1. BaFin | Technical Cooperation | Financial Reporting under Solvency II ______________________ EU-TAIEX-Workshop for the Ministry of Finance of Azerbaijan ______________________ Baku, 30 November 2012

2. BaFin | Technical Cooperation | Solvency II: Three Pillars and one roof Quantitative requirements Technical provisions (best estimate, risk margin) Capital requirements (SCR, MCR) Own funds Qualitative requirements Internal control (Governance system) Risk management Own Risk and Capital Assessment (ORSA) Supervisory review process (SRP) Disclosure and market discipline Supervisory reporting Public reporting Transparency Pillar I Pillar IIPillar III Insurance supervision: Solo and groups

3. BaFin | Technical Cooperation | Objective Enhance protection of policy holders (Article 27): supervisors and public must be able to get a picture of the companies Establishing a harmonised framework of principles This framework is based on a best practice approach and is not simply a summing up of the national reporting requirements Every piece of information to be reported should be „fit for purpose“

4. BaFin | Technical Cooperation | Legal basis (1) Level 1 Text (Nov 2009): Solo level Article 35 (RSR) Article 51 (SFCR) Group level Article 254 (counterpart to Article 35) Article 256 (counterpart to Article 51) Internal models Article 112

5. BaFin | Technical Cooperation | Legal basis (2) Level 2 Text (Oct 2011): Advice: Solvency and Financial Condition Report (SFCR) Report to Supervisors (RSR) Quantitative reporting templates (QRT) Process of reporting and disclosure Supervisory reporting and public disclosure following pre- defined events

6. BaFin | Technical Cooperation | Legal basis (3) Level 3 Text (July 2012): Stabilised reporting package: Stable content regarding information requirements Subject to changes after approval of final Level 1 and Level 2 texts Stabilised package reflects the actual Level 2 text – no references to this text expected in summary and LOG files

7. Legal basis (4) Level 1 Directive 2009/38 Level 2 Working document Future Technical Standards Future EIOPA Guidelines Reporting requirements Art. 35 General Content and deadlines of SFCR, RSR, ORSA, QRT QRT to be reported Content details Disclosure requirements Art. 51 Content Content and deadlines of SFCR QRT to be disclosed (part of SFCR) Content details BaFin | Technical Cooperation |

8. High level principles of Supervisory Reporting

9. BaFin | Technical Cooperation | High level principles of Supervisory Reporting The regular information available to supervisors will be built up from three elements: The SFCR which would be an annual publicly disclosed document; The RSR containing confidential or proprietary information for the supervisors which would remain private; and The standardised reporting templates (some of which may be made public in the SFCR and some will remain private). These will comprise quantitative reporting items

10. BaFin | Technical Cooperation | High level principles of Supervisory Reporting At pre-defined periods Regular supervisiory reporting through which supervisory authorities will periodically receive information Upon occurence of pre-defined events Updates information upon the occurrence of pre-defined events Pre-defined events are those that can lead to material changes to an undertaking´s risk profile and may require supervisory authorities to reassess the frequency and intensity of supervisory actions, such as changes in the governance structure or the solvency capital.

11. BaFin | Technical Cooperation | High level principles of Supervisory Reporting During enquiries regarding the situation of the undertaking: Power to request any information required to assess the situation of an undertaking This can be at any stage of the SRP –ad hoc information- and should be used to further understand potential threats to policyholders

12. BaFin | Technical Cooperation | Proportionality Principle The detail of the disclosure and reporting will be appropriate with the nature, scale and complexity of the risks inherent to the business of the undertaking concerned Undertakings will not be required to fulfil reporting requirements that are not applicable to them Narrative private supervisory reporting, through RSR, is linked to the intensity of the SRP as supervisory authorities may decide whether a full narrative report or a „material changes“ report should be required.

13. BaFin | Technical Cooperation | Materiality principle (1) „ Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of ist omission or misstatement. Thus, materiality provides a threshold or cuttoff point rather than being a primary qualitative characteristics which information must have if it is to be useful.“

14. BaFin | Technical Cooperation | Materiality principle (2) Undertakings would be required to inform the supervisors in a timely manner of developments that have had a material affect on the undertaking’s solvency or financial condition: New business lines to be written Changes in persons who run key functions Internal organisational restructure Lawsuits being bought against the undertaking Changes in business strategy Changes in own funds levels etc.

