Solvency II. Copyright 2011, Oracle and/or its affiliates. All rights reserved.

Transcription

1 Solvency II Copyright 2011, Oracle and/or its affiliates. All rights reserved. September 2011

2 What is Solvency II?

3 Three Pillar Requirements Pillar 1 Capital Adequacy Three Pillars Pillar of Solvency 2 II Risk Management Pillar 3 Transparency Requirements Key Issues Solution Minimum Capital Requirement (MCR) Solvency Capital Requirement (SCR) Technical provisions Internal model or standard formula Regulatory approval Understanding Risk dependencies Capital aggregation & allocation Control & repeatability Quality of risk data Actuarial/Risk Calculation Engines Market Credit Insurance Risk Engines Compute Grid Operational Risk management processes Own Risk & Solvency Assessment (ORSA) Use Test Implementation Model and Risk Management Dox Consistent risk management Security, audit, control processes Embedding risk culture in business Information readily available to business e.g. solvency monitoring, capital allocation SII Technology Platform Enterprise deployment Audit, security & control technology Computing power Data Management Collaboration/integration Market Disclosure - SCFR Transparency QRT/SCFR/RSR Robust mechanisms and processes for external reporting Providing consistent information on a timely basis Real-time Reporting Analytics Dashboards

4 Internal Stakeholder Requirements Solvency II Programme Chief Actuary Faster production of information in real time Graphical and analytical reports for the regulators and the business Sensitivity and what if analysis Centralised and consistent modelling platform for all actuarial users Automated modeling processes Audit & security controls for Models and associated data CA CEO CIO Chief Information Officer Robust IT governance Power to run complex models Centralised modeling platform based on enterprise technologies Deployment across the enterprise Seamless integration with other enterprise systems and Automated data extraction/ transformation Centralised SII Database for enterprise access Chief Risk Officer Internal model approval Understanding of key assumptions Risk calculations to accurately reflect the underlying risk profile Enterprise-wide consistent risk management standards Auditable and transparent modelling and risk processes Graphical and analytical reports for the regulators and the business SCFR/RSR/QRT/ORSA CRO CFO Enhanced business performance through improved risk-based decision making Chief Financial Officer Consistency of external reporting (e.g. IFRS, SII, MCEV) Financial Consolidation - QRTs Faster, controlled production of accounting reports e.g. inputs to IFRS statements Graphical and analytical reports for the regulators and the business Faster financial close 4

5 SII/EC Typical Program Steps Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Requirements Readiness Methodology Technology Implementation Reporting Utilization in & Strategy Review & Processes Infrastructure & Roll Out & Analytics Business Programme Management Change Management Business Requirements Centralized or Decentralized Approach Methodology & Approaches SII/Risk Systems Architecture SII Implementation Plan Statutory Reporting SCFR/RTS/QRT Risk based Decision Making SII/EC Strategy Resourcing Requirements Internal /Standard Model Connectivity, Collaboration & Integration Risk Management Processes & Control Management Reporting Use Test Audit Gap Analysis Technology Requirements Reporting Requirements Data Management Systems Testing Business Analytics & Dashboards Performance Management Risk Management Organization & QRT Audit, Security & Control Training & Communications ORSA Internal Auditor Processes Processes ORSA/Use Test SII Project Plan Impact Documentation Standards Construct SII Technology Infrastructure Documentation Deployment of Risk Review Process Capital Allocations Regulatory Management Systems & Processes Most Insurers are still in planning, and evaluation phases Approval

6 SII Programs Key Issues with our Clients QRT Process Insurers have completed their QIS5 exercise and now the focus is on the QRT Reporting Process and the associated SFCR/RSR processes. Key focus on Regulatory Reporting Data Quality how do we ensure that the input data is consolidated, accurate and validated? Can we trust the data! Use Test/ORSA Implementation is the internal model genuinely important to the business? Is it widely used in decision making? How do we demonstrate to the regulators we are using the capital/risk information in business decision making? Actuarial/Risk Management Processes - do we actually have defined, controlled and documented processes? How do we demonstrate full audit trail? Spread Sheets - How do you reduce the dependency on Spread Sheets Insurers can have 100s of spread sheets that are difficult to audit & control Auditability & Transparency - how do we audit, track and control our actuarial and risk management processes? Particularly as most of the existing systems are Desktop based Documentation Standards is there a proper documentation to describe the models, the supporting processes and how is it kept up to date? Documentation is a real issue Pillar s II/III Pillar I Pillar s II & III 6 6

