a new european insurer data source - solvency ii pillar 3 ... · solvency ii and the public...

A New European Insurer Data Source -

Solvency and Financial Condition Report (SFCR)

A M Best Europe – Information Services Ltd

Bryan MartynDirector, Information Products

19th January 2017

A.M. Best Europe – Information Services Ltd

Welcome

A New European Insurer Data Source - Solvency and Financial Condition Report (SFCR)

Series of seminars intended to serve insurance market specialists

– John Staines, Chief Executive Officer, (Solvency II Solutions)

– Iain Davanna, Manager - International Data, (A.M. Best Europe Information Services)

A New European Insurer Data Source - Solvency and Financial Condition Report (SFCR) 19 January 2017 2

Comparison of Ratings Coverage -

Global Insurer Interactive FSRs

A.M. Best is the only global rating agency

focused exclusively on the insurance sector


Source: A.M. Best, Moody’s and Fitch’s websites and S&P’s Global Credit Portal. Data as of June 2016.

Does not include PD ratings, NR ratings, “National” ratings, rated companies who are branches of a parent (Canada, Japan, New Zealand and U.S.), or

companies who are under regulatory supervision or in liquidation.

A.M.Best3465

S&P1489

Fitch796 Moody's

663

Global Presence of A.M. Best

Hong Kong

New Jersey

Headquarters

Florida

London

Dubai

Singapore

Mexico

A.M. Best has rated clients in more than

80 countries


Information Services

Beyond Ratings…

– Extensive Information Services portfolio

– Ranging from Company / Market Financial Data through Regulatory Filing Software to Underwriting &

Loss Control Guides including bespoke research services

– News and Special Reports

Unparalleled database underpins our analysis of insurers and reinsurers

– Best’s Statement File - Global – worldwide insurer ratings, financial database & analysis system

• Access to all A.M. Best Ratings & Credit Reports

• Almost 3,500 Rated Insurers from over 80 countries

• 11 years of financial data; > 16,000 companies globally; > 9,000 insurers outside North America;

>150 countries

• BestLink for Excel; Ranking & Market Benchmark tools


Best’s Statement File – Global Usage

70%60%

40% 40%50%

40%

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10

No

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ife

Eu

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ea

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nsure

rs

Glo

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Gro

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Glo

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Bro

kers

Man

ag

ing

Ag

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Glo

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Glo

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Best’s Statement File - Global - Clients out of top 10 (#) Best’s Statement File - Global - Usage

Credit/ Market security

23%

Strategy/ Research/ Business

Development24%

Outward RI20%

Inward RI & UW12%

Other21%


Why are we here?

Solvency II and the public Solvency and Financial Condition Report (SFCR)

– The new public Solvency II filings and the cessation of the UK PRA Returns prompted:

• Client demand

• Investigation by A.M. Best Europe Information Services


SFCR - A.M. Best Europe Research


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Life Non Life Both

What is your focus?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

YES NO Unsure

Is the data in the forms of value to the you?



• More detail than expected• Loss Triangles useful• Carrier detail more valuable

than just group data• Cannot ignore a public

statement of finances therefore vital

• Calculation of Solvency ratios

7.5

0

1

2

3

4

5

6

7

8

9

10

Score

How Important is access to the data to you?

(Scale of 1-10; 10 being MOST important)



59%

41%

71%

88%

53% 53% 53%

24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Credit/MarketSecurity

Strategy Benchmarking Peer Review Country Analysis Market Share GeneralResearch

M&A

What would the data be used for?



3.22.9

3.12.9

3.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Standardised format for EUcompanies

Income Statement Line of Business UW Balance Sheet Solvency II CapitalRequirement & Ratios

What would be the most valuable aspect of the data? (Ranking from 5 most important to 1, least important)



0%

12%

0%

53%

24%

12%

0%

10%

20%

30%

40%

50%

60%

Top 50 EU Top 100 Top 500 All Available UK Only Reinsurers

What Company Coverage of the EU would you need?

