Escali Blog

Navigating Solvency II

Oct 19, 2020 7:38:16 AM / by Andrew Sweetmore

The three-pillar structure of Solvency II will be familiar to many, with the different pillars representing the main areas covered by the regulations. The legislation and documentation which makes up Solvency II is detailed and complex. With many elements in play it can be difficult to understand how all the pieces fit together.

To help, this article explains the structure of Solvency II and outlines some of the key regulations. It is intended as both a summary of the most important elements of the regulations, as we as a reference document with links to most important documents.

Three Pillar Structure

Three pillar structure

 

Regulatory Framework

Solvency II is a directive in European Union law which primarily concerns the capital requirements for EU insurance companies. The original directive of 25 November 2009 was, after years of negotiating, amended by the “Omnibus II” Directive in 2014. Solvency II finally came into force on 1 January 2016.

Under the Solvency II directive, the European Commission can adopt delegated and implementing acts (regulation), including technical standards and other information.

SII Documentation

 

The directives establish the framework for the regulation. For example, the Solvency II Directive defines market risk and its components at a relatively high level:

SII Directive

The directive does not however give details of how each sub-module (for example interest rate risk) should be calculated. This is included in the Solvency II delegated regulation (Regulation (EU) 5015/35) which contains the detailed requirements for Pillar I. Among other things this regulation specifies the calculation of technical provisions, own funds and the solvency capital requirement (SCR).

Delegated regulation

The delegated regulation has been amended a number of times and at the time of writing (October 2020), there is a consolidated version available in all EU languages, which can be accessed here.

In addition to the delegated regulation there is also a large amount of implementing regulation with further details in connection with the Solvency II regulations. An important example here is Regulation (EU) 2015/2450 which provides implementing technical standards for quantitative reporting. The reporting templates and the information to be submitted in these are included:

Implementing regulation

Implementing regulation 2

 

This also includes the asset categories and definitions used in the CIC classifications which are used throughout Solvency II:

CIC codes

Non-legislative information in the form of technical information is also available to insurance undertakings. The technical data requirements and validation rules are described by a data point model and XBRL taxonomies. The European Insurance and Occupational Pensions Authority (EIOPA) regularly updates a wide variety of materials in relation to this, including reporting templates and validation rules.

Technical information regarding the risk-free interest rates and the symmetric adjustment of the equity capital charge are published on a monthly basis. Due to COVID-19 outbreak, since March 2020, EIOPA have also carried out extraordinary calculations to give technical information mid-month.

In addition, EIOPA issues guidelines on a wide range of topics. These are aimed at facilitating convergence of practices across Member States and supporting undertakings in applying the Solvency II regulations.

Guidelines

Local regulators and bodies usually also issue guidelines for reporting which are specific for each member state.

How to find information

Given the volume of documentation surrounding Solvency II, it is useful to have a list of links to the key documents to hand. In terms of the calculations and reporting requirements the most important are those mentioned in this article:

 

The Solvency II directive as amended by the Omnibus II directive give the overall framework and principles

Delegated regulation which specifies details of the calculations

Implementing regulation which lays down technical standard for reporting

EIOPA materials in connection with the data point model and XBRL taxonomies

Risk free interest rate term structures

Symmetric adjustment of the equity capital charge

 

Local regulators also often have links to the key documents on their website and this can be a useful source of information.

 

 

Tags: XBRL, QRT, Solvency II reporting, Delegated regulation, Implementing regulation

Andrew Sweetmore

Written by Andrew Sweetmore

Head of Business Development for pensions and insurance, Andrew has over 20 years experience within this sector. Having previously worked as a pension Scheme Actuary in the UK, Andrew now leads our pensions and insurance team.