CONTENTS. Introduction 2. Survey Highlights 3. Survey Demographics 5. Processes 10. Challenges 17

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2 CONTENTS Introduction 2 Survey Highlights 3 Survey Demographics 5 Processes 10 Challenges 17

3 INTRODUCTION Solvency II is the most significant regulatory change ever to be implemented throughout the European insurance industry. It has already transformed the way insurers govern and report on data, as firms created new processes, built new internal infrastructures, and hired more experts to meet the rigorous requirements of Pillar III. The 2016 Solvency II Survey Report explores the common features of successful Solvency II methodologies and the unexpected challenges many had to overcome. During the run-up to the Solvency II go live date, Clearwater spoke with insurers of every size and type, across Europe. With every conversation, it became increasingly clear that insurers were facing the same challenges, concerns, and barriers and yet, there was no clear path for them to follow, and no source to whom they could turn for in-depth guidance. This lack of best practices for overcoming prevalent industry challenges is in itself a major challenge of Solvency II. In the weeks after the 2016 Q1 filing submission, Clearwater Analytics conducted the 2016 Solvency II Survey of insurance professionals across Europe. We designed the survey to directly address insurers main concerns with data, processes, tools, and more. The 2016 Solvency II Survey Report 2

4 SURVEY HIGHLIGHTS Investment Accounting Solution vs. Relying on Custodians and Asset Managers Insurers who choose investment accounting software with built-in Solvency II capabilities meet the regulatory requirements with fewer challenges and less pain. Additionally, insurers who use Solvency II investment accounting and reporting solutions are not tied to their asset managers reporting capabilities. They can choose their asset managers based on how well they manage assets rather than on how well they can report on those assets. Scalability and the Burden of Manual Processes The 2016 implementation of Solvency II pushed investment and accounting teams outside of their established processes and created a need for new solutions and strategies. 40% of insurers who relied on custodians or asset managers to provide data a process that by its nature requires varying levels of data manipulation said that they had trouble overcoming the cumbersome manual challenges of Solvency II. Automation vs. Increasing Personnel As demonstrated in the quotes below, insurers repeatedly described increased automation as a crucial change they would like to make to their Solvency II filing process. However, 15% said they would like to hire more people. There is clearly a difference between the target operating model of automation versus the current reality of needing to hire additional personnel. Insurance companies are looking for a solution. How would you like to change your process for future filings? Set up more automatic reporting Look for efficiencies in the process Continuous changes to the requirements of insurers who relied on custodians or asset managers to provide data had challenges with cumbersome manual work. Develop more automated process (versus manual) to get data faster with higher quality Continue to streamline and automate processes of insurers who relied on automated investment accounting software to provide data had challenges with cumbersome manual work. Automate data upload NOTE: These are some representitive responses to the question, How would you like to change your processes for future filing? The 2016 Solvency II Survey Report 3

5 Data Challenges Survey results consistently pointed to data as the most challenging aspect of Solvency II compliance. The complexities of obtaining the right data; the time-consuming task of consolidating the data; the error-prone process of refining data; nagging concerns that data was not detailed enough; and the many ways that data could go wrong were all clearly overwhelming for many insurers. 61% of respondents who used a custodian or asset manager as their Solvency II solution said that data was their biggest challenge. 100% had difficulties with look-through data. Data Challenges by Solution Type 93% Overall Data Challenges 100% Look- Through Data Challenges 61% Data Validation Challenges About Clearwater Analytics Clearwater Analytics is the leading provider of web-based investment accounting, reporting, and reconciliation services for insurance companies, corporate treasuries, and asset managers worldwide. Clearwater aggregates, reconciles, and reports on more than 989 billion assets across thousands of accounts daily. Clearwater helps clients such as Hiscox, C.V. Starr & Co., and more, streamline their investment and accounting operations. Clearwater is committed to continuous improvement and specialised expertise, and encourages firms to rethink how they approach their investment accounting and reporting challenges. Custodian and Asset Managers 5% Overall Data Challenges 13% Look- Through Data Challenges 12% Data Validation Challenges Best-in-Class Investment Accounting Solvency II Solution The 2016 Solvency II Survey Report 4

