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Solvency Reporting and Profit Reporting

  • Thread starter Justenjoytheshow
  • Start date
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Justenjoytheshow

Member
A little late in the day but hoping someone could clarify for me the distinction in the purposes of SI/SII and GAAP/IFRS17.

Is it that SII is for making sure you have enough capital and IFRS17 is to do with how you determine your profit? So even though the balance sheet and revenue accounts are linked you can be reporting both separately following different principles?
 
Your question is completely logical. It doesn't make much sense in having two reporting regimes. But, for the purposes of the exam, I think you just need to remember that they do differ and that can have implicatons (e.g. LACODT). Generally SII is more prudent than IFRS when it comes to setting reserves, so that's worth bearing in mind.
 
Justenjoytheshow said:
A little late in the day but hoping someone could clarify for me the distinction in the purposes of SI/SII and GAAP/IFRS17.

Is it that SII is for making sure you have enough capital and IFRS17 is to do with how you determine your profit? So even though the balance sheet and revenue accounts are linked you can be reporting both separately following different principles?
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Solvency II is an insurance regulation applicable to all insurers in the EU. Solvency II introduced requirements related to capital requirements, and valuation of technical provisions (BEL plus risk margin), recognition and valuation of non-insurance liabilities (e.g subordinated debt) and assets. Solvency II requires assets and liabilities (non-insurance) to be valued in accordance with IFRS; however for insurance liabilities SII has its own rules. This should not be confused with IFRS17

IFRS17 is essentially concerned with valuation of liabilities and reporting requirements. The valuation rules are not same as SII.

so whenever IFRS17 is implemented, insurers will be reporting both on Solvency II and IFRS17 bases.
Insurers can report profits on a range of metrics including IFRS, EV and SII.
 
Yes, Solvency ii and IFRS are two separate reporting requirements:
The main purpose of the former is to show to the regulator that the company has enough capital to meets its obligations. Solvency II is only looking at the balance sheet. Whereas, IFRS reporting is reporting on the accounts, ie the profit and loss (showing the trading profit) and balance sheet. And in the UK, there is a legal requirement to report these to Companies House. Investors will be interested in these accounts, as well as the tax authorities (the annual tax calculation will be based on these numbers).
The IFRS balance sheet may be based on the Solvency II numbers (with possible adjustments).
Best of luck for the exam
 
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