European Solvency II Survey 2014

Transcription

1 European Solvency II Survey 2014

2 Agenda I. Regulatory update II. III. IV. Introduction to survey and findings Pillar 1 findings Eric Brown Pillar 2 findings Frank O Callaghan V. Pillar 3 findings VI. VII. IT Readiness Hugh Callaghan Summary and conclusions VIII. Questions Page 2

3 Regulatory update Page 3

4 Regulatory update Preparation for SII Locking down the requirements Driving forward with preparatory requirements External assurance Comframe field testing Phase 1 submission deadlines EIOPA stress tests Technical standards Core modules Low interest rates Outcome of CP 73 Reserving requirements for NL, NL Re, Life Re Guidance on best estimates and margins for uncertainty Page 4

5 Introduction to survey and findings Page 5

6 The study design Participants and features Second European EY Solvency II study Analysis of market trends in the European implementation Extensive international coverage (20 European countries) Single country profiles Countries with the largest number of participants: Germany France Central and Eastern Europe Nordics Poland UK Belgium Participants from more than 160 insurance companies Unique examination scope of the study Covers implementation status of Solvency II pillars and of other current topics like ITsystem readiness, regulatory interaction and capital optimization Page 6

7 Summary Ready during Status by pillar Impact on capital 100% % 80% 70% Almost There Mostly there >30% 20 to 30% 10 to 20% 12% 11% 32% 60% 50% A way to go 0 to 10% 9% 40% 1.5 (-10) to 0% 12% 30% 20% 1.0 (-10) to (-20)% (-20) to (-30)% 5% 7% 10% 0.5 <(-30)% 12% 0% Pillar 1 Pillar 2 Pillar 3 0% 10% 20% 30% 40% 50% 18 months P3 Challenges Impact on capital Page 7

8 Implementation readiness Pillar 1 Page 8

9 Compliance with Solvency II requirements Pillar 1 compliance Focus Valuation of assets Best estimate liabilities Solvency Capital requirement (Standard Formula) Risk margin Classification and tiering of own funds Key themes Many European insurance companies declare themselves well prepared with regard to the pillar 1 requirements. Acceleration of preparation with publication of draft Delegated Acts in January and Technical Specification 30 th April Own funds LTGA compromises Key decisions for undertakings 1 - Requirements not fulfilled 2 - Some requirements fulfilled 3 - Most requirements fulfilled 4 - All requirements fulfilled 5 - Beyond requirements Page 9

10 Compliance with Solvency II requirements Pillar 1 compliance for other European Countries Country comparison Italy Netherlands France Poland Nordics Spain Germany Significant improvement for France, Italy and Poland Many countries, amongst others Germany and Spain, report only a marginal improvement in comparison to the results from last year. United Kingdom 3.2 Belgium 3.2 Portugal 3.1 Greece 3.0 CEE Page 10

11 Compliance with Solvency II requirements Internal model readiness Focus 100% Internal Model development External models/data Documentation standards Validation standards Use test Profit & loss attribution Statistical quality standards Calibration standards 1 - Requirements not fulfilled 2 - Some requirements fulfilled 3 - Most requirements fulfilled 4 - All requirements fulfilled 5 - Beyond requirements % 60% 40% 20% 0% 17% 19% Full internal model. 30% 23% Partial internal model. 60% 51% No internal model. Key themes Reduction in number of companies applying for internal model Significant developments made, although a long way to go still 67% of companies expect the Internal model to be ready for Internal model application ITS sets out detailed requirements for submission Page 11

12 Implementation readiness Pillar 2 Page 12

13 Compliance with Solvency II requirements Pillar 2 compliance Focus Country comparison Netherlands 3.6 United Kingdom 3.4 Business Continuity Management Remuneration Risk strategy (in line with business strategy) Risk appetite framework Risk control process Italy Nordics Germany Spain Belgium Poland France CEE Portugal Greece ORSA Outsourcing Definition of role of control functions 1 - Requirements not fulfilled 2 - Some requirements fulfilled 3 - Most requirements fulfilled 4 - All requirements fulfilled 5 - Beyond requirements Key themes Progress made but not yet there ORSA has seen most progress EIOPA preparatory guidelines drive agenda Page 13

14 Compliance with Solvency II requirements Risk management effectiveness Assessment of the risk management effectiveness Assessment of risk management system 100% 90% 80% 70% 60% 50% 40% 30% 20% 15% 33% 35% 26% 48% 20% 17% Assessment by regulator External advisor Assessment by auditor Internal audit ORSA assessment Self-assessment by risk management department. 65% 75% 66% 91% 91% 87% 35% 25% 34% 9% 9% 13% 0% 20% 40% 60% 80% 100% Not/ partially assessed Fully assessed 10% 0% 6% Don't know/have no formal way of assessing this. Believe it is effective overall, but this is not assessed against outcomes in any formal and reliable way. Partially effective, some components have been assessed formally. It is effective in bringing out the desired outcomes we want in the business and this has been formally assessed and validated. Key themes Solvency II minimum compliance is more than existence Attestation to effectiveness of RMS Progress but still considerable work needed Page 14