7 SII Program Phases Pillars 2/3 Pillar 1 Phase 3 Phase 4 Use Test/ORSA Phase 5 Fully Integrated Repository Phase 1 QRT/SFRC/RSR Regulatory Reporting/ IMAP Process Pillar 1 Capital Numbers & Processes IMAP Process QRT/SFCR/RSR Phase 2 Data Quality Data Quality to support Pillar 1 & Pillars II/III Data Sources Data ETL Staging/Manual Input Data Quality Data Validation Data Reconciliation SII Mart SII Data Mart SII Reporting Data Risk Data Finance Data Actuarial Data Utilisation within the Business Capital/Risk Information Use Test Process ORSA Process Solvency II Plus Fully Integrated Risk, Finance and Actuarial Data Warehouse An Integrated Risk Repository will typically be developed in stages Processes Report Production Risk Management Process Actuarial Operational Risk Finance Change Management Business Processes Roles/Responsibilities Culture

8 Current Solvency II technology landscape Traditional actuarial and risk systems are desktop oriented and supplemented heavily with manual controls Often insurers have multiple risk systems as a result of multinational structures or M&A activity These systems tend to lack enterprise capabilities making security, auditability and control difficult Risk data is collected from multiple sources and generally lacks consistency, quality and controls Reporting is split across multiple systems making it difficult to aggregate risk information Desktop computing power inhibits the ability to undertake frequent and ever more complex actuarial/risk models

9 9 Case study of Actuarial Spaghetti!

10 Solvency II Projects

11 SII Lineage and Compliance SCR For compliance with SII you need to have lineage from an individual policy to through to the ultimate SCR Reporting Engine Capital Aggregation Engine Risk/Financial Engines/Assets Actuarial Modelling Engines Model Points Data Quality/Ware Houses/Integration Technologies Risk Management Processes Use Test ORSA Capital/Risk Information for Use Test/ORSA Source Systems Risk Management process to provide auditablity & governance Policies

12 Secrets of Success There is no one-size fits all solution to Solvency II - no vendor has one and no insurer would buy one! Insurers already have a number of existing SII related components - these will have to be integrated into any strategic SII framework Plan strategically but implement in a phased manner delivering defined functionality in other words identify a number of quick wins Components must be capable of meeting both today's and tomorrows requirements they must be flexible data model, warehouse, reporting engine etc... IT must work closely with Actuarial, Risk and Finance to understand the business requirements Ultimately business benefits have to be derived from a SII program so plan for SII plus and finally... IT represents 50% upwards of total SII Budget

13 <Insert Picture Here> Wider CEIOPs Requirements 1. Stable, repeatable and robust technology platform for risk management 2. Full audit, security and control around risk systems 3. Version control and change management around risk models and process 4. Full documentation of risk models and associated risk management process

14 Oracle Solution

15 Typical SII Architecture 4. SII Repository 5. Validation Engine 6. Pillar II Compliance Source 2. Systems Policy Admin Systems Claims Asset Data 2. Manual Data Entry ETL Data Quality Policy/Assets Data Actuarial tables External Data Financial Data Cash flow projection output QIS5/QRT/SII Data Aggregation, Analyses 8. Actuarial Engines P&C LIFE ALM Assets Economic Capital Operational Risk ORSA Use Test 7. Analytics Bloomberg Risk Process Flow Automation Reconciliation 9. Financial Consolidation Engine BI Reporting & Analysis Monthly KPIs GLs Operational Data Warehouses Balance Sheet Forecasting Financial Consolidation Business Dashboards Risk/Management Annual Reporting - QRTs Regulatory 3. Data Staging Area Source ETL/MDM Repository Calculation/Validation Reporting 10. Governance Risk & Compliance Systems Risk Management Processes/Controls

16 Typical SII Architecture 4. SII Repository 5. Validation Engine 6. Pillar II Compliance Source 2. Systems Policy Admin Systems Claims Asset Data Bloomberg Risk GLs 4. Oracle GRC Risk Process definition Risk Process flows & controls Source ETL/MDM Risk Reporting 3. Data Staging Audit Area & Security Process Flows Repository 8. Actuarial Engines Calculation/Validation ORSA Use Test Policy/Assets Data P&C Assets 2. Manual 1. Oracle OFFSA Actuarial tables Data Entry Data Quality External Data Economic Data ETL Financial Data LIFE Capital ETL Data Staging &Validation Cash flow projection Data Repository output 3. Oracle Analytics Operational QIS5/QRT/SII Data ALM 7. Analytics Process Flows Risk SII Reporting Data Quality Calculations & Aggregation Aggregation, Analyses Dash Boards Reconciliation KPIs BI Reporting & Process Flow Integrated Risk, Actuarial Analysis Automation & Finance 9. Financial Consolidation Monthly KPIs Engine Solvency II Plus Operational Data 2. Oracle HFM Balance Sheet Forecasting Business Dashboards Warehouses Financial Consolidation Financial Consolidation Risk/Management SII Reporting XBRL Annual Reporting Regulatory Reporting 10. Governance Risk & Compliance Systems Risk Management Processes/Controls

