Circular NBB_2016_33: National Supervisory Authority Options under Solvency II Reporting

NBB_2016_33 – 13 July 2016 Circular – Page 1/5 boulevard de Berlaimont 14 – BE-1000 Brussels tel. +32 2 221 38 12 – fax + 32 2 221 31 04 company number: 0203.201.340 RPM Brussels www.bnb.be

Circular
Brussels, 13 July 2016
Reference: NBB_2016_33 your correspondent:
Nicolas Colpaert tel. +32 2 221 35 02 – fax +32 2 221 31 04 nicolas.colpaert@nbb.be

Circular concerning the options available to national supervisory authorities within the framework of Solvency II reporting

Scope
Belgian insurance or reinsurance undertakings.
Belgian insurance or reinsurance groups.

Summary/Objectives
This circular aims to provide clarification on the options reserved for national supervisory authorities under Solvency II by Commission Implementing Regulation (EU) 2015/2450 of 2 December 2015 defining implementing technical standards with regard to information reporting templates to supervisory authorities pursuant to Directive 2009/138/EC of the European Parliament and of the Council (hereinafter: the ITS on reporting to the supervisory authority) and by Commission Implementing Regulation (EU) 2015/2452 of 2 December 2015 defining implementing technical standards with regard to procedures, formats and templates for the solvency and financial situation report pursuant to Directive 2009/138/EC of the European Parliament and of the Council (hereinafter: the ITS on reporting to the public).

Structure
I. Context
II. Currency
III. Exchange rates
IV. Accident year or underwriting year
V. Risk profile of the distribution of non-life claims
VI. Distribution of non-life underwriting risks by insured amount
VII. Activity lines for which the distribution of non-life underwriting risks by insured amount must be reported
VIII. Annuities arising from non-life insurance commitments
IX. The evolution of the distribution of incurred claim burdens at the end of the financial year by activity line
X. Declaration of external ratings

Circular – Page 2/5 NBB_2016_33 – 13 July 2016

Madam,
Sir,

I. Context
This circular sets out the National Bank’s expectations regarding the options reserved for national supervisory authorities concerning quantitative reporting to the supervisory authority and to the public.

II. Currency
Article 3 of the ITS on reporting to the supervisory authority and Article 3 of the ITS on reporting to the public allow the supervisory authority to specify a reporting currency other than that in which the financial statements are drawn up.

Regarding individual reporting, the Bank expects that the reporting currency will be that in which the financial statements of the insurance or reinsurance undertaking (hereinafter: the undertaking) are drawn up, namely the euro. Regarding group reporting, the Bank expects that the reporting currency will be that in which the consolidated financial statements are drawn up, namely the euro.

III. Exchange rates
Article 3, paragraph 5, of the ITS on reporting to the supervisory authority and Article 3, paragraph 5, of the ITS on reporting to the public allow the supervisory authority to prescribe a different exchange rate than that derived from the same source as the financial statements (consolidated).

For individual reporting, the Bank expects that the applied exchange rate will come from the same source as the financial statements of the insurance or reinsurance undertaking. Regarding group reporting, the Bank expects that the applied exchange rate will come from the same source as the consolidated financial statements.

IV. Accident year or underwriting year
Article 11, points g, k, l and m, of the ITS on reporting to the supervisory authority requires undertakings to report information on claim burdens in templates S.16.01.01, S.19.01.01, S.20.02.02 and S.21.01.01 of Annex I of the ITS, in accordance with the instructions of sections S.16.01, S.19.01, S.20.01 and S.21.01 of Annex II of the ITS. Article 4, point f, of the ITS on reporting to the public requires that undertakings report information on claim burdens in template S.19.01.21 of Annex I of the ITS in accordance with the instructions of section S.19.01 of Annex II of the ITS. These instructions allow the supervisory authority to specify that information related to an activity line must be reported based on the accident year or the underwriting year.

The Bank leaves the choice to the undertaking to report data based on the accident year or the underwriting year. However, it expects that once a choice has been made, it will be applied systematically for all future reports. Furthermore, the Bank expects that the undertaking’s choice to report data based on the accident year or the underwriting year will be consistent with how the undertaking organizes and communicates its activities internally.

Undertakings are expected to communicate with the Bank before making any changes regarding reporting based on the accident year or the underwriting year for one or more activity lines.

NBB_2016_33 – 13 July 2016 Circular – Page 3/5

V. Distribution of risk profile brackets for non-life claims
Article 11, point m, of the ITS on reporting to the supervisory authority requires undertakings to communicate, in template S.21.01.01 of Annex I of the ITS, information on the risk profile of the distribution of non-life claims, by activity line, in accordance with the instructions of section S.21.01 of Annex II of the ITS. The non-life claim distribution risk profile shows the distribution, by brackets, of claims incurred during the reference year. The instructions of section S.21.01 of Annex II of the ITS require the supervisory authority to define the brackets if the reporting currency is not the euro. The instructions also allow the supervisory authority to define the brackets if losses are low.

