Q.R.T? N.S.T? H.E.L.P!

As Celine Dion once said, “this is getting serious”. With less than eight weeks to go and Easter holidays looming, 31 December year-end insurers are hastily preparing their first full-blown quantitative submissions.

It was never going to be easy, but regulatory errors, omissions and changes of mind certainly don’t help. In this article, we set out the information that firms need to consider when completing their submissions.

Quantitative Reporting Templates (QRTs)

The core QRT requirements are set out in Commission Implementing Regulation (EU) 2015/2450 (the CIR). The CIR sets out the implementing technical standards developed by EIOPA and includes:

• a description of which templates are applicable (Articles)
• the templates (Annex I)
• log-files, which contain instructions as to how the templates should be completed (Annexes II and III for solo firms and groups respectively)
• a listing of asset categories (Annex IV)
• the Complementary Identification Code (CIC) Table, which gives codes for different types of asset at a granular level of detail (Annex V)
• definitions of the CIC table (Annex VI)

The QRTs must be submitted in a defined format, 'XBRL', that must conform to rules defined in something called the 'taxonomy'. The taxonomy will change from time to time and firms submitting information at 31 December 2016 should use taxonomy version 2.1.0.  EIOPA’s website includes technical information on this, but many firms will be using proprietary software or the tool for undertakings to prepare their returns and shouldn’t have to worry too much about the technology aspects.

The bigger challenge is understanding the requirements and getting correct information into the templates in the first place!

I say, I say, I say, when is a log-file not a log-file?  

Many aspects of Solvency II require interpretation. The QRTs are no different; hopefully it’s not just me that’s struggled to understand exactly what should be reported in some places. The log files are key, and anyone who tries to complete the templates without referring to the log-files it leaving much to chance. For example, on some templates technical provisions are reported net of reinsurance recoveries, while on others the technical provisions are reported without adjustment. The required deciphering isn’t helped by tweaks being made by EIOPA that are not reflected in the regulations.

I’m not sure whether it is a good example of ambiguity, EIOPA changing its mind (that’s what I’d put my money on) or simply someone at EIOPA taking a particular view, but the reporting of premiums and claims highlights the type of problems firms face. The log files for templates S.04.01, S.05.01 and S.05.02 say:

• “This template is to be reported from an accounting perspective, i.e.: Local GAAP or IFRS if accepted as local GAAP”
• “Undertakings shall use the recognition and valuation basis as for the published financial statements, no new recognition or re–valuation is required”

Given these instructions, many firms have assumed (not unreasonably in my opinion) that premiums and claims in respect of business classified as 'investment business' for the purposes of the financial statements should be excluded from the relevant QRTs. Such business is reported in the financial statements using 'deposit accounting' with premiums and claims not being shown. However, a recent Q&A (number 802 in the link above) opposes this interpretation and suggests that premiums and claims on investment business should also be included. EIOPA does accept that the log files “might not be clear” and therefore firms can continue to omit investment business from the relevant templates until there is an amendment to the technical standards.

It is perhaps interesting to note that the PRA’s instructions for the revenue account included within the national specific templates (see below) explicitly state that deposit accounting does not apply for the reporting of premiums and claims and hence premiums and claims must be reported for all business in that template (NS.05).

Another good example of not being able to rely on the log-files is the operational risk SCR template S.26.06. The operational risk SCR calculation for a life insurer sees a different treatment for certain unit-linked contracts.  The log-file suggests inputs should be for total business with the relevant unit-linked information identified separately. The original validation follows this interpretation. However, the validation has been 'switched off' with a comment given suggesting that net of unit-linked business figures should be reported instead of the total business inputs. This is supported by a comment on the annotated template which refers to what the log-files suggests is total business as 'other than unit linked'. In this case, although the calculations that need to be performed get to the correct result, the inputs do not follow the log-file description and the calculation performed is not set out the same way as in the Delegated Acts.

Most firms will rely on their software vendor to dig into the detail and address such issues as far as possible, although often these will not become apparent until you have populated the forms in the way you think they should be populated only to get the wrong result. I would also warn you against taking the vendor software for granted as some will undoubtedly contain errors at this stage...don’t be afraid to challenge and ask questions of your provider if you think the software is incorrect.

National Specific Templates (NSTs)

As if the QRT’s weren’t burden enough, all Solvency II firms need to complete additional submissions for the PRA, the NSTs. Firms are required to complete only those NSTs that are relevant to them as set out in paragraphs 2.6 to 2.14 of the PRA Reporting rulebook. Interestingly, this says that, where a submission deadline falls on a non-business day, the return may be submitted the next business day. This appears contrary to the reporting of QRTs which, according to the PRA reporting schedule, should be filed early if the deadline falls on a non-business day. Hopefully firms won’t leave things until the last minute for this to matter!

Although earlier consultations suggested firms could submit the NSTs in full XBRL format (QRT software providers prepared for this), a full XBRL submission is no longer an option for this year-end (see PS38/16). Instead, the NSTs must be submitted using the XBRL-enabled Excel workbooks available from the PRA’s website. This change has caught a few firms out.

There are two workbooks (‘the PRA workbooks’):

• NST Workbook for reporting templates NS.01 to NS.11
• NST Lloyd's Workbook for reporting templates NS.12 and NS.13

The NST Workbook originally published by the PRA contained a number of errors, so make sure you use the corrected version released on 9 March 2017 (as linked above; note that links provided in Section 8 of the PRA’s Reporting online rulebook are incorrect at the time of writing).

The PRA workbooks are relatively easy to navigate and include input prompts in places but some additional limited help can be found in Section 9 of the PRA’s filing manual.

Links to the log files, which give instructions on completing the NSTs are in the 'National Specific Template' section on the PRA’s reporting page. The log files for templates NS.05, NS.07 and NS.09 were updated on 9 March 2017 so, again, make sure you refer to the latest versions.

Data validation is missing from the PRA workbooks, although the expected validations are set out in a separate spreadsheet. You might want to check the validations to avoid submission rejections.

Internal model reporting

Internal model firms have even more to do. Additional requirements are set out on the PRA’s reporting page under the headings 'Standard formula SCR reporting templates for firms with an approved internal model' and 'Internal model outputs'.

And finally…

...good luck with your submissions!

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