15. Narrative Reporting & Disclosure (1) BaFin | Technical Cooperation | Narrative SFCR & RSR => similar structure, with 5 parts, to enable comparability between undertakings & SFCR / RSR

16. Narrative Reporting & Disclosure (2) A)Business, External Environment and performance Business and external environment Underwriting Performance Investment Performance Performance from other activities BaFin | Technical Cooperation |

17. Narrative Reporting & Disclosure (3) B) Governance and Remuneration policy Governance Arrangements Fit and Proper Risk Management & ORSA Internal Control Internal Audit Actuarial Outsourcing Any other disclosures BaFin | Technical Cooperation |

18. Narrative Reporting & Disclosure (4) C) Risk profile Following risks Underwriting Risk Market Credit Liquidity Operational Other material Risk Exposures Any other disclosures BaFin | Technical Cooperation |

19. Narrative Reporting & Disclosure (5) D) Valuation for Solvency Purposes Assets Technical Provisions Other Liabilities Other Disclosures BaFin | Technical Cooperation |

20. Narrative Reporting & Disclosure (6) E) Capital Management Own Funds - Structure, Amount & Quality MCR and SCR Use of duration based equity risk sub-module SCR differences if standard formula or internal model used Non-compliance with SCR/MCR Other Disclosures BaFin | Technical Cooperation |

21. Narrative Reporting & Disclosure (7) BaFin | Technical Cooperation | SFCRRSR Business, Environment & Performance Underwriting; Investment performance Perceived competition position; Details of performance against projections GovernanceGovernance structure; Fit & proper requirements; Risk management system (incl. ORSA process); Remuneration policy; Outsourcing policy Remuneration of members of the administrative & management body; Outcome of the ORSA; Overview of internal audits performed Risk ProfileExposure on off-balance sheet and SPVs; Summary of risk concentration Detail of risk mitigation techniques used (reinsurance, SPV, etc.) ValuationSolvency II Balance Sheet; Methods and assumptions; Explanation of material differences with statutory accounts Capital managementStructure, amount and quality of own funds (by tier); Description of material ancillary own funds Current expectations of SCR/MCR and OF over the business planning horizon

22. Narrative Reporting & Disclosure (8) Specific information requirements for undertakings / groups using internal models Narrative SFCR & RSR => additional group-specific information : Group SFCR : legal & organisational group structure intra-group outsourcing arrangements description of restrictions to fungibility & transferability of own funds Group RSR : contribution of each subsidiary to the group strategy Specific information requirements for solo undertakings belonging to groups BaFin | Technical Cooperation |

23. Quantitative reporting templates (1) Reporting package presented in 6 excel files Clarity in annual, quarterly, solo vs. Group and disclosure requirements Includes Solo, Groups and Financial Stability Add-on Summery- and LOG documents BaFin | Technical Cooperation |

24. Quantitative reporting templates (2) BaFin | Technical Cooperation | SingleGroups annual solo templatesannual group templates, quarterly solo templatesquarterly group templates solo templates public disclosure (yearly) group templates public disclosure (yearly)

25. Quantitative Reporting Templates (3) QRTs are available since the first Pretest 2010 by EIOPA: ● Exist of 60 Excel-Templates ● A lot of information to own funds ● Information from QRT be incorporated into the disclosure of the Solvency ratio ● High Details ● ORSA-Prozess: Equity must be controlled, so that solvency can be met BaFin | Technical Cooperation |

26. Quantitative Reporting Templates (4) The variation analysis: Three formulars for a comparison between year N and N-1: Summery-document and variation of the solvency Variation of the assets and financial obligations Variation of the technical provisions Changes in equity must be explained. BaFin | Technical Cooperation |

27. Quantitative reporting templates (5) Excel Files presented by categories: Balance Sheet Country and Cover (premiums, claims & expenses) Own funds and Participations Variation Analysis SCR/MCR Assets Technical provisions Life and Non-Life Reinsurance Group specific templates Financial Stability Add-on BaFin | Technical Cooperation |

