Solvency II and the art of mastering your XBRL reporting!

Under the Solvency II regulations, the European Insurance and Occupational Pensions Authority (EIOPA) requires European insurers to produce new financial reports called QRTs (Quantitative Reporting Templates). These are intended to allow European and national regulators to monitor, among other things, whether the level of the insurer’s capital is sufficient to cover its commitments to its clients. However, they cannot be presented or reported haphazardly.

Since January 2016, Pillar 3 of Solvency II has required insurers to submit all their reports in XBRL (eXtensible Business Reporting Language) format, a computer language specifically developed for the electronic exchange of financial reports.

The companies concerned are faced with a major challenge. They must not only uniquely identify and codify each piece of information (or cell) in the QRTs in compliance with the latest taxonomy in force, but also successfully pass all the taxonomic checks required by EIOPA. This involves a series of checks designed to ensure the consistency of the reported data (inter- and intra-aggregate). The operation is all the more complex because, to produce the same reporting table, different entities within the same group may have used different tools. To add to the complexity of the exercise, some Pillar 3 QRTs—such as AS-D1 (or S.06.02 for experts), which requires detailed information on financial assets—correspond to thousands of lines of specifications.

In addition to this, for solo filings, the insurer must take into account the specific expectations of each national regulator. To this end, EIOPA provides insurers with a tool to encapsulate the electronic file data in XBRL format with a “header” and a “footer”. Headers can differ from one country to another, as each regulator has its own requirements. Insurers must therefore be able to manage specific XBRL encapsulation for different entities within the same group for solo filings (selection of a taxonomic entry point, character encoding, replacement of the currency unit, etc.). The EIOPA tool also ensures the validation of taxonomic checks. However, as highlighted by the reports submitted to regulators in 2015 as full-scale tests, it is often difficult to become familiar with these checks. And it is not always easy to interpret their results, as error messages are not always very explicit.

This is where MeltOne Advisory comes in, to support you through the various stages of this new process, help you understand these issues more easily, and assist your teams in gradually building their skills. Indeed, based on our business analysis experience during XBRL filings for various European Union countries, our consultants:

• Are able to interpret, from a business perspective, the checks implemented by EIOPA.
• Know how to quickly identify the origins of a problem in the IT system chain, thanks to their knowledge and synthetic vision of all EIOPA checks. A typical example of an error encountered is a functional inconsistency between different aggregates, such as the amount of Excess of assets over liabilities between the Balance Sheet and own funds.
• Are able to understand the various technical issues related to an XBRL filing. For example, EIOPA may return a “failed” status on an XBRL envelope transmitted by a regulator for various reasons, such as non-compliance with the technical format (“Filing Rules”) regarding LEI or ISIN codes.

This cross-functional knowledge of the process, combining business and technical skills, should enable you to increase efficiency and quality when reporting your Solvency data to regulators, and thus generate significant savings in the required workload.

Our consultants can also support your teams during future changes to regulations and taxonomy, in order to identify the impact of these changes on your IT system.

Would you like to know more? Do not hesitate to contact us: jsaccona@meltone.com

Baptiste Grandjean
Consultant MeltOne Advisory
bgrandjean@meltone.com