Solvency II The Reporting Challenge Standard Formula & Supervisory Reporting Steria
Agenda Pillar 1 Requirements of the standard formula and lessons learnt from the QIS 5 Pillar 3 Pre consultation shows that reporting will be a big challenge for insurance companies Technical requirements from the raw data to reporting Conclusion & outlook 18/04/2011 2
Significant changes in QIS 5 Significant changes... Lapse risk for health and non-life risk modules. Health risk module has been redesigned. New market risk sub-module for illiquidity premium. Single equivalent scenario. 18/04/2011 3
Key findings from QIS 5 as reported by the German Regulator* - Feb 2011 The target participation from the EU commission of over 60% of individual insurance companies was significantly exceeded with almost 70% (clear increase over QIS 4 (33% participation rate). Best estimate valuation introduction of the illiquidity premium. Late publication of QIS 5 spreadsheet and high update frequency rate (the final edited version that still contained errors was finally published at the start of October 2010) and inadequate documentation affect the results. Different interpretation of technical specifications by insurers reduce the comparability of results. Some calculations are still too complex (especially the risk margin). Further simplification would be very useful. Single Equivalent Scenario is no alternative to modular approach. QIS 5 is only a snapshot a volatility of results is to be expected due to varying parameters at different times. * Published by the GDV, February 2011 18/04/2011 4
Steria s experiences from over 40 SOLVARA QIS 5 projects Early definition of changes in data requirements for the standard formula have been essential for our customers. Key success factors from Steria s experience Technical support of setting up the Solvency II balance sheet differences between local GAAP, IFRS and Solvency II proved to be an obstacle. Defining and monitoring the process and responsibilities of calculating the standard formula. Detailed documentation of the methods in addition to the technical specifications provided guidance to use the methods properly. 18/04/2011 5
Agenda Pillar 1 Requirements of the standard formula and lessons learnt from the QIS 5 Pillar 3 Pre consultation shows that reporting will be a big challenge for insurance companies Technical requirements from the raw data to reporting Conclusion and outlook 18/04/2011 6
Solvency II New reporting requirements Solvency II New reporting requirements Pillar 1 Pillar 2 Pillar 3 RSR* Quantitative requirements Qualitative requirements Reporting A. Business and performance B. System of of governance C. Risk profile Definition of solvency capital requirement Definition of qualitative requirements Definition of reporting requirements D. Valuation for Solvency purposes (Solvency II II balance sheet) E. Capital Management F. Internal models SFCR** A. Business and performance New reporting templates Solvency II B. System of of governance C. Risk profile 55 new templates solo 38 new templates groups D. Valuation for Solvency purposes (Solvency II II balance sheet) E. Capital Management * RSR = Regular Supervisory Reporting **SFCR = Solvency and Financial Condition Report 18/04/2011 7
Reporting requirements & deadlines: 1st set of reporting templates due Q1 2013 SFCR RSR Templates Frequency / reporting time period Annually (31st Dec 2013) Annually (31st Dec 2013) Annually (31st Dec. 2013) Quarterly (31st Mar. 2013) (core information) Deadline 3-4 months after end of financial year 3-4 months after end of financial year 3-4 months after end of financial year (annual) 8 weeks after end of quarter (quarter) Format EIOPArequirements (structure) EIOPArequirements (structure) Standard Templates (XML, XBRL?) Management approval required? Yes Yes Yes 18/04/2011 8
Pre consultation of supervisory reporting: Issues of frequent criticism. The findings of the pre-consultations reporting templates conducted by EIOPA in order to generate information on the level of preparation of insurers concerning the supervisory reporting were: The level of detail required for reporting requirements results in high expenditure for insurance companies. Less compliance between the QIS spreadsheets and reporting templates make assessing the expenditure more difficult. Another balance sheet must be completed (reconciliation accounts are difficult, structure of balance sheets cannot be compared with local GAAP or IFRS). Quarterly reporting will require lots of resources. Furthermore it has not been decided what format will be used for the supervisory reporting! XML vs. XBRL 18/04/2011 9
