EU publications Technical information for 30/9 30/12 firms to calculate TPs and BoF Page 2

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1 Insurance Regulatory Update December 2016 European regulatory developments of interest to insurers, reinsurers, asset managers and other market participants Summary EU publications Technical information for 30/9 30/12 firms to calculate TPs and BoF Page 2 ITS Amending reporting templates for information submitted to supervisors Page 2 ECON letter to EIOPA on review of UFR Page 2 EIOPA updates reporting Q&As Page 3 UK publications Supervisory Statement on firms with an internal model Page 6 Consultation on amendments to SS9/15 on group supervision under Solvency II Page 6 ABI responds to Treasury Committee Solvency II inquiry Page 7 PRA consults on reporting format of NST and reporting clarifications Page 8 PRA publishes consolidated SII guidance materials in Supervisory Statements Page 9 Ireland publications Central Bank updates NST taxonomy version Page 10 Malta publications MFSA issues circular on national Solvency II reporting options Page 11

2 EU - Publications from EU institutions 3 November European Commission Technical information for 30 September 30 December firms to calculate technical provisions and basic own funds European Commission published Implementing Regulation 2016/1976 setting out: the relevant risk-free rate term structures set out in Annex I; the fundamental spreads for the calculation of the matching adjustment set out in Annex II; for each relevant national insurance market the volatility adjustments set out in Annex III. Insurance and reinsurance undertakings shall use the technical information provided in the Implementing Regulation when calculating technical provisions and basic own funds for reporting with reference dates from 30 September until 30 December November European Commission ITS Amending reporting templates for information submitted to supervisors (2016/1868) Commission Implementing Regulation (EU) 2016/1868 of 20 October 2016, amending and correcting Commission Implementing Regulation (EU) 2015/2450 on implementing technical standards (ITS) on the templates for submission of information to supervisory authorities under Solvency II (2009/138/EC), has been published in the Official Journal of the European Union. The changes to the QRTs are relatively minor and mostly relate to the additional qualifying infrastructure investment category incorporated into the Solvency II Standard Formula by the update to the Delegated Acts referenced above. Asides three new rows added to the S(R) SCR Market risk QRT, and updated infrastructure investment column list of reporting options in S(E) List of assets QRT, there are also minor adjustments to other QRTs: textual changes and updates, mostly clarifying ambiguities in the original text, to the reporting instructions (LOG files) etc. 15 November ECON ECON letter to EIOPA on review of UFR The European Parliament s Committee on Economic and Monetary Affairs (ECON) published a letter it sent to EIOPA on its review of ultimate forward rate (UFR). ECON clarifies that its comments do not necessarily criticise the underlying calculation method proposed by EIOPA but added that it felt it EIOPA considers: the importance of undertaking a proper impact assessment; and

3 the risks involved in speedy implementation of, and annual changes to, the method in circumstances where the subject matter is long term in nature (and requires consideration of market experience over a period of time). 26 November EIOPA EIOPA publishes updated reporting Q&A responses 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: RSR reporting templates: Question 637 (14/9/16) S Average interest rate EIOPA clarify that the average inflation rate given in S should be the averate rate of revision assumed in the BE calculation. Question 701 (14/9/16) S Pre-and post-shock asset values for UL business EIOPA confirm that it expects, in normal circumstances, that for UL policies where risk is fully borne by policyholders that the fall in assets post shock will be matched by the fall in liabilities post shock; noting that certain discrepancies could occur due to mismatch of valuation of expenses of any embedded guarantees. Question 741 (14/9/16) S UL with option to surrender, whether to report in with or without any option or guarantees columns In a follow-up question where EIOPA had advised that UL business with surrender option should be reported in the "without any options and guarantees" columns, the question highlights the impact on technical provisions of the surrender option (impact on projected BEL cash flows etc.) and suggests such policies should be reported in the "with any options and guarantees" columns. EIOPA concur with the questioner, confirming that in such cases where the surrender option affects technical provisions the policies should be reported in the "with any options and guarantees" columns. Question 796 (22/9/16) S c0010 Name of external counterparty EIOPA confirm that for asset risk concentrations, this field should correspond to entries made in S C0240 (Issuer Group). Note: we have added a validation (SIIS_754742) that will cross-check, for risk concentration types (C0050) 1-4, the issuer group fields and the CIC in S reconcile. Question 822 (22/9/16) S c0320 (External rating) where issuer rating but no issue rating EIOPA confirm that where a rating does not exist for an issue, no rating should be provided, even where an issuer rating is available. Question 791 (19/10/16) S c0070 (Language of reporting) EIOPA confirm that the language of reporting, identified in S r0070, should be the language used to report "string" XBRL items; these being non-numeric items that are also

