Solvency II Pillar 3: The biggest challenge for EU insurers

Despite less than 15 months to go until the implementation of the new European insurance regulatory regime Solvency II, many firms have yet to start preparing for their Pillar 3 transparency reporting obligations.
 
As of 1 January 2016, all EU direct life and non-life insurance and reinsurance undertakings that fall within the scope of Solvency II will have to comply with the new Pillar 3 regulatory reporting requirements, which impose more frequent reporting and increased qualitative disclosure.
 
The Pillar 3 framework focuses on two main narrative reports, the Solvency and Financial Condition Report (SFCR) and the Regular Supervision Report (RSR), covering both quantitative and qualitative components, and introduces over 60 individual quantitative reporting templates including more than 20,000 data points. Disclosed information contains all balance sheet items along with details of business performance, risk profile, capital management, governance, own funds and solvency positions.
 
Frequency of reporting under the Pillar 3 of Solvency II depends on the size of market share and can be annually and/or quarterly.
 
Considering the large volume of granular data that should be collated and processed and the short turnaround time, the Pillar 3 will certainly be one of the biggest challenges facing the EU insurance industry in 2015. The contentious “look-through” data requirements on assets, lack of clarity on certain rules, additional unique security classifications and further data licensing are just a few of the issues around the Pillar 3 of Solvency II.
 
While many insurers have focused mainly on Pillar 1 and Pillar 2 in the initial stages of the implementation of Solvency II, the issues that they are encountering as they move to the application of the regime’s reporting requirements reveals that Pillar 3 may be more complicated than it was initially estimated, and that firms still have a lot to do before they finally implement Solvency II.
 
That is why, we have been advising our clients to start focusing their efforts on developing compliance procedures and process as soon as possible in order to reach the Solvency II objectives and prepare for their first Solvency II filings on time.