Navigating Solvency II The Clearwater Guide to Success
The process of validating data is as important as the data itself. - EIOPA Final Report June 2015
Solvency II requires insurers to provide deeper levels of reporting, risk disclosures, data granularity, and security characteristics than ever before. The regulations are so complex that even as the implementation deadline has come and gone, insurers are still testing their Solvency II capabilities and finding unexpected challenges. From refining data requirements, fine-tuning staff responsibilities, and monitoring EIOPA regulation changes, the path to Solvency II success requires complex and flexible navigation. The tools insurers use to manage their investment data and reporting will have a large impact on how disruptive Solvency II is or isn t. This guide highlights some of the major pitfalls insurers are encountering, and how a streamlined, integrated, and automated solution can be the key factor in overcoming these challenges. 1
Common Solvency II Solution Pitfalls The Solvency II directive is revolutionising how insurers manage their data. For most firms, it s the first time they ve had to closely consider the details of refined data quality and data management. Insurers working to meet the exacting demands of Solvency II and Pillar III often first try to stretch internal resources, or rely on asset managers or custodians for data, or employ a specialised Solvency II-only system. But these would-be solutions can lead to major pitfalls with lasting consequences. Common Approaches to Solvency II Stretch Internal Resources Many insurers focused on cobbling together out-ofdate systems, incorporating work-arounds, and improving manual processes. But most installed systems weren t built to accommodate Solvency II levels of data granularity, accuracy, consistency, and risk visibility. In addition, manual processes are time-consuming and error prone. Rely on Others Many insurers rely on their asset managers to provide timely, accurate, and complete Solvency II data. But asset managers are experts in managing and preserving assets not in aggregating, reconciling, and providing regulatory reporting on investment data. They don t have the time or the tools to generate intricate data reports. Solvency II-Only Solution Many insurers turned to specialised systems for focused Solvency II data management. But adding yet another system to already complex reporting processes is not ideal. It adds additional work to ensure accuracy and consistency across all software systems. of insurers anticipate a heavier workload to complete Solvency II reporting requirements. 2014 European Solvency II Survey by Ernst and Young 2
Clearwater Analytics Solvency II Approach Clearwater has been providing Solvency II-level data to insurers for years. Clearwater s automated, integrated, accurate, and transparent solution seamlessly navigates Solvency II challenges while also streamlining overall investment accounting and analytics processes. Insurers rely on Clearwater as their best-in-class Solvency II solution because we offer features unmatched by any other provider. The Clearwater Solution Improve Internal Efficiency Clearwater s web-based solution automatically compiles and aggregates disparate data to provide consistent and validated numbers, even from dissimilar data sources. Investment teams are empowered to analyse and act on data, instead of manage and manipulate data. Custom Reports Clearwater gives investment and accounting teams customised, transparent, timely, and thorough reports. Clearwater can handle many asset types, all currencies, multiple reporting bases (GAAP, IFRS, etc.), and regulatory reporting (Solvency II and Lloyd s reporting, among others). Integrated Solution The Clearwater solution integrates vital aspects of investment accounting, including the creation of general ledger entry files; investment policy guideline monitoring; portfolio risk and performance analytics; and regulatory reporting. Daily reconciliation of accounting data, along with the integration of third-party data, ensures accuracy and consistency across all investment reports. The new Solvency II regime has created a greater demand for better investment portfolio systems. Constantly changing regulatory guidance and expansion of our business created a need for better investment data aggregation, accuracy, and access. Transparency is a key requirement of Solvency II, and is a factor that influenced our decision to use Clearwater. - David Astor Chief Investment Officer, Hiscox Ltd. 3
The Three Pillars of Solvency II Pillar I: Quantitative Requirements To complete the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) calculations, insurers need a consolidated and transparent view into accurate and up-to-date investment data. Gathering all of the required inputs for the complex calculations and ensuring the accuracy of those inputs is difficult and time-consuming. Clearwater provides access to a robust security master that is updated and validated daily. These data points are vital to Pillar I calculations. Pillar II: Governance and Supervision Solvency II isn t a mere quarterly or annual obligation. Under the Prudent Person Principle, firms must establish an Own Risk & Solvency Assessment (ORSA) process and prove overall solvency needs will be met at all times. With Clearwater s integrated solution, daily reconciled, audit-quality investment data is available for entire investment portfolios, enabling firms to proactively analyse and manage investment risk. In addition, all processes and controls are backed by a SOC1 Type II audit issued twice a year. Capitalising on portfolio transparency, firms can establish risk management controls to: Monitor exposure and interest rate risk comprehensively across the portfolio Track and monitor investment policy guidelines and risk parameters at every level Receive automated notifications of investment guideline violations We are very impressed by the crystal clear transparency Clearwater is able to provide into our portfolio. At any given time, we can know where the numbers stand and have great confidence in them. Their responsive and educated client servicing team is always willing to go above and beyond to answer questions and ensure we are getting the most from the solution. - Richard Sutlow CFO, Antares Managing Agency 4
