31 July 2011

FEE published Briefing Paper Enhancing the Quality of Solvency II Public Reporting - Benefits of Harmonising Auditor Reporting for the User

FEE highlights the importance of addressing the users' expectations by recommending harmonisation of the requirements for independent assurance on regulatory disclosures for insurance undertakings in the European Union under the Solvency II framework.

There are currently wide differences across Europe over the extent of auditor involvement in the public and private regulatory reporting by insurers. Present practices vary from auditors’ involvement being limited to private “exceptions reporting” to supervisors to certain parts of regulatory returns being subject to auditor’s assurance opinions which are made available to the public (e.g. UK, Netherlands).

FEE understands that currently it is not proposed by the EC to harmonise the requirements for auditors to provide assurance on public or private solvency reports, but that this will be left to the discretion of the EU Member States. FEE questions whether the current inconsistent approach in this matter should continue under Solvency II.

A common approach to assurance has numerous benefits to the users of the solvency reporting as well as to the supervisors. The role of auditors includes increasing confidence in information by providing independent assurance. One of the objectives of Solvency II, through Pillar 3 (disclosure and transparency requirements), is that market discipline can play an important role in regulating behaviour. In order for the market to impose discipline, it needs good quality, reliable information.

The Solvency and Financial Condition Report (SFCR) will provide information about systems, risk and capital. The general public expects auditors to consider these issues and to report on them and may therefore expect auditors to review and provide assurance on certain sections of the SFCR. More engagement is needed with potential users of the SFCR to understand better their needs and the value that they would place upon independent assurance on the SFCR.

Users also should know clearly what information has been subject to independent assurance from auditors and what has not. There is a potential expectation gap of the users of information on solvency and financial position published by the insurance undertakings within the EU.

FEE perceives solvency reports as a source of transparency and market discipline. It believes that assurance requirements on solvency reports should be harmonised across Europe under Solvency II in a way that meets public expectations and enhances the quality of private and public reporting.

The audit profession operates within an internationally recognised assurance framework. FEE believes that such a framework enables it to provide consistent assurance on a sensibly selected subset of the SFCR across the EU, which is consistent to the assurance provided on other public financial reporting.

FEE, like the EC, believes that the audit and the auditor continue to have an essential role to play in supporting stable capital markets. Independent assurance provides a common platform for consistency and transparency of reporting across the Member States.

Full paper

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