EU publications ECON extends scrutiny period of amending Delegated Act Page 3. Reporting ITS published in Official Journal Page 3

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1 Insurance Regulatory Update December 2015 European regulatory developments of interest to insurers, reinsurers, asset managers and other market participants Summary EU publications ECON extends scrutiny period of amending Delegated Act Page 3 Reporting ITS published in Official Journal Page 3 EIOPA updates taxonomy validations and list of known issues Page 3 UK publications PRA grants Solvency II internal model approvals Page 5 PRA publishes note on expectations for look-through reporting (S.06.03) Page 5 ABI Press release on reassessment of Solvency II Fundamental Spread Page 6 PRA Dear CEO letter on UK non-life soft market conditions Page 6 Ireland publications Latest edition of Solvency II Matters newsletter published Page 7 CBI publish National Specific Templates XBRL taxonomy Page 7 Netherlands publications DNB themes for Insurance Supervision in 2016 Page 9 DNB publishes Q&A on LAC of deferred taxes Page 9 1 P a g e

2 EU - Publications from EU institutions 1 December European Parliament ECON extends scrutiny period of amending Delegated Act Roberto Gualtieri, Chair of the Economic and Monetary Affairs Committee (ECON), wrote to the Council and Commission notifying them of ECON s decision to extend the scrutiny period for the delegated regulation modifying the Commission Delegated Regulation (EU) 2015/35 (Solvency II Delegated Acts ). As well as some correcting provisions, including a correction to the group day 1 submission deadline date, the amendments mostly concern introducing a new infrastructure asset class within the SCR standard formula (and associated qualifying criteria for investments to meet this classification) with equity and bond/load sub-categories. The amending act also proposes an extension of the transitional measure within Article 168 to cover Type 2 equities to prevent any disruptive sell-off of unlisted equities in the run-up to the application of Solvency II on 1 January The scrutiny period for the Delegated Act now expires on 30 March The European Council had previously given its approval of the Delegated Acts. 12 December European Commission Correction to adoption date for Third-country equivalence decisions Commission published a Corrigendum to the text of the Commission Delegated Decision ((EU) 2015/2290) on the provisional equivalence of the solvency regimes in force in Australia, Bermuda, Brazil, Canada, Mexico and the United States under Article 227(5) of the Solvency II Directive (2009/138/EC). The corrigendum corrects the adoption date of the decision. 31 December European Commission Solvency II Reporting ITS Published in Official Journal EIOPA published three ITS covering the Solvency II reporting requirements for the RSR, SFCR and disclosures by supervisory authorities: The templates to be used when submitting information to the supervisory authorities under articles 35, 244 and 245 of the Solvency II Directive (EU/2015/2450) (in force from 1 January 2016); The templates and structure to be used by the supervisory authorities when they disclose information under article 31 of the Solvency II Directive (EU/2015/2451) (in force from 20 January 2016); and The procedures, formats and templates to be used when (re)insurers publish their Solvency & Financial Condition Reports under articles 51 and 256 of the Solvency II Directive (EU/2015/2452) (in force from 20 January 2016). 2 P a g e

