It was clear from the start that Solvency II reporting would be a leap into the unknown.
It’s not just the scope that’s challenging, but also the tight timelines and how much of the information has never been made public before. And if this year’s quarterly disclosures are the qualifying rounds, the Olympic final of your first publicly available Solvency and Financial Condition Report (SFCR) is coming up in 2017.
Given the scale of the demands and the risks surrounding them, it’s no surprise that the Prudential Regulation Authority (PRA) wants so much of the disclosures to be audited. This includes the balance sheet and own funds, along with the narrative disclosures in the SCFR relating to them . If your business uses the standard formula to calculate your minimum capital requirement (MCR) and solvency capital requirement (SCR), these will be subject to audit, though not if you’re using an internal model. The PRA’s only concession following last year’s consultations is to allow more time by applying the requirements to businesses with year ends after 15 November 2016.
At PwC, we’ve already had a strong taste of what’s required through our assurance work on the balance sheets of clients applying for internal model approval, which the PRA subsequently extended to large standard formula firms. As such, we’ve reviewed a significant proportion of the market. We’ve also carried out assurance on a number of SCR evaluations.
The results offer a good indication of the challenges your business is likely to face in verifying your numbers. The potential fault lines and priorities for securing assurance include:
“As turnaround times continues to shrink, the pressure on reporting processes and controls will intensify”. You’ll also have to factor in further strains on your balance sheet and the analyst scrutiny that comes with this, including the possibility of further falls in interest rates and resulting impact on guarantees.
If you’ve yet to gain assurance, it would pay to do this sooner rather than later as experience shows that it can take a lot of time to put things right. And while the audit can spotlight issues and advise on remedies, the best route is of course to ensure that methodologies, governance and controls are right first time.
We will be presenting more on this at the IFoA Actuarial Life Conference on 2 – 4 November, come and have a coffee with us at the PwC Café, and let us know your thoughts on Solvency II reporting.