4 not closed list options (ie dropdowns) and would normally also be the language used in the RSR/SFCR. Question 791 (19/10/16) S c0110 and c0120 where assets held in custody by insurer EIOPA confirm that in this scenario, where there is no custodian involved, these fields should be left blank. Question 791 (19/10/16) S c0240 where issuer is not part of a group EIOPA confirm that, apart from the specific scenarios identified for reporting the issuer group for CIC 4, 7 and 8, where no parent company exists then this field should be left empty. Question 804 (19/10/16) S Approach for fully owned subsidiary whose shares are not traded on any market EIOPA clairfy that in this scenario, the SII value of the subsidiary should be entered into S c0370 (Unit SII price) and the S C0130 (Quantity) field should be set to 1. Note: we have added a validation (SIIS_754765) that will check that where S c0310 ("Holdings in related undertakings, including participations") indicates a participation, if the CIC indicates the shares are not traded then S C0130 should be 1. Question 808 (19/10/16) S Same commercial product with different characteristics (product versions) EIOPA confirm that even where the commercial product is the same, for technical reasons, a different code value must be entered in S table 1 c0010 (and subsequently S table 2 c0090) as for XBRL the code must be unique. EIOPA refer to the EIOPA known issues document for the approach to be taken. Question 828 (19/10/16) S FX rate to be used for opening balance and movements EIOPA confirm that the opening and movement in year amounts should be translated at the closing rate (accepting that the opening balance may not therefore reconcile exactly with the closing balance from the previous year due to the differing exchange rate used). Question 841 (19/10/16) S C0290 (CIC) for Revenue stamps EIOPA clarify that revenue stamps should be treated as cash and cash equivalent and therefore CIC71. Question 846 (19/10/16) S Article 44 (2)(a) considerations outside scope of tempalte EIOPA confirm that S (for solo and group reporting) only covers the impact of removing long term guarantees and transitionals. Sensitivty assessments as set out in Article 44 (2)(a) should be submitted as part of the narrative disclosures ie the RSR. Question 859 (19/10/16) S UL/IL in-scope and inconsistency with IRFS regards realised and unrealised gains EIOPA confirm that in general S does not follow IFRS or any local gapy and subsequently: - unit linked and index linked contracts should be included - realised and unrealised gains are based on movements in the reporting year of Sii value (and hence do not consider amortised cost etc.)

5 Question 864 (19/10/16) S C0120 (Expiry date) where no contractual expiry date EIOPA confirm that the approach described in S.36 should be followed: This cell should be left blank in the cases where there is no expiry date. Question 865 (19/10/16) S.30.01/02 Criteria for identifying top 10 In response to a question on what measure to use for reinsured annuity products, EIOPA advise that this should be taken to be an equivalent measure where sum insured is not appropriate: references to "sum reinsured" should be read considering the type of insurance business. in case of annuities we should read "sum reinsured or similar". This approach will take into account the various definitions used for life-insurance products. Question 867 (19/10/16) S C0150 (Contract Period for Gross Estimated Treaty Premium Income ) EIOPA confirm that the amount to be reported should be The Gross Estimated Treaty Premium Income is related to the entire contract term (and not just that for the next reporting period). Question 870 (19/10/16) S R0380 (Receivables (trade, not insurance)) In response to a query on the correct balance sheet item to include cash collaterals that are held in other institutions as open position (on derivatives/loans) collaterals EIOPA confirm that R0380 (Receivables (trade, not insurance)) would be the most appropriate balance sheet item. Question 873 (19/10/16) S Look-through on reporting the same fund quoted in multiple currencies EIOPA confirm that, because this situation requires multiple entries in S (using ISIN+CUR convention), then the look-through would also need to be reported for each of the S funds separately. SFCR reporting templates (note, often questions appear in the SFCR Q&A document that relate to RSR templates ie those which are not reported publicly): Question 866 (20/10/16) S R0010 (Discretionary benefits (profit or loss sharing) allocated to policyholders) EIOPA confirm that the denominator in the calculation should include the transitional on technical provisions. Question 869 (20/10/16) S Determining top 5 countries when life and non-life business EIOPA confirm that assessment of the top 5 countries should be done separately for life and non-life business. Question 906 (21/10/16) S Lapses when policy becomes paid up in year EIOPA confirm that policies that are premium paying at the start of the reporting period and which become paid up during the reporting period should be included in the count (R0010) and volume (R0020) fields.

