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 The
Solvency and Financial Condition Report (SFCR)
from the Solvency ii Association, the largest Association
of
Solvency ii Professionals in the world
What
is the
Solvency and Financial Condition Report?
Solvency II, Report on solvency and financial condition: Extract
from Level 1 Text
Solvency II, Article 35 (Information to be provided for
supervisory purposes)
1. Member
States shall require insurance and reinsurance undertakings to
submit to the supervisory authorities the
information which is necessary for the purposes of supervision.
That
information shall include at least the
information necessary for the following when performing the
process referred to in Article 36:
(a) to
assess the system of governance
applied by the undertakings, the business they are pursuing, the
valuation principles applied for solvency purposes, the risks
faced and the risk-management systems, and their capital
structure, needs and management;
(b) to
make any appropriate decisions
resulting from the exercise of their supervisory rights and
duties.
2. Member
States ensure that
the supervisory
authorities have the following powers:
(a) to
determine the nature, the scope and the format of the information
referred to in paragraph 1 which they require insurance and
reinsurance undertakings to submit at the following points in
time:
(i) at predefined periods;
(ii) upon
occurrence of predefined events;
(iii)
during enquiries regarding the situation of an insurance or
reinsurance undertaking;
(b) to
obtain any information regarding contracts which are held by
intermediaries or regarding contracts which are entered into with
third parties; and
(c) to
require information from external experts, such as auditors and
actuaries.
3. The
information referred to in paragraphs 1 and 2 shall
comprise the following:
(a) qualitative or quantitative elements, or
any appropriate combination thereof;
(b)
historic, current or prospective elements, or any appropriate
combination thereof; and
(c) data
from internal or external sources, or any appropriate combination
thereof.
4. The
information referred to in paragraphs 1 and 2 shall comply with
the following principles:
(a)
it must reflect the nature, scale and complexity of the business
of the undertaking concerned, and in particular the risks inherent
in that business;
(b) it
must be accessible, complete in all material respects, comparable
and consistent over time; and
(c) it
must be relevant, reliable and comprehensible.
5. Member
States require insurance and reinsurance undertakings to have
appropriate systems and structures in place to fulfil the
requirements laid down in paragraphs 1 to 4 as well as a written
policy, approved by the administrative, management or
supervisory body of the insurance or reinsurance undertaking,
ensuring the ongoing appropriateness of the information submitted.
6. The
Commission shall adopt implementing measures specifying the
information referred to in paragraphs 1 to 4, with a view to
ensuring to the appropriate extent convergence of supervisory
reporting.
Those
measures, designed to amend non-essential elements of this
Directive by supplementing it, shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
301(3).
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Solvency II, Article 36 (Supervisory review process)
Member
states shall ensure that the supervisory
authorities review and evaluate the strategies, processes and
reporting procedures which are established by the insurance
and reinsurance undertakings to comply with
the laws,
regulations and administrative provisions adopted pursuant to this
Directive.
That
review and evaluation shall comprise the
assessment of the qualitative requirements relating to the system
of governance, the assessment of the risks which the undertakings
concerned face or may face and the assessment of the ability of
those undertakings to assess those risks taking into
account the environment in which the undertakings are operating.
Solvency II,
Article 51 (Report on solvency and financial condition: contents)
1. Member
States shall, taking into account the information required in
paragraph 3 and the principles set out in paragraph 4 of Article
35, require insurance and reinsurance
undertakings to disclose publicly, on an annual basis, a report on
their solvency and financial condition.
That
report shall contain the following information, either in full or
by way of references to equivalent information, both in nature and
scope, disclosed publicly under other legal or regulatory
requirements:
(a) a
description of the
business and the
performance of the undertaking;
(b) a
description of the
system of governance and
an assessment of its adequacy for the risk profile of the
undertaking;
(c) a
description, separately for each category of risk,
of the risk exposure, concentration,
mitigation and sensitivity;
(d) a
description, separately for assets, technical provisions, and
other liabilities,
of the bases and methods
used for their valuation, together with an explanation of any
major differences in the bases and methods used for their
valuation in financial statements;
(e) a
description of the
capital management,
including at least the following:
(i) the structure and amount of own funds,
and their quality;
(ii) the
amounts of the Solvency Capital Requirement and of the Minimum
Capital Requirement;
(iii) the
option set out in Article 304 used for the calculation of the
Solvency Capital Requirement;
(iv)
information allowing a proper understanding of the main
differences between the underlying assumptions of the standard
formula and those of any internal model used by the undertaking
for the calculation of its Solvency Capital
Requirement;
(v) the
amount of any non-compliance with the Minimum Capital Requirement
or any significant non-compliance with the Solvency Capital
Requirement during the reporting period, even if subsequently
resolved, with an explanation of its origin and consequences as
well as any remedial measures taken.
2. The
description referred to in point (e)(i) of paragraph 1 shall
include an analysis of any significant
changes as compared to the previous reporting period and an
explanation of any major differences in relation to the value of
such elements in financial statements, and a brief description of
the capital transferability.
