As we approach the end of the second year of Solvency II Pillar 3 reporting, what have we learnt from the most recent year-end SFCRs and QRTs?

Earlier this week, we hosted our fifth Pillar 3 roundtable event and many interesting themes and shared experiences emerged from the discussions, as well as from our own detailed review of SFCRs for 100 insurers. 

The key topics covered were:

• How well insurers are protected against unforeseen losses;
• The level of engagement from stakeholders in public reporting; and
• The challenges facing firms from the ever-shortening public reporting deadlines.

Financial resilience

From a capital strength perspective, some encouraging signs emerged over the year.  For example, for 100 of the top non-life firms across the UK and Ireland:

• the average eligible own funds ratio increased slightly from 202% to 206%;
• the proportion of firms that would breach their SCR following an instantaneous loss equal to their MCR reduced from 25% to 20%; and
• the number of firms that had insufficient capital to cover their SCR reduced from two to one.

These metrics suggest the market is financially more resilient than it was a year ago. 

Market interest

Aside from regulatory queries on the Quantitative Reporting Templates, there has been very little feedback to firms on their public reporting:

• 90% of firms had received no queries on their SFCRs from the PRA;
• 30% of firms had received some queries on their SFCRs from other stakeholders.

These statistics beg the question whether many stakeholders are getting much value from Pillar 3 reporting, although some firms noted a handful of queries that suggested that SFCRs are providing some value to brokers and policyholders.

The lack of focus on reporting has reduced the level of internal pressure from boards and senior management.  For example, one reporting specialist said: “last year stress levels [around Pillar 3 reporting] were running at 10 out of 10, this year they were more like 3 out of 10”.

Shortening deadlines

As we are currently in the Solvency II transitional period, the reporting deadlines for the SFCR will reduce by 2 weeks every year until 2020.

In response to these shorter timescales, some firms are adopting 2019 year-end timescales early in readiness for future deadlines. They noted that the key challenges were around getting the outputs from their internal model ready in good time. 

Given the relatively static nature of some sections of the SFCR and established BAU processes, the shorter timetable was generally considered achievable.  This could be helped further by aligning, where possible, with other statutory reporting requirements.  There was a general agreement that efficiency gains will be the key focus as extra internal resource may not be available.

Conclusion

The challenges of meeting the shorter reporting deadlines, and limited interest so far from the market, lead some to question the value of SFCRs.  However, we believe SFCRs will become more useful over time as disclosures continue to improve and further quantitative trends emerge.  This will enable readers to better judge and compare insurers and to form a clearer view on their key risks and opportunities.