17 QMR (SII Regulatory) Reporting Application Using the HFM platform

18 What is QMR for SII? (Quantitative Management Reporting) Out of the Box solution for SII reporting QRTs, SFCR, RSR Based on the existing Oracle financial consolidation engine Hyperion Financial Management (HFM) HFM comprises: Powerful Financial Consolidation Engine with process flow controls (HFM) Data Quality and Integration Tool (FDQM) Reporting (Disclosure Management) QMR is a dedicated application that operates with the HFM environment to specifically provide for QRT, SFCR,RSR functionality. The QMR application will be maintained and developed by Oracle to keep pace with EIOPA regulations All insurers need to capture QRT information from all their legal entities, reporting entities, branches or any other organisational structure of the respective insurer. Many insurers are using manual Excel procedures to capture and consolidate information This is could be a violation of upcoming Solvency II reporting requirements (Pillar II) and will impose future liabilities regarding insurers filling Solvency II (based on further developments of QRT principles) 18

19 OBIEE, Smart View & Financial Reports Disclosure Management & FCM RSR SFCR QRT QMR Process Flow SII Cycles Data Sources Processing Reporting Financial QRT specific calculations QRT Data forms QRT Report structures QMR Actuarial Dimensionality to support QRTS SFCR/RSR Templates Asset Process Management Rules Engine other Validations Journals Audit Tracking HFM Inter-company Processing ETL Manual Entry User Driven ETL Data Load Repository Audit, Security & Control Drill-through Source Mappings Target FDQM Report Generation (pdf/html/ms Office) Adjustments Explanations XBRL Tagging Qualitative Text Dashboards 19

20 QMR Application within HFM Pre-Built application that supports (both independently and in conjunction with Oracle S-II Repository) the generation of the QRT reporting requirements as prescribed by the European Insurance regulators (EIOPA) for both for solo and group reporting Incorporates calculations for SCR/MCR and Diversification calculations Our approach and release management will support future upgrades in the underlying platform (HFM) and future regulations e.g. QRTs/ SFCRs/RSRs. QMR supports both Life, Non-life business and composite Insurers Capability for the customisation of QRT templates (for local regulator requirements) and generation of user specific templates QRT specific calculations QRT Data forms QRT Reports Dimensionality to support QRTS SFCR/RSR Templates QMR

21 XBRL Taxonomy The announcement that XBRL will be the reporting standard for Solvency II has been welcomed by many. Now EIOPA has revealed that in July it will launch the first of two public consultations on the use of the XBRL for Solvency II. For Solvency II this data is defined by the final reporting template. The final draft of the taxonomy will depend on the final reporting template, which will be decided upon in the EIOPA Board meeting of October It is, however, possible that some small modification will be needed due to changes in the Level 2 Text After the Board approves the taxonomy in October, EIOPA will launch a full public consultation of the reporting templates and the underlying taxonomy. The July consultation will focus on technical aspects. The July consultation will relate to the design of the taxonomy Mr. Hoedjes explained. It will not relate to the reporting templates, just the pure technical XBRL solutions chosen to accommodate the complexity of the reporting templates. 21

22 Benefits of QMR HFM/QMR 5. More than just a reporting solution it provides essential capabilities for Pillar 2/3 SII controls: Data Quality, Auditabilty, ETL Validations and Calculation capabilities Embedded process flows with inbuilt approvals and signs-off procedures Support for Internal and Standard Models 4. Relatively quick implementation process estimated 3-4 months to support SII reporting - can be quicker in a existing HFM client 3. Fully customisable to an insurers specific legal structures, regulatory environment and internal requirements 2. Fully supported and maintained by Oracle with a discounted bundled price for SII reporting 1. Out of the Box solution for QRT- Specially bundled package of HFM/QMR for SII reporting

