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European Solvency II Survey 2014
2 | European Solvency ll survey 2014
Contents01 Keyfindings
02 Background
04 Generalimplementationreadiness
06 Implementationreadiness–Pillar1
07 Implementationreadiness–Pillar2
12 Implementationreadiness–Pillar3
14 DataandITreadiness
18 Applicationofinternalmodels
22 Regulatoryinteraction
24 Organizationaltransformationofriskmanagement
26 Recoveryandresolutionplanning(RRP)
30 ManagingcapitalunderSolvencyII
1European Solvency ll survey 2014 |
• Considerablevariabilityinthelevelofpreparednessexistsbycountry,withDutch,UKandNordicinsurersmostconfidentofmeetingtherequirements,whileFrench,German,GreekandEasternEuropeaninsurersarelessconfident.
• Thereisastrong,consistentmessagethatinsurersareseekingtoimprovetheeffectivenessoftheirriskmanagement,includingmanydimensionsinculture,appetite,controls,peopleandsystems.
• Challengesofreportingandensuringrobustdataandinformationtechnology(IT)remainverysignificant,andmanycompanieshaveyettosufficientlyenergizethis partoftheirplans.
• PreparednessforPillar3remainsrelativelylowandaction isneededbycompaniesin2014tomeettherequirementsontime.
KeyfindingsOverall,theinsuranceindustryisontracktoimplementSolvencyIIby1January2016;however,asignificantamountofworkisneededbetweennowandthentoaddresspreparednessacrossallthreepillars.
• Achievinginternalmodelapprovalremainsamajorchallenge;thereisonlyaslightreductioninthenumberofcompaniesplanningtotakethisroute.However,leadinginsurersremainstronglycommittedtoobtaininginternalmodelapprovalfrominceptionofthenewSolvencyIIregimeandhavealignedtheirworkplanstoreachthisgoal.
• Manyinsurersarenotsatisfiedwiththelevelofsupportfromtheirregulatorsinprovidingtimelyfeedbackonplansandinterpretationofnewrequirements;thisisdue,inpart,tothesignificantresourcingchallengesregulatorsface.
• Automationofmanyriskmanagementactivities,particularlyreporting,remainsrelativelylowand,ascompaniesdeveloptheirplans,weexpectthiswillbeanareaofincreasingfocus.
• Insurersareincreasinglyreceivingrequestsforrecoveryandresolutionplanning.
• CompaniesarebeginningtoinvestsignificanteffortinunderstandinghowtomanagetheircapitalunderSolvencyIIsothattheyareproperlypreparedforthenewregime.
2 | European Solvency ll survey 2014
BackgroundThelong-awaitedimplementationtimelineforSolvencyIIishere,andinsurersfacemanyissuesthatneedtoberesolvedbeforeadoption.
3European Solvency ll survey 2014 |
Inthefallof2013,EYconductedaPan-Europeansurvey,whichisanupdateofits2012survey.Thisisoneofthelargestandmostcomprehensivesurveysintheindustry,spanning 20countries,withparticipantsfrommorethan170insurancecompanies.
ImplementingSolvencyIIrequirementswillhavedirectimplicationsforbusinesses,asoursurveyreinforces.Theresultsareaself-assessmentoftheparticipatingcompaniesandexpresstheirviewsoncurrenttopicsrelatingtoSolvency
II,aswellaswheretheystandonimplementationreadinessforPillar1,Pillar2andPillar3.Thefindingsalsoshedlightonkeyareasofinterest,includingdataandITreadiness,organizationalchange,applicationofinternalmodels,regulatoryinteraction,recoveryandresolutionplanning,andcapitaloptimization.
ThesurveyportraystheimplementationreadinessofallthreeSolvencyIIpillarsinEurope’slargestinsurancemarkets:theUK,Germany,France,Italy,Belgium,theNetherlands,Poland,Spain,Portugal,Greece,theNordicsandothercountries.
4 | European Solvency ll survey 2014
General implementationreadinessNearly80%ofEuropeaninsuranceorganizationsexpecttofullymeetthesignificantSolvencyIIrequirementsbeforethenewJanuary2016deadline.
UnitedKingdom
5European Solvency ll survey 2014 |
Postponingtheregulatorydeadlinehasstronglybolsteredtheconfidenceofinsurancecompaniestomeettherequirementsinthetimeframe.Asignificantnumberoforganizations(79%)donotexpecttobecompliantuntil2015orlater.Manycountries,particularlyFrance,GreeceandtheUK,havebecomemorepessimisticorperhapsrealisticabouttheirimplementationreadiness.Comparedtoourlastsurvey,manyinsurancecompaniesinthesecountrieshavedelayedtheduedateoftheirimplementationplansbyatleastoneyear.
OnlyDutchinsurersconsiderthemselvestobewellpreparedandexpectanimplementationreadinessdateof2015,withnonestretchinginto2016.Incontrast,anumberofFrench,GreekandGermaninsurersarenotinganexpectedcompliancedatelaterthan1January2016(Figure3).
ThemajorityofEuropeaninsurancecompaniesrevealthattheyhavemadelimitedprogressorrecognizedmoredemandingrequirementsacrossallthreepillars,comparedtotheearliersurvey(Figure2).TheyindicateaconsistentlyhighstateofreadinesstoimplementallcomponentsofaPillar1balancesheetandfulfillmostPillar2requirements.Pillar3stillpresentsamajorchallenge.
0%
10%
20%
30%
40%
50%
60%
Figure 1: European Solvency II readiness
Alreadycompliant
Inthecourse of2014
2012
2013
Inthecourse of2015
Inthecourse of2016
Inthecourse of2017
Later
2%
56%
20%
32%
58%
11%
19%
1% 1%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Figure 2: Overall implementation status by pillar
Pillar1 Pillar2 Pillar3
2013
20123.2 3.3
2.72.9
1.8 1.9
0 20 40 60 80 100
Figure 3: Implementation of Solvency II requirements — country comparison 2013
Nordics
CEE
Poland
Greece
Portugal
SpainNetherlands
Belgium
Italy
France
Germany
UnitedKingdom
Inthecourseof2014
Alreadycompliant Inthecourseof2015
Inthecourseof2016
Inthecourseof2017
Later
1:Therequirementsarenotmet 2:Someoftherequirementsaremet 3:Mostoftherequirementsaremet
4.Alloftherequirementsaremet 5:ThecompanyalreadygoesbeyondtheSolvencyllrequirements
Noresponse
6 | European Solvency ll survey 2014
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Readinesshasimprovedinallareas,buildingontheresponsetoourprevioussurvey,whichonaverageindicatedastatusofatleastmeeting“most”SolvencyIIrequirementsineachoftheareasconsidered.