Since the reporting currency is the euro, no brackets are provided for other currencies.
Regarding low losses, the Bank leaves the segmentation choice to the undertakings, provided that this segmentation is applied systematically over time and that any modification to the segmentation is communicated to the Bank in advance.

VI. Distribution of non-life underwriting risks by insured amount
Article 11, point o, of the ITS on reporting to the supervisory authority requires undertakings to communicate, in template S.21.03.01 of Annex I of the ITS, information on non-life underwriting risks by insured amount and by activity line in accordance with the instructions of section S.21.03 of Annex II of the ITS. These instructions require the supervisory authority to define segments when the reporting currency is not the euro. The instructions also authorize the supervisory authority to define segments if losses are low.

Since the reporting currency is the euro, no brackets are provided for other currencies.
Regarding low losses, the Bank leaves the segmentation choice to the undertakings, provided that this segmentation is applied systematically over time and that any modification to the segmentation is communicated to the Bank in advance.

VII. Activity lines for which the distribution of non-life underwriting risks by insured amount must be reported
Article 11, point o, of the ITS on reporting to the supervisory authority requires undertakings to communicate, in template S.21.03.01 of Annex I of the ITS, information on non-life underwriting risks by insured amount and by activity line in accordance with the instructions of section S.21.03 of Annex II of the ITS.

These instructions allow the supervisory authority to impose reporting for specific activity lines. The Bank imposes reporting for the following lines:

• Medical expense insurance;
• Income protection insurance;
• Workers' compensation insurance;
• Motor third-party liability insurance;
• Other motor vehicle insurance;
• Marine, aviation and transport insurance;
• Fire and other property damage insurance;
• General civil liability insurance;
• Credit and suretyship insurance;
• Legal protection insurance;
• Assistance;
• Miscellaneous pecuniary losses.

Circular – Page 4/5 NBB_2016_33 – 13 July 2016

For the purposes of this reporting, the undertaking is required to use exclusively the following list:

1. Medical expense insurance;
2. Income protection insurance;
3. Workers' compensation insurance;
4. Motor third-party liability insurance;
5. Other motor vehicle insurance;
6. Marine, aviation and transport insurance;
7. Fire and other property damage insurance;
8. General civil liability insurance;
9. Credit and suretyship insurance;
10. Legal protection insurance;
11. Assistance;
12. Miscellaneous pecuniary losses.

VIII. Annuities arising from non-life insurance commitments
Article 11, point g, of the ITS on reporting to the supervisory authority requires undertakings to communicate, in template S.16.01.01 of Annex I of the ITS, information on annuities arising from non-life insurance commitments issued by the undertaking within the framework of direct insurance activity giving rise to annuities, for all activity lines as well as by currency in accordance with the instructions of section S.16.01 of Annex II of the ITS.

These instructions allow the supervisory authority to specify currencies other than the original currency of the contract. The Bank specifies in this regard that the euro is the only currency that may be used for this template.

IX. The evolution of the distribution of incurred claim burdens at the end of the financial year by activity line
Article 11, point l, of the ITS on reporting to the supervisory authority requires insurance undertakings to communicate information on the evolution of the distribution of incurred claims at the end of the financial year, by activity line, in template S.20.01.01 of Annex I of the ITS, in accordance with the instructions in section S.20.01 of Annex II of the ITS. These instructions allow the supervisory authority to determine the number of claims to be reported.

The Bank leaves insurance undertakings the choice of the number of claims to be reported, but expects that this choice will be applied systematically over time and for all templates. In particular, if an insurance contract covers risks falling under several different activity lines, and the undertaking has allocated its liabilities across several activity branches in its reporting in template S.17.01.01, the number of claims reported in template S.20.01.01 must correspond to this allocation. Therefore, for each liability for which a gross RBNS (Reported But Not Settled) amount to be settled or a gross payment has been reported by activity line in template S.20.01.01, a corresponding number of claims must be reported for that activity line.

X. Declaration of external ratings
Article 10, points b and e, of the ITS on reporting to the supervisory authority requires individual undertakings to communicate a line-by-line list of assets in template S.06.02.01, as well as a line-by-line list of open positions on derivative products in template S.08.01.01, respectively in accordance with the instructions in sections S.06.02 and S.08.01 of Annex II. Article 27, points b and e, of the ITS on reporting to the supervisory authority requires groups to communicate a line-by-line list of assets in template S.06.02.04, and

NBB_2016_33 – 13 July 2016 Circular – Page 5/5 a line-by-line list of open positions on derivative products in template S.08.01.04, respectively in accordance with the instructions in sections S.06.02 and S.08.01 of Annex III.

These instructions allow the supervisory authority to exempt an undertaking from the declaration of external ratings in specific circumstances. The Bank has opted not to fully exempt undertakings from the declaration of external ratings. This data is important for undertakings in terms of monitoring their risks, and for the Bank in terms of exercising its supervision. In this context, the Bank will take into account the undertaking’s risk profile as well as its degree of exposure to securities for which no external rating is available.

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Please note that we send a copy of this circular to the statutory auditors of your establishment.

Please accept, Madam, Sir, the expression of my distinguished sentiments.

Jan Smets
Governor