• UK commercial insurers• Carrier data more important

than just groups• Solvency II equivalence - are

they filing same documents?• Reinsurers

Solvency and Financial Condition

Report (SFCR) Summary

– Research indicated:

• Strong demand for the SFCR information and some surprise as to the depth of content

• But knowledge was limited:

» Lack of awareness that UK PRA returns have ceased

» Assumptions that full Solvency II filings are public

» Many had not considered the SFCR filings as an information source

» Content

» Timing

» Accessibility - Even among those due to file the returns

• By latter part of 2016 awareness and demand was growing


Solvency II Reporting – The Wider context, SCFR

Requirements, Structure and Industry Experience

John StainesChief Executive Officer

19th January 2017

Solvency II Solutions

1. Solvency II reporting – wider context

2. SFCR – the requirements

3. SFCR – report structure

4. SFCR – industry experiences

Agenda

15





Agenda

16

Reporting templates - overview

RSR (private to national regulator) SFCR (public)

ECB Add-on Non-ECB Add-on

Standard FSR Standard FSR

Solo 3CB Solo Solo 3CB Group SPV Solo 3CB Solo Group

Day 1

Quarterly

Annual

• 22 different reporting types (solo annual, quarterly group etc.)• 567 QRTs in total*• 35,128 data points in total**excluding NSTs

17

Balance sheet

Balance sheet (Sii & stat)

Off balance sheet items

Unlimited guarantees

list

Technical account

Premiums, claims,

expenses by LoB

Premiums, claims,

expenses by country

Assets

Line-by-line

Derivatives per position

Funds look-through

Assets held as collateral

Securities lending/repo

s

Structured products

Income/gains and losses

Technical provisions

BE, risk margin, RI

recoverables

Future cash flows

Product breakdown

(life)

Variable annuities

Claims development

triangles

Single-risk exposures by LoB (non-life)

Own funds

Overview

Annual movement

SCR

Overall SCR (SF/PIM/FIM)

Market risk

Counterparty risk

Underwriting risk

Operational risk

Catastrophe risk (non-life and health)

Simplifications

MCR

MCR calculation

LTGA

Impact of transitionals

TP transitional calculation

RFR transitional calculation

Matching adjustment

Group specific

List of group entities

Individual requirements

ITG

Risk concentratio

ns

Reinsurance

RI recoverablesby reinsurer

RI programmes

by LoB

SPV cover

PRA NSTs

Revenue account

With profits

Business model

BE assumptions

(life)

Liability claims

breakdown

Publicly disclosed (annually)

QRT – overview (annual and quarterly)

Quarterly

18

Narrative reporting – overview

19

SFCR- Annual

- Same deadline as QRTs

RSR- Triennial

- Same deadline as QRTs

ORSA report

- Annual- Within 2 weeks of BoD

approval

Forward looking

Sensitiveinformation





Agenda

20

SFCR - requirements

• Public, published on insurer’s website and available for at least 5 years

• Published annually (in normal circumstances)

• 14 weeks (20 for groups) after year-end (transitionals apply)

• Quantitative and qualitative disclosures • Prescribed structure of narrative sections with set headings and sub-headings• Subset of the Quantitative Reporting Templates submitted to the regulator

• No prior year figures in first SFCR

• Certain elements audited by external auditor (national requirement)

21

SFCR - regulations

• SII Directive - Articles 35 and 51 sets out high-level requirements

• SII Delegated Acts - Articles 290 to 313 provide some detail on the required content

• EIOPA’s guidelines on reporting and public disclosure - further details of what to include and governance requirements

• SFCR public reporting ITS 2015/2452 –procedures, formats, rules and templates

• EIOPA’s Q&A responses - currently few related questions, updated ad-hoc

• EIOPA opinions – clarifies known areas of uncertain/varying practice

22

SFCR – external audit

• Requirements set by national regulators

• In-scope• Valuation for solvency purposes• Capital management• Related QRTS: Balance sheet, technical provisions, impact of transitionals, own funds, SF SCR, MCR, list of

group entities

• Out-of-scope• Business and performance• System of governance• Risk profile• Remaining QRTs: Activity by LoB and geography, claims developments triangles* Note Auditor is still required to review these disclosures for material inconsistencies with the information subject to audit (and report such misstatements)