Sincethelastsurvey,themostprogresshasbeenmadeinownfundscalculations,whicharenowthemostadvancedareawithinPillar1.However,uncertaintyremainsinsomeimportantareas,suchasequivalence.
Bestestimateliabilities,riskmarginandstandardformula(SCR)calculationshavemadelessprogress,whichmayreflectthelackofclarityoverthepastyearregardingthefinalSolvencyIIbasis.ThishasnowbeenresolvedthroughtheOmnibusIIagreement,particularlywithrespecttolong-termguarantees.
ReadinessresponsesineachPillar1categorywereslightlyhigherforinsurersimplementing(partial)internalmodelsthanforthoseusingthestandardformula.Overall,thereisonlyamarginaldifferenceinreadinessbetweeninternalmodelandstandardformulausersforthecorePillar1calculations.
StrongoverallprogressonPillar1readinessmaskssignificantvariationsbetweencountryresponses.
AsshowninFigure5,French,DutchandItaliancompaniesappeartobeparticularlywellprepared,withreadinessapproachingfullcompliancewithSolvencyIIrequirements.
FrenchreadinessresponsesmayhavebenefittedfromworkperformedtoprovidecoreSolvencyIIresultstotheregulatorinSeptember2013.Thiswascompletedonavoluntarybasis,butparticipationwasencouragedbytheregulator.TheexercisewasdesignedtohelptheregulatorassesstheFrenchmarket’sdegreeofpreparationforSolvencyIIvaluationprinciplesandreporting,aswellastoinformdiscussionbetweenregulatorsandcompaniesonkeytopics.
AlowerlevelofreadinesswasassessedbyGreek,Portuguese,andCentralandEasternEuropean(CEE)companies,where theriskmargincalculationsweretheweakestareawithin Pillar1.Insurersinthesecountriesdonotyetconsiderthattheyaremeeting“most”SolvencyIIrequirementsforthisbalancesheetcomponent.
Implementationreadiness—Pillar 1
Multidimensionalandquantifiedstress-andscenario testingforbothtailandnon-tailevents
Figure 4: Pillar 1 implementation status
0.51.01.52.0
3.5
2.53.0
Solvencycapitalrequirement
(standardformula)
Classification andtieringof ownfunds
RiskmarginBestestimateliabilities
Valuation ofassets
2012 20131:Low 5:Verysignificant
Figure 5: Readiness of Pillar 1 requirements
Nordics
CEE
Poland
Greece
Portugal
Spain
Netherlands
Belgium
Italy
France
Germany
UnitedKingdom
3.5
2.9
3.5
3.0
3.1
3.4
3.6
3.2
3.7
3.6
3.3
3.2
Average3.3
1:Low 5:High
InsurancecompaniesappeargenerallywellpreparedonallaspectsofPillar1andcontinuetomakesteadyprogress.
7European Solvency ll survey 2014 |
Althoughprogresshasbeenmadeinmostareassincethelastsurvey,theresultssuggestthatrespondentsareanticipatingincreasedriskmanagementactivityinseveralareas.
Theresultsalsosuggestanincreaseinthepercentageofcompaniesthathavesomeformalmechanismtoassessriskmanagementsystemeffectiveness.However,EYconsidersstatement4inFigure6asbeingcompliantwithSolvencyIIand,inthatcontext,only20%ofrespondentsfallwithinthatcategory(aslightincreasefromthelastsurvey).
Itisinterestingthat32%ofrespondentshavenoformalizedwayofassessingeffectivenessagainstoutcomes.Eveniftherewasnoregulatoryrequirementtohaveeffectiveriskmanagement,itisdifficulttounderstandwhycompanieswouldnotseektounderstandthiselementofbusinessmanagementsothattheycouldimproveit.
GiventheincreasedavailabilityofeffectivenessassessmentmethodologyandtherequirementforNationalCompetentAuthoritiestodemonstrateprogresstotheEuropeanInsuranceandOccupationalPensionsAuthority(EIOPA)onriskmanagementeffectiveness,weanticipatethatinsurancecompanieswillbeundertakingmoreformalassessments.
0%
10%
20%
30%
40%
50%
Figure 6: Effectiveness of risk management system
Do not know orhavenoformalwayofassessingthis
Believeitiseffectiveoverall,butthisisnotassessedagainstoutcomesinanyformalandreliableway
Partiallyeffective,somecomponentshavebeenassessedformally
Itiseffectiveinbringingoutthedesiredoutcomeswewantinthebusinessandthishasbeenformallyassessedandvalidated
6%
26%
48%
20%
Figure 7: Fulfilment of selected requirements for Pillar 2
0% 20% 40% 60% 80% 100%
ClearindividualandcommitteeresponsibilitiesforthemanagementofallrisksIndividualsaresuitably“fitandproper”persons
Clearsplitofresponsibilitiesbetween1st,2ndand3rdlinesofdefense
Effectivegovernancefunctions(internalaudit,risk,actuarialandcompliance)Embeddingriskappetiteinbusinessdecisions
OperationalizingmetricsAchievingclarityofdefinitionbyrisktypeandothersplits
SuitablyadaptedfordifferentbusinessprocessesTimelyupdatestoreflectchangingbusinessprocesses
PropergovernanceandcontractualagreementswithprovidersAssessmentofrisklevelsinproviderfirms
SuitablyfocusedandreliableriskreportsTheUseTest-capitalmodelimplicationsconsideredwhenmakingbusinessdecisions
Multidimensionalandquantifiedstress-andscenario testingforbothtailandnon-tailevents
Thecomponenthasnotyetbeenformalizedordesignedeffectively
Thecomponentexistsandiseffectivebydesign
Thecomponentexistsandisdemonstrablyeffectiveinpractice(minimumSolvencyIIcompliance)
Thiscomponentexists,iseffectiveinpracticeandoperatesefficiently(cost-effective)
Implementationreadiness—Pillar 2Overall,surveyresultsshowthatinsurancecompaniesneedtodoalotmoretobecomeSolvencyIIcompliantandtodemonstratesufficientprogressonriskmanagementeffectivenesstosupervisors.
8 | European Solvency ll survey 2014
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Inmostareas,organizationshavenotyetreachedtheminimumlevelofSolvencyIIcompliance.Foreachcomponent,abouthalfbelievethatthecomponentisnoteffectiveinpractice.
Only15%ofrespondentsfeeltheircomponentsareeffectiveandefficient,suggestingthat85%ofrespondentsseeopportunityforeffectivenessand/orefficiencyimprovementsinmanyoftheseareas(Figure7).
Thepercentageofcompaniesanticipatingaheavierworkloadisdramatic.Halftothree-quartersofrespondentsexpecttheamountofworkundertakenineveryoneoftheseareastoescalate(Figure8).
