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Firms want to know how much information they need to provide when reporting intragroup transactions and details of investments in funds and funds-of-funds. They are concerned that without proper guidance on materiality, Solvency II rules as currently written would require firms to report potentially thousands of intragroup transactions, and relay a burdensome amount of data on their investments in funds, thanks to strict look-through regulations.
Solvency II requires insurers with holdings in investment funds (categorised as ‘Assets D4' in the quantitative reporting templates) to ‘look through' the funds and report on asset category, geographical exposure and currency exposure of the underlying assets.
Tamsin Abbey, London-based insurance partner at Deloitte, says: "The requirements suggest that you need to show all of the holdings held by a fund you invest in as part of a fund-of-funds, even if it is a very small holding". Regulators need to address this issue urgently, says Abbey, as firms need ample warning to configure their asset reporting systems. "It's expensive to run a big system working at this level of granularity, because of longer processing times and varied data sources. It would help to have materiality thresholds set so firms can scope out some of the unnecessary detail and construct cheaper systems", she adds.
European Insurance and Occupational Pensions Authority (EIOPA) guidance from July 2012 notes that quarterly reporting of fund data is only required from undertakings that hold more than 30 per cent of their portfolio in investment funds, but that annual reporting of all Assets D4 will be required from all insurers regardless of materiality. Eiopa says this is "essential" for better understanding of insurers' investments through investment funds.
In the absence of firm guidance on materiality thresholds for Pillar III, firms are making their own assumptions.
Reporting intragroup transactions are also a concern for insurers. Solvency II asks firms to list all transfers between different entities within a group to monitor intragroup dependencies. Without further clarity about which intragroup transactions are material, insurers cannot determine precisely which transactions need to be included – some of these transactions can be numerous and date back a long time.
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