EIOPA's 2020 Review

EIOPA has been tasked with reviewing the Solvency II Directive and this covers a wide range of topics across all three pillars. As indicated by the name, this has been going on for some time now and after several iterations of proposed amendments to the Directive, there has still not yet been any approved changes to the legal texts.?

On the reporting side, EIOPA decided to split out the changes to the Directive from changes to the reporting ITS (which have an "easier" legislative passage) with the result on the ITS changes being a wholesale?update to the QRT themselves (data points requested, data definitions etc.), frequencies and thresholds; ultimately materialising in a new EIOPA taxonomy (version 2.8) and revised LOG files.?

The 2.8 taxonomy and associated LOG files updates are currently set to come into effect from 31 December 2023 reference date.

Changes EIOPA wish to make to reporting that are defined in the Directive (such as increasing the annual reporting deadline by two weeks) are therefore not part of these changes. It should be noted that because the changes to reporting are in isolation of other areas of changes to Solvency II (covered by the 2020 Review) then some QRTs e.g. Standard Formula are largely unchanged for now,?but changes would be expected as the Directive changes come through.?

We have produced our own analysis of the changes to the templates and associated (LOG) guidance. These are based on the?July 29th 2022?version of the 2.8 taxonomy and associated draft LOG guidance (and subsequent Q&A items, for which there are already a few dozen relating to the 2.8 changes). The current 2.8 taxonomy is not the final version; there is expected to be further updates to the 2.8 taxonomy throughout 2023 to correct various minor business and technical issues, but these are not expected?to materially change the requirements. Further, the 29th July 2022 2.8 taxonomy package does not include validations; when these are available they may alter the understanding of EIOPA's expectations for the reporting requirements. We will update our analysis report throughout 2023 to reflect all of these changes as they come through.

To see our QRT-by-QRT analysis please access this link and below is a high-level summary of the changes.

https://www.solvencyiisolutions.com/eiopa-2-8-2020-review/

SOLO, THIRD COUNTRY BRANCH AND GROUP REPORTING (I.E. EXCLUDING FINANCIAL STABILITY REPORTING) CHANGES

Quarterly reporting:

- S.08.02 ("derivative transactions") deleted

- new ECB-version of quarterly S.17.01. This includes 3 new rows (to be completed at LoB level): Gross BE Claims Prov for events occurred during current financial year; Claims paid in last quarter from risks covered before "current period" (and a separate row for risks covered during "current period")

- S(E).06.02 has a few additional columns added (other than Custodian LIE, each is asset specific e.g. more detail on property investments) but also the Issuer sector column (NACE) requirements are more onerous; the full code for sectors A through N (not just K as before)

- new ECB Add-on QRT E.04.01: "Investment revenues and expenses (part of TP and excess of assets over liabilities)". Note it is currently unclear (awaiting confirmation in Q&A and new taxonomy) if the frequency is indeed?quarterly and/or annual. There are also no exemptions explicitly stated and the template covers both life business and non-life business (in different sections of the QRT).?

- EPIFP no longer required (S.23.01 has been split into a quarterly and annual version, with EPIFP removed from the quarterly version)

Annual reporting:

- General

-- S.03.02 and S.03.03 (List of unlimited guarantees received (given)" are deleted (a single aggregated value os such guarantees is added into S.03.01, which now has a materiality threshold)?

-- New S.06.04 QRT: "Climate change-related risks to investments". This must always be reported in solo/3CB returns. Gives exposure of investments to physical?and transition risk (note the original EIOPA proposal for S.06.04 to be a more?detailed fund look-through template has been set aside)

-- For solo returns, S.04.01 and S.05.02 have been replaced by a new series of related QRTs: S.04.03, S.04.04 and S.04.05. These provide a list of "underwriting entities" (i.e. the entity itself and any (both EU and non-EU) branches) and then a geographical split by location of underwriting (S.04.04) and location of risk (S.04.05). Note there is no longer the 10% materiality threshold for reporting by location of risk (as there was in S.05.02 previously).

S.05.02 has been retained for group reporting (private and public)

- Non-life business

-- New S.14.02 QRT: "Non-Life obligation analysis". This is a non-life equivalent to the S.14.01 pre-existing life obligation analysis QRT; containing information at LoB and (for certain exposures) product level. Excludes reinsurance accepted business

-- New S.14.03 QRT: "Cyber underwriting risk". Required for direct and accepted reinsurance business but there is a materiality threshold (based on cyber coverage premiums >5% of total or 5M EURO and/or number of policies >3% of total number)

-- S.17.02 renamed to S.17.03 and now includes reinsurance accepted business (note as a consequence of this ECB template E.03.01 (giving geographical split of reinsurance accepted business) is now redundant so deleted)

-- New materiality thresholds for S.18 through S.21. These are QRT specific, but in general now only 90% of TP coverage is required. Additionally, captives have a new exemption from reporting S.19.01 at the currency level

-- New exemption for S.27.01 (Non-life and health NSLT CAT) for captives; only need to complete the summary section of this QRT

- Life business

-- Significant redesign of S.14.01. All HRG level information requirements have been removed, among many other changes. Also changed to exclude reinsurance accepted business

-- S.15.01 and S.15.02 (Variable annuities templates) deleted

-- S.16.01 (claims development of non-life annuities policies) changed (again, as it was originally) to exclude reinsurance accepted business. Additionally, captives have a new exemption from reporting S.16.01 at the currency level

- Internal model reporting

-- S.25.02 and S.25.03 replaced with S.25.05 (to be used by both full and partial internal models)

-- A new suite of QRTs: S.26.08 through S.26.16 for internal model (both full and partial) annual solo/group/3CB reporting (S.26.08 is also required for RFF). These cover different risk types and request standardised reporting (e.g. risk categories and/or bask bases) on a best-efforts best (i.e. where the internal model allows) in agreement with NCA. These should replace local regulator (e.g. NST) information requests on the internal model (Design, sensitivities and output)

- Group reporting

-- Several column additions and removals?throughout S.36.01 through S.36.04. S.36.03 is now the coding for the "IGT - Off-balance sheet and contingent liabilities" information (previously it was coded S.36.04. Vice-versa, S.36.04 is now the coding for the "IGT - Insurance and Reinsurance" information)

-- New S.36.05 QRT: "IGT - P&L".?In practice, where ITGs present (in an annual submission) then S.36.05 will always also be required.

-- Two new templates S.37.02 and S.37.03: "Risk Concentration – Exposure by currency, sector, country" and "Risk Concentration – Exposure by asset class and rating" respectively. Currently it?appears these are always required in group annual?returns i.e. even if S.37.01 is not required (but we are seeking confirmation of this via Q&A)

FINANCIAL STABILITY REPORTING CHANGES

- All annual reporting requirements removed. However, to some extent the reporting has moved to semi-annual reporting

- S.14.01 (Life obligation analysis for Financial Stability Reporting) deleted (and not replaced in quarterly reporting)

- Two new templates S.14.04 and S.14.05: "Liquidity risk for (non-)life business". Required on a semi-annual basis

- S.38.01 (Duration of TP) moved from annual to semi-annual

- S.40.01 (Profit or loss sharing) deleted (and not replaced in quarterly reporting)