Approximatelyoneineveryfourrespondentscontemplateasignificantincreaseinthetimespentonmeasuringrisk,strategicinput,governanceandlimitframeworkmaintenance.Approximatelyone-thirdofallrespondentsanticipateappreciablymoreeffortonforward-lookingriskassessmentandreportingtoregulators.
Figure 8: Future focus areas of risk managers
0%
20%
40%
60%
80%
100%
Stra
tegi
cin
put(
e.g.
,ris
kap
petit
e,re
view
of
bus
ines
spl
ans)
Gove
rnan
cea
nd
limit
fram
ewor
km
aint
enan
ce
Calc
ulat
ing
met
rics/
ris
km
easu
rem
ent
Prov
idin
gtr
ansa
ctio
nal
revi
ew/a
dvice
Perf
orm
ing
forw
ard-
look
ing
risk
iden
tificat
ion
and
anal
ysis
Repo
rtin
gto
m
anag
emen
tboa
rd
Repo
rtin
gto
re
gula
tors
Significantdecrease Decrease Unchanged
Increase Significantincrease
Figure 9: Future benefit of measures increasing risk management effectiveness
Increaseduseoftraining/e-learningmodulesforriskmanagement
DevelopmentofERMframeworktoaddressriskposedbythefirmtooutsideparties(especiallysystemicrisk)
Improvedrisk(dis-)aggregationmechanismsingroups
Improvedclarificationofriskmanagementresponsibilitiesingroups
Remuneration,incentivesandrewardsmorefocusedoneffectiveandappropriaterisktaking
Bettercollaborationbetweencontrolfunctions(2ndand3rdlines)
Moreformalizedmanagementofconduct/customerrisk
Moreefficient(cost-effective)riskmanagementactivity
Morecomprehensiveplanningforriskmanagementdevelopment(people,toolsandprocessesinalllinesofdefense)
Moreformalizedmanagementofriskinandaroundmajorchangeprograms
Improvedriskmanagementskills/capability/caliber inthecontrolfunctions
Moreflexible,reliableandfocusedriskreports
Bettercollaborationbetweenlinemanagement(1stline)andthecontrolfunctions
Improvedriskmanagementskills/capability/caliberinthe1stline(linemanagementinthebusiness)
Riskappetitemechanismsmoreembeddedinbusinessdecisions
Improvedriskculture(consistentandclearriskthinkingandbehaviorthroughouttheorganization)
2.7
2.7
2.9
3.0
3.1
3.2
3.2
3.3
3.3
3.4
3.5
3.7
3.7
3.9
3.4
3.0
1:Low 5:High
9European Solvency ll survey 2014 |
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Itisencouragingtoseethat84%(Figure8)ofrespondentsexpecttospendmoretimeonstrategicinput,asthatisakeypartofensuringthattheriskmanagementsystemisproperlyalignedwiththebusinessstrategy.Moreexplicitlinkageofriskmanagementprioritiestobusinessstrategyshouldfollow.
Three-quartersofallrespondentsanticipatespendingmoretimeonreportingtomanagementboards.Thisreflectsincreasingdemandfrommanagementteamsforrisk-relatedinformation.Italsoposesaninterestingquestion:should2ndlineresourcesbespentonincreasedreportingtomanagementboardsorshouldthatbetheresponsibilityofthe1stlineindividualswhomanagerisk?Only3%ofrespondentsanticipateadeclineinthisarea,soimprovedriskreporting canbeexpected.
OftheitemslistedinFigure9,improvedriskculturescoredthehighestaveragemarkintermsofpotentialbenefits.Improvingriskcultureisreceivingsignificantattentioninbanksandincreasinglyininsurancecompaniesbecauseitunderpinsdecisionsmadeonthemanagementofrisk.
However,itisalsointerestingtonotethatthefourhighestscoringitemsallrelatetointerfacewiththe1stline.Improved1stlineriskmanagementcapabilityandgreaterembeddingofriskappetitebothrankednumbertwo,followedbybettercollaborationbetweenthe1stlineandcontrolfunctions.Inotherwords,improvementsinthe1stlinewouldseemtobringmostbenefittoinsurers’overallriskmanagementactivity.
Whenrespondentswereaskedtoscorethesameitemsinrelationtotheeffortrequired(Figure10),riskappetite,riskcultureandimprovedcapabilityinthe1stlinewereagainhighlyranked.Thissuggeststhatthehighestbenefitareasmayalsobethemostdifficulttoachieve.
However,thereweresomeexceptions.Bettercollaborationbetweenthe1stlineandcontrolfunctions(ahigherbenefititem)wasmuchloweronthescaleintermsoftheeffortneeded.
Figure 10: Effort of measures increasing risk management effectiveness
Bettercollaborationbetweencontrolfunctions(2ndand3rdlines)
Improvedclarificationofriskmanagementresponsibilitiesingroups
Increaseduseoftraining/e-learningmodulesforriskmanagement
Moreefficient(cost-effective)riskmanagementactivity
Improvedriskmanagementskills/capability/caliberinthecontrolfunctions
Bettercollaborationbetweenlinemanagement(1stline)andthecontrolfunctions
Remuneration,incentivesandrewardsmorefocusedoneffectiveandappropriaterisktaking
Improvedrisk(dis-)aggregationmechanismsingroups
Moreformalizedmanagementofconduct/customerriskMoreformalizedmanagementofriskinandaroundmajor
changeprogramsMorecomprehensiveplanningforriskmanagementdevelopment
(people,toolsandprocessesinalllinesofdefense)Improvedriskmanagementskills/capability/caliberinthe1stline
(linemanagementinthebusiness)Moreflexible,reliableandfocusedriskreports
Improvedriskculture(consistentandclearriskthinkingandbehaviorthroughouttheorganization)
DevelopmentofERMframeworktoaddressriskposedbythefirmtooutsideparties(especiallysystemicrisk)
Riskappetitemechanismsmoreembeddedinbusinessdecisions
2.2
2.4
2.5
2.6
2.6
2.6
2.7
2.9
2.9
3.0
3.1
3.1
3.2
3.2
3.0
2.6
1:Low 5:High
10 | European Solvency ll survey 2014
ThedevelopmentofanERMframeworktoaddressanorganization’srisktoothers(activityfromregulatoryinitiativestoaddresssystemicrisk)receivedhighratingsintermsoftheeffortrequired,butcameinsecondtolastintermsofthebenefitsoftakingaction(Figure10).
Asanexample,improvedriskmanagementskills,capabilityandcaliberofcontrolfunctionswereratedhighinpotentialbenefits,butrelativelylowerintermsoftheeffortneededforimplementation.
Thevastmajority(83%)ofcompaniesaremanuallyreportingandcalculatingkeyriskmanagementmetrics.Thereisconsiderableopportunityforincreasedautomation.
