A best practices guide for insurers to meet the Solvency II Pillar 3 reporting deadline

From behind the eight ball to positional advantage

WW Lead Actuarial Consultant, Customer Solutions Group Risk Analytics, IBM

For many insurers operating in Europe, the fast approaching Solvency II Pillar 3 reporting deadline—01 January 2016—represents a clear and present challenge, requiring a fast-track approach to compliance. An early 2015 survey of senior insurance executives found: 

  • 23 percent considered their firms not ready to meet the reporting requirements
  • 18 percent were unsure if their firms would be ready to meet them
  • 5 percent predicted their firms would not be ready when the new Solvency II regime comes into effect
  • More than one-third are behind schedule for narrative reporting, which is due in May 2017

This lack of regulatory readiness is understandable, given the widespread reservations across the insurance industry about these new requirements. For example, in the previously mentioned survey a remarkable 93 percent of insurance executives considered the Pillar 3 reporting requirements of Solvency II to be “onerous” or “excessive.” And in the view of 98 percent of the respondents, the most challenging aspects of these new regulations are:

  • Quantity of information required
  • Granularity of information required
  • IT and staff resources necessary to fulfill the reporting requirement

Meeting these significant new requirements is clearly challenging, particularly for smaller insurers with staffing and IT resources focused on their primary business activities. Given the fast-approaching regulatory deadline, what is the best solution to help these firms meet this compliance challenge?

Best practices and rules of thumb

The answer to that question is a set of useful best practices and rules of thumb that can help insurers select the optimal software solution to meet their Solvency II Pillar 3 reporting requirements. With these guidelines in mind, insurers—regardless of size or resources—may be assured that the software solution they choose can critically help them to meet the looming Solvency II reporting deadline.

Fast-tracked, streamlined implementation

An optimal Solvency II Pillar 3 reporting solution should enable fast-track implementation. Obviously, this statement is easier said than done. While many providers may claim their solution works out of the box, organizations need to ensure that their solution requires no development work, is applicable to any IT configuration and is agnostic as to data sources.

Rule of thumb: Look for a vendor with an established reputation in the insurance and Solvency II space. To help ensure fast-track implementation with existing systems and data formats, the optimal reporting solution needs to be prebuilt—combining ease of use with underlying power and sophistication, based on years of implementation experience in the insurance sector.

Regulatory change management

Today, rapid regulatory change is a reality for all insurance firms. An optimal Solvency II Pillar 3 solution should offer the assurance of ongoing support and updates to help ensure the compliance investment keeps pace with regulatory change.

Rule of thumb: Regulatory change management is a critical confidence point. While solution providers may say they have the capabilities to keep pace with today’s rapidly evolving regulatory regimes, you are trusting your firm’s regulatory compliance to their software. Consider whether the solution provider has the resources to ensure regulatory change management and a reputation in the industry for successfully helping insurers meet regulatory requirements.

Quantitative plus narrative reporting January 1, 2016 is the deadline for quarterly Quantitative Reporting Templates (QRTs), the following narrative reports will not be required until May 2017 for many organizations: 

  • Own Risk and Solvency Assessments (ORSAs)
  • Regular Supervisory Reports (RSRs)
  • Solvency and Financial Condition Reports (SFCRs)

However, as the aforementioned survey notes, while many insurers are challenged to meet the earlier quantitative reporting deadline, the general readiness of insurers to meet the narrative reporting requirement is even more problematic. Because organizations will need to meet both these regulatory compliance deadlines, an optimal solution needs to possess both quantitative and narrative reporting capabilities. These capabilities help ensure significant time and resource savings in both software selection and reporting, while also contributing to enhanced efficiencies in the report production process.

The criterion of confidence

Insurers seeking a solution to meet the fast-approaching Solvency II Pillar 3 deadline need to choose from an array of software products and competing claims. While these guidelines and rules of thumb can be useful, underlying all of these considerations is perhaps the most important criterion of all—confidence.

At the end of the day, insurers need the assurance that the chosen solution can do what it says on the tin and ensure they meet the regulatory requirements and deadlines. Insurers need to consider the reputation of their solution provider in the insurance industry and, significantly, their implementation experience.

IBM Algo Reporting for Solvency II solution offers insurers the demonstrated capability to meet all these requirements for the optimal Solvency II Pillar 3 reporting solution. Leveraging years of implementation experience with insurers of all sizes, this powerful, streamlined solution provides insurers the high-speed implementation and confidence of compliance they need: 

  • Fast-track implementation, ready out of the box and with no development work required
  • An extract, transform and load (ETL) engine capable of accessing any firm’s existing financial data systems
  • Ongoing support for regulatory changes and updates from IBM Solvency II professionals
  • Quantitative and narrative reporting capabilities 

This preconfigured solution comes with out-of-the-box support for the quarterly and annual QRTs, for both solo entities and groups, and also covers the additional narrative reports— ORSAs, RSRs and SFCRs—leveraging the same software configuration. The underlying reporting data model was developed according to European Insurance and Occupational Pensions Authority (EIOPA)’s latest taxonomy, with prebuilt dashboards for reconciliation and analysis, and support for full data lineage across the entire reporting process.

IBM Algo Reporting for Solvency II solution has been designed for a fast, lean implementation, and its ETL engine is capable of accessing any organization’s financial data systems. As shown in the figure, the efficiency of this design enables data to pass straight into the solution’s reporting data mart. Users can then generate the reports they need in multiple formats.

Its preconfigured design draws upon IBM’s years of experience and expertise in overcoming the inevitable issues that arise in all solution implementations. Together with the power of the solution’s ETL engine, insurers have the confidence of a fast-track solution to regulatory compliance.

Learn more about how IBM Analytics for Insurance are helping insurers drive growth and optimize risk management.