05 April 2012

Risk.net: Opinions divided on benefits of XBRL reporting standard for Solvency II

European policy-makers are exploring the use of XBRL, a standardised reporting language, for Solvency II. While mandating its use would harmonise reporting formats and bring the insurance industry in line with the banking sector, some argue there is little benefit to be gained from such a move.

Solvency II introduces many new concepts and practices for how insurers should run their businesses and report to regulators. The initial response from the industry understandably focused on approaches to measuring risk and calculating solvency capital, with much debate around factors such as the illiquidity premium and contract boundaries. As insurers moved into implementation, issues around data management and governance emerged. Now as companies look towards the end game of Solvency II compliance, they face a new challenge – possible mandatory use of the eXtensible Business Reporting Language (XBRL) for reporting.

XBRL is a standard way of marking up business information so that it can be read by computers. Each individual item of data is tagged to identify the type of information it is and how it relates to the other information in a document. This enables the data to be analysed, extracted, compared with or aggregated with other data, or otherwise manipulated by computer tools. XBRL is based on the eXtensible Markup Language (XML) used to create web pages and, like XML, is a freely available, open technology independent of proprietary computer systems.

Proponents say XBRL offers the possibility of harmonising all reporting formats across Europe into a single standard reporting language. “At present, there is no single format in which the insurance industry should submit their reports to national regulators”, says Michal Piechocki, chief executive of Poland-based XBRL specialist Business Reporting – Advisory Group (BR-AG). “Some regulators accept reports on paper, others on spreadsheets or XML or the ‘.txt’ format.”

EIOPA has, in fact, been investigating the possibility of using XBRL for Solvency II reporting since early 2011, when it began developing an XBRL taxonomy – the dictionary that describes what the individual data items are and how they relate to one another – for its quantitative reporting templates (QRTs) for Pillar I of Solvency II. Developing a taxonomy can be a complex and challenging process as it has to include all possible reporting elements described precisely and in detail and organised into a consistent logical structure. In July 2011, EIOPA put out a ‘sample taxonomy’ to public consultation. The consultation called for comments both on the technical aspects of the taxonomy and on the implications for insurers of the implementation of XBRL for Solvency II reporting.

Although the momentum for XBRL as the standard reporting format is clearly building, the other reason RSA has not yet selected a third-party product for XBRL generation is because the market for XBRL tagging software is still evolving, with many new suppliers appearing, according to Roni Ramden, Solvency II disclosures workstream leader at RSA Insurance Group, based in London.

“There are a variety of approaches adopted by the different software suppliers, from simply tagging pre-produced QRTs, to a full production solution. We are biding our time to see how the market fully evolves prior to purchase. We see the tagging as a final step in our Solvency II solution and deferring the choice will not impact our overall solution design”, says Ramden.

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