The European Commission have recently adopted a review of Solvency II. The review largely follows EIOPA’s proposals, as set out in their Opinion from December 2020.
Along with proposing amendments to the reporting requirements, simplifications of quarterly reporting and eliminating of some reporting templates, the Consultation on the amendments of supervisory reporting and public disclosure documents requires additional information in a number of different areas. For sustainable investments and climate change related risks, three new metrics are introduced. Annex II, Instructions regarding reporting templates for individual undertakings, specifies the metrics to be reported in S.06.04. These are expressed in percentage points and defined as follows:
Taxonomy 2.6.0 introduces new reporting requirements which apply from Q4 2021. This new taxonomy includes only a handful of changes although new and updated validations can potentially give rise to errors or warnings not seen before.
EIOPA have recently launched a consultation on draft amendments to EU regulations on the quantitative reporting templates (QRT) and the solvency and financial condition report (SFCR). Comments are requested by 17 October 2021.
Stress testing and reporting fund content are two of the main challenges with Solvency II and EIOPA/ECB reporting. Many fund managers use their own format when supplying fund content information. Data quality varies, which makes the process even more challenging. The standard format Tripartite (TPT) can help address these issues.
Supervisory reporting for insurance companies and pension schemes requires reports to be submitted in XBRL format. XBRL is the open international standard for digital business reporting, managed by a global not for profit consortium, XBRL International.
As the year end approaches, it is time to review the changes in the taxonomy for EIOPA reporting which apply from Q4, 2020.
Many investment funds are currency hedged. This is where the foreign exchange risk is eliminated or “hedged” by derivatives in the investment portfolio. In the Solvency II framework, a fully currency hedged fund can reduce currency risk by up to 25% of the funds market value. However, because of market fluctuations these funds will not always be completely currency hedged. That’s why you should calculate currency risk on all underlying instruments when stress testing the fund content as part of the solvency capital requirement (SCR). Hedging instruments will offset the risk on other investments reducing overall currency risk. Note that the risk-mitigating effect of hedging instruments may also have a significant impact on counterparty risk.
Software and applications are increasingly making use of cloud storage. Almost everyone makes use of this convenient technology in their everyday lives, whether it be to backup the data on their mobile phone or store photographs and other data.
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.