The
disclosure of the Solvency Capital Requirement referred to in
point (e)(ii) of paragraph 1 shall show separately the amount
calculated in accordance with Chapter VI, Section 4, Subsections 2
and 3 and any capital add-on imposed
in accordance with Article 37 or the impact of the specific
parameters the insurance or reinsurance undertaking is required to
use in accordance with Article 110, together with concise
information on its justification by the supervisory authority
concerned.
However,
and without prejudice to any disclosure that is mandatory under
any other legal or regulatory requirements, Member States may
provide that, although the total Solvency Capital Requirement
referred to in point
(e)(ii) of paragraph 1 is disclosed, the
capital add-on or the impact of the specific parameters the
insurance or reinsurance undertaking is required to use in
accordance with Article 110 need not be separately disclosed
during a transitional period ending
no later
than 31 October 2017.
The disclosure
of the Solvency Capital Requirement shall be accompanied, where
applicable, by an indication that its final amount is still
subject to supervisory assessment.
Solvency II,
Article 53 (Report on solvency and financial condition: applicable
principles)
1.
Supervisory authorities shall permit
insurance and reinsurance undertakings not to disclose information
where:
(a) by disclosing such information, the
competitors of the undertaking would
gain
significant undue advantage;
(b) there
are obligations to policy holders or other
counterparty relationships binding an undertaking to secrecy or
confidentiality.
2. Where
non-disclosure of information is permitted by the supervisory
authority, undertakings shall make a
statement to this effect in their report on solvency and financial
condition and shall state the reasons.
3.
Supervisory authorities shall permit insurance and reinsurance
undertakings, to make use of – or refer to – public disclosures
made under other legal or regulatory requirements, to the extent
that those disclosures are equivalent to the information required
under Article 51 in both their nature and scope.
4.
Paragraphs 1 and 2 shall not apply to the information referred to
in point (e) of Article 51(1).
Solvency II,
Article 54 (Report on solvency
and financial condition: updates and additional voluntary
information)
1. In the
event of any major development affecting
significantly the relevance of the information disclosed in
accordance with Articles 51 and 53, insurance and reinsurance
undertakings shall disclose appropriate
information on the
nature and effects of that major development.
For the
purposes of the first subparagraph,
at least
the following shall be regarded as major developments:
(a)
non-compliance with the Minimum Capital Requirement is observed
and the supervisory authorities either consider that the
undertaking will not be able to submit a realistic short-term
finance scheme or do not obtain such a scheme within one month of
the date when noncompliance was observed;
(b)
significant non-compliance with the Solvency
Capital Requirement is observed and the supervisory
authorities do not obtain a realistic recovery plan within two
months of the date when non-compliance was observed.
In regard
to point (a) of the second subparagraph,
the
supervisory authorities shall require the undertaking concerned to
disclose immediately the amount of non-compliance, together with
an explanation of its origin and consequences, including any
remedial measure taken.
Where, in
spite of a short-term finance scheme initially considered to be
realistic, non-compliance with the Minimum Capital Requirement has
not been resolved three months after its observation, it shall be
disclosed at the end of that period, together with an explanation
of its origin and consequences, including any remedial measures
taken as well as any further remedial measures planned.
In regard
to point (b) of the second subparagraph,
the
supervisory authorities shall require the undertaking concerned to
disclose immediately the amount of non-compliance, together with
an explanation of its origin and consequences, including any
remedial measure taken.
Where, in
spite of the recovery plan initially considered to be realistic, a
significant non-compliance with the Solvency Capital Requirement
has not been resolved six months after its observation, it shall
be disclosed at the
end of that period, together with an
explanation of its origin and consequences, including any remedial
measures taken as well as any further remedial measures planned.
2.
Insurance and reinsurance undertakings may disclose, on a
voluntary basis, any information or explanation related to their
solvency and financial condition which is not already required to
be disclosed in accordance with Articles 51 and 53 and paragraph 1
of this Article.
Solvency II,
Article 55 (Report on solvency
and financial condition: policy and approval)
1. Member
States shall require insurance and reinsurance undertakings to
have appropriate systems and structures in place to fulfil
the requirements laid down in Articles 51 and 53 and Article
54(1), as well as to have a written policy ensuring the ongoing
appropriateness of any information disclosed in accordance with
Articles 51, 53 and 54.
2. The
solvency and financial condition report shall
be subject to approval by the administrative, management or
supervisory body of the insurance or reinsurance undertaking and
be published only after that approval.
Solvency II,
Article 56 (Solvency and
financial condition report: implementing measures)
The
Commission shall adopt implementing measures further specifying
the information which must be disclosed and the means by which
this is to be achieved.
Those
measures, designed to amend non-essential elements of this
Directive by supplementing it, shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
301(3).
Solvency II,
Article 256 (Group solvency and
financial condition report)
1. Member
States shall require participating insurance and reinsurance
undertakings
or insurance holding companies
to disclose publicly, on an annual basis, a report on the solvency
and financial condition at the level of the group.
Articles 51
and 53 to 55 shall apply mutatis mutandis.