Almostoneinsixcompanieshave60%oftheseprocessesautomated(Figure11).Thisdemonstratesthatalthoughsomeprogresshasbeenmade,thereissubstantiallymorepotential—perhapsinalignmentwithotheractivities—toimprovetheinformationflowsthroughouttheorganization.Leveragingtechnologyanddataprogresstoimproveriskmanagementcosteffectivenessisanareaofopportunityformanyinsurancecompanies.
Figure 11: Level of automation for risk reporting and calculation of key risk management metrics
0%
5%
10%
15%
20%
25%
30%
35%
0%–20% 20%–40% 40%–60% 60%–80% 80%–100%
1%
24%
29%32%
Figure 12: Own Risk and Solvency Assessment (ORSA) implementation readiness—spread from lowest to highest country
1.5Projectionofcapitaland
solvencywithintheplanninghorizon(3-5y)
Designofstressandscenariotests
Assessmentof governanceeffectiveness
Assessmentofthesignificanceoftheriskprofiledeviatingfrom
assumptionsunderlyingtheSCRcalculation
IntegrationofORSAresult(forward-looking
assessment)inthestrategicbusinessplanningprocess
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
3.6
1.3 3.6
1.7 3.6
1.3 3.7
1.2 3.4
1:Therequirementsarenotmet 2:Someoftherequirementsaremet 3:Mostoftherequirementsaremet 4:Alloftherequirementsaremet 5:Thecompanyalreadygoesbeyond theSolvencyIIrequirements
11European Solvency ll survey 2014 |
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Oneofthemoststrikingthingsabouttheseresultsisthespreadofresponsebetweencountrieswiththelowestaveragescoresandthosewiththehighest(Figure12).Althoughnocountryresponsesaverageat“alloftherequirementsaremet”(andtherefore,progressisrequiredinallcountriesonallitems),somescoresaverageashighas3.7.Incontrast,inothercountries,theaveragescoreswereverylow—justover1—andtherefore,closerto“therequirementsarenotmet”thanto“someoftherequirementsaremet.”Thisself-assessmentsuggestsaverylowlevelofreadinessinsomecountriesinrelationtoORSA.
Oneoftheinterestingfeaturesinthisanalysisofaveragescoresbycountryisthemix.Somecountriesarerelativelymoreadvancedforsomeaspectsthanforothers.Thepatternisreversedforothercountries.Althoughthereissomedownwardtrendfromlefttorightinthechart(Figure13),overall,thereisverylittlecommonalityinaveragescoringpercomponent.
Generallyspeaking,theNetherlands,theNordicsandtheUKviewthemselvesasrelativelymoreprepared,whileGreece,PortugalandCEEconsiderthemselvestheleastwelldeveloped.
Figure 13: ORSA implementation readiness
Projectionofcapitalandsolvencywithintheplanninghorizon(3-5y)
Designofstressandscenariotests
Assessmentof governanceeffectiveness
AssessmentofthesignificanceoftheriskprofiledeviatingfromassumptionsunderlyingtheSCRcalculation
IntegrationofORSAresult(forward-lookingassessment)inthestrategicbusinessplanningprocess
Nordics CEE Poland Greece Portugal Spain Netherlands
Belgium Italy France Germany UnitedKingdom
1:Therequirementsarenotmet 2:Someoftherequirementsaremet 3:Mostoftherequirementsaremet
4:Alloftherequirementsaremet 5:Thecompanyalreadygoesbeyond theSolvencyIIrequirements
12 | European Solvency ll survey 2014
Inourcurrentsurvey,99%ofrespondentshaveyettomeetallSolvencyIIreportingrequirements,and76%saytheyhaveonlypartiallymetorhaveyettomeetanyrequirementsthusfar.Intermsofimplementationreadiness,Pillar3remainstheleastdevelopedareacomparedtoPillar1andPillar2.Clearly,thereissignificantworkaheadformostorganizations.
Whencomparingacrossgeographies,somemarkets,suchasGermany,theNetherlands,ItalyandCEE,havemadethemostprogresssince2012.However,forGermanyandItaly,theprogresscouldbeviewedassimplycatchingup,asthesewerepreviouslytwoofthemarketswherethemosteffort wasneeded.
TheNetherlandsremainsrelativelythemostadvanced,with43%ofrespondentssayingthattheyalreadymeetmostoforalloftherequirements.
Incomparison,theUKandFrancemayhavepreviouslyunderestimatedtherequirements,astheirlevelofpreparednessandimplementationreadinessappearstohaveregressed.In2012,boththeUKandFranceappearedtoberelativelymoreadvancedintheirpreparationcomparedtotherestofEurope,with30%to40%ofrespondentsinthesemarketssayingthattheymetmost,ifnotall,oftherequirements.Inourlatestsurvey,thepercentagehasreducedsignificantly,withonly19%to22%ofrespondentsinthesemarketssayingthattheymeetmostoralloftherequirements(Figure15).
Figure 14: Pillar 3 implementation status
0.5
1.0
1.5
2.5
2.0
AnalysisandpopulationofQRTs(datarequirements
definedandsourced)
AnalysisandpopulationofSFCRandRSR
(datarequirementsdefinedandsourced)
SolvencyIIreportingprocessesdesigned/
redesignedandintegratedto
currentreportingprocesses(incl.
interdependencies withORSA)
Developmentofdisclosurepolicy
Controlframeworkupdatedfor
SolvencyIIreporting(toanauditable
standard)
2012 2013
1:Requirementsnotfulfilled(35%)2:Somerequirementsfulfilled(41%)3:Mostrequirementsfulfilled(17%)4:Allrequirementsfulfilled(7%)5:Beyondrequirements(0%)
Implementationreadiness—Pillar 3Mostorganizationshaveregisteredlittleprogresssince2012.Almost76%ofrespondentssaythattheyhaveyettomeetmostorallSolvencyIIreportingrequirements(amarginalimprovementcomparedto80%in2012).
13European Solvency ll survey 2014 |
In2012,therelativelackofprogressinPillar3comparedtoPillar1andPillar2couldbeexplained.MostorganizationswereawaitingmorecertaintyintheSolvencyIIPillar3requirementsbeforecommittingseriouseffortandworktodefiningandimplementingreportingsolutions.ThesubsequentdelaysanddeferraltotheSolvencyIIimplementationdatemayexplainwhylittleprogresshasbeenmadesincethen.
However,thetimelinehaschangedwiththereleaseofOmnibusIIattheendof2013,thetransitionalreportingrequirementsfor2015andthefullimplementationandreportingrequiredin2016.Theremainderof2014willbeacriticalperiodfororganizationstonowrestartand,inmanycases,acceleratetheirPillar3projects.
