What is Solvency II?
What is Solvency II?
In short, Solvency II is an EU-wide legislative regulatory regime that was implemented in all 28 Member States, including the UK from 1 January 2016. It applies to all EU insurers and reinsurers, including firms in run-off.
Solvency II introduces a new and harmonised EU insurance legislative programme. The aim is to unify a single EU insurance market and enhance consumer protection. It replaces 14 EU insurance directives and constitutes a significant change to the current reporting regime, both in terms of content and frequency. Solvency II will place new reporting requirements on firms covering both quantitative and qualitative aspects.
Solvency II Pillars
How are Solvency II’s pillars broken out?
Solvency II is divided into three pillars which is very similar to the three pillar approach taken with banking regulation that began with the Basel II regime.
Pillar 1 - the Financial Requirements
The first pillar of Solvency II deals with the quantitative aspects such as the capital of a firm, adequacy of assets and technical provisions. There are two sets of capital requirements: the Solvency Capital Requirement (SCR); and the Minimum Capital Requirement (MCR). The SCR can be calculated with regulatory approval using an ‘internal model’, or alternatively using a standard formula.
Pillar 2 - Governance and Supervision requirements
The second pillar of Solvency II covers the qualitative aspects and addresses governance, risk management and supervision. Insurers are required to prepare an Own Risk & Solvency Assessment (ORSA) and submit to their supervisors. This should identify the risks that the business faces as well as the capital required to manage that risk.
Pillar 3 - Reporting and Disclosure requirements
For the third Solvency II pillar, firms are required to produce two key reports – the Solvency and Financial Condition Report (SFCR) and the Regulatory Supervisory Report (RSR). These reports also comprise the Quantitative Reporting Templates (QRTs) and the National Specific Templates (NSTs).
Solvency and Financial Condition Report (SFCR)
The SFCR has to be made publicly available each year and also report it to the local National Competent Authority (NCA). It comprises some quantitative templates and some qualitative reports.
Regulatory Supervisory Report (RSR)
The RSR comprises all quantitative templates and a detailed set of qualitative reports that have to be reported privately to the regulator but not disclosed publicly. Firms must submit a summary every year as well as in full every three years to the NCA.
Quantitative Reporting Templates (QRTs)
These quantitative templates form part of the RSR and part of the SFCR. Some templates are required annually and a small subset of these are also required quarterly. Data from Pillar 1 will feed into some of these templates. The templates include reporting on: technical provisions, reinsurance, variation analysis, SCR, MCR, balance sheet, own funds and assets. These are then usually reported to your National Competent Authority in XBRL format.
National Specific Templates (NSTs)
The National Specific Templates form part of the RSR but not the SFCR. They were produced by the Prudential Regulation Authority (PRA) to address areas relating to specific national requirements. They consist of templates for quantitative analysis and all templates are required annually as part of the RSR. They are not publicly disclosed but only have to be reported privately. Data from Pillar 1 will feed into some of these templates.
What you need to do for Solvency II
In response to the introduction of Solvency II regulation, KPMG have developed K-Helix. K-Helix is an easy to use software solution that simplifies the Solvency II reporting process. It is both intuitive and integrates into your current reporting system, using XBRL as a file format to provide a common, electronic format for business reporting. So, with the right software, keeping compliant with Solvency II is made simple.
K-Helix: Solvency II Reporting Software
K-Helix is an intuitive, easy to use tool for making Solvency II filings in XBRL with the flexibility to integrate into current reporting processes. The software simplifies XBRL reporting for Solvency II.
How KPMG can help with Solvency II
Requesting a demo of K-Helix software is simple. Click here to get in touch with one of our experts. They’ll help you understand K-Helix and how it can be used for Solvency II. They’ll then send you a link to the K-Helix software which you can download and use immediately.