• Exclusions• Disclosures of and derived from internal model• Sectoral information (ie non-Solvency II group entities)

23

SFCR – external audit (detailed view)

In-scope of audit Outside scope of audit Exclusions

Narrative sections

Valuation for solvency purposes Business and performance

IM and sectoral disclosuresCapital management System of governance

Risk profile

QRTs

S0201 Balance sheet S0501 Prems, claims, exps – LoB R0550 (TP-NL), R0590 (TP-NLST), R0640 (TP-SLT), R0680 (TP-LI), R0720 (TP-IL/UL)

S1201/S1701 Technical prov’s (LI/NL) S0502 Prems, claims, exps – top 5 geog. Fully excluded

S2201 Impact of transitionals S1901 NL claims development C0030 (TTP), R0010 (TP), R0090 (SCR)

S2301 Own funds S2502 PIM SCR R0020, R0060, R0080, R0100, R0120, R0150, R0190, R0210, R0380 (NA capital), R0170 (DTA), R0410-R0440 (OF-sectoral), R0740 (RFF)

S2501 SF SCR S2503 FIM SCR N/A

S2801 MCR Fully excluded

S3201 list of group entities

24

SFCR, RSR & ORSA – similarities and differences

• Different audiences• ORSA (internal, NCA receives a copy)• RSR (NCA)• SFCR (public but also provided to NCA)

• Language/terminology

• Point-in-time vs forward-looking

• Prescriptive/standardised vs company specific

• Set deadlines vs company specific timelines

25





Agenda

26

SFCR/RSR – Report structure

A. Business and performance

A.1. Business

A.2. Underwriting Performance

A.3. Investment Performance

A. 4. Performance of other activities, A.5. Other information

B. System of governance

B.1. General information

B.2. Fit and proper

B.3. Risk management incl. ORSA

B.4. Internal control, B.5. Internal audit

B.6. Actuarial function, B.7. Outsourcing, B.8. Other information

C Risk profile

C.1. Underwriting risk

C.2. Market risk

C.3. Credit risk

C.4 Liquidity risk

C.5. Operational risk

C.6. Other material risks and C.7. Other information

D Valuation for Solvency purposes

D.1. Assets

D.2. Technical provisions

D.3. Other liabilities

D.4 Alternative methods for valuation, D.5. Other information

E. Capital management

E.1. Own funds E.4. Differences between SCR and internal model

E.2. SCR and MCR E.5. Non-compliance with MCR and SCR

E.3. Use of duration-based equity risk sub-module in SCR E.6. Any other information

27

SFCR vs RSR – Business & performance - Basics

• SFCR• Basic details (legal form, NCA, auditor, ownership, position in

group structure)• Material LoB / geographical breakdown• Significant events

• RSR• Major factors affecting (planning period) performance and

position including competitive position, legal/regulatory• Business objectives and timeframes

28

SFCR vs RSR – Business & performance – U/w

• SFCR• U/w performance by LoB / geography with prev. year

comparisons

• RSR• U/w income and expenses split as above and reasons for

change• Performance vs projections• Projections plus main factors affecting projections• Risk mitigation entered into over reporting period

29

SFCR vs RSR – Business & performance – Invest.

• SFCR• Income and expenses• Gains and losses in value• Securitisations

• RSR• Reasons for material changes• Performance vs projections• Projections plus main factors affecting projections• Key assumptions on (planning period) interest rates, FX rates,

other market factors

30

SFCR vs RSR – Governance – Basic

• SFCR• BoD and Committees structure – description of main

roles and responsibilities• Renumeration policy and practices• Material transactions with shareholders

• RSR• Appropriateness of SoG to firm strategy and operations• Renumeration entitlements of BoD over reporting period

with prev. year comparisons

31

SFCR vs RSR –Governance– Fit and proper

• SFCR• Requirements of key function holders – skills,

knowledge, experience

• Description of process for assessing fit and proper

• RSR• List of key function holder personnel

• Policies and processes for assessing fit and proper

32

SFCR vs RSR –Governance– Risk management

• SFCR• Description of strategies, processes and reporting on risk management• How ORSA and wider risk management integrated within insurer• How often ORSA reviewed and approved by BoD

