ECO-SLV-10191 19 March 2010

EN

IM 9 (Supervisory Reporting by Insurance and Reinsurance undertakings) – CEA comments and suggestions shown in track changes

General Comments

The CEA expresses concern over the level of reporting required by undertakings, this arises from two main observations: the content of quantitative reporting (quarterly and annual) is not addressed at Level 2; the current draft of the text provides an option for supervisory authorities to request qualitative reports more frequently than every 5 years.

In anticipation of this requirement, the CEA requests that the level of granularity be reduced to enable more frequent qualitative reporting.

The Solvency Financial Condition Report (SFCR) and Reporting to Supervisor (RTS) should be consistent in a way that is differentiated by granularity but consistent in terms of form and structure. This would enable undertakings to develop an efficient modular approach by extracting information and changing the level of granularity.

Brussels, 12.01.2010

Working document EIOPC/SEG/IM9/2010

DRAFT COMMISSION DOCUMENT ON
SUPERVISORY REPORTING BY INSURANCE AND REINSURANCE UNDERTAKINGS UNDER THE SOLVENCY II FRAMEWORK DIRECTIVE

Important note: This document is a working document of the Commission services for discussion.

It does not purport to represent or pre-judge the formal proposals of the Commission

Having regard to the Treaty (…),

Having regard to the Framework Directive (…), and in particular Articles35(4) and 254(2) thereof,

Whereas:

(1)  There are two disclosures as set out by the Framework Directive. The first is the private RTS which needs to be sufficient for the regulator to supervise the firm in accordance with the directive and within a harmonised framework. There is also the SFCR which is aimed at the markets and policyholders. This document should cover the material risks, be concise, and proportionate to the complexity, scale and nature of the business. The intention of the SFCR is to provide sufficient information for a third party to understand the risk of the insurance/reinsurance undertaking rather than to disclose market sensitive information, whilst the purpose of the RTS is to provide sufficient additional private information to the supervisory authorities to enable them to fulfil their responsibilities under the Framework Directive.

(2)  Insurance and reinsurance undertakings are required by the Framework Directive to submit to the supervisory authorities the information which is necessary for the purposes of supervision. Detailed and harmonised requirements regulating the information which must be submitted on a regular basis and the means by which this is to be achieved should be adopted to ensure effective convergence in the risk-oriented approach to be applied by supervisory authorities when they carry out the supervisory review process.

(3)  The information which insurance and reinsurance undertakings submit regularly to the supervisory authorities should be proportionate to the nature, scale and complexity of their business, and in particular to the risks inherent in that business. The requirements set out in the present Regulation should not lead insurance and reinsurance undertakings to submit any information which would not be relevant to their business. Information may be made in full, or by way of references to equivalent information, both in nature and scope, disclosed publicly under other legal or regulatory requirements.

(4)  The information to be submitted regularly to the supervisory authorities should be for material items only, an item will be considered as material if its omission or misstatement could influence the economic decisions that these authorities make on that basis when they carry out the supervisory review process. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances.

(5)  Undertakings are required to submit quantitative and qualitative information to supervisory authorities in the form of a regular supervisory report, as per Articles SRS3 to SRS 7. For the purpose of collecting information on these items, for financial resource requirements for the solvency purposes of an undertaking, quantitative information shall be submitted to the supervisory authority in the form of a template. For the purpose of collecting information on the internal assessment of risks and controls of an undertaking, qualitative information shall be submitted to the supervisory authority.

(6)  The Framework Directive requires Member States to provide that their authorities responsible for exercising group supervision have access to any information relevant for the purposes of that supervision. Detailed and harmonised requirements regulating the information which must be submitted on a regular basis by insurance and reinsurance groups and the means by which this is to be achieved should be adopted to ensure effective convergence in the risk-oriented approach to be applied by group supervisors as well as to facilitate the exchange of information within colleges of supervisors, while at the same time reducing to the extent appropriate the related burden for such groups.

(7)  The exchange of information, and aggregated data, between supervisory authorities should be carried out in such a way that does not disclose the identity of the undertaking.


TITLE S

INSURANCE AND REINSURANCE UNDERTAKINGS

CHAPTER SR

SUPERVISORY REPORTING

SECTION 1

REGULAR SUPERVISORY REPORTING: DEFINITION, STRUCTURE AND CONTENTS

Article SRS1

(Art. 35 (2) (a) (i) of the Framework Directive)

Definition and structure

  1. The information which supervisory authorities require insurance and reinsurance undertakings to submit at predefined periods in accordance with Article 35 (2) (a) (i) of the Framework Directive shall comprise the following:

(a)  The solvency and financial condition report disclosed by the insurance or reinsurance undertaking in accordance with Article PDS11, as well as any addendum to updated version of that report disclosed in accordance with Article PDS12 (1) and (2);

(b)  A regular supervisory report presenting information in narrative form;

(c)  Annual and quarterly quantitative templates updatingsupplementing, where appropriate, the information presented in the regular supervisory report.

  1. The regular supervisory report shall follow the same structure as the one set out in Annex PDI for the solvency and financial condition report and contain further information, referred to in Article SR3 to SR7, which is necessary for the purposes of supervision and not appropriate for public disclosure.
  2. The regular supervisory report shall present in a coherent and informative manner the information referred to in Articles SRS3 to SRS7.

Article SRS2

(Art. 35 (2) (a) (i) of the Framework Directive)

Summary

The regular supervisory report shall include a summary.

The summary shall in particular highlight clearly any material changes that have occurred in the undertaking’s business and performance, system of governance, risk profile, valuation for solvency purposes and capital management over the year.

