Tag Archives: Solvency and Financial Condition Reports

Analysis of Luxembourg insurers’ Solvency and Financial Condition Reports: Year-end 2016

This report by Milliman consultants summarises the Solvency and Financial Condition Reports of the main players in the life and non-life insurance business in Luxembourg. It focusses on the largest insurance entities in Luxembourg as well as some large reinsurance entities and includes an overview of the factors determining the Solvency Capital Requirement ratio.

EIOPA provides feedback on SFCRs

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

The European Insurance and Occupational Pensions Authority (EIOPA) has recently provided feedback to the industry on the first batch of published Solvency and Financial Condition Reports (SFCRs). The findings are based on observations from a sample of the 2016 group SFCRs and also from similar reviews of solo SFCRs by various national supervisors.

In order to support the industry in preparing future SFCRs, EIOPA has published a Supervisory Statement with its findings. It should be noted, however, that the findings are nonbinding on companies. Nonetheless it is reasonable to expect that supervisors might expect the industry to at least consider these findings when drafting their next reports.

This blog post outlines some of the highlights from the supervisor’s feedback:

• Where a reporting item is not applicable, it is important to have a clear indication that the information is not applicable. Examples would include pointing out that an internal model, the matching adjustment or the volatility adjustment are not applicable for a given company.

• Companies should take care in setting the content and language styles of the reports, particularly the Summary section. Policyholders should be the main addressees of the Summary, and EIOPA has outlined the minimum content it expects to see in this section of the report. The remaining sections can be addressed to analysts and investors, so it is not expected that legislative definitions or detailed requirements need to be explained in the main body of the SFCR.

• While it is good practice to include Quantitative Reporting Templates (QRTs) in the Appendix to the SFCR, it should not prevent companies from including quantitative information in the body of the report. If appropriate, parts of the QRTs should be repeated or complemented by the narrative information in the SFCR.

• It is expected that the sensitivity to different scenarios or stresses is disclosed in a structured format. Within the chapter on Risk Profile, information on the overall impact should be provided under each risk section.

• EIOPA would like to see more undertaking-specific information regarding valuation of investments, valuation of deferred tax assets and liabilities and valuation of technical provisions.

• Within the section on Valuation of Technical Provisions, the SFCR should provide a description of the level of uncertainty in the calculations. The degree of uncertainty should be at least linked to the assumptions underlying the calculation, such as economic and noneconomic assumptions, future management actions and future policyholder behaviour.

• Undertakings should also include comparative information against the previous year’s submission in certain areas of their 2017 SFCRs. EIOPA recommends that companies provide comparative information in table format as much as possible. Qualitative information on material differences between two reporting years is also expected to be included in the report.

Companies should, where possible, bear this feedback in mind when preparing their next SFCRs.

RSR feedback from Central Bank of Ireland

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

The Central Bank of IreIand (CBI) recently completed a review of 2016 Regular Supervisory Reports (RSRs) and has now written to companies with its feedback. To recap, the RSR is a private report submitted to the supervisor, and the Solvency and Financial Condition Report (SFCR) is the publicly disclosed equivalent of this report.

The CBI’s review focussed on the following:

• Confirming that each of the headings and subheadings required by the regulations were addressed in the reports
• Assessing the completeness and quality of responses under each of the main headings
• Checking that the details provided were in line with the CBI’s understanding of the firm

The letter sent to each company detailing the supervisor’s feedback can be found at the CBI’s website here. A key point highlighted is the requirement that the RSR be forward-looking, focussing on the business planning horizon. Companies should include detailed analyses of the risks facing their businesses over this period.

Companies should bear this feedback in mind when preparing their next RSRs, where possible.

RSR reporting frequency
Under Solvency II regulations, companies must prepare a full RSR at least every three years. However, the frequency of the RSR is at the discretion of the local supervisor, which can request more frequent reporting. Based on this review, the CBI is happy that a three-year cycle is appropriate. However, it will look to spread reporting across the three-year period by requesting some companies to report an RSR in 2018 and some in 2019. Therefore the CBI has outlined in the letter when it expects firms to submit their next RSRs.