23 EIOPA QRT Templates Template Content S G QS IAG DS DG BS - C1 Balance sheet X X Tbd Tbd X X BS - C1B Off-balance sheet items X X X X X X BS - C1D Assets and liabilities by currency X X OF - B1A Own funds - Annual X X X X OF - B1Q Own funds - Quarterly X X X X SCR - B2A SCR - B2B SCR - B2C Solvency capital requirement (for undertaking on standard formula or partial internal model) Solvency capital requirement (for undertakings on partial internal models) Solvency capital requirement (for undertaking on full internal models) SCR - B3A Solvency capital requirement - market risk X X SCR - B3B Solvency capital requirement - counterparty risk 5 X X SCR - B3C Solvency capital requirement - life underwriting risk 5 X X SCR - B3D Solvency capital requirement - health underwriting risk 5 X X X X X X SCR - B3E Solvency capital requirement - non-life underwriting risk 5 X X SCR - B3F Solvency capital requirement - non-life catastrophe risk 5 X X SCR - B3G Solvency capital requirement - operational risk 5 X X MCR - B4A MCR - B4B Minimum capital requirement (except for composite undertakings) Minimum capital requirement (for composite insurance undertakings) X X X 23

24 Oracle - SII Reporting Pack

25 Solvency II Repository SCR Reporting Data QRTs, SFCR, RSR, MVEV, IFRS etc... Capital Aggregation Inputs/Results (Algo- Risk, Ortec) Actuarial Results Files, Risk Factors, Asset Data (super-set). Results Curve Fitting, Replicating Portfolios Actuarial Modelling Results Data (MoSes, Profit, Igloo, ReMetrica, Mo.Net) Results Files, Cash Flows etc... Actuarial Modelling Input Data (MoSes, Profit, Igloo, ReMetrica, Mo.Net) External Data Asset Data Assumptions Tables, Yield Tables, Mortality Tables, Run Parameters, Policy Data ESG files, Catastrophe Models, Reuters, Bloomberg etc Portfolio, Asset Types, Duration,QRT inputs etc Financial Data Balance Sheet, P&L, IFRS, GAAP

26 Solvency II Reporting SCR Statutory/SII QIS5, QRT, SFCR, RSR ORSA, Use Test Management Reports/Dashboards Management/Business Information Executive Economic Capital/KPIs/SCR Executive SCR Projection/SCR Breaches/SCR Breakdown Risk Management Risk Factors/Capital/Risk Analysis/Geographies Asset Management Asset Mix/Asset Durations/Intangible Assets Actuarial Finance Reports Shocks/SCR Scenarios/Sensitivity Analyses Operating Expenses/Income, Claims Analysis, Liquidity, Key Ratios, Capital Adequacy etc Ad Hoc

27 Executive Reports Examples Dashboards Solvency II Executive Dashboards Answers More Products Settings Log Out Group SCR SCR by Line of Business Reconciliation of ECaR Risk Adjusted Return on Capital

28 Executive Reports Examples Dashboards Solvency II Executive Dashboards Answers More Products Settings Log Out Key Indicators SCR Decomposition SCR Minimum Values SCR Development TIer1 150,00 100,00 50,00 0,00 2,50 2,00 1,50 1,00 0, tier2+tier3/tier1 min 2 Tie r 3 70,00 60,00 50,00 40,00 30,00 20,00 10,00 0, ,60 0,50 0,40 0,30 0,20 0, tier3 Tier 2 Tier 1 scr req (1/3) scr tier 3/ tier 1+ tier 2 breach SCR Yield Linear (SCR) Linear (Yield) 0, Goal 0, Goal

29 Risk Reports Examples Dashboards Solvency II Executive Dashboards Answers More Products Settings Log Out SCR Breach Level MCR Breach Level Risk Factors over Time SCR by Region

30 Actuarial Reports Examples Dashboards Solvency II Executive Dashboards Answers More Products Settings Log Out Impact of the 26 EIOPA Shocks Impact of the 26 EIOPA Shocks Projected Forward Internal v Standard Models SCR Killer Scenarios

31 SII is spreading around the globe Mexico is adopting SII Equivalence for 2012 Israel is considering SII type regime Japan is adopting an SII type regime USA currently has Principal Based Approach regulation but likely to move to SII regime in a few years South Africa is adopting a SII regime by 2014 Australia is also considering an SII regime

32 Rating Agencies have similar requirements All insurers will need to have at a strong enterprise risk management assessment before we will consider undertaking an Economic Capital Review These insurers will have demonstrated to us that their Economic Capital Model (e.g. Internal Model) is an integral part of the way in which they manage their business and thus will tend to have better and more robust models It is important that management relies on the ECM as a key management tool and not just as a determinate of capital adequacy Source S&P 32