• RSR• Risk management strategies, objectives, processes and reporting for

each risk• Significant risks in and ex- SCR• PPP in investment activities• Verification on external ratings• How ORSA performed, documented and reviewed and integrated into

decision making

33

SFCR vs RSR –Governance– Internal control/audit

• SFCR• Description of internal control system and how internal audit

implemented• Description on how compliance function operates• How internal audit independence maintained

• RSR• Information on key procedures of control system• Information on compliance policy and review process• PPP in investment activities• Description of internal audits in reporting period, findings and actions• Future audit plan and rationale

34

SFCR vs RSR –Governance– Actuarial & Outsource

• SFCR• How actuarial function implemented• Description of the outsourcing policy, any critical outsourcing and

where located the service providers including jurisdiction

• RSR• Overview of activities undertaken by actuarial function during the

period and how contributes to the risk management system• Rationale for critical or important function outsourcing, safeguards

and oversight • List of persons responsible for outsourced key functions in service

provider

35

SFCR vs RSR –Risk profile

• SFCR• Measures to assess each risk• Material risk exposures, including material changes• How assets invested as per PPP to manage risks• Material risk concentrations• Description of risk mitigation techniques and assessing continued effectiveness• Description of risk sensitivity assumptions, stress testing and sensitivity results

• RSR• Overview of material risks and mitigation over planning period activities undertaken by

actuarial function during the period and how contributes to the risk management system• Rationale for critical or important function outsourcing, safeguards and oversight • List of persons responsible for outsourced key functions in service provider

36

SFCR vs RSR –Valuation for solvency - General

• SFCR• Valuation plus description of bases, methods and main

assumptions used for each material line of business, asset and other liability

• Quantitative and qualitative explanation of any material differences in methods, bases and assumptions vs stat accounts

• RSR• For AVM, justify and describe methods used, uncertainty and

comparison vs experience • If not following IFRS, why costs would be disproportionate

37

SFCR vs RSR –Valuation for solvency - TPs

• SFCR• BE and RM for each material LoB with methods, bases and main assumptions• Description of level of uncertainty• Quantitative and qualitative explanation of any material differences in methods,

bases and assumptions vs stat accounts at LoB level• Description of RI recoverables including comparison with prev. period• Description of MA portfolio and statement on other transitionals and impact

• RSR• Assumptions on future management actions• Assumptions on policyholders behaviour

38

SFCR vs RSR –Capital management – Own funds

• SFCR• Objectives, policies and processes for managing own funds, time

horizon for business planning and any material changes over time period

• Own funds by tier and prev. period comparison• Eligible own funds to cover SCR and MCR by tier • Reconciliation between eAoL on SII basis and stat accounts• Transitional capital• Description of deduction / restrictions in Own Funds

• RSR• Material terms and conditions of main own funds items• Expected movement in Own Funds over planning period

39

SFCR vs RSR –Capital management – SCR & MCR

• SFCR• Whether SCR and MCR subject to NCA approval• Capital add-on• Impact of USP and capital add-on – NCA justification• Eligible own funds to cover SCR and MCR by tier • MCR inputs• Material changes in reporting period and reasons• Description of deduction / restrictions in Own Funds

• RSR• Expected changes in SCR and MCR over planning period• SF SCR if (P)IM under Article 112

40

SFCR vs RSR –Capital management – IM

• SFCR• Description and purpose of IM• Scope of IM by business unit and risk category• How probability distribution forecast for IM• Risk measure and time period – explain if different from 99.5% 1 year VaR• MCR inputs• Material changes in reporting period and reasons• Description of deduction / restrictions in Own Funds

• RSR• Results of review of causes / sources profit and loss and how categorisation of

risk chosen explains these sources• Risk profile actual vs IM assumptions• Future management actions assumed in IM

41





Agenda

42

SFCR – insurer challenges

• Length of reports

• Sensitive information, market reaction (peer comparison)

• Miss or misinterpret requirements

• Allocation of responsibilities

• Overfamiliarity with content

• Consistency with other disclosures• Narrative (RSR, ORSA, R&A etc.)