For companies not required to submit a full RSR in a given year, they should instead provide summaries of material changes. The summary must detail any material changes that have occurred over the reporting period relating to topics covered in the RSR and provide a concise explanation about the causes and effects of such changes.

Analysis of Belgian insurers’ Solvency and Financial Condition Reports: Year-end 2016

In May 2017, the first Solvency and Financial Condition Reports (SFCRs) were published for year-end 2016. The SFCRs contain a significant amount of information, including details of the company’s performance over the reporting period, systems of governance, risk profile, valuation basis and capital requirements. This report by Milliman consultants is a summary of the SFCRs for the main players in the life, non-life and health insurance business in Belgium, focussing on a subset of insurers in the Belgian market.

Have you made the Standard Formula yours?

Solvency and Financial Condition Reports (SFCRs) and Quantitative Reporting Templates (QRTs) show that UK non-life and health insurers are overall well capitalised. However, it appears that undertakings using the Standard Formula (SF) have not utilised all possible ways available to better reflect their risk profiles, thereby missing out on potentially reducing their Solvency Capital Requirements and improving their solvency ratios. Milliman consultants Vincent Robert and Lamia Amouch provide more perspective in their article “Have you made the Standard Formula yours?

Central Bank shines a light on anomalies in Solvency II Pillar 3 reporting

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

The Central Bank of Ireland (CBI) held an industry workshop on 21 November aimed at practitioners who prepare the Quantitative Reporting Templates (QRTs) and, to a less extent, the Solvency and Financial Condition Report (SFCR). Despite the wet and wintry conditions, the session was very well attended and there was plenty of engagement from industry attendees. The CBI expressed concern regarding the level of errors in the Solvency II submissions, calling into question the processes, review and governance in place in (re)insurance companies.

This blog post outlines some of the highlights from the workshop:

• There has been a surprisingly high rate of resubmissions of quarterly and annual QRTs to date. For Q1 2016, it was as high as 70%. There is now a consistent resubmission rate at approximately 30%.

• The CBI pointed out that it commits significant resources to identifying and querying errors each quarter. In turn companies also spend time and effort remediating these issues. They see this as an unanticipated cost for both themselves and the industry.

• The most common errors relate to missing data on the list of assets template (S.06.02) and confusion around country classification for premiums, claims and expenses (templates S.04.01, S.05.01 and S.05.02).

• The CBI believes it has taken a pragmatic approach to QRT errors for the first 18 months of reporting, working with companies to remediate errors. However, it was clear that it would consider taking a harder line from next year onwards.

• The CBI specifically pointed to the Directors’ Accuracy Certificate, which relates to annual reporting only. In cases of persistent reporting errors by a company, the CBI intends to contact signing directors and may ask them to outline the governance and review processes in place.

• The CBI is carrying out some on-site inspections in relation to Solvency II reporting processes, with a particular focus on governance and review of submissions.

• In addition to the automatic cross-checks on the CBI’s Online Reporting System, it also outlined some of the additional quality assurance checks it carries out on receipt of QRTs. In order to assist companies in this regard, the CBI has prepared a spreadsheet with a list of these checks. It expects companies to build in these checks to their own processes before submitting templates.

• The CBI has also added an SFCR repository to its website. This contains the SFCR reports of insurance companies that are regulated by the CBI and is a useful resource for the industry. The CBI’s SFCR repository can be found here.

As such, a clear message has been sent to the industry regarding Pillar 3 reporting. The challenge will be in automating processes, streamlining review and tightening up the governance in this area.

I include links to both the slides from the industry workshop and the additional quality assurance checks spreadsheet.

Milliman STAR Solutions® – VEGA® is an automated Pillar 3 reporting and standard formula aggregation system. One of the key features of VEGA is inbuilt XBRL functionality and validations, ensuring the QRTs meet the CBI’s requirements before uploading to the Online Reporting System.