EIOPA fires the starting pistol on Solvency II reporting
On 10 July 2012 the European Insurance and Occupational Pensions Authority (EIOPA) published their final report on the reporting and disclosure requirements, along with an updated package of Quantitative Reporting Templates (QRTs). In the following brief we address these recent developments and consider that, with the updated package, firms should no longer delay progressing with the design and implementation of their Solvency II reporting solutions.
Over the past year, we highlighted that, for insurers, waiting for the finalised Solvency II reporting requirements may not be an option given the limited time to address them before the Solvency II implementation date of 1 January 2014. We recommended that whilst the Solvency II reporting requirements were still in draft, with a number of key issues outstanding, insurers were in a better position to design and implement their processes and systems to ensure they can meet them, but acknowledged they would need to retain flexibility when developing reporting solutions.
EIOPA has fired the starting pistol, stating that “undertakings can use [the updated package] as the basis for their preparations” and that it “represents a stable view of the level of granularity of the information that supervisory authorities will need to receive*”.
As predicted, the quantitative and narrative reporting requirements exposed for comments have not changed substantially in the updated package. The volume and level of granularity of the data will demand a significant effort to meet all the requirements. The templates have been presented in a different way which collates the QRTs with the financial stability templates, but which clearly separates the annual and the quarterly supervisory reporting from the annual public disclosure for both solo entities and groups.
The end state deadlines have been confirmed as those given in the latest available Level 2 implementing measures, namely fourteen weeks for annual solo and five weeks for quarterly solo with an additional six weeks both annually and quarterly for groups. A one week extension for quarterly group financial stability templates has been permitted as a result of the consultation responses highlighting the significant challenge faced by the tight deadline for collating and consolidating this data at group level, making the deadline six weeks. All these deadlines are extended during a transitional period of three years to allow firms to adjust to the new reporting regime.
Other important developments include:
• The threshold, which is used to scope in firms that need to submit financial stability information, has been increased from €6 billion to €12 billion in assets on the Solvency II balance sheet. This will mean fewer firms are caught, although at least 50 percent coverage at national level will be required to ensure minimum national market reporting.
• Certain aspects of the materiality principles and exemptions have been clarified, including a reduction in the overlap of the reporting at the fourth quarter and year end.
• The Solvency II balance sheet will be required quarterly for both solo and groups.
• For financial stability purposes, profit and loss information will be requested on a semi-annual basis rather than quarterly.
Impact on the industry
In our experience, many firms have preferred to defer preparations until such time when the requirements are more stable. Whilst the final package on reporting and disclosure will not be available until some point during 2013, EIOPA provides clear direction that the updated package offers this stability and should be used for implementation preparations.
We anticipate material changes to firms’ processes and systems, particularly for group reporting, to enable the collation, validation and submission of data in the timescales envisaged. For those firms which have not yet started, now is the time to understand the requirements and assess the impact on process, systems and people. Firms that have already started their implementation projects should revisit some of their design decisions and assumptions to validate that they are still appropriate in the light of the revised requirements. Where concerns were raised by firms as part of the consultation period from November 2011 to February 2012, EIOPA has provided comments on how these have been addressed in the updated package.
A number of key issues still need to be addressed, as noted by EIOPA in their report. Notably, the on-going discussions on the Omnibus II Directive could affect some of the templates, although the impact is not anticipated to be significant. The European Markets Infrastructure Regulation (EMIR) consultation expected later this month (July 2012) could result in changes to the derivatives templates.
Additionally, EIOPA’s development of the data point modelling and eXtensible Business Reporting Language (XBRL) could lead to changes to the structure, but not the content of the templates. XBRL is a language for the electronic communication of business and financial data which is revolutionising business reporting around the world.
With less than 18 months remaining before Solvency II goes live, firms can no longer afford to defer work on designing and implementing their Solvency II reporting solution. There will undoubtedly be areas within the requirements where there is a lack of clarity. However, now is the time to understand the requirements, making assumptions where necessary, so that progress can be made efficiently and effectively on addressing the significant challenge of reporting the volume and detail of data required by the Directive. There is likely to be a huge effort required in making the necessary changes to processes and systems as well as testing and training people in the new reporting regime.
Partner, Insurance – Deloitte EMEA Solvency II Leader
*EIOPA Final Report on Public Consultations No. 11/009 and 11/011 (EIOPA-260-2012)