6 UK - Publications from the UK 10 November PRA Supervisory Statement (SS15/16) on firms with an internal model The PRA published Supervisory Statement (SS15/16) setting out its expectations of firms with an approved internal model and its approach to monitoring model drift (including reporting templates of standard formula Solvency Capital Requirement (SCR) information). On the holding webpage, the PRA has set out feedback to their May 2016 Consultation Paper CP22/16. The PRA sets out its definition of model change, being one or more of the below: changes to approved internal models; changes to the approved policy for changing the internal model; and extensions to the scope of approved internal models. The Statement describe the PRA s expectations of firms before and during a model change application, the PRA s expectations of the quality of firms model change applications, and the information the PRA expects to be provided with a model change application. In particular the supervisory statement covers the: interaction with the PRA before and during a model change application; quality of a model change application; and the information to be provided with a model change application. The PRA explains that its approach to reviewing model change applications will have similarities to the internal model approval process ( IMAP ). It will form part of the PRA s overall approach in ensuring a firm s internal model continues to meet the Solvency II requirements and the Solvency Capital Requirement ( SCR ) remains appropriate for its risk profile. The applications to apply changes to the policy for changing the internal model will be subject to a standalone review process. However, firms can align an application to change the policy for changing the internal model with an existing model change application. 14 November PRA Consultation on amendments to SS9/15 on group supervision under Solvency II (CP38/16) The PRA published a Consultation Paper (CP38/16) setting out proposed updates to PRA Supervisory Statement SS9/15 on group supervision under Solvency II (2009/138/EC). The Consultation Paper reflects parts of a PRA letter of 25 July 2014, entitled Solvency II: and update on implementation, and makes refinements to SS9/15 to take into account aspects of the Solvency 2 Regulations. It also includes references to the PRA Rulebook.

7 11 November ABI ABI responds to Treasury Committee Solvency II inquiry The ABI published its response to the House of Commons Treasury Committee s inquiry into Solvency II The ABI motions for Solvency II to be refined, rather than being replaced entirely, following the UK s exit from the European Union. The ABI lists a number of issues with Solvency II where refinements would be most beneficial to UK insurers: risk margin removing barriers to long-term investments reducing reporting requirements The ABI recommends that the Solvency II Directive should be implemented directly into UK law immediately upon Brexit in order to avoid gaps in regulation 15 November PRA PRA consults on reporting format of NST and reporting clarifications (CP40/16) PRA withdrew CP37/16 Consultation Paper on the move to XBRL reporting for PRA National Specific Templates and replaced it with a new Consultation Paper CP40/16: Reporting format of National Specific Templates and Reporting Clarifications. The PRA made the decision following feedback from the market that a number of firms plan to report in extensible Business Reporting Language (XBRL)-enabled Excel format for the financial yearend CP40/16 proposes that for the reporting of National Specific Templates for financial year-end 2016 and future financial year-ends, the format should be only Excel templates designed using XBRL principles (ie the option to submit in XBRL file format is withdrawn). Additionally CP40/16 includes reporting clarifications and technical corrections (identical to those in CP37/16). The PRA indicates that it intends to issue a further Consultation Paper covering proposals for the future reporting of National Specific Templates. The consultation period closes on 13 December NOTE: SIIS has responded to the consultation, primarily on a technical basis to ensure that the XBRLenabled Excel files to be used for submission can be manipulated programmatically to the extent that the workbook can be structurally modified (to add additional worksheets for line of business and RFF reporting where additional worksheets are required for each line of business, RFF etc.) and all data points can be populated via Excel.API. 25 November PRA PRA publishes consolidated SII guidance materials in Supervisory Statements (CP20/16) The PRA policy statement provides feedback on the responses, and final supervisory statements (SS) for Consultation Paper (CP) 20/16, Solvency II: consolidation of Directors letters, issued in May 2016