Article SRS3

(Art. 35 (2) (a) (i) of the Framework Directive)

Business, external environment and performance

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their business and external environment:

(a)  The main future trends and factors that are expected to contribute positively or negatively to the development, performance and position of the undertaking (over its business planning time horizon);

(b)  The undertaking's perceived competitive position, its perceived strengths and weaknesses, and its business strategy;

(c)  Significant features of any potential regulatory or legal issues affecting the business;

(d)  A description of the objectives of the undertaking, including the relevant strategies and time frame.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding the performance from their underwriting activities, as measured in those undertakings’ financial statements:

(a)  The undertaking’s underwriting expenses by material line of business and geographical area;

(b)  A discussion and analysis by the administrative, management or supervisory body of the undertaking’s overall underwriting performance;

(c)  Details of the undertaking's underwriting performance by line of business against plan, and significant factors affecting deviations from plan;

(d)  Details Projections of the undertaking's underwriting performance over the business planning time horizon period with details of significant factors that might affect underwriting performance;

(e)  Details of any material reinsurance, ART and finite reinsurance programmes purchased, including those currently not being claimed on.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding the performance from their investment activities, as measured in those undertakings’ financial statements:

(a)  Information on investment expenses incurred over the year, compared to the prior year and reasons for movement;

(b)  A discussion and analysis by the administrative, management or supervisory body of the undertaking’s investment performance by segment;

(c)  The key assumptions which the undertaking is making in its investment decisions with respect to interest rates, exchange rates, and other relevant market indices.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding the performance from their other activities, as measured in those undertakings’ financial statements:

(a)  A description of any material future anticipated non-underwriting income and expenses over the coming reporting period such as restructuring or operating costs.

5.  Insurance and reinsurance undertakings shall report in a separate section any other information which they consider important regarding their business and performance.

Article SRS4

(Art. 35 (2) (a) (i) of the Framework Directive)

System of governance and remuneration policy

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their governance structure and their remuneration policy:

(a)  details allowing the supervisory authorities to gain a good understanding of the overall system of governance within the undertaking and to assess its appropriateness to the undertaking’s strategy;

(b)  details of the activities performed during the year to ensure the on-going appropriateness of the design and operation of any internal model used for the calculation of the undertaking’s Solvency Capital Requirement, together with any plans for future developments in the internal model;

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their fit and proper policy:

(a)  a list of the persons in the undertaking subject to the requirements set out in Article 42 of the Framework Directive;

(b)  details on the policies and processes established by the undertaking to ensure that it is satisfied that those persons are fit and proper.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their risk management system:

(a)  details on the undertaking’s risk management objectives and policies for each category of risk;

(b)  a description of how the ORSA process is appropriately evidenced and internally documented;

(c)  a description of the outcome of the ORSA, including the assumptions used and the undertaking's future overall solvency needs that result from the ORSA process compared to own funds;

(d)  Details of all current and future exposures that the undertaking considers it may be exposed to over the life time of its existing contracts, and how these have been captured in its overall solvency needs risk exposure information based on appropriately aggregated homogenous risk categories;

(e)  Information allowing a comparison between the Solvency Capital Requirement and the overall solvency need resulting from the ORSA process;

(f)  Where the undertaking is using the standard formula, details of any material risks that the undertaking has identified that are not included within its SCR, and how it has quantified these risks.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their internal control system:

(a)  Details on key procedures in place.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their internal audit function:

(a)  A summary of internal audits performed during the period and the undertaking’s plan for future reviews (with the rationale for these future audits);

(b)  An overview of the findings reported to the undertaking’s administrative, management or supervisory body and their use of internal audit reports.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their actuarial function:

(a)  detail on the activities undertaken by the undertaking’s actuarial function in each of its areas of responsibility.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their outsourcing policy:

(a)  where the undertaking outsources any critical or important operational functions or activities, evidence that appropriate oversight and safeguards are in place;

(b)  Details on the service providers to whom any critical or important operational functions or activities have been outsourced and on how the undertaking satisfies itself that the service providers are competent;

(c)  An explanation as to how the undertaking has fully assessed the impact on its operational risk.

  1. Insurance and reinsurance undertakings shall report in a separate section any other information which they consider important regarding their system of governance.

Article SRS5

(Art. 35 (2) (a) (i) of the Framework Directive)

Risk profile

  1. Insurance and reinsurance undertakings shall report qualitative and quantitative information regarding their risk profile, in accordance with paragraphs 2 to 5, separately for the following categories of risk:

(a)  Underwriting risk;

(b)  Market risk;

(c)  Credit risk;

(d)  Liquidity risk;

(e)  Operational risk;

(f)  Other material risks (including strategic risk and reputation risk).

–  (a) underwriting and reserving;

–  (b) asset–liability management;

–  (c) investment, in particular derivatives and similar commitments;

–  (d) liquidity and concentration risk management;

–  (e) operational risk management;

–  (f) reinsurance and other risk-mitigation techniques.]

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their risk exposure, including the exposure arising from off-balance sheet positions and the use of SPVs:

(a)  Details on how the administrative, management or supervisory body expects material risk exposures to further develop over the next two years, including the process for identifying and managing emerging risks, given the undertaking’s business strategy and how these risk exposures will be managed.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their risk concentration:

(a)  A description detailing any material future risk concentrations anticipated over the coming reporting period given the undertaking’s business strategy, and how these risk concentrations will be managed.

  1. The following information shall be reported by insurance and reinsurance undertakings regarding their risk mitigation:

(a)  Detailed information on the techniques used to mitigate risks, and on the effect that these tools have on the undertaking’s risk profile;