requirement that the reporting is subject to external audit is included in the advice and tentative conclusions on the scope of the audit to include certain key QRTs and disclosure are given. However, this will be finalised at Level 3. The advice clarifies that the supervisor will not be required to review the SFCR prior to its publication but that the supervisor has a role in monitoring compliance with Pillar 3 requirements.

Materiality

The definition of materiality, based on International Accounting Standards, that information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial information, is included in the advice and CEIOPS emphasises that the principle of materiality and proportionality also applies to the RTS.

Conclusion

There is now much more clarity over the Solvency II reporting requirements and timescales. However, a number of matters has been left until level 3 in 2011, making it challenging for insurers to make progress in addressing some of the requirements.

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.