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Pillar 3 changes afoot

Our viewpoint

Last week, I was on the 28th floor of Frankfurt’s Westhafen Tower, home of EIOPA, where I was taking part in an industry discussion of its consultation on the 2020 review of Solvency II Pillar 3 reporting.

“Wave 1” of the consultation, published in July 2019, focussed on general issues around supervisory reporting, public disclosure and the Quantitative Reporting Templates (QRTs) for solo entities.  The second wave is due later this month, and is expected to focus primarily on Regular Supervisory Reports, QRTs for Groups, technical details and data quality.

My key takeaway from this week’s discussion was the collaborative approach that EIOPA is taking towards this review.  It welcomes feedback from local regulators, industry bodies, (re)insurers and other insurance professionals, and is keen to strike the right balance between transparent, relevant reporting that is valuable both to key stakeholders and also to EIOPA itself in its role of monitoring the financial health of the market as a whole.

That’s not to say that the consultation has not raised eyebrows across the market – with a key concern being that the proposed changes will make reporting more – rather than less – onerous.

I’ve summarised below some of the main amendments to SFCR and QRT reporting proposed as part of the wave 1 consultation, which are divided into 3 main areas:

1. Changes to the content of SFCRs – which appear to have been relatively well received

  • splitting the SFCR into two, with the first part being a “two-pager” for policyholders (for solo entities only, and excluding captives) and the second being a longer report aimed at professionals
  • merging the sections covering risk and capital into a single “Risk profile and capital management” section
  • standardising the SCR sensitivity tests results to be disclosed (but with the option to also include sensitivity testing that is tailored to the entity’s risk profile). 

2. Changes to the production of SFCRs – which appear to have had a mixed reception

  • ensuring the SFCRs are machine readable and remain in the same place on a company’s website for at least 5 years
  • requiring an external audit of the Solvency II balance sheet as a minimum (currently 8 member states have no audit requirements, with the remaining 17 member states already requiring some level of audit). 
  • extending the SFCR reporting deadlines by two weeks to accommodate the proposed audit requirements, and extending the group SFCR reporting deadlines from 6 weeks to 20 weeks to better align with financial reporting
  • considering having a national or Europe-wide repository of all SFCRs.

3. Changes to QRT reporting – where concerns were raised that the proposed changes will make the requirements more onerous overall

  • retaining the existing fourth quarter QRT reporting, despite significant overlap with the annual reporting requirements
  • deleting and/or amending some of the existing templates
  • adding in more reporting templates, including disclosures around cyber risk, summaries of non-life products and model change
  • requiring firms with approved internal models to report standard formula capital figures.

We run roundtable events to help firms prepare their Pillar 3 reporting, share their experiences of key challenges and understand the upcoming changes.  Our next event is on October 30th – click here for more information and to register.

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