• Quantitative (QRTs, R&A etc.)

43

SFCR – story so far

• Small handful SFCR’s publicly available• June 30 year end

• Voluntary disclosures from large firms and unrated reinsurers’

• Varying lengths of reports and granularity

• Limited Pillar 2 disclosures

• Good practice:• Glossary of technical terms

• QRTs tailored for company

44

For more information: [email protected]+44-(0)208-133-5709



Iain DavannaManager, International Data

19th January 2017


SFCR – Contents

Qualitative Section

Summary

Business and Performance

System of Governance

Risk Profile

Valuation for Solvency Purposes

Capital Management

Quantitative Reporting Templates


SFCR – Balance Sheet

Market valuation

Volatile

Less investment split than

PRA; but more than in most

R&As

Investment allocation

Excludes DAC


SFCR – Premiums, Claims and

Expenses Information by Line of Business and Country (Home and Top 5)

Non-life

12 lines of business for direct and proportional reinsurance

4 categories of non-proportional reinsurance

Calculate performance ratios

Life

6 lines for direct business

2 reinsurance categories

No investment income

No non-technical information, tax etc.

Unable to determine effect of prior year reserve releases


SFCR – Non-Life Insurance Claims

Accident year / underwriting year

Gross Claims Paid (non-cumulative)

Gross Undiscounted Best Estimate Claims Provisions

Only available for Total business


SFCR – Technical Provisions

Split by line of business as for premiums, claims and expenses; life additional detail on with /

without options and guarantees

Provided either as a whole or with Best Estimate and Risk Margin

Differences to Report and Accounts

Unearned premium reserves

Risk margin


SFCR – Own Funds

Required to cover the SCR and MCR

Based on market consistent valuation of assets and liabilities

Own funds by Tier 1 (unrestricted and restricted), Tier 2 and Tier 3

Headline SCR and MCR ratios


SFCR – Solvency Capital Requirement

Amount of own funds needed to withstand worst annual loss expected to occur over next 200

years

Calculated on either:

Standard Formula

Standard Formula and Partial Internal Model

Full Internal Model

Underwriting risks, Market risks, Credit risks and Operational risks


SFCR – Minimum Capital Requirement

Minimum level of protection of the policy holders and beneficiaries; breaching the MCR would

amount to an unacceptable level of risk

Based upon the net technical provisions and premiums retained over the next 12 months

(shown by line of business)

Usually between 25% and 45% of the SCR


SFCR – Timing and Availability

First year

Solo: 20 weeks – 20 May 2017

Group: 26 Weeks – 1 July 2017

After transitional period

Solo: 14 weeks – 7 April

Group: 20 weeks – 19 May

Company website

Trade Association website

Electronic copy within five years of disclosure (10 working days)

Printed copy within two years of disclosure (20 working days)


SFCR – Summary

Balance sheet based

Premiums, claims and expenses available by line of business and country

No investment income

No non-technical account

Comparative data for all companies across Europe

Construct peer and country analysis




A M Best Europe – Information Services Ltd

Bryan MartynDirector, Information Products

19th January 2017


Best’s Statement File – Solvency II

Summary

– Europe’s Solvency II regulations and the public Solvency and Financial Condition Report (SFCR)

provide, for the first time, a standardized reporting format offering greater insight into the European

market and its insurers and reinsurers.


– The new and essential information resource for European counterparty credit risk analysis, strategic

planning, investment and M&A analysis and

– A perfect partner to Best’s Statement File – Global.

– Initial release to include access to forms data, custom report wizard and pdf’s of source

documents

– Coming soon - Pre-formatted reports, including Key Data, Balance Sheet, Line and Country of

Business, and Ratio Reports; Excel Add-In


23 September 2014

A.M. Best's Rating Process and Best's Capital Adequacy

Ratio

59


A New European Insurer Data Source - Solvency

and Financial Condition Report (SFCR)

Q&A


a new european insurer data source - solvency ii pillar 3 ... · solvency ii and the public...

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