8 The supervisory statements set out the PRA s expectations of firms that were previously issues in different formats including Solvency II Directors letters, Executive Director s letters and feedback statements ( Directors letters ) published in the period 1 April 2013 to 15 February This PS is relevant to all insurance firms within the scope of the Directive and to Lloyd s. The PS consolidates existing Solvency II guidance, but does not propose any new rules or guidance for firms not previously consulted on: Solvency II: internal models Assessment, model change policy and the role of non-executive directors. The PRA previously issued expectations through a number of Directors letters, setting out the PRA s expectations on internal model approval assessments, maintenance of the model and the PRA s quantitative framework for assessment. Solvency II: longevity risk transfers The PRA previously set out expectations in a Directors letter covering the use and management of these transfers. Solvency II: ORSA The PRA issued an Executive Director s letter, covering the PRA s expectations with regard to policy and processes, and the required documents for an effective ORSA policy. Solvency II: reinsurance This is a consolidation of two letters dealing with the PRA s expectations on reinsurance covering the way the PRA expects firms to deal with conflicting priorities, and soft markets for general insurance firms including reinsurance Solvency II: recognition of deferred tax Consolidates a Directors letter and Supervisory Statement (SS) 2/14 covering the PRA s expectations on the EIOPA Guidelines on the loss-absorbing capacity of technical provisions and deferred taxes, the recognition text, contract boundaries, the risk margin and projection methodology. The SS is updated in light of subsequent guidance provided by the PRA. Solvency II: transitional measures on risk-free interest rates and technical provisions This section updates SS17/15 with information contained in a subsequent Solvency II Directors update letter. Solvency II: the treatment of pension scheme risk This section updates SS5/15 in light of information contained in a subsequent Directors letter which contained feedback on the way firms internal models treated pension risk.

9 Ireland - Publications from Ireland 10 November CBoI Central Bank updates NST taxonomy version The Central Bank of Ireland (CBoI) published updated XBRL NST materials, correcting two minor issues with the pre-existing version (1.1.0) where Jersey country code was missing from the NS.12 possible entries and a NS.02 dimension was incorrectly set. The corrections are to be made via a hotfix to the original NST taxonomy entry points. NOTE: The upcoming Tabular release includes the new NST XBRL taxonomy (including the 10 November CBoI hotfix).

10 Malta - Publications from Malta 3 November MFSA MFSA issues circular on national Solvency II reporting options The MFSA published a Circular on the local regulator options allowed for in the Solvency II reporting package. The MFSA announced that: S claims brackets o For GBP and USD reporting currency submissions, the brackets shall be the same as those defined by EIOPA for EUR reporting currency submissions o For all other reporting currency submissions, brackets shall be based on a fixed exchange rate based on the fixed 31 December ECB rates for the currency using the brackets defined by EIOPA for EUR reporting currency submissions o For losses greater than 100,000, the brackets, the options provided by EIOPA are to be used. For losses less than 100,000, the MFSA are not defining bracket sizes to be used but have provided guidance around how the bracket sizes should be selected S sum insured brackets o For GBP and USD reporting currency submissions, the brackets shall be the same as those defined by EIOPA for EUR reporting currency submissions o For all other reporting currency submissions, brackets shall be based on a fixed exchange rate based on ECB rates at the financial year-end of the submission for the currency using the brackets defined by EIOPA for EUR reporting currency submissions. o For losses greater than 100,000, the brackets, the options provided by EIOPA are to be used. For losses less than 100,000, the MFSA are not defining bracket sizes to be used but have provided guidance around how the bracket sizes should be selected NOTE: The upcoming Tabular release includes the new MFSA brackets (these are added as part of the return setup, based on the insurer location entered in the Company tab).

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