Solvency II market briefing. 1 & 2 August 2011

Transcription

1 Solvency II market briefing 1 & 2 August 2011

2 Agenda Highlights since we last met Lloyd s update Preparing for Final Application Wrap up Questions 2

3 Highlights Proposals on possible one year delay to 2014 Geographical diversification for catastrophe exposures Lloyd s risk governance framework and Internal Model (LIM) on track Prudential measures agreed by Franchise Board Member level capital principles approved by Franchise Board Re-design of Solvency II pages on lloyds.com Draft final application pack guidance highlighting Board responsibilities 3

4 Agenda Highlights since we last met Lloyd s update Preparing for Final Application Wrap up Questions 4

5 Has the timetable changed? Omnibus II compromise text proposes one year delay until 2014 Outcome won t be known until 2012 Both Lloyd s and FSA are working to 1 January 2013 start date LIM application date remains April 2012 Syndicate timetable remains unchanged We need to demonstrate good level of compliance at that point but as per guidance it is not necessarily 100% 5

6 Do you agree that we should continue to press ahead on current timetable? A. Yes 79% 1 August results B. No A 21% B 85% 2 August results 15% A B 6

7 Europe listening on Lloyd s lobbying Catastrophe risk: geographical diversification Lloyd s proposal accepted by EIOPA task force EC has developed similar proposal Would cut excess cat risk charge by over 75% Currency risk Lloyd s continuing to press hard with EC CEA helping to move this up the EC agenda but multiple issues are competing for attention 7

8 Lloyd s own progress is on track Lloyd s Internal Model (LIM) development progressing Capital calculation kernel being refined ready for October SCRs Model receiving data from Lloyd s catastrophe and investment risk models Risk governance structure continues to evolve to meet use test Executive Risk Committee receiving regular capital and risk report - Current example is Eurozone concerns Lloyd s ORSA framework being piloted Lloyd s continuing to review and provide input on Level 2 and 3 measures Member level capital principles approved by Franchise Board 8

9 and the assets held to meet capital requirements Asset risk and returns from LIRM Chain of Security PTF ( 40bn) FAL ( 14bn) CF ( 3bn) Risk Groups Simulate losses by class RG 1 Produce syndicate results Synd 1 Allocate to Members Calculate hit on Central Fund RG 2 Synd 2 Member A RG 3 Synd 3 Member B Central Fund Member X RG n Synd 85 Simulated Attritional losses Catastrophe losses from LCM 9 Syndicates model risk, reviewed by Centre using ICP etc. LIM calibrated to these results Member allocation from MCAT and Syndicate Noise added syndicates do not suffer identical losses

10 should in total be similar under Solvency II to now Now Solvency II Total asset stack Uplift and Central Assets Ultimate Risk ICA SCR (one year risk) UK GAAP Technical Provisions Solvency II Technical Provisions 10

11 On-line tutorial has been a big success Over 1,700 individuals have completed it Good introduction Not just Lloyd s market consultants, law firms and the FSA Several agents have advised us that they have made it mandatory Reports provided by Lloyd s for 11 agents Next steps LMA have agreed to help develop content at next level down Targeting Board Responsibilities We welcome any ideas 11

12 Agenda Highlights since we last met Lloyd s update Preparing for Final Application Wrap up Questions 12

13 Good progress made since May by Lloyd s and agents Additional guidance published by Lloyd s Evidence Templates, Final Application Pack, Validation Report and ORSA Approx 150 model walkthrough sessions held to date joint meetings with FSA in many cases Further evidence templates submitted by agents Quantitative submissions on technical provisions, QIS5 and SCRs Q2 self assessment scoring updates Excellent response from the market 13

14 and Lloyd s has held twenty workshops; what value are you obtaining from them? A. Valuable and we ensure we attend and use the slides for reference 42% 48% 1 August results B. Useful background information as part of the programme C. Limited A B 3% C 7% D D. Twenty? Why???? 53% 2 August results 37% 8% 2% A B C D 14

15 but is all this enough? Q Q July % 3% 3% 5% 2% 7% 10% 14% 14% By agent 38% 37% 40% 40% 41% 37% 4% 11% 21% 2% 16% 27% 0% 23% Materiality (ICA) 26% 18% 19% 10% 41% 42% 40% Amber or better = on target for Solvency II compliance 15

