More work needed to implement Solvency II reporting - BearingPoint

EIOPA’s July 10th report on Pillar 3 will trigger further modifications to current QRT templates

Dublin, August 8, 2012 – Management and technology consultancy BearingPoint has found that significant additional effort will be needed to adapt existing Solvency II reporting software to the newest requirements published July 10, 2012, by the European Insurance and Occupational Pensions Authority (EIOPA).

EIOPA released its latest set of Solvency II ‘reporting and disclosure requirements’ for insurance undertakings and insurance groups in response to the feedback from its most recent public consultation on Pillar 3 which began in Q4 2011.

Martin McKenna, financial services partner with BearingPoint Ireland, stressed the importance of comments made by EIOPA. “A recent BearingPoint study of over 350 European insurers in key markets including Ireland found that only 16 per cent of the insurance industry is prepared to deliver the required quarterly and annual reports to the respective EU supervisory authorities. The insurance industry should use the EIOPA current report as a basis to start the Solvency Pillar 3 implementation phase.”

He added that most insurers underestimate the complexity of the new reporting structure. “Our experience shows that an early review of Pillar 3 requirements significantly reduces the time and effort needed to implement Solvency II in full.”

BearingPoint analysed the report findings to assess the impact on implementation effort. While on the surface, the fundamental data to be reported remain the same, a cell-by-cell analysis reveals additional complexity - due to new report views that need to be generated, as well as changes to layouts on existing reports.

Specifically, BearingPoint examined in detail the newest EIOPA templates to identify changes from the Nov/Dec 2011 Quantitative Reporting Templates (QRTs), as part of continuously improving the standard version of its ABACUS/Solvency II reporting solution, which has been implemented by a large number of insurance entities across Europe. As shown in the diagram below, the assessment examined the 84 different template styles with respect to layout and content:

22 templates to generate in a new layout (incl. 1 with new content)
51 templates modified (78% of the old QRTs)
11 templates unchanged (17% of the old QRTs)
2 templates were deleted (3% of the old QRTs)

Financial Stability is no longer a separate QRT, but rather a category of QRTs (e.g. profit & loss, lapses, duration liabilities, etc.). These templates were listed as new templates, the actual summary overview has been left out of consideration, because this could potentially continue to be requested as an overview template.

The complexity of the necessary changes was also assessed, by looking through the new QRTs on a meta-level and considering their impact in terms of allocation, validation, data model, layout adjustments, etc. BearingPoint found that 90% of the ‘new’ templates and 65% of the ‘modified’ templates require modifications of medium complexity, while 5 of the 84 templates involve changes of high complexity. In addition, amendments to documentation will also be required due to new explanatory LOG files and templates.

“EIOPA’s release of its Pillar III consultation findings is a big step forward in stabilizing the uncertainty that has surrounded the level of granularity of the information that supervisory authorities expect to receive,” says Patrick Maeder, Head of BearingPoint’s Insurance Segment. Jürgen Lux, Head of ABACUS/Solvency II at BearingPoint adds: “We have placed a high priority on aligning our standard Pillar III reporting solution to the newest EIOPA requirements. This is an integral part of the ongoing maintenance and consulting support that we provide to our ABACUS/Solvency II clients.”

Despite the recommendations of its final report, EIOPA as a neutral advisory body cautions insurers in its public announcement that the ongoing discussions related to the Omnibus II Directive and the future ‘Implementing Measures’ are expected to lead to further changes in the reporting requirements. The design or structure of the templates may also be affected by the development of the respective IT reporting standards (e.g. XBRL).

Nevertheless, EIOPA is strongly encouraging the industry to use this package when starting implementation to be ready in time when Solvency II reporting takes effect on January 1, 2014. A complete, final set of documentation for Solvency II reporting is expected to be made available only in 2013. It is expected to include:

  • Technical Standards – Templates, explanation of content and changes, validations
  • Guidelines – Content, templates not covered by the technical standards
  • Guidelines for XBRL implementation

The EIOPA report pointed to other aspects of Pillar 3 that could lead to additional workload and cost for insurers (e.g. testing/implementation of XBRL standard estimated to last 2 years, Solvency II Balance Sheet required quarterly). It also highlighted several reporting and disclosure areas where requirements were materially changed:

  • Potential for exemptions and application of materiality thresholds required to fill certain templates
  • Criteria for quarterly reporting and split of information between quarterly and annual reporting
  • Amendments and additions to a number of templates and in particular to the Own Funds, Variation Analysis and Counterparty Default Risk template

Entities are required to develop methods for the quarterly valuation of technical provisions and best effort calculations for financial stability reporting.