Solvency II Review Proposals in Europe and the UK
As you are probably aware there are currently various reviews being conducted into Solvency II reporting by the regulators in Europe and the UK. The reviews are quite broad-ranging and cover many issues such as the long term guarantee and the risk margin, which are important, but here we are going to review the changes which are being proposed to reporting.
EIOPA Solvency II Review
The EIOPA review has been ongoing for a while now. What was referred to as the “2020 Review” is now scheduled to be implemented at the end of 2022.
EIOPA have recently released a new consultation on these changes and they have released a lot of new documentation, including annotated templates and revised implementing regulations on their web site:
We thought it might be helpful to review the current state of the changes they are proposing to make to the reporting templates going forward.
Template Deletions
To start off with – there are proposals to delete a number of templates from the submissions:
- S.03.02 / S.03.03 – the list of off balance sheet unlimited guarantees information will be deleted.
- S.04.01 – Activity by Country template will be replaced with a new set of activity by country templates.
- S.05.02 – Premiums, Claims and Expenses by Country is incorporated into the new S.04 templates for solo entities and third country branches.
- S.06.01 – the annual summary version of the assets reporting template will be deleted – the fully detailed S.06.02 version will continue with a few additional fields.
- S.08.02 – the derivative transactions template will be removed from both annual and quarterly reporting.
- S.15.01 / S.15.02 – the variable annuity reporting templates will be deleted.
- S.25.02 / S.25.03 – the partial and full internal SCR reporting templates will be replaced with a new template (S.25.05).
Template Additions
- S.04.03 / S.04.04 / S.04.05 – these new templates replace the S.04.01 Activity by County template. S.04.03 will list the location of all underwriting entities. S.04.04 lists insurance activity by country based on the location of the underwriting and then S.04.05 lists activity by the location of the risk. The old S.04.01 template merged both onto the same template, which made it complex to fill in – so splitting this out could be a helpful move.
- S.06.04 – Sustainable Investments and Climate Risk – this is an area of increasing importance to the regulators so a new template to capture information on this subject will be added in.
- S.14.02 Non-Life Policy & Customer information – life companies already submit an analysis of their policies in S.14.01 – this type of reporting will be extended to Non-life companies as well.
- S.14.03 – Cyber Risk – another evolving area the regulators are keen to monitor.
- S.14.04 / S.14.05 – (Financial Stability Reporting only) Liquidity Risk analysis for Life and Non-life companies respectively.
- S.23.04 (Group Reporting) not a new template – but there are significant revisions and additional lines added into this template for Group Reporting.
- S.25.05 – a new template for reporting internal model information for firms using either a partial or full model (replacing the S.25.02 / S.25.03 templates)
- S.26.08 – S.26.16 – Internal Model Risk Module reporting. EIOPA plan to introduce a standard EEA-wide set of templates for reporting internal model SCR information. The intention appears to be to replace the NSTs which several regulators have introduced with a common reporting set. These templates are probably less extensive than some of the NSTs and there seems to be some pressure on national regulators to reconcile themselves tothe fact they may not receive quite as much detail as they did from their own templates.
- S.29.05- Further reporting of variations in the excess of assets and liabilities.
- S.36.00 & S.36.05 – Intra-Group Transactions (IGT) reporting will include a new summary sheet as well as a more detailed P&L report.
- Loss Absorbing Capacity of Deferred Taxes – currently measured on the S.25 templates – EIOPA are proposing more detailed information spread across 3 templates including projections before and after stress factors. Currently these templates are referred to as S.xx.01 to S.xx.03 (although there is a typo on one sheet which refers to S.25.01 – so it may be that this will still be associated with the SCR reporting template.
The latest consultation paper focuses on the latest changes which have been made covering the S.06.04 Climate Change templates as well as revisions to the Non-Life Analysis S.14.02 template. S.22.01 the LTG and Transitionals templates could have MCR and SCR figures added to them, while the Variations templates have seen changes – S.29.06 effectively replacing the proposal for S.29.05. The new S.xx.01 – S.xx.03 loss absorbing capacity of deferred tax templates are also up for discussion.
Comments on the consultation can be emailed to CP-21-002@eiopa.europa.eu by the closing date of Sunday 17 October 2021.
The intention is that these proposals will take effect from the 31 December 2022, so we will work to implement these changes into Version 8.0 of SIIAssist which will come out at the end of next year.
PRA Regulatory Changes (UK-only)
In the UK HM Treasury and the PRA are doing a review of Solvency II with a view to seeing how they could reduce some of the reporting requirements now that the UK has left the EEA.
The PRA are proposing to develop these changes in two phases. The first one (discussed here) will look at removing templates in their entirety from certain reports. The second phase will look at changing the layout or data requirements for some of the templates.
There seems to be an acknowledgement that changing templates (even when it reduces the amount of information required) can involve significant work reprogramming systems, so this first step focuses on the removal of entire templates where they are no longer deemed essential.
Some of the changes suggested by the PRA are in line with what is proposed by EIOPA. It is possible the more extensive second phase to the review will reflect some of the EIOPA changes. It is likely there will be some divergence, but if you have not already done so, it might be worth looking over the EIOPA changes above to get an idea of the issues being considered.
Meanwhile, the changes currently proposed in this first phase are:
- S.06.01 – the summary version of the Assets Templates – which is occasionally used for annual reporting, will be deleted. (The full S.06.02 assets sheet will be retained however and there are no changes to the content or frequency of reporting this template).
- S.28.01/2 MCR Templates – will be removed from quarterly reporting but will now be submitted half-yearly. (This is mainly of benefit if you have a quarterly reporting waiver – as this means you don’t have to report anything in Q1 and Q3. If you are doing full reporting it is of less significance since you do have to calculate and report the MCR figure on S.23.01).
- S.15.01/2 – Variable Annuities reporting for Life Companies will be deleted.
- S.29.01–S.29.04 – the Variance Analysis templates which were introduced a couple of years ago will be deleted
- Financial Stability Reporting (the additional templates for the ECB which only a handful of the largest UK insurers reported) will be deleted.
Some changes will be made to the thresholds for reporting S.16.01 (annuities stemming from non-life insurance).
The PRA propose to make these changes from reporting date 31/3/2022 – so for most firms this apply from Q1 reporting part next year. Annual reporting will be unaffected for firms with a 31 December year end.
The PRA have stated that they will be moving to the new EIOPA 2.6.0 taxonomy for next year, (not that much is changing next year) but it means the core QRT reporting will remain aligned between the UK and EEA.
Full details of the PRA review are published on their web site and if you wish to comment on the proposals – you can email them at CP11_21@bankofengland.co.uk before the closing date of Friday 8th October.
We will implement the proposed changes into the Version 7.0 release of SIIAssist which is due for release in November. Since it is likely the PRA will not have finalised all of the changes by then – any necessary amendments will be made in a future update which will be released in the new year, well before any final reporting is required on the new basis in April 2022.