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. Clive Davidson examines the implications

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.

A US accountant came up with the idea of creating a standardised markup language for business information in the late 1990s, and the first formal specification of XBRL appeared in 2000. Early adopters included the US Federal Deposit Insurance Corporation, the Committee of European Banking Supervisors and the UK’s HM Revenue & Customs (HMRC). Noting the benefits gained by these organisations, as well as its growing use of the data standard in other sectors, in October 2011 the European Insurance and Occupational Pensions Authority (Eiopa) adopted XBRL as the mandatory data-exchange format between national supervisory authorities and itself. In addition, Eiopa is currently looking at whether it should mandate the use of XBRL for the reporting by insurers to their supervisors as well. 

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.

It is a measure of how new XBRL is to the industry that of the 18 comments on its consultation received by Eiopa, only three were from insurers – US-based MetLife, Germany’s Itzehoer Versicherung and the UK’s RSA Insurance Group. MetLife mostly commented on detailed technical aspects of the taxonomy and cross-referenced banking XBRL reporting requirements. Itzehoer said it planned to use third-party software for Solvency II reporting, which would generate the XBRL tagging. Its main comment was that software vendors need early warning of regulatory reporting requirements so they can build them into their products and allow time for insurers to embed the new modules into their reporting processes.

Like Itzehoer, RSA is planning to make use of third-party software for generating XBRL-formatted reports (although it is not planning to outsource the checking, validation and tagging of its disclosure returns). The company has yet to select a third-party product for the XBRL generation. This is partly because the company is waiting for Eiopa’s final decision on XBRL and the publication of the official Solvency II taxonomy. The evaluation process is currently in the hands of Eiopa’s IT and data committee, which has been asked to develop guidelines and recommendations on the use of XBRL as a standard for the exchange of data between insurers and supervisors. No decision date is set as yet, but Eiopa has announced that there will be another round of consultation before the end of this year.

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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Opinions divided on benefits of XBRL reporting standard for Solvency II