Giventhecurrentstatusandlevelofpreparedness,therealityformanyisthatthe2015transitionalreportingwillneedtobedonelargelyonamanualbasis.In2016,thefocuswillbeonmoreautomated,robustandembeddedsolutions.Butgiventhedata,process,controlandITchallengesthatmanyorganizationsstillface,achievingandembeddingthereportingrequirementswithinthesetimeframesislikelytoprovetobeademandingtask.
Figure 15: Implementation of Pillar 3 requirements
0.0 0.5 1.0 1.5 2.0 2.5 3.0
Nordics
CEE
Poland
Greece
Portugal
Spain
Netherlands
Belgium
Italy
France
Germany
UnitedKingdom
2012
2013
1:Low 5:High
14 | European Solvency ll survey 2014
DataandITreadinessNearly79%ofEuropeaninsurancecompaniessaytheyhavemetnoneorareonlymeetingsomeoftherequirementstodocumentandcontrolend-usercomputingtools.ThisisaclearsignthatthereisalongwaytogointermsofSolvencyIIdataandITreadiness.
15European Solvency ll survey 2014 |
MakingadatalandscapeworkacrossmultipleandcomplexITsystems,multiplereportingbasesandpotentiallyacrossbothgroupandsoloentitiesremainsasignificantchallenge.Oursurveysuggeststhatachievingadequatedataintegration,qualityandcontrolremainsanimportantpriorityforallcompanies.
DesigningasystemandinfrastructurearchitecturethatmeetsSolvencyIIrequirementsacrossallpillarsisequallychallenging.Thebiggestissuesinvolve:
•Designingsystemsthatreusebusinessrulesandsharecommondataacrosspillars
•Deployinginfrastructurethatissufficientlyflexibleandscalabletohandleadhocrequestsfrommanagementandregulators
•Providingarobustdataintegration,qualityandcontrolframework
Theseelementsmustbeaddressedtounderpinreportinginthepublicdomainandtoallowinsightsintofinancialperformanceandriskexposuresonadynamicbasis.
Asoursurveyshows,limitedprogresshasbeenmadeonsomeofthefundamentaldecisionsthatwillallowdata,systemsandinfrastructuretoworktogethereffectively.Surprisingly,thereisveryslowprogressonspecificationanddesignofRegularSupervisoryReporting(RSR),theSolvencyandFinancialConditionReport(SFCR)andtheORSAreport,withnearly80%ofrespondentsnotmeetingmostrequirements.DefinitionoftheSolvencyIIreports,incombinationwiththeQuantitativeReportingTemplates(QRTs),helpsidentifywheredataneedstobebroughttogetheracrosspillars,ideallyinanautomatedandorchestratedsequencetodriveefficiencies.TheprogressmadeontheSolvencyIIreportdefinitionextendsintotheweakdescriptionoffinancialandtechnicalreconciliationsrequired,aswellastootherreportingbaseswhereonly32%ofrespondentsmeetmostoralloftherequirements.
0% 20% 40% 60% 80% 100%
Figure 16: IT system readiness
Standardformularesultsareproducedandcanbereproducedusingacontrolledandrobustsystem
Investmentdatastorageandanalysissolutionsarespecified,developedandtestedusingactualthird-partydata
Cleararchitectureexistsoutlininghowsystemswillsupporttheevidencingofsolvencyoutsideofregularreportingcycles,ifrequiredunderPillar2
Reportingsystemsareselected,designedandimplementedforPillar3
Testsofalignmentbetweengroupandsolonumbersaredefinedandtestedviadryruns
RSR,SFCRandORSAreportsarespecified,designedandbuilt
XBRLtaggingandvalidationsystemsareselected
Financialandtechnicalreconciliationsofdataheldindifferentsystemsaredefinedanddeveloped
Automationofdataintegration,dataqualityanddatalineageisdevelopedandtestedforhighvolumedata
Controlsandworkflowsupportinglow-volume,high-valuedataaredefinedandimplemented
Endusercomputingtoolsfullydocumentedandcontrolled
End-to-endsystemtestplansareestablishedandapproved
Parallelrunandcutoverplansareestablished,includingdecommissioningandarchivingasrelevant
ITdevelopmentandsupportmodelinBAUisdefined
Stage1-2:Requirementsnotmet/somerequirementsmetStage3-5:Mostrequirementsmet/allrequirementsmet/beyondrequirements
16 | European Solvency ll survey 2014
In2012,thesurveyidentifiedthat37%ofrespondentshadimplementedmostoftherequirementsrelatedtosystemreadiness.ThemostsignificantprogresswasmadeinassessingthesystemsrequiredtodeliverSolvencyIIcapabilitiesandthesimultaneousidentificationofsystemcapabilitygaps.Inthisyear’ssurvey,morespecificquestionswereaskedtobetteridentifytheprogressandpinpointthegaps.
•Companieshavemadegoodprogressinmeetingmostofthestandardformularequirements,with53%nowindicatingthattheycanproducestandardformularesultsinarepeatable,controlledandrobustmanner.Oftheremainder,only9%havenotmetanyoftherequirements.
•Comparedwiththeprevioussurvey,itappearsthatmorecompaniesareelectingtousemanualalternativestodataintegration,qualityandcontrol,withjust24%havingmostoralloftheSolvencyIIdatarequirementsmetthroughautomation.Theresultsareconsistentacrosshigh-volume(transactionaldata)andlow-volumeandhigh-valuedata.Thisindicatesthatwhilelargesysteminvestmentshavebeenmade,notablyonPillar1,thedataintegrationinvestmentislagging.
•RespondentsindicatedthatPillar2waswelladvanced;however,almost66%ofrespondentsnotedthatdataandsystemsarenotdesignedorreadytosupportORSAassessmentsbeyondthenormalreportingcycle.Thisseemstobeanoversight,asthisiswheremanagementandtheregulatorwillpressurecompaniestoworkdynamicallyandprovidereliableinformation.
•Almost42%havemetmostoralloftherequirementsforinvestmentdata.Thisisconsistentwithmarketfeedback,indicatingthatmanyinsurersrecognizethevalueofinvestmentinformationbeyondtheregulatoryrequirement.Theyareusingthisinformationtobettermanageconcentrationrisk,collateralandcreditriskandtomakedecisionsonagroupratherthansimplyasolobasis.
•DataandsystemsreadinessforPillar3continuestolagbehindPillars1and2,withonly25%ofrespondentsindicatingthattheyhaveselectedanddesignedasystemtomeetmostorallofthePillar3requirements.Furthermore,intermsofreadinesstomeetXBRLtaggingandvalidation,astaggering52%havenotselectedasystemtomeetthismandatoryrequirement.
Notsurprisingly,thedecisiontofreezeorplaceprogramsinto“businessasusual”hasmeantthatonlylimitedprogresshasbeenmadeacrossallpillarsinthepast12months.