Pillar III: Disclosure and Transparency Manually aggregating and reconciling investment data for the Quantitative Report Templates (QRTs) is a timeconsuming and error prone process. In addition, the Prudent Person Principle can only be satisfied when insurers provide look-through information and a host of Solvency II-specific security-level data points for each portfolio security. Clearwater provides accurate, robust, detailed, and audit-quality investment information in QRT-ready formats. Asset Based QRTs: The Challenge of Look-Through Compliance with Solvency II s look-through reporting requirement necessitates ongoing coordination and collaboration between fund managers, insurers, and reporting software. Internal resources are already stretched thin, so insurers rely on Clearwater to work directly with fund managers to access and report on the required fund information. S.02.01 -- Balance Sheet S.06.01 -- Summary of Assets S.06.02 (D1) List of Assets S.06.03 (D4) Look-Through S.07.01 (D1S) Structured Products S.08.01 (D2O) Open Derivatives S.08.02 (D2T) Derivative Transactions S.09.01 (D3) Income/Gains and Losses S.10.01 (D5) Sec Lending and Repos S.11.01 (D6) Assets Held as Collateral Security Classification Data: Complementary Identification Code (CIC) NACE (Nomenclature Générale des Activités Économiques dans les Communautés Européennes) Legal Entity Identifier (LEI) Group LEI Infrastructure Investments Issuer Name, Group, and Country 5
Full Integration and Support Clearwater provides insurers worldwide with the highest level of investment portfolio transparency and control, regardless of their number of legal entities, investment managers, data points, or custody banks. Clearwater aggregates, reconciles, and validates all investment data to enable seamless, timely, and efficient filing of reporting templates. Clearwater s web-based, multi-basis investment accounting solution includes general ledger entry file integration; investment policy guideline monitoring; portfolio risk and performance analytics; and regulatory reporting. The daily reconciliation of accounting data, along with the integration of third party data, ensures accuracy, consistency, and transparency across all Clearwater reports, as required by the Prudent Person Principle. Multi-Basis Accounting IFRS UK GAAP LUX GAAP BE GAAP NL GAAP Swiss GAAP FER... and more Regulatory and Financial Statement Disclosures Fair Value Disclosure Impairments Cash Flow Forecast Year-End Financial Footnotes and Disclosures Capital Gains and Losses Lloyd s Templates Daily Data Pricing Journal Entries Performance Returns Credit Exposure Counterparty Exposure Investment Policy Monitoring 6
Dedicated Client Service Clearwater s dedicated client services team has extensive experience with the intricacies of the EU insurance industry. Clearwater acts as an extension of clients teams to provide vital insight and customised support to help overcome the complexities and challenges of Solvency II. Proactive Regulatory and Accounting Guidance The time-consuming processes of reviewing updates and researching best practices take employees away from more critical tasks. In-depth knowledge of Solvency II challenges and best practices allows Clearwater to proactively develop functionality that solves pervasive industry challenges, deployed automatically and seamlessly to our clients. Unlimited Training and Education Clearwater s client services team provides regular in-person support and training for investment and accounting personnel within all EU entities, no matter where they re located be it London, off-shore, mainland Europe, or anyplace in between. Seamless System Updates Clearwater s web-based solution requires no software installations at any point. It features continuous product enhancements that enable organisations to seamlessly respond to technological and regulatory changes, with no additional burden on employees. Clearwater s client services team handles any query quickly, and with a friendliness that makes them a pleasure to partner with. Janet Edmunds CFO, Canopius Holdings UK Limited 7
With extensive industry experience and a best-in-class, automated, webbased solution, Clearwater acts as an extension of clients teams. Clearwater industry experts constantly monitor regulatory guidance from EIOPA, share new market updates, and work to ensure any new reporting requirements are seamlessly incorporated, without any additional burden on the client. Clearwater is simply the best approach to a holistic, integrated, and accurate investment accounting and reporting solution for Solvency II, and beyond. 8
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 876 billion assets across 25,000+ accounts daily. Clearwater helps clients such as Hiscox, C.V. Starr & Co., Enstar Group Limited, 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.
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