Tag Archives: Ciarain Kelly

Annual QRTs: Getting it right first time, every time

This blog is part of the Pillar 3 Reporting series. For more blogs in this series click here.

Over the next few weeks, companies will be finalising their first sets of annual Quantitative Reporting Templates (QRTs) to be submitted under Solvency II. For companies with a financial year-end of 31 December, the reporting deadline is 20 May 2017.

A key part of preparing the annual (or quarterly) QRTs is ensuring the accuracy of the information provided. In this blog post, we highlight some validation processes available to companies.

In recent speaking engagements and publications, the Central Bank of Ireland (CBI) has underlined the importance of ensuring that the supervisory returns are validated and that there is appropriate governance in place so that the directors, who sign off on the annual QRTs, are satisfied that the returns are accurate and complete. In its recent Insurance Quarterly bulletin, the CBI stated that its ‘experience to date has shown that successfully meeting the dual requirements of “fit for purpose” and “right first time” requires firms to manage much better the governance and operational risks around the reporting process.’

Pressure to put in place a validation and governance process also comes from the board as the annual QRTs must be approved at a board level under the Solvency II text. In addition, in Ireland three named directors are required to submit an accuracy certificate on the annual QRTs. The CBI points out that ‘while those signing off returns may not be the people reviewing them, they should ensure that they have a clear process that they can rely on.’

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SFCR: Some more reports published

This blog is part of the Pillar 3 Reporting series. For more blogs in this series, click here.

Two new Solvency and Financial Condition Reports (SFCRs) were published in the past week. In both cases, the financial reporting date is 31 December 2016, representing an impressive turnaround time for public disclosure. They are both useful examples of Group SFCRs:

• St. James’s Place Group prepared a single SFCR encompassing the public disclosures for the Group and all of the solo entities within the Group with two life company subsidiaries.
• ASR understood it is a Group SFCR and so each of the solo entities has prepared separate SFCRs. ASR has published the public Quantitative Reporting Templates (QRTs) in a separate document which is available on the same web page as the SFCR report.

Company Link Country Reporting Date
St James’s Place Group Link UK 31/12/2016
ASR Group Link

Link

Netherlands 31/12/2016

SFCR: A taste of what’s out there

This blog is the first part of a series on Pillar 3 reporting for Solvency II.

For most companies with a 31 December year-end, the first annual reporting deadline under Solvency II is on 20 May 2017. In preparation for this I think it’s interesting to look at some of the first examples of published Solvency and Financial Condition Reports (SFCRs).

What does an SFCR really look like?

To date, a number of companies with year-ends before 31 December have published their reports and I have included links below:

Company Link Country Reporting Date
Evolution Insurance Company Ltd Link Gibraltar 30/06/2016
Vitality Life Ltd Link UK 30/06/2016
The Wren Insurance Association Ltd Link UK 30/06/2016
Care Insurance Co Link Gibraltar 30/06/2016
Cornish Mutual Assurance Co Ltd Link UK 30/06/2016
Euroguard Insurance Co PCC Ltd Link Gibraltar 30/06/2016
Hansard Europe dac Link Ireland 30/06/2016
International Diving Assurance Ltd Link Malta 30/06/2016
Municipal Mutual Insurance Ltd Link UK 30/06/2016

While clearly a small sample, there is a variety of company types, lines of business, and territories represented in the selection above. In addition to the Solvency II requirements themselves, looking at what others have published can provide a useful reference point as you prepare your own SFCR report. As a health warning, it should be noted that these SFCRs represent approaches taken by some individual companies and can’t yet be taken as established market practice. We also have no feedback yet on the expectations and views of the various European supervisors.

Differences in approach

While the Solvency II requirements are generally clear on what should be included in the SFCR, as always there is scope for different interpretations. Furthermore, it is a general principle that the SFCR should be proportionate to the nature, scale, and complexity of the undertaking. It is therefore reasonable to expect variations in the length and level of detail in these reports. It is worth remembering that the SFCR is a public document for policyholders and other key stakeholders.

How long is a piece of string?
Looking at the nine publicly available SFCRs mentioned above, there is a wide variation in length, with the shortest report coming in at 24 pages, while the longest is 73 pages.
The longest section on average is the System of Governance chapter (B), while the shortest section is on Capital Management (E).

 Number of pages Average Min Max
A. Business and Performance 4.1 1.5 7.0
B. System of Governance 8.9 3.0 17.0
C. Risk Profile 5.4 1.5 10.0
D. Valuation for Solvency Purposes 4.9 2.0 10.0
E. Capital Management 3.0 1.0 5.5
Appendix: Public QRTs 19.1 5.0 39.5
Total 45.3 24.0 73.0

Layout
Generally, the SFCRs follow the order of required contents set out in the Level 2 Delegated Regulations Article 292 to 297, and the corresponding Level 3 Guidelines (with Chapters A to E, and subsections A1, A2, and so on). I think this is a sensible structure as it is easy for the reader to follow and ensures consistency across the industry.

Where a particular reporting requirement doesn’t apply to a company, most SFCRs still include the section and give a reason why it is not applicable. In cases where firms simply skip the section, it becomes difficult for the reader to determine whether it is not relevant or whether they didn’t complete it for another reason.