28. Quantitative reporting templates (6) BaFin | Technical Cooperation | SCR3 summery 7 risk-moduls MCR2 Assets9 Technical provisions6 life 7 non-life Reinsurance4 Groups9 Financial Stability4

29. Quantitative reporting templates (7) Word files – Summary documents - describe: Purpose Potential benefit Potential costs Adaptability for groups Materiality thresholds Disclosure obligations Reporting deadlines/frequency Possible exemptions for quarterly templates BaFin | Technical Cooperation |

30. Quantitative reporting templates (8) LOG Documents describes each field of the formular: Elements Number of the field Definition Example Purpose CIC table (classification of investments) CIC definitions BaFin | Technical Cooperation |

31. SFCR to be disclosed and reported every year (Report to the public  solvency- and financial status) RSR to be reported at least every 3 years (material changes to be submitted every year) Regular report to the supervisor ORSA report (yearly, 2 weeks after conclusion) Frequency

32. BaFin | Technical Cooperation | As reference to the 1st January 2013 ● (for most undertakings) insurance and reinsurance undertakings shall: - calculate estimates for the SCR, MCR and the amount of own funds, - determine the balance sheet in accordance with SII, and - provide the supervisory authorities concerned with this information Reporting implementation deadlines

33. BaFin | Technical Cooperation | As reference to the 31st December 2013 ● (for most undertakings) insurance and reinsurance undertakings ● shall provide supervisory authorities with the information referred to in Article 35 (the fully Solvency II package) ● on an annual basis ● in relation to the financial year ending on or after 1 July 2013. Reporting implementation deadlines

34. Deadlines for transitional period weeksAnnual report solo Quarterly report solo Annual report groups Quarterly report groups 20142082614 20151872413 20161662212 20171452011 BaFin | Technical Cooperation |

35. What is XBRL? XBRL stands for eXtensible Business Reporting Language, language dialect of the XML (Extensible Markup Language); language for transmitting information via the Internet XBRL is an ‘Open Standard’ for the electronic reporting of information (reports / data) Not mandatory, but „comply or explain“ Guidelines and Recommendation on use of XBRL will be developed by EIOPA BaFin | Technical Cooperation |

36. What is XBRL? The data-elements are defined in a ‘Taxonomy’, a dictionary-like classifications in XBRL for describing the data in financial statements and business documents, their labels, hierarchies, aggregations, break-downs, regulatory references, validation checks.... A XBRL ‘Instance document’ contains’ the data elements tagged with the concepts / labels of taxonomies. The instance documents are the files that are transmitted. BaFin | Technical Cooperation |

37. EIOPA IT & Data Committee ITDC is established as a Working Group to deliver advice on the Information Technology, the transfer and handling of data within EIOPA the Committee deals with any form of pan-EU related IT projects stemming from EU legislation; either current or future ITDC is a platform for all IT issues: between EIOPA and Members, internal EIOPA and external issues.

38. BaFin | Technical Cooperation | EIOPA IT & Data Committee Tasks, i.a.: to develope advice on IT- and Data strategy to develope and revise IT policies, i.a.: High level architecture policies, Security policies, Outsourcing/Control/Audit policies to develope recommendations and guidelines on IT and data issues to cooperate with groups of EBA, ESMA and ESRB (ECB)

39. BaFin | Technical Cooperation | EIOPA IT & Data Committee Scoping of the IT implementation projects: XBRL project composing of: XBRL taxonomy, XBRL tool for undertakings and XBRL extraction and validation tools for EIOPA Structured data project: Operational Database and Data Warehouse BI System; Market data Unstructured data project: Document and Web content management system

40. German Insurance Association Since 2011, the industry is testing the reporting requirements:  Costs and benefits have no proportion  Risk that small and medium-sized insurers are overwhelmed by the reporting requirements: - Why report on each investment? - Why quarterly report, if nothing changed?  Volume goes far beyond the current  Can supervision ever handle the flood of data? BaFin | Technical Cooperation |

41. German Insurance Association Since 2011, the industry is testing the reporting requirements:  Application of the proportionality in quarterly reports of SMEs, SMEs are not squeezed out of the market.  Demand: A consistent concept to the implementation of the proportionality principle  BaFin: We campaign at EIOPA that the complexity of Solvency II is reduced in the sense of proportionality. BaFin | Technical Cooperation |