3 These ITS complete Set 2 of EIOPA s texts supporting Solvency II and finalises the regulatory framework for the reporting requirements. Note, errors in the original consultation were identified and listed in a document, Mistakes amended in reporting and disclosure package. 7 December EIOPA EIOPA updates methodology for calculating risk-free rate term structures EIOPA published updated technical documentation of the methodology to derive EIOPA s risk-free interest rate term structures which included two key changes: long-term average spread for UK government bonds and corporate bonds in pound sterling was adjusted to take account of additional spread data calculation of the cost of downgrading was modified to avoid the double counting of risks in the calculation of the fundamental spread The difference in the calculation in the fundamental spread is thought to particularly benefit UK annuity writers. The ABI welcomed the change (see ABI Press release on reassessment of Solvency II Fundamental Spread). 10 December EIOPA EIOPA publishes presentations on Solvency II implementation EIOPA published two presentations from a recent press event it hosted on the implementation of Solvency II. The goal of the event was to present (at a very high level) some key elements of Solvency II that it felt may not yet be fully understood by wider market participants: Information flows in Solvency II and public disclosure presentation by Ana Teresa Moutinho, Principal Expert on Solvency II How to understand a balance sheet under Solvency II presentation by Lars Dieckhoff, Principal Expert on Insurance Policy 16 December EIOPA EIOPA updates taxonomy validations and list of known issues EIOPA published an updated list of validations and the list of known issues for the full Sii taxonomy v on its Sii reporting page. A small number of validations were fully or partially disabled either due to business reasons (the validation not being valid) or technical reasons (the validation not being implementable in the taxonomy). EIOPA expects to reintroduce some of the validations disabled for technical reasons, although for this some would require amendments to the filing rules. NOTE: the updated validations have been processed and included in release of Tabular, available to all clients. 3 P a g e

4 18 December EIOPA EIOPA updates reporting Q&As EIOPA published updates to the RSR Q&As, SFCR Q&As and FSR Q&As on its Q&A page. Included within the additional items were useful clarifications on some of the detailed reporting requirements: Question 25 confirmation that Commissions on S and Acquisition expenses on S are in fact the same item, just termed differently Question 31 clarification on the 3 methods of RFF nscr aggregation Question 35 confirmation that CIUs eliminated from S due to intra-group eliminations should also be excluded in S Question 39 clarification that in S.26.XX QRTs the assets and liabilities sensitive to the risk columns should include exposures even where the capital charge is zero eg EU government bond 4 P a g e

5 UK - Publications from the UK 5 December PRA PRA grants Solvency II internal model approvals PRA published a list of 19 insurers whose full or partial internal models have been approved for use under Solvency II from 1 January December Corporation of Lloyd s Reporting market bulletin (Ref Y495) Lloyd's published a market bulletin regarding the reporting requirements for Solvency II Pillar 3. The update states that its aim is to: remind managing agents that they must be in a position to collect specific data from cover holders and third party administrators inform managing agents of a test run (in Q2 2016) of the reporting process to assist Lloyd's in meeting its own reporting obligations under Pillar 3 of Solvency II, particularly around coverholders 8 December ABI ABI Press release on reassessment of Solvency II Fundamental Spread ABI issued a press release welcoming the change to the SII Fundamental Spread which, it says, prevents a 2.5 billion in annuity liabilities valuations in the UK: Changes made today to the calculation of the Solvency II Fundamental Spread by EIOPA (European Insurance and Occupation Pensions Authority) should help ensure annuity prices remain steady for customers. The ABI, which has been working closely with EIOPA to secure this outcome, estimates that this prevents a potential 2.5 billion increase in the value of annuity liabilities across the industry. This will improve firms solvency positions and encourage long term investments, including infrastructure. It will also avoid a potential reduction in annuity incomes paid to new customers as insurers will not need to hold an excess of capital for each customer. 4 December PRA PRA Dear CEO letter on UK non-life soft market conditions PRA published a Dear CEO letter on its concerns and expectations on Boards regards the continued soft market conditions. The PRA expressed concerns on the strategies being adopted to meet profit expectations and set out its expectations that Boards challenge strategies that could weaken their ability to meet policyholder obligations or provide adequate oversight. 5 P a g e

6 The letter also sets out the PRA s expectations on underwriting, reserving, reinsurance, and the assessment of capital requirements in current market conditions. 18 December PRA PRA publishes note on expectations for look-through reporting (S.06.03) PRA published a note, Basis of preparation for look through approach for Collective Investment Undertakings ( CIU ) Template S in response to a recent EIOPA Q&A (see EIOPA Q&A item) inviting firms to discuss scenarios with National Supervisory Authorities where look-through reporting cannot be (fully) achieved. The PRA, in anticipation of queries from firms, sets out its expectations and gives some indication of its judgement on key metrics: PRA will not give guidance on whether specific assets fall within definition of CIU Materiality should be applied by firms in completing S Crucially, PRA advise it will accept best available data with adjustments if firms can demonstrate approximations are reasonable Firms should not be considered to be in breach of reporting obligations where genuine constraints exist on data available eg embargoes Best available data give indication on what it could accept as best available data: o Most recent investor data where data not available for the reporting reference date o Data that is not stale (PRA give 3 month aged as acceptable) so long as adjustments are made for significant events occurring during the interim PRA invites firms that have classified CIU as equity for the purpose of calculating SCR and have concerns over the data available for look through to discuss alternate approaches for reporting 6 P a g e