Oursurveyindicatesthatthereisasignificantamountofnear-termactivityrequired.Atthesametime,thereisalackofforwardthinkingaroundend-to-endtestplans(41%donothavetheseready)andparallelrunandcutoverplans(44%donothavetheseready).ThesetwofactorsgiverisetorealconcernsaboutthereadinessofmanyrespondentstomeettheSolvencyIIrequirements.Formanyrespondents,oursurveyimpliestheneedforrapidgapassessments,prioritizationandstrongprojectleadershiptomeettheconfirmeddeadlines.
17European Solvency ll survey 2014 |
18 | European Solvency ll survey 2014
ApplicationofinternalmodelsTheproportionofinsurersplanningtousea(partial)internalmodelhasdroppedsinceourprevioussurvey.However,partialinternalmodelshaveshownthemostnoticeablereduction,andcompaniesadoptingfullinternalmodelsaremorelikelytobecontinuingwiththeirplans.
19European Solvency ll survey 2014 |
Thereisamarkedreductionintheproportionofcompaniesadoptinga(partial)internalmodel:from49%to40%ofrespondents(Figure17).Asinourprevioussurvey,theprofileofparticipantsisweightedtowardlargerorganizationsthataremorelikelytoapplytousea(partial)internalmodelgiventheexpenseandresourcesthatanapplicationrequires.
Companiesarebecomingmoreconcernedaboutthecostsassociatedwiththeextendedpre-applicationprocessformodelapproval.Manyhavebeenengagingwiththeirregulatorsince2010inpre-applicationprocesses.FormalapplicationsareonlyexpectedtobepossiblefromApril2015,reflectingthedeferredimplementationdateforSolvencyII.Therealsoappearstobegreaterawarenessoftheongoingcostsofoperatingtheinternalmodelprocessesaspartof“businessasusual.”Settingthetotalcostburdenagainstthepotentialcapitalbenefithasledsomecompaniestoreconsidertheattractivenessoftheinternalmodelapproachcomparedtothestandardformula.
Thelackofacceptanceofinternalmodelsappearstocomefromcompaniesconsideringpartialinternalmodels.Theproportionoforganizationscontinuingwithfullinternalmodelshasbeenmoreresilient,fallingonlyslightlyfrom19%to17%.Thisisperhapstobeexpected.CompaniesadoptingapartialinternalmodelaremorelikelytoconsiderthattheirriskprofileissufficientlyclosetothatunderlyingthecalibrationofthestandardformulatomakeadoptionoftheSCRviable.
Giventhetwo-yeardelayoftheSolvencyIIimplementationdate,insurersappeartobemoreconfidentintheapprovaloftheirmodelsforday1use.Thisreflectstheextratimetheyhavehadtofinalizetheirprograms.Two-thirdsofinternalmodelusersexpecttohavereceivedmodelapprovalintimetousetheirmodelsatthestartofSolvencyII.
Figure 17: Internal model development 2013
60%Nointernal
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17%Fullinternal
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Figure 18: Internal model approval 2013
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20 | European Solvency ll survey 2014
Atthetimeofourprevioussurvey,overhalfofinternalmodelusersanticipatedreceivingapprovalby1January2014;thiswasexpectedtoincreaseto65%by1January2016.Thisisinlinewiththeresponsesinthelatestsurvey,with67%ofcompaniesnowexpectingtoreceiveapprovalby1January2016(day1usepertheexpectedimplementationtimetable–Figure18).
Ingeneral,internalmodelrequirementshavebeenstable,reflectinglimitedregulatorychangessinceourearliersurvey.Asaresult,companieshavebeenabletoprogresswithsomecertaintyregardingSolvencyIIrequirements.
Internalmodelusers’readinessassessmentshaveadvancedacrosseachoftheinternalmodeltestsandstandards.However,thereisstillmuchtodorelativetoPillar1,particularlyinmeetingtherequirementsofprofitandlossattributionanddocumentationstandards,whichremainasignificantchallenge.
Inspiteoftheprogressmadeincomplyingwithinternalmodeltestsandstandards,thishasnot,sofar,supportedanassessmentwheretheaveragecompanymeetsmostoftherequirementsinanyoftheinternalmodeltestsandstandards(Figure19).
ThisisincontrasttotheprogressmadeonthePillar1calculationswheretheaveragereadinessratingissignificantlyhigherforallaspectsandorganizationsaremovingtowardfullcompliancewithSolvencyII.Thelowestinternalmodelratingsareinrespecttothestandardsfordocumentationandprofitandlossattribution.
Figure 19: Solvency II requirements for internal models
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21European Solvency ll survey 2014 |
Profit and loss attribution
•Thereareoftenissuesrelatingtothealignmentoftheprofitdefinition(s)sotheyarenotonlyrelevanttothebusinessbutalsoSolvencyIIcompliant(i.e.,onan“economicbasis”).
•Acommonproblem,relatingespeciallytothosecompanieswithpartialinternalmodels,hasbeenthedifficultyineliminatingitemsfromtheactualresultthatarenotcoveredbythescopeofthemodel.
•Thelevelofgranularityusedintheriskmodelingmayexceedthatofthereadilyavailableexperiencedata,requiringasufficientlydetailedanalysis.
Documentation
•Poorarticulationofwhyaparticularapproachorriskcalibrationhasbeenchosen(i.e.,preferredtootherpossiblechoices).Emergingpracticeistoidentify,earlyintheprocess,whychoicesweremadeandwhyotherswerenot.
•Documentationoftendoesnotexplaintherationaleforthedataselection,thefilteringappliedtodataorwhyoutliershavebeenremoved.Frequently,thereisnoinformationonthesignificanceofthechoicesthathavebeenmade.
•Manyimplicitassumptionsandjudgmentsexistinthecalibrationdocumentswithoutadequateexplanationorjustification.
•Recognitionofweaknessesandlimitationsinthemodel,andhowthisalignstothemodeldevelopmentplan,isoftenimmature.Itmaynotprovideclaritytothetriggerpointsforadditionalvalidationorcalibrationandtheescalationprocedurestobefollowed.
In our experience, the current challenges that companies now need to address include:
22 | European Solvency ll survey 2014
RegulatoryinteractionMostinsuranceorganizationsarenotcompletelysatisfiedwiththesupporttheycurrentlyreceivefromtheirregulators,andtheyexpectanincreaseinsupervisoryinterventiononceSolvencyIIcomesintoeffect.