You are required to disclose your public quantitative reporting templates (QRTs) together with your SFCR. In almost all cases, the public QRTs are included as an Appendix.

Presentation
As a publicly available document, some companies have ensured their SFCRs are consistent with their brand and other policyholder documentation—Vitality Life is a useful example here. On the other hand, a number of other companies have taken a more functional approach, with very little additional formatting. This choice probably depends on how likely policyholders are to access your SFCR and whether you view it as marketing material.

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Solvency II reporting: Year-end 2016 and beyond

The Solvency II annual Quantitative Reporting Templates (QRTs) is required of many European (re)insurers for the first time in May 2017, as are the Solvency and Financial Condition Report (SFCR) and the Regular Supervisory Report (RSR). In addition to the annual reporting requirements, the deadline for submission of the 2017 quarterly QRTs has been reduced by one week compared with what was required during 2016. In this briefing note, Milliman consultants Ciaráin Kelly and Sinéad Clarke provide a timeline summarising the reporting requirements in 2017 for both solo entities and groups (assuming a year-end reporting date of 31/12).

Solvency II Directors’ Certifications

The Central Bank of Ireland has published a guideline and a set of frequently asked questions for insurance and reinsurance undertakings on Solvency II Directors’ Certifications. In this briefing note, Milliman’s Aisling Barrett and Ciarain Kelly explain what certifications are required from directors of insurance and reinsurance undertakings under Solvency II and how Milliman can help give comfort to directors in preparing to sign these declarations.

Taking the temperature on Solvency II Pillar 3: A Milliman client survey

The early months of 2016 were busy ones for Solvency II reporting, so the summer allowed the industry to finally come up for air. Following the submission of the first Solvency II reporting (Day 1 and first quarter 2016 templates) in May 2016, we took the opportunity to conduct a survey across the Irish insurance industry on Pillar 3 reporting. Thirty-seven companies took part, representing a broad cross-section of insurers in both the domestic and cross-border markets. It had a heavy focus on companies writing life business.

The survey looks at the experience of companies to date, the key challenges faced by (re)insurers, and the level of work required to meet the first annual reporting requirements in May 2017.

Experience to date: Ireland
Perhaps not surprisingly, the two templates that caused the most difficulty for companies in the survey were S.06.02 (detailed list of assets) and S.06.03 (asset look-through).

All companies were required to complete template S.06.02 based on their asset holdings at the end of the first quarter 2016. This template requires detailed information on each asset held and proved to be one of the most challenging and time-consuming aspects of the quarterly templates. The silver lining for companies is that we would expect the workload required to complete S.06.02 to lessen once processes and procedures have been bedded down.

The asset look-through template (S.06.03) is one of the more contentious and challenging aspects of the Solvency II reporting requirements. Only companies with a high or medium-high rating under the PRISM impact rating system of the Central Bank of Ireland (CBI) are required to prepare the look-through template for quarterly reporting during 2016. Companies with low or medium-low PRISM rating will have to prepare the look-through template for the first time in respect of 31 December 2016.

Looking ahead, 46% of survey respondents stated that they do not expect to fully meet the look-through requirements at year-end 2016 (56% among unit-linked companies). That is, companies do not expect to be in a position to provide a 100% look-through of all collective investment funds.

Love it or hate it, the asset look-through template is likely to keep many financial reporting teams busy in the coming months. The CBI has engaged directly with PRISM impact companies rated high and medium-high, and has set out its expectations regarding future reporting periods.

Looking ahead to annual reporting
While the first reporting deadlines in May 2016 represented a significant milestone, annual reporting in respect of year-end 2016 will be an even bigger hurdle for many companies. In May 2017, companies will be required to submit the first set of annual Quantitative Reporting Templates (QRTs), in addition to the first set of narrative reports—the public Solvency and Financial Condition Report (SFCR) and the Regulatory Supervisory Report (RSR). The first quarter 2017 reporting deadline also falls in May next year, so plenty of coffee and midnight oil may be required.

For the annual QRTs, companies identified the asset templates (including the asset look-through) and the reinsurance templates as the areas requiring most work.

The workload involved in preparing the SFCR and RSR reports for the first time should not be underestimated. Approximately 50% of respondents have not yet started drafting the SFCR and RSR. We received a very wide range of estimates for the length of these reports.

Elsewhere in the Pillar 3 world
Looking ahead to the first submission of annual templates, the CBI recently announced that it will host a test cycle for the annual Solvency II and annual NST returns from 5 to 21 December. Depending on your viewpoint, this represents an early Christmas present or a death knell to your festive season.

Where possible, companies should be looking to conduct a dry run of the annual templates in advance of a busy year-end period next year. This test phase presents a timely opportunity for companies to complete their dry runs.

Furthermore, the CBI recently consulted on the proposed external audit of the SFCR and associated annual QRTs with the aim of determining its final policy position by the end of September 2016. The final audit requirements will go to press shortly, and companies will need to allow for external audit as part of their 2017 plans also.

To read more about the Milliman Solvency II Pillar 3 Survey, please see our briefing note here.