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.