Coined as the "Basel II of insurance reporting", Solvency II is the new European insurance directive slated to come into effect on January 1, 2013. As determined by the European Insurance and Occupational Pensions Authority (EIOPA), this risk-based standard for capital adequacy requirements and governance will use XBRL as the uniform format for prudential reporting across Europe.
XBRL is an open-source computer language that allows companies to precisely tag the thousands of pieces of financial data included in typical financial statements and footnotes. These XBRL tags make the financial data computer-readable and allow users of financial statements to electronically search for, assemble, and process data - so that analysts, investors, journalists, and regulators can readily access and analyze it. This will enable insurance regulators to make like-for-like comparisons of financial data from insurers across Europe.
The Journal of Financial Regulation and Compliance, in examining the suitability of XBRL for Solvency II, explains "Once a taxonomy has been created at the European level, extensions can be added to cover the particular features of national regulatory frameworks, thus ensuring the homogeneity of the system of information while giving it the flexibility that the framework requires."
Anthony Fragnito, CPA, CEO of XBRL International, on EIOPA's decision to use XBRL commented, "The EIOPA mandate for XBRL in the pension and insurance sector is a critical step toward the transparency and process improvement benefits of XBRL to insurance and risk management, and expands the XBRL footprint across the financial services and capital markets sectors."
