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:
|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|
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.
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.