23European Solvency ll survey 2014 |
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Theoverallfrequencyofinteractionwiththeregulatorybodiesseemstobeconsideredadequatebymostcompanies(48%ofrespondentsarecompletelysatisfied);however,insurersexpectmorefromthiscooperation(Figure20).Insuranceorganizationsarecallingformuchbettersupportintheinterpretationofregulatoryrequirements,withonly21%beingsatisfiedwiththecurrentassistancetheyreceivebytheregulatoryauthorities.Insurersexpectmoreoftheirregulatorsintermsoftheamountandqualityoffeedbackprovidedoncompany-specificimplementationprogress.Only25%ofcompaniesdeemedthisasatleastsatisfactory.
Providinginformationonregulatoryprogressandresponsivenessuponspecialrequestisanotherkeyareawhereregulatoryauthoritiesshouldimprove,with67%and68%ofsurveyedinsurancecompanies,respectively,notbeingfullysatisfied.
Thismightreflectthefactthatsupervisorsareunderstaffedastheycopewiththenewregulation.Nearly61%ofthesurveyedinsuranceorganizationsarenotcompletelysatisfiedwiththesizeoftheirsupervisoryteams.
InsurersalsowereaskedabouttheirexpectationsregardingsupervisoryinterventiononceSolvencyIIcomesintoeffect.Manybelievethatanincreaseinregulatoryinterventionismostlikelywhenthereisabreachineitherthecompany’sSCRorMCR.InsufficientsetupofthemarketvaluebalancesheetandthefailuretomeetORSAcapitalrequirementsareadditionalareaswhereregulatoryauthoritiesareexpectedtoberigorousandmorelikelytoimposesanctions.
Lessthanaquarter(22%)ofsurveyedinsurersexpecttheirregulatortorequirethemtoholdadditionalcapital(beyondtherequirementsoftheSolvencyIIdirective)throughcapitaladd-ons,“earlywarningindicators”forinternalmodelsorothermeansoncethisregulationcomesintoeffect.Companieswillneedtobevigilanttoensurethat“gold-plating”ofaprudentcapitalstandarddoesnotoccur.
Figure 20: Evaluation of regulatory authorities
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Figure 21: Evaluation of potential sanctions
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Figure 22: Additional capital requirements
78%Willonlyrequirecapitalatalevelprescribedby
Solvency ll
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24 | European Solvency ll survey 2014
OrganizationaltransformationofriskmanagementThelevelofautomationofriskreportingisstillpoor;however,insurersrecognizetheneedforchangesrequiredintheITandriskinformationlandscape.
25European Solvency ll survey 2014 |
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Inthefuture,theriskmanagementfunctionisexpectedtobeevenlyinvolvedinmanyimportantactivities,withgreaterfocuson:
•Calculatingriskmetrics
•Performingaforward-lookingassessmentofrisk
•Providingbusinesswithstrategicinputs,suchasriskappetite,reviewofbusinessplans,etc.
SolvencyIIwillleadtoanincreasedfocusofriskmanagersonallthemainareas.
AsillustratedinFigure24,thelevelofautomationofriskreportingandcalculationofkeyriskmanagementmetricsleavesmuchtobedesired.Morethan60%oftherespondentsestimatethattheirlevelofindustrializationislessthanorequalto40%.
MostinsurancecompaniesexpectmoderatetosignificantchangeintheirITlandscapeduetoSolvencyIIimplementation.Additionalareaswithahighpotentialforchangeandrestructuringareriskinformationflow,riskcultureandtopmanagementfocusonriskmanagement.
Figure 23: Future focus areas of risk managers
15%Strategicinput(e.g.,riskappetite,reviewofbusinessplans)
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Figure 24: Level of automation for risk reporting and calculation of key risk management metrics
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Figure 25: Change and restructuring due to Solvency II is expected in the following areas
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26 | European Solvency ll survey 2014
Recoveryandresolutionplanning(RRP)InsurersfaceincreasingrequestsforRRPs,andmanyarechallengedbytheRRPprocess.
27European Solvency ll survey 2014 |
AsinsuranceRRPismobilizedbymanyoftheglobalsystemicallyimportantinsurers(G-SIIs)thatweredesignatedinJuly2013andbymultiple,large,domesticinsurers,bothregulatorsandinsurersalikerecognizethechallengesofdevelopingplanswithinternationaldimensions.
Different approaches and stages of implementation
HomeandhostregulatorsareatdifferentstagesofimplementationandaredemonstratingmarginallydifferentapproachestoRRPforinsurers.Becauseprotocolsarenotyetsettled,insurersarefindingitdifficulttointerpretregulators’expectationsforinformationrequirementsanddepthofanalysis.Evenfundamentalsubstantivequestions,suchasclarityaroundwhentheauthoritiesineachjurisdictionwillinpracticetriggerresolution,remainopenformanyinsurers.
Inlightofdifferentregulatoryrequirementsaroundtheworld,theInternationalAssociationofInsuranceSupervisors(IAIS)andtheFinancialStabilityBoard(FSB)haveaskedhomeandhostregulatorstoworkmorecloselytogether.Therefore,in2014,thefirstsetofcrisismanagementgroups,comprisedofhomeandhostregulators,willbeestablishedfortheG-SIIs.Thiscross-borderapproachseems,inpart,alsotobedrivingthepaceofdomesticrequestsforRRPsandsystemicriskmanagementplans(SRMPs),asregulatorsseehowothersareapproachingthistopicandconsiderpotentialsystemicrisksposedbyinsurersintheirownmarkets.
Ifthebankingregulatorytrendisanexample,itispossiblethatthefocusfordomesticrequestswillbeintheG20countries,whereregulatorshaverequiredtheG-SIIstosubmitplansbytheendof2014.TherearesomenotableexceptionsincountrieswheretheregulatorsdonotcurrentlyhaveadesignatedG-SIIbuthavepreviouslyrequiredtheirglobalsystemicallyimportantbanks(G-SIBs)tosubmitplans.Assuch,theyarerequestingtheirlargestdomesticinsurerstoinitiallycompleterecoveryplans,withrequestsforresolutionplanstofollow.
ManyinsurersareawareofthisemergingdevelopmentinRRPrequests.Nearly26%ofrespondentsexpectatleastanotherfivetoteninsurancecompanies(inadditiontodesignatedG-SIIs)intheirowncountrytobeconsidered asdomesticsystemicallyimportantinsurers andlikelytoreceiverequestsforplansfromthehomeregulator.
Proposeddevelopmentsinregulatoryguidancewouldtendtosupportthis;forexample,arecentconsultationpaper(CP2/14)issuedbythePrudentialRegulatoryAuthority(PRA)intheUKincludesaproposedrequirement(FundamentalRule8)that“afirmmustprepareforresolutionso,iftheneedarises,itcanberesolvedinanorderlymannerwithminimumdisruptiontocriticalservices.”ThismeansthattheregulatorexpectsinsurersintheUKtoprovideallinformationneededforthePRAtoperformanassessmentoftheirresolvability.Expectationsarethatmostregulatorswillfollowthisdirection,atleastwithintheG20countriesandpotentiallywideraudience.