16 Prudential measures agreed by Franchise Board Letter issued to all agents 22 June 2011 Lloyd s rating criteria and definitions published for transparency Has prompted a lot of discussion and challenge on ratings with agents All ratings are constantly under review and are subject to a robust challenge on consistency Lloyd s will formally review all ratings at end August and write individually to those who are still red or pink Clear action plan setting out what needs to be addressed to avoid imposition of prudential measures in October Take into account latest developments on timetable 16

17 Do you know what your agency needs to do to maintain / upgrade Lloyd s rating? A. Yes and Lloyd s feedback is clear B. Yes, but Lloyd s feedback is less helpful than our own programme reports C. No, Lloyd s rating shows us behind expected progress but unclear on why and I consider we are on track 39% A 34% B 1 August results 15% 7% 5% C D E D. No, I agree we are behind expected progress but unclear on what the priorities are to be addressed 43% 39% 2 August results E. Not close enough to this to give informed opinion 10% 3% 5% 17 A B C D E

18 Q3 is ANOTHER key period for delivery! 18

19 Final Application Pack (FAP) - aims and objectives CEIOPS 1 set out the procedure for internal model applications Lloyd s and the FSA have agreed that each agent must submit an application for model authorisation Similar to E-N process for firms Lloyd s and agents must demonstrate that all relevant Solvency II standards have been addressed and met ahead of implementation Agents present true status of Solvency II compliance and all evidence available Lloyd s presents summary of review work 1. See DOC-28/09 (formerly CP37) 19

20 FAP is a set of documents which taken together supports the application Does NOT Drive Lloyd s decision on model authorisation on its own Contain all available evidence from each agent Does Refer to all relevant processes, systems, people and documentation Need to be completed by agents but will be supported by a summary of Lloyd s work when presented to the FSA Need to be consistent across all elements and accurately reflect status of compliance with Solvency II requirements 20

21 FAP submission focus is on first two tiers of documentation Submission to Lloyd s Application Document and Self assessment scores 1 Maintained by agents (not all submitted to Lloyd s) Executive summary and board documentation Completed Evidence Templates (ETs) Validation Report, LCR & ORSA Supporting technical specialist documentation and policies (only where requested by Lloyd s) 2 3 Technical - descriptive Technical - specialist level 21

22 Contents of the FAP Application document Formal application to Lloyd s to use the model for calculation of regulatory and member level capital requirements confirming status of compliance with all relevant Solvency II requirements Mandatory templates Self assessment scores Accurately represent the progress made at the point of application and consistent with other components of FAP Evidence templates Link between application document and underlying evidence. Stand alone explanation of how requirements have been met and identifies supporting documentation, processes, systems and people to evidence compliance Validation Report Confirms the internal model is fit for purpose, meets the model tests and standards and is appropriate to the business, capturing all risks ORSA Covers all processes employed to manage material risks and ensure that solvency requirements are met at all times Lloyd s Capital Return Numerical output of the internal model to demonstrate calculation of the SCR 22

23 The Evidence Templates form a key part of the FAP: what value is your firm obtaining from them? A. Valuable; tracks and summarises progress and evidence as we go 48% 1 August results B. Useful; though fitting them to our programme is challenging 21% 27% C. Limited; resource used to complete them exceeds the benefits 4% D. Carbon footprint is the only winner A B C D here 39% 43% 2 August results 17% 2% A B C D 23

24 Board must provide positive affirmation of current status of Solvency II compliance Recognise agents will have some gaps against requirements on submission of the FAP in December BUT there should not be material gaps remaining Include coverage of ongoing work and associated timescales Confirmation that no material facts or details relevant to the application have been excluded Boards need to work back from 16 December submission date Start planning now Timetable for sub-committee sign-offs Time for review and feedback Ensure you can place reliance on independent assurance process 24

25 Agenda Highlights since we last met Lloyd s update Preparing for Final Application Wrap up Questions 25

26 Same challenge is still appropriate What is our rating and is this where we want to be? If not what is missing to move up? Are we clearly addressing Lloyd s feedback? Am I clear on progress being made and does it tie in with self assessment submitted to Lloyd s? Is evidence available to support scores and movements in scores? Is assurance process robust? Are we getting the proportionality balance right? Focus on the key risks and deliverables Is review level appropriate? 26

27 but time to address is shortening Lloyd s remains focused on securing LIM approval thus the market as well as the Corporation needs to be ready Achieving 16 December deadline for submission of FAP is critical to our LIM application Remember we are here to help: Please speak to your account manager Solvency2@lloyds.com Material on lloyds.com Luke.savage@lloyds.com

28 Agenda Highlights since we last met Lloyd s update Preparing for Final Application Wrap up Questions 28

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