In December 2016, the Central Bank of Ireland (the "Central Bank") issued a 'Dear CEO' letter (the "Letter") on the Solvency Capital Requirement (SCR) following its recent review of the SCR calculations for a number of life insurers. The purpose of the Letter is to highlight some key control issues relating to the SCR calculations.
According to the Letter, the main issues arising from the review include:
- inadequate controls and testing concerning manual spreadsheets used in calculations
- incorrect application of the Solvency II regulations
- management actions assumed in the technical provision and SCR calculations were not supported by a board-approved management plan, and
- employee defined benefit schemes not being treated as ring-fenced funds.
The letter also states that the issues identified correlate with wider issues that the Central Bank has observed in Solvency II reporting. The Central Bank points out in the letter that the annual reporting under Solvency II requires a step-up in terms of complexity and breadth of reporting compared to the quarterly reporting templates. The Central Bank also advises (re)insurers to make sure that their governance frameworks are sufficient to review, challenge and remediate data reporting inaccuracies.
To view the Letter in full, please click here.