2. Where a
participating insurance or reinsurance undertaking or an insurance
holding company so decides, and subject to the agreement of the
group supervisor, it may provide a single solvency and financial
condition report which
shall comprise the
following:
(a) the information at the level of the group
which must be disclosed in accordance with paragraph 1;
(b) the
information for any of the subsidiaries within the group which
must be individually identifiable and disclosed in accordance with
Articles 51 and 53 to 55.
Before
granting the agreement in accordance with the first subparagraph,
the group supervisor shall consult and duly
take into account any views and reservations of the members of the
college of supervisors.
3. Where
the report referred to in paragraph 2 fails to include information
which the supervisory authority having authorised a subsidiary
within the group requires comparable undertakings to provide, and
where the omission is material, the supervisory authority
concerned shall have the power to require the subsidiary concerned
to disclose the necessary additional information.
4. The
Commission shall adopt implementing measures further specifying
the information which must be disclosed and the means by which
this is to be achieved as regards the single solvency and
financial condition report.
Those
measures, designed to amend non-essential
elements of this Directive by supplementing it, shall be adopted
in accordance with the regulatory procedure with scrutiny referred
to in Article 301(3).
European Parliament legislative resolution of 22 April 2009 on the
amended proposal for a directive of the European Parliament and of
the Council on the taking-up and pursuit of the business of
Insurance and Reinsurance
Article 54
Report on solvency and financial condition: policy and approval
1. Member States shall require insurance and reinsurance
undertakings to have appropriate systems and structures in place to
fulfil the requirements laid down in Articles 50, 52 and 53(1), as
well as to have a written policy ensuring the on-going
appropriateness of any information disclosed in accordance with
Articles 50, 52 and 53.
2. The solvency and financial condition report shall be subject to
approval by the administrative or management body of the insurance
or reinsurance undertaking and be published only after that
approval.
Article 55
Solvency and financial condition report: implementing measures
The Commission shall adopt implementing measures further specifying
the information which must be disclosed and the means by which this
is to be achieved.
Those measures designed to amend non-essential elements of this
Directive, by supplementing it, shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
304(3).
Article 260
Group solvency and financial condition report
1. Member States shall require participating insurance and
reinsurance undertakings or insurance holding companies to publicly
disclose,
on an
annual basis, a report on the solvency and financial condition at
the level of the group.
Articles 50 and 52 to 54 shall apply mutatis mutandis.
2. Where a participating insurance or reinsurance undertaking or an
insurance holding company so decides, and subject to the agreement
of the group supervisor, it may provide a single solvency and
financial condition report which shall comprise the following:
(a) the information at the level of the group which must be
disclosed in accordance with paragraph 1;
(b) the information for any of the subsidiaries within the group
which must be individually identifiable and disclosed in accordance
with Articles 50 and 52 to 54.
Before granting the agreement in accordance with the first
subparagraph, the group supervisor
shall consult and duly take into account any views and reservations
of the members of the college of supervisors referred to in Article
252.
3. Where the report referred to in paragraph 2 fails to include
information which the supervisory authority having authorised a
subsidiary within the group requires comparable undertakings to
provide, and where the omission is material, the supervisory
authority concerned shall have the power to require the subsidiary
concerned to disclose the necessary additional information.
3a. The Commission shall adopt implementing measures further
specifying the information which must be disclosed and the means by
which this is to be achieved as regards the single solvency and
financial condition report.
Those measures designed to amend non-essential elements of this
Directive by supplementing it shall be adopted in accordance with
the regulatory procedure with scrutiny referred to in Article
304(3).
Is the
Solvency and Financial Condition Report
(of Solvency ii) in line with the international standards?
INTERNATIONAL
ASSOCIATION OF INSURANCE SUPERVISORS (IAIS)
GUIDANCE PAPER ON ENTERPRISE RISK MANAGEMENT FOR CAPITAL ADEQUACY AND
SOLVENCY PURPOSES - OCTOBER 2007
Supervisors should require appropriate
information on risk management and risk and solvency
assessments from each insurer they regulate.
This not only provides supervisors
with a long-term assessment of capital adequacy to aid in their
assessment of insurers, but encourages insurers to use risk management
effectively.
This could also be achieved by, for instance, a supervisor requiring
or encouraging insurers to provide a
solvency
and financial condition report.
Such a report could include a description
of the relevant material categories of risk that the insurer faces,
its overall financial resource needs, its economic capital and
regulatory capital requirements, and projections of how such factors
will develop in future.
Where an insurer fails to report adequate
information about its risk management practices, processes and
procedures from which the supervisor can monitor the insurer, the
supervisor should intervene or apply penalties
appropriately.
In addition, an insurer should have a duty to report to the supervisor
a breach in regulatory requirements as soon as it occurs.
Any requirements for public
disclosure of information on risk management, including possible
disclosure of elements of a solvency and financial condition report,
should be carefully considered by supervisors taking into account the
proprietary nature of the information,
whether it is commercially sensitive and
the potential for its publication to have
adverse effects on insurers, distort competition or give some
insurers an unfair advantage.
On the other hand, requiring insurers
to disclose sufficient financial information would enhance market
discipline and market confidence in insurers.
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