european solvency ii survey 2014 - financial …...page 11 compliance with solvency ii requirements...

European Solvency II Survey 2014

Agenda

I. Regulatory update

II. Introduction to survey and findings

III. Pillar 1 findings – Eric Brown

IV. Pillar 2 findings – Frank O’Callaghan

V. Pillar 3 findings

VI. IT Readiness – Hugh Callaghan

VII. Summary and conclusions

VIII. Questions

Solvency II Benchmark Survey 2014

Regulatory update

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


Introduction to survey and findings

The study design Participants and features


Countries with the largest number of

participants:

► Second European EY Solvency II study

► Analysis of market trends in the European

implementation

► Extensive international

coverage (20 European

countries)

► Single country profiles

► 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 IT-

system readiness, regulatory interaction and

capital optimization

Germany

France

Central and Eastern

Europe

Nordics

Poland

UK

Belgium

Summary


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017

Almost There

Mostly there

A way to go

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Pillar 1 Pillar 2 Pillar 3

12%

7%

5%

12%

9%

11%

12%

32%

0% 10% 20% 30% 40% 50%

<(-30)%

(-20) to (-30)%

(-10) to (-20)%

(-10) to 0%

0 to 10%

10 to 20%

20 to 30%

>30%

Ready during Status by pillar Impact on capital

18 months P3 Challenges Impact on capital

Implementation readiness – Pillar 1


Compliance with Solvency II requirements Pillar 1 compliance


1 - Requirements not fulfilled 2 - Some requirements

fulfilled

3 - Most requirements fulfilled 4 - All requirements fulfilled

5 - Beyond requirements

0.0

1.0

2.0

3.0

4.0

5.0

Solvency Capitalrequirement(StandardFormula)

Classification andtiering of own

funds

Risk marginBest estimate

liabilities

Valuation ofassets

2012

2013

Focus

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 30th April

► Own funds

► LTGA compromises

► Key decisions for undertakings

Compliance with Solvency II requirements Pillar 1 compliance for other European Countries


► 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.

Country comparison

2.9

3.0

3.1

3.2

3.2

3.3

3.4

3.5

3.5

3.6

3.6

3.7

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

CEE

Greece

Portugal

Belgium

United Kingdom

Germany

Spain

Nordics

Poland

France

Netherlands

Italy

2013

2012

Compliance with Solvency II requirements Internal model readiness


0.0

1.0

2.0

3.0

4.0

5.0Use test

Statistical qualitystandards

Calibrationstandards

Profit & lossattribution

Validationstandards

Documentationstandards

Externalmodels/data

2012 2013

Focus

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 1.1.2016

► Internal model application ITS sets out detailed requirements for submission

17% 23%

60%

19%

30%

51%

0%

20%

40%

60%

80%

100%

Full internalmodel.

Partial internalmodel.

No internal model.

Internal Model development

2013

2012


fulfilled





0.0

1.0

2.0

3.0

4.0

5.0

Risk strategy (in linewith business strategy)

Risk appetiteframework

Risk control process

Definition of role ofcontrol functions

Outsourcing

ORSA

Remuneration

Business ContinuityManagement

2012 2013


fulfilled



Focus Country comparison

Key themes

► Progress made but not yet there

► ORSA has seen most progress

► EIOPA preparatory guidelines drive agenda

2.1

2.5

2.5

2.6

2.7

2.8

2.9

3.0

3.2

3.2

3.4

3.6

0.0 1.0 2.0 3.0 4.0 5.0

Greece

Portugal

CEE

France

Poland

Belgium

Spain

Germany

Nordics

Italy

United Kingdom

Netherlands

2013

2012

Compliance with Solvency II requirements Risk management effectiveness


Assessment of the risk management effectiveness Assessment of risk management system

15%

33% 35%

17%

6%

26%

48%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Don't know/haveno formal way ofassessing this.

Believe it iseffective overall,

but this is notassessed againstoutcomes in any

formal and reliableway.