7 Ireland - Publications from Ireland 17 December CBI Latest edition of Solvency II Matters newsletter published Central Bank published the latest edition of its Solvency II Matters newsletter. The newsletter s welcome note highlights regulatory reporting as a major challenge for firms in 2016, suggesting that the preparatory phase submission process raised a number of issues. The Bank is planning an Industry Reporting Workshop in February 2016 for all in scope firms which, it says, will include a demonstration of its online XBRL Portal. Also, the Central Bank has stated that it will not communicate final decisions in respect of revised Conditions of Authorisation until after 1 January The Central Bank reports that a draft set of conditions of authorisations were issued to Solvency II firms and the 21 day review period to submit comments had commenced. The reporting update notes that a Public Working Draft ( PWD ) of National Specific Template ( NST ) taxonomy is available on the Central Bank website (see next item). 18 December CBI CBI publishes National Specific Templates XBRL taxonomy CBI published the version of the NST taxonomy and updated its NST reporting page. This follows a PWD that was made available for consultation in November. The package is broadly unchanged from the PWD and includes the specifications, validations (which weren t available in the PWD but are part of the final package) and guidance for NST1 through to NST13 and confirms that: NST 01 - NST 07 are required for all HIGH impact firms (excluding reinsurers) NST 08 - NST 11 are required for all firms which retain variable annuity risk and HIGH impact firms which have reinsured variable annuity risk outwards NST 12 & NST 13 are required by all (re)insurers and Irish branches In terms of reporting frequencies: NST 01, 02 (non-life and life income statements), NST 08 NST 10 (variable annuity P&L attribution), NST 12, 13 ( statistical templates) are required quarterly. NST 11 (variable annuity stress) test is only required in Q2. NST 03 NST 07 (non-life technical provisions, future cash flows, technical account) are required semi-annually. The CBI confirm that the same validations syntax and filing rules as used in the EIOPA taxonomy will be utilised in the NSTs. The CBI has also made available a Q&A document on the statistical templates (NST12 and NST13) which includes helpful content on definitions for items and the relationship between the EIOPA reporting templates and the statistical templates (which cover the same of very similar reporting concepts but done on a different basis). 7 P a g e

8 NOTE: the draft taxonomy package is being implemented into Tabular and will be available in an application update shortly. Updated QRTs, regulatory hub content, validations and XBRL generation will be available in the update. 8 P a g e

9 Netherlands - Publications from the Netherlands 16 December DNB DNB publishes Q&A on LAC of deferred taxes DNB published a Q&A on the loss-absorbing capacity of deferred taxes under Solvency II. The guidance sets out the DNB s expectations on firms interpreting Article 207 of the SII Delegated Acts, in particular: Financial position following the loss, taking into consideration quantitative limits of Tier 1,2 and 3 own funds and likelihood of recapitalisation in proportion to the loss Consideration of future profits including increased risk mitigation measures depressing earnings potential 23 December DNB DNB themes for Insurance Supervision in 2016 DNB published an interview with Thijs van Woerden, Director at the DNB, on progress made by Dutch insurers in 2015 and the challenges and focuses for The DNB lists data quality among the key themes for the next year, following on from their call for resubmissions from insurers of preparatory phase submissions which were not in line with the EIOPA XBRL filing rules. Capital management, and in particular how insurers respond to more volatile, market-based, solvency figures, was set out as another area the DNB remains concerned with for P a g e

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