Insights

The SFCR is an annual report required under Pillar III of Solvency II and includes both quantitative and narrative reporting. This report will be disclosed to the public and also submitted to the MFSA. Although Solvency II does not impose any auditing requirements in relation to this reporting, the European Insurance and Occupation Pensions Authority (“EIOPA”) had issued a paper in June 2015 where it noted that external audit of public disclosure reporting may serve to ensure a high quality in the disclosures.

The MFSA is therefore proposing that certain templates be included in the SFCR will require external audit by an approved auditor in terms of Article 21 of the Insurance Business Act. This may be the statutory auditor appointed by the re/insurance undertaking. The selected templates are those that relate to the Solvency II Balance Sheet, Own Funds, Capital requirements (MCR and SCR) and Technical Provisions. The approved auditor will be required to draw up a report which includes a reasonable assurance opinion on the said templates. Importantly, although the SFCR is made public, the external audit report will not be made publicly available but only submitted to the MFSA.

This audit requirement will apply to both individual insurance undertakings as well as groups, where applicable. Undertakings using full internal models will be excluded in view of the fact that such models are subject to internal validation and prior MFSA approval. For those undertakings using a partial internal model, the audit requirement will apply to those elements in the quantitative templates which are calculated on the basis of the Standard Formula modules only.

The MFSA intends to apply these audit requirements with respect to the financial year ending on or after 30 June 2017 and therefore this will not apply to the initial submissions of the SFCR which are due in respect of financial year 2016.

The consultation period has now closed, and therefore it is now up to the MFSA to issue further advice.

These documents can be viewed here.

This article was co-authored by Tanya Causon.