Agenda Pillar 1 Requirements of the standard formula and lessons learnt from the QIS 5 Pillar 3 Pre consultation shows that reporting will be a big challenge for insurance companies Technical requirements from the raw data to reporting Conclusion and outlook 18/04/2011 10
Solvency II from raw data to reporting Legacy systems Level 1 Insurance Policies DWH etc. Legacy systems Valuation Market Asset Mgmnt. Market data Valuation Level 2 Standardformula / Internal model Level 3 Valuation OpRisk database Operational etc. Level 4 SCR / MCR etc. Reporting templates SCR / MCR Own funds Balance sheet Variation analysis Assets Technical provisions Reinsurance Reporting templates 18/04/2011 11
Solvency II a structured approach Legacy systems Insurance Policies DWH etc. Legacy systems Market Asset Mgmnt. Market data etc. SOLVARA Standardformula OpRisk database Operational Reporting templates SCR / MCR Own funds Balance sheet Variation analysis Assets Technical provisions Reinsurance Reporting templates Reporting SFCR RSR Reporting 18/04/2011 12
Solvency II define high compliance requirements for IT systems Claims mgmt. Actuarial dep. Sales dep. Contract dep. Many departments are involved in the Solvency II reporting. Management accounting Asset management Organizing Reporting Executive Mgmt. Internal Auditing Complex co-ordination Accounting Risk management Input 1 CEIOPS defined Stringent quality requirements with transparency at every process level. Exit 2 Input changed RM Enter changes 3 RM into SOLVARA. V Input for scenarios 4 GL changed Adjust scenario 5 RM definitions Risk management department Risk manager Mr Müller Risk manager Ms Meier data import Checking and approval Consistency and traceability is essential V Exit 18/04/2011 13
The system has to control... Control via configurable workflows Illustration of all relevant process steps Import investment data Checking and approval Traceability of all process steps Integration of all people & organisational units Asset management Accounting IT / Software 18/04/2011 14
. and monitor the reporting process Data assets for M1 AM market risk collected I1 Cash flow data collected D March 31st M2 Data imported AM I2 Data imported AD Process-monitoring obligatory due to time-constraints M3 M4 M5 M6 imported data Aggregation assets Calculation market risk results market risk AM AM RM RM B1 B1 B2 B3 B4 Preparation Balance sheets Balance sheets Balance sheets Own funds Own funds AC AC AC AC AC I3 imported data AD Calculation I4 AD Technical provisions I5 AD Technical provisions I6 I7 Calculation risk nonlife results risk nonlife RM RM Steady flow of information on the progress required S1 S2 Calculation SCR, MCR and Solvency ratio Veification results SCR, MCR and Solvency ratio RM RM April 30th Templates M6 AM assets portfolio lists M6 Templates balance sheet AC M6 Templates own funds AC M6 Templates results standard formula RM M6 Templates nonlife cashflows AD M6 templates AM assets portfolio lists M6 templates balance sheet AC M6 templates own funds AC templates M6 results standard RM formula M6 templates nonlife cash flows AD A1 F1 Management approval Filing quaterly reporting templates M RM May 31st 18/04/2011 15
Agenda Pillar 1 Requirements of the standard formula and lessons learnt from the QIS 5 Pillar 3 Pre consultation shows that reporting will be a big challenge for insurance companies Technical requirements from the raw data to reporting Conclusion and outlook 18/04/2011 16
Solvency II supervisory reporting will be time-consuming Coping with changes in the requirements on a regular basis the 2013 version of Solvency II will be just another step Structure/expansion Solvency II know-how IT preparation Data quality Data quantity Systems Identifying the effects of changes in the standard formula on the capital requirements early is essential. Definition of/adjustment to risk strategy and its elements 2013 On the road to Solvency II Simulation Recognition of scope Process definition who delivers which information when Fulfilment of compliance requirements (transparency, traceability etc.) is increasingly important under Solvency II. Regular repetition of quarterly reporting requires an efficient and automated approach. Monitoring and controlling the reporting process 18/04/2011 17
ARE YOUR SOLVENCY II DUCKS IN A ROW? THANK YOU Steria