15 Effort Compliance with Solvency II requirements Effort and benefit for increasing risk management effectiveness RA mechanisms embedded in decisions Improved RM skils in 1st line Better collaboration between 3 lines More flexible, reliable, focused risk reports Improved RM skills in 2nd & 3rd line More formal mgt. of risk in change programs More comprehensive planning for RM More efficient RM activity More formal mgt. of conduct/customer risk Better collaboration between 2nd & 3rd lines Remuneration more focused on risk taking Improved clarification RM Grp responsibilities Improved Grp risk aggregation mechanisms Develop ERM to address systemic risk Increased use of training/ e-learning for RM 1= low, 5 = high Benefit Improved risk culture Effort and benefit for increasing risk management effectiveness Effort Effort vs Benefit Opportunity Benefit Key themes Benefit outweighs the effort for almost all cases Improving risk culture seen as biggest benefit Better collaboration has a big benefit relative to effort Notable exception would be ERM and systemic risk Page 15

16 Compliance with Solvency II requirements Fulfilment of selected pillar 2 requirements Fulfilment of selected pillar 2 requirements Governance & Control Functions Risk & Control Processes Key themes In most areas, organisations consider not yet reached minimum Solvency II compliance Most advanced on governance and control functions Outsourcing Compliant Not compliant Risk Appetite Other important items 0% 20% 40% 60% 80% 100% Page 16

17 Compliance with Solvency II requirements ORSA readiness ,6 3,6 3,6 ORSA implementation readiness spread 3,7 3,4 Key themes Wide spread across respondents and at country level Some country views are close to the extremes EIOPA preparatory guidelines drive the agenda Projection of capital and solvency within the planning horizon (3-5 y.) Design of stress and scenario tests Assessment of governance effectiveness Assessment of the significance of the risk profile deviating from assumptions underlying the SCR calculation Integration of ORSA result (forward looking assessment) in the strategic business planning process Page 17

18 Implementation readiness Pillar 3 Page 18

19 Compliance with Solvency II requirements Pillar 3 compliance Focus Country comparison Analysis and population of QRTs (data requirements defined and sourced) Netherlands 1.13 Implementation of pillar 3 requirements 4.0 Italy Control framework updated for SII reporting (to an auditable standard) Development of disclosure policy Analysis and population of SFCR & RSR (data requirements defined & sourced SII reporting processes designed/ redesigned & integrated to current reporting processes (incl. interdependencies with ORSA) Germany CEE Spain France United Kingdom Poland Belgium Portugal Greece Nordics Approximately 76% of European insurers only partially fulfil the respective requirements or do not fulfil any of the requirements yet. The phasing-in planned for 2015 puts additional pressure on the insurance companies Manual solutions by automated and integrated reporting concepts is expected for 2016 and follow-up years. Page 19

20 Data and IT readiness Page 20

21 IT and data readiness some positive progress Significant system investments made, especially on Pillar 1 Responses indicate Pillar 2 also well advanced Organisations have made good progress in meeting most of the standard formula requirements 53% now indicating that they can produce standard formula results in a repeatable, controlled and robust manner Just 9% have not met any requirements 42% have met all or most requirements for investment data Page 21

22 Compliance with Solvency II requirements IT readiness IT Development and Support model in BAU is defined Parallel run and cutover plans are established including decommissioning and archiving as relevant End-to-end system test plans are established and approved End User Computing tools fully documented and controlled Controls and workflow supporting low volume high value data are defined and implemented Automation of data integration, data quality and data lineage is developed and tested for high volume data Financial and technical reconciliations of data held in different systems are defined and developed XBRL tagging and validation systems are selected RSR, SFCR and ORSA reports are specified, designed and built Tests of alignment between group and solo numbers are defined and tested via dry runs Reporting systems are selected, designed and implemented for Pillar 3 68% 82% 84% 78% 79% 75% 76% 80% 80% 74% 75% Clear architecture exists outlining how systems will support the evidencing of Solvency outside of regular reporting cycles if required under Pillar 2 Investment data storage and analysis solutions are specified, developed and tested using actual third party data Standard formula results are produced, and can be reproduced using a controlled and robust system 47% 58% 66% 0% 20% 40% 60% 80% 100% Step 1 & 2: Requirements are not fulfilled / only some requirements are fulfilled. Page 22

23 IT and data readiness significant challenges remain Arguably greatest challenge is design of IT infrastructure allowing consistent data exchange across all three pillars Re-using business rules and sharing common data Sufficiently flexible and scalable for ad-hoc reporting Across data integration, quality and control Manual approaches common Only 24% meeting most or all data requirements through automation 66% of respondents noted for Pillar 2 that data and systems not designed or ready to support ORSA beyond normal reporting cycle 79% of European insurance companies say they have met none or only some of the requirements to document and control end-user computing tools Page 23

24 IT and data readiness short term horizon Decision to freeze or place programmes into BAU has led to limited progress across all Pillars Overall data and systems readiness for Pillar 3 continues to lag behind Pillars 1 and 2 Only 25% of respondents indicate they had selected and designed a system to meet most or all of the Pillar 3 requirements Surprising 52% not selected a system to meet mandatory XBRL tagging requirements Significant near-term activity required... however some lack of forward thinking apparent 41% without end-to-end test plans 44% without parallel run and cut-over plans Very significant challenges in reporting and ensuring robust data and IT remain lots left to do quickly! Page 24

25 Summary and conclusions Page 25

26 Summary and conclusions Push to completion - project management and program governance Pillar 1 - decision making on options and IMAP readiness Pillar 2 - effectiveness is compliance the goal is efficiency Pillar 3 tactical and strategic options IT and Data Investment unavoidable Capital optimisation and operational transformation Page 26

27 Questions Page 27

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