Figure 26: Expectation of additionally identified, systemically relevant insurance companies
67%1-5insurance
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28 | European Solvency ll survey 2014
showsthatmostinsurershavecompletedasignificantamountofgroundworkinrelationtomanagementactionsinordertoqualifyasrecoveryoptionsandmeettheregulatoryrequirements.However,furtherworkisrequiredtoensurethattherecoveryoptionsaresufficientlymaterialandcapableofbeingexecutedinatimelymannerinacrisis.Asdevelopmentoftherecoveryoptionstendstorepresent50%to70%oftheeffortrequiredtodeveloparecoveryplan,thetimeandresourcesrequiredtobuildoutexistingmanagementactionsshouldnotbeunderestimated.
ViewsontheprosandconsofcompletingRRPsvary,butmostseniorexecutivesviewrecoveryplanning,inparticular,asbeneficialtothegroupandaworthwhilemanagementexercise.
Insummary,manyinsurersarechallengedbyaspectsoftheRRPprocess.Thereissomeconfusionaroundexpectations,andmanyareconcernedaboutregulatorsmovingatdifferentspeedswithdifferingpriorities.Therequirementsthatnationalinsuranceregulatorswillimposeondomesticinsurersareemerging.Theplansthathavemostcommonalityacrossjurisdictionsaretherecoveryplans,whileregulatoryrequirementsforresolutionplansandSRMPscontinuetoevolve.
Progress with recovery plans
Recoveryplans,whichestablishhowaninsurerwilluseaseriesofpredefinedrecoveryoptionstoavoidfailure,arefurtheralongindevelopmentthanresolutionplans.
Encouragingly,mostinsurersandreinsurershavepreviouslyundertakenadegreeofanalysisaroundstresstesting,developmentoftriggersandmanagementactionsthatcanbeleveragedtobuildarecoveryplan.Indeed,noinsurershouldhavetostartfromscratch.
Thesurveyexploredtheleveloffamiliaritywiththerecoverytoolsavailabletoinsurersandtheimportancethattherespondentsplacedonspecificrecoveryoptions.Therangeofresponseswasbroad,withmostrecognizingthevalueofcapital-raisingoptionswhenunderseverefinancialpressure.Unsurprisingly,incaseofacrisis,puttingselectedsubsidiariesintorun-offanddisposingofentitieswerecitedasusefulrecoveryoptions.
Whatisclear,astheplansdevelop,isthateachinsurerwillcreateaportfolioofrecoveryoptions(Figure27).Therangewilldependonthecurrentgroupstructureandwhatisconsideredtobecoreandnon-corebusiness.Ourexperience
Figure 27: Average importance of recovery options—G-SII only
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29European Solvency ll survey 2014 |
30 | European Solvency ll survey 2014
ManagingcapitalunderSolvency llAfteryearsofwaiting,SolvencyIIisagainaprominentconsiderationwhenlooking attheoptimizationofthe balancesheet.
31European Solvency ll survey 2014 |
AsshowninFigure28,manycompaniesanticipateanincreaseincapitalrequirementsandareductioninthereportedgroupcapitalratio.
Currentorplannedactivityisbeingdrivenbothbyadesiretoimproveandoptimizethereportedcapitalratioandtocombinethiswiththein-forcebackroommanagementinitiativesthatfocusonimprovingothermetrics.Thisisespeciallyapparentinlifeinsurance.
Figure29showstherangeofoptionsbeingconsideredtoimprovetheposition,andsomeofthesearebeingimplemented.Thisincludesacombinationofinternalandexternaloptions,coveringnewandexistingbusinessinliabilitymanagementandrestructuring,aswellasoptimizingtheassetsideofthebalancesheet.Inparticular,asthedetailsofthevariousdiscountratesandacceptablestressesintheinternalmodelbecomeclear,therewillbealargeamountofadditionalasset-focusedactivity.Currenthedgingandreinsurancearrangementsarealreadyunderreviewandwillshortlyreceivegreaterattention.Atthesametime,productdesignandpricingfornewbusinesswillbereviewed.
Asclarityemerges,companieswillbemoreinclinedtoimplementstrategicoptions,suchaslegalentityrestructuring.
Irrespectiveoftheexactfiguresthatarefinallyachieved,itisclearthatcompaniesintendtospendsignificantmanagementtimeandeffortinthisareaandtorealizesignificantbenefits.Challengesremainduetothecontinuinguncertaintyofthedetailsoftheproposedregulationandtheinterpretationofspecificitemsbytheregulator.Inaddition,itisnotknownhowmuchtheseinitiativesneedtobefullyimplementedtoillustratethebenefitorwhetheralessmaterialimplementationcanbeusedtoclaimfullercredit.
Inaddition,muchoftheseinitiativesarefocusedonfungibilityofcapitaland,inmanycases,movingorprovingtheabilitytomovecapitalaroundthegroup.ThisposeschallengesforlocalboardsandregulatorsandbeginstointeractwiththeneedtodemonstrateRRP.Alloftheseissuescanbeandarebeingdealtwithalready,buteachaddtotheneedtoconsiderallstakeholderswhenlookingatoptionstoimprovethebalancesheet.
Figure 28: Expected total capital requirements
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Figure 29: Average importance of specific management instruments and strategies for optimizing risk capital
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Optimizationoftheriskcapitalstructure
Optimizationofexternalreinsurance
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32 | European Solvency ll survey 2014
33European Solvency ll survey 2014 |
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ContactsGlobal Solvency II Leader MartinBradley [email protected]
Belgium KrisVolkaerts [email protected]
France and Luxembourg PierrePlanchon [email protected]
Germany/Austria BerndGreuel [email protected]
JanLeiding [email protected]
Greece and Cyprus LamprosGkogkos [email protected]
Ireland JamesMaher [email protected]
Italy StefanoBattista [email protected]
Netherlands PauldeBeus [email protected]
The Nordics PehrAmbuhm [email protected]
HenrikAxelson [email protected]
Poland MarcinSadek [email protected]
Portugal RitaCosta [email protected]
Spain ManuelMartinez [email protected]
Switzerland PhilVermeulen [email protected]
HansJürgenWolter [email protected]
UK RodneyBonnard [email protected]
RoyO’Neil [email protected]
Pillar I and internal models TimFord [email protected]
Pillar II CliveMartin [email protected]
Pillar III DavidFoster [email protected]
Data and IT readiness Steve Bell [email protected]
RichardHart [email protected]
Regulatory Interaction and Organizational Transformation of Risk Management PhilVermeulen [email protected]
Recovery and resolution planning (RRP) KabariBhattacharya [email protected]
Managing Capital under Solvency II JeffDavies [email protected]