The Solvency II regulation represents a major challenge for insurance companies.
At b-fine, we have made the most of our experience in Solvency II implementation to develop a tool and methods required to support you.
Pillar 1: Quantitative requirements
Pillar I of Solvency II brings together the quantitative requirements, i.e. the rules for valuing assets and liabilities, as well as the capital requirements and their method of calculation.
Solvency II provides two capital requirements:
- the Minimum Capital Requirement (MCR);
- the Solvency Capital Requirement (SCR).
The SCR can be calculated using a standard formula provided for by the Solvency II directive and the delegated regulation of the European Commission of October 10, 2014 or a complete or partial internal model (certain risks are then covered by the standard formula).
In addition, parameters specific to the organization (Undertaking Specific Parameters – USP) or to the group (Group Specific Parameters – GSP) can replace certain parameters of the standard formula.
In this context, EIOPA’s mission is to regularly provide certain technical information necessary for the valuation of the Solvency II balance sheet and the calculation of the SCR, in particular:
- basic risk-free rate curves by currency;
- volatility adjustments (VA) by currency and by country;
- the fundamental margins by currency for the calculation of the matching adjustment (MA).
Pillar 2: Qualitative requirements
Pillar II of Solvency II brings together on the one hand the qualitative requirements, in the first place the rules of governance and risk management, and on the other hand the own assessment of the risks of solvency (Own Risk and Solvency Assessment – ORSA ).
The ORSA is an internal risk and solvency assessment process by the organization (or group). It must illustrate the ability of the organization or group to identify, measure and manage the elements likely to modify its solvency or its financial situation. Also, its operational declination makes it a leading strategic tool that must be understood by the organization as a tool for managing the activity according to the risks.
Content of the ORSA: the three assessments
1. Assessment of overall solvency needs
The company presents a quantification of its capital needs as well as a description of the other means necessary to deal with all its material risks, whether quantifiable or not.
Where appropriate, the company submits the significant risks identified to a sufficiently wide range of stress simulation or scenario analyses in order to provide an adequate basis for the assessment of the overall solvency requirement.
2. Prospective dimension of the overall solvency requirement
The company ensures the forward-looking dimension of the assessment of its overall solvency needs, and that this assessment includes, when relevant, a medium or long-term perspective.
3. Assessment and recognition of the overall solvency requirement
The company, if it uses accounting and valuation bases different from the bases of the “Solvency II” regime when assessing its overall solvency needs, must explain how the use of these bases recognition and valuation ensures better consideration of the specifics of its risk profile, of the approved limits of its risk tolerance and of its strategy, while satisfying the requirement of sound and prudent management of the activity.
In cases where valuation and recognition bases different from the bases defined by the Solvency II Directive are used by the company, the latter must quantitatively estimate the impact of these differences on the assessment of its overall solvency needs.
Ongoing compliance with regulatory capital requirements
The company must constantly analyze its compliance with the regulatory capital requirements of the “Solvency II” regime. This analysis must include at least:
- potential future material changes in its risk profile;
- the quantity and quality of its capital over its entire business planning period; and
- the composition of its own funds by level (“Tiers”) and how this composition may change as a result of redemptions, redemptions and maturities during the period covered by the business plan.
Ongoing compliance with technical provisions
The company asks the company’s actuarial function to:
- contribute to determining whether the undertaking is in compliance with the requirements relating to the calculation of technical provisions on an ongoing basis;
- identify the risks that may appear to be potential in connection with this calculation.
Deviations from the assumptions underlying the calculation of the solvency capital requirement (SCR)
The company assesses to what extent its risk profile deviates from the assumptions underlying the calculation of the SCR and whether these deviations are significant. The company can first carry out a qualitative analysis and, in the event that this indicates that the differences are not significant, a quantitative assessment is then not necessary.
Link to strategic management process and decision-making framework
The company takes into account the results of the ORSA and the knowledge acquired during the process of this assessment with regard to, at least:
- the management of its capital;
- its business plan; and
- the development and design of its products.
The arrangements for submitting the ORSA report
The “ORSA N” corresponds to the ORSA to be validated no later than 31/12/N. It must be returned to an entry point (group or solo) open for this purpose in year N on the ONEGATE portal.
All organizations subject to Solvency II must submit their ORSA report no later than 15 days after its validation by the Board of Directors/Supervisory.
In addition, for all groups subject to Solvency II, the submission of a Group ORSA is mandatory. Its scope encompasses all the group’s material risks, possibly including those not retained quantitatively in the Group SCR.
Pillar 3: information for the public and supervisor
Pillar 3 of Solvency II concerns the communication of information to the public and to the supervisory authorities. It aims to harmonize at the European level the information published by insurance organizations as well as that provided to supervisors.
The complete documentation on Solvency II reporting at the European level can be consulted on the EIOPA website (“Full Solvency II Reporting”).
In general, any “quantitative” information must be communicated to the national supervisory authority in the eXtensible Business Reporting Language (XBRL) format described on the EIOPA website (for SII information), and respect the controls of the dedicated taxonomies and additional filing rules. The other information, known as “narrative” (RSR, SFCR, ORSA, national narrative reports), must be communicated in other computer formats that can be used for control purposes.
How b-fine can help?
At b-fine, we are able to provide the required breadth of service expertise that ensures all aspects of Solvency II requirements and opportunities are considered and can support you in all aspects of the risk assessment and management, reporting and public disclosure.
Consider b.rx software that can help you move from Excel reporting to XBRL without making changes to your infrastructure and operations. Not only does it convert data to XBRL but also allows you to improve its quality using a built-in data validation engine.