6 SURVEY DEMOGRAPHICS Solvency II Pillar III impacts multiple layers of insurance investment and accounting departments. With survey responses from a variety of insurance professionals who handle a wide range of portfolio sizes, the 2016 Solvency II Survey captured an holistic industry assessment of the challenges, perspectives, and strategies of Solvency II. The majority of survey respondents are headquartered in the United Kingdom, with more than 10 additional countries represented. The 2016 Solvency II Survey Report 5

7 DEMOGRAPHICS Job Roles Actuary Other 27% 8% 20% Chief Financial Officer/ Finance Director/ Investment Officer Risk Analyst 5% 11% Investment Accountant Industry Consultant 5% 16% 8% Chief Risk Officer Financial Controller Fig. 1 The 2016 Solvency II Survey Report 6

8 DEMOGRAPHICS Investment Portfolio Size Survey participants designated portfolio size in either euros or pounds, according to their country s currency. 10B- 20B 0-100M < 50B M 7% 7% 7% 5B- 10B 4% 2% 50B < 20% 27% 1B- 5B 20% 40% 1B- 5B 33% 501M- 1B 501M- 1B 11% 22% 0-100M Fig M Fig. 2 The 2016 Solvency II Survey Report 7

9 DEMOGRAPHICS Company Headquartered Other United Kingdom Sweden All Others 5% Norway Netherlands 5% 10% 20% 7% 7% 5% Bermuda Denmark 7% 13% 5% 13% 3% Italy Luxembourg Finland 3% Gibraltar Ireland Fig. 4 The 2016 Solvency II Survey Report 8

10 DEMOGRAPHICS How many additional countries do you file in? More than three other countries Two other countries 5% 10% No other countries 21% 64% One other country Fig. 5 The 2016 Solvency II Survey Report 9

11 PROCESSES Insurers relied on a variety of tools and solutions to meet the robust requirements of Solvency II Pillar III. Some implemented highly automated and modern technological solutions; others continued to use the manually based processes they ve employed for decades. Still others relied on asset managers or custodians to provide data, accounting, and reporting services. We asked survey respondents about the processes they used to overcome the challenges of Solvency II, and how satisfied they were with those processes. Their responses provide an industry-representative snapshot of what worked, what didn t, and what insurers are hoping to change moving forward.

12 WHAT WAS YOUR SOLVENCY II SOLUTION OR PROCESS? Our Solvency II investment accounting software gave us completed QRTs and we updated client specific fields. 16% 22% 7% Other 55% We received all Solvency II data from custodian/asset manager, then input it into our Solvency II investment accounting software. We received partial data from custodian/asset manager, then manually sourced Solvency II data points and combined to complete QRTs. Fig. 6 The 2016 Solvency II Survey Report 11

13 WHO DO YOU RELY ON FOR YOUR SOLVENCY II EXPERTISE? 37% In-house expert 32% EIOPA guidelines 10% Solvency II investment accounting solution provider 13% On-site temp 8% Other <1% Trade group Fig. 7 The 2016 Solvency II Survey Report 12

14 HOW DID YOU SOURCE SOLVENCY II SPECIFIC DATA POINTS, SUCH AS LEI, NACE CODES, CIC, AND RATINGS? 46% Provided by custodian /asset manager 22% Purchased from data vendor 19% Sourced by our Solvency II investment accounting solution provider 13% Other Fig. 8 The 2016 Solvency II Survey Report 13

15 HOW LIKELY ARE YOU TO SUGGEST YOUR CURRENT SOLVENCY II PILLAR III PROCESS TO YOUR PEERS? Very likely Likely 9% Not likely 67% 24% Fig. 9 The 2016 Solvency II Survey Report 14

16 HOW WOULD YOU LIKE TO CHANGE YOUR PROCESS FOR FUTURE FILINGS? 35% Start earlier 17% Other 15% Hire more people 11% Use Solvency II investment accounting software 10% Won t change at all 8% Use different Solvency II investment accounting software 3% Outsource Fig. 10 The 2016 Solvency II Survey Report 15