Partially effective,some components

have beenassessed formally.

It is effective inbringing out the

desired outcomeswe want in the

business and thishas been formally

assessed andvalidated.

2012

2013

66%

75%

65%

87%

91%

91%

34%

25%

35%

13%

9%

9%

0% 20% 40% 60% 80% 100%

Self-assessment by riskmanagement department.

ORSA assessment

Internal audit

Assessment by auditor

External advisor

Assessment by regulator

Not/ partiallyassessed

Fullyassessed

Key themes

► Solvency II minimum compliance is more than existence

► Attestation to effectiveness of RMS

► Progress but still considerable work needed

Compliance with Solvency II requirements Effort and benefit for increasing risk management effectiveness


Effort and benefit for increasing risk management effectiveness

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

2

2.5

3

3.5

4

4.5

5

2 2.5 3 3.5 4 4.5 5

Eff

ort

Benefit

Effort vs Benefit

2.7

2.7

2.9

3.0

3.0

3.1

3.2

3.2

3.3

3.3

3.4

3.4

3.5

3.7

3.7

3.9

0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Increased use of training/ e-learning for RM

Develop ERM to address systemic risk

Improved Grp risk aggregation mechanisms

Improved clarification RM Grp responsibilities

Remuneration more focused on risk taking

Better collaboration between 2nd & 3rd lines

More formal mgt. of conduct/customer risk

More efficient RM activity

More comprehensive planning for RM…

More formal mgt. of risk in change programs

Improved RM skills in 2nd & 3rd line

More flexible, reliable, focused risk reports

Better collaboration between 3 lines

Improved RM skils in 1st line

RA mechanisms embedded in decisions

Improved risk culture

Benefit Effort

1= low, 5 = high

Opportunity

Compliance with Solvency II requirements Fulfilment of selected pillar 2 requirements


Fulfilment of selected pillar 2 requirements

Key themes

► In most areas, organisations consider not yet reached minimum Solvency II compliance

► Most advanced on governance and control functions

0% 20% 40% 60% 80% 100%

Other important items

Risk Appetite

Outsourcing

Risk & Control Processes

Governance & Control Functions

Compliant

Not compliant

Compliance with Solvency II requirements ORSA readiness


ORSA implementation readiness spread

1.5

1.3

1.7

1.3 1.2

3,6 3,6 3,6 3,7

3,4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Projection ofcapital and

solvency withinthe planning

horizon (3-5 y.)

Design of stressand scenario

tests

Assessment ofgovernance

effectiveness

Assessment ofthe significance of

the risk profiledeviating fromassumptions

underlying theSCR calculation

Integration ofORSA result

(forward lookingassessment) in

the strategicbusiness planning

process

Key themes

► Wide spread across respondents and at country level

► Some country views are close to the extremes

► EIOPA preparatory guidelines drive the agenda



Focus

► 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.

0.0

1.0

2.0

3.0

4.0

5.0

Analysis andpopulation of QRTs(data requirements

defined andsourced)

Analysis andpopulation of SFCR

& RSR (datarequirements

defined & sourced

SII reportingprocessesdesigned/

redesigned &integrated to

current reportingprocesses (incl.

interdependencieswith ORSA)

Development ofdisclosure policy

Control frameworkupdated for SIIreporting (to an

auditable standard)

2012 2013

Country comparison

0.0 1.0 2.0 3.0

Nordics

Greece

Portugal

Belgium

Poland

United Kingdom

France

Spain

CEE

Germany

Italy

Netherlands

1.13 Implementation of pillar 3 requirements

2013

2012

Data and IT readiness


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


47%

58%

66%

75%

74%

80%

80%

68%

76%

75%

79%

78%

84%

82%

0% 20% 40% 60% 80% 100%

Standard formula results are produced, and can be reproduced using a controlled and robustsystem

Investment data storage and analysis solutions are specified, developed and tested usingactual third party data

Clear architecture exists outