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New Solvency and Financial Condition Report
As part of the public disclosure requirement under Solvency II, firms will be required to publish an annual Report on Solvency and Financial Condition. This should describe the business and its performance, as well as the governance system and a description (by risk category) of risk exposures, concentration, mitigation and sensitivity.
The bases and methods with which assets and technical provisions have been quantified should be described, including any significant differences between those used for valuations in financial statements. The report must include details of the capital management, including (amongst others) the MCR and SCR and information allowing a proper understanding of the main differences between the standard formula and any internal model used.
Many firms already publish this type of information in their report and accounts and may be able to duplicate or make reference to this material when producing their Report on Solvency and Financial Condition. Supervisors will allow firms not to disclose certain items where doing so would undermine their competitive advantage or breach confidentiality.
For those firms with a sound risk management and performance measurement framework, this report should be a matter of publishing material that is already produced internally. However, it will probably require additional checks and balances along the way in order to ensure that the details are accurate. The current level of disclosure of this type of material is highly variable across EU firms, and the directive will enforce a minimum standard. This is welcome as it will lead to greater transparency for policyholders as well as investors, intermediaries and other interested third parties.
The Commission have yet to specify the full extent of information to be disclosed, so there is likely to be more to come in the future.
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