17 HOW LONG DID YOUR PILLAR III PROCESS TAKE? > 8 weeks < 2 weeks 6-8 weeks 16% 13% 11% 24% 2-4 weeks 37% 4-6 weeks Fig. 11 The 2016 Solvency II Survey Report 16

18 CHALLENGES Regardless of an insurer s size, long-term goals, portfolio size, or initiatives, investment and accounting teams are concerned about how to efficiently overcome the challenges of Solvency II while still fulfilling their other crucial job requirements. The added challenge of still-evolving Solvency II regulations make it especially difficult for insurers to evaluate their strategies and processes. We asked survey respondents about their biggest Solvency II-related challenges, immediate upcoming concerns with future filings, data look-through and validation challenges, and more. The answers to these questions provide perspectives directly from the professionals most entrenched in Solvency II requirements, and insights on executing a thorough, timely, and accurate filing process.

19 WHAT WERE YOUR BIGGEST SOLVENCY II RELATED CHALLENGES? 25% Sourcing of data 22% Data inaccuracies 20% Cumbersome manual processes 16% Data consolidation 13% Lack of expertise 4% Other Fig. 12 The 2016 Solvency II Survey Report 18

20 FROM IMPLEMENTATION TO Q1 REPORT SUBMISSION, HOW PAINFUL WAS YOUR SOLVENCY II PILLAR III PROCESS? Painless; we had no unexpected challenges 3% Very painful; it was extremely disruptive and difficult 22% 21% Painful; we were surprised by the difficulties and had a hard time overcoming them Somewhat painful; we were surprised by the difficulties 54% Fig. 13 The 2016 Solvency II Survey Report 19

21 WHAT ASPECT OF SOLVENCY II REGULATIONS KEEPS YOU UP AT NIGHT? Missing investment data Nothing in the regulations, rather the annual process of data gathering The data management process Data quality Getting it accurate Level of granularity required The detail of the data is vast and where will it end First full year data submission and compiling all the correct data Continuous changes to the requirements and tight deadlines [Representative Sample of Answers] Fig. 14 The 2016 Solvency II Survey Report 20

22 HOW WOULD YOU LIKE TO CHANGE YOUR PROCESS FOR FUTURE FILINGS? Look for efficiencies in the process Continue to streamline and automate processes Integrate the IT and minimize manual actions Automate data upload Set up more automatic reporting Develop more automated process (versus manual) to get data faster with higher quality [Representative Sample of Answers] Fig. 15 The 2016 Solvency II Survey Report 21

23 DID YOU ENCOUNTER ANY DATA VALIDATION CHALLENGES? 36% Missing data 35% Formatting issues 26% Inconsistencies 3% Other Fig. 16 The 2016 Solvency II Survey Report 22

24 DID YOU HAVE ANY CHALLENGES GETTING LOOK-THROUGH DATA? 23% Incomplete data points 20% Timeliness of data 19% Fund managers/ asset managers unable to provide 14% Difficulties formatting into templates 12% Difficulties aggregating from multiple managers 12% No challenges <1% Other Fig. 17 The 2016 Solvency II Survey Report 23

25 Clearwater Analytics is the industry-leading provider of web-based investment accounting and reporting software. Clearwater has modernised investment accounting and reporting, providing an automated SaaS solution with adaptable functionality and world-class customer service. Clearwater provides hundreds of insurers of all sizes the tools to eliminate manual processes, reduce close times, improve internal reporting and communication, maximise performance, reduce risk, and seek higher yields. Connect with Clearwater to learn more. +44 (0) clearwateranalytics.co.uk linkedin.co.uk/company/clearwater-analytics The 2016 Solvency II Survey Report 24

26 INQUIRIES +44 (0) WORLDWIDE OFFICES Edinburgh, U.K. Boise, Idaho 2016 Clearwater Analytics All rights reserved. This material is for informational purposes only. Clearwater makes no warranties, express or implied, in this summary. All technologies described herein are either registered trademarks or trademarks of their respective owners in the United States and/or other countries. v1 10/2016