Are you prepared for Solvency II Day 1 reporting?

With just four weeks to go until Solvency II 'Day 1' reporting is due for solo entities, our discussions with some firms have indicated a lack of appreciation of the requirements.  In this short article we set out what firms need to do in the coming weeks or risk the wrath of the Prudential Regulation Authority (PRA).

All firms that have a company year-end falling on or between 31 December and 29 June are required to submit opening Solvency II information, commonly referred to as Day 1 reporting.  Firms with a year-end falling on or between 30 June and 30 December escape this reporting requirement.

The Day 1 information should be based on the firm’s position as at the first day of the new financial year and should be submitted within 20 weeks for solo firms and 26 weeks for group information.  The majority of firms (i.e. solo firms with a 31 December year-end) should therefore prepare the information as at 1 January 2016 and submit the Day 1 reporting by 20 May 2016.

The Day 1 information is split into mandatory information that all firms within scope must submit, along with additional voluntary information requested by the PRA.

Mandatory reporting

Mandatory elements of the Day 1 reporting are:

• A number of quantitative reporting templates (QRTs) covering:

               - Basic information and submission details

               - Balance sheet

               - Own funds

               - Solvency Capital Requirement (SCR)

               - Minimum Capital Requirement (MCR)

               - Group reporting (where applicable)

• A narrative report explaining the main differences between the values placed on assets and liabilities under Solvency II compared to Solvency I

Additional voluntary information

The PRA has requested additional, more granular information from insurers in scope of the Day 1 mandatory reporting and with the same submission timescales as for the mandatory reporting.  The PRA information request includes:

• Summary of balance sheet including analysis by matching adjustment portfolio, ring-fenced fund and remaining part, impact of matching adjustment, volatility adjustment, and transitional measure for technical provisions
• Analysis of standard formula SCR by risk and by matching adjustment portfolio, ring-fenced fund and remaining part
• Analysis of internal model SCR by risk and by matching adjustment portfolio, ring-fenced fund and remaining part
• Internal model outputs
• Narrative reporting on the treatment of deferred tax, pension scheme liabilities, transitional measure for technical provisions and matching adjustment

The additional information request was sent to firms on 24 February 2016.  This communication included the spreadsheet template that should be used to capture the majority of the additional information.  Internal model firms should use the templates included in SS25/15 to submit their internal model outputs.

Although this additional information request is voluntary, the PRA “strongly encourages firms to respond”.

Submissions

All submissions to the PRA should be via the Bank of England Electronic Data Submission (BEEDS) portal.

The mandatory QRTs should be submitted in XBRL format.  The mandatory narrative and the additional voluntary narrative reports should be submitted as pdf files and the additional voluntary reporting template and internal model output templates should be submitted as Excel files.

The reporting deadlines for firms with non-calendar year-ends can be found on the PRA website.

Final thoughts

While we would hope that most firms have the Day 1 reporting fully under control, those that haven’t started yet really should get things underway as soon as possible, with any further delay significantly increasing the risk of being unable to deliver on time.

Many firms with a December year-end will have already performed the Day 1 solvency calculations, but care should be taken as the reference date is 1 January, not 31 December. This subtle difference could impact the figures, for example when assessing the extent of the loss absorbing capacity of deferred tax.

The narrative reporting required should not be large for most firms.  However, firms will still need to think carefully about exactly what to report and will most likely need to follow an internal review and sign off process that will add to the development time.

In addition, firms should not leave submissions to the last minute just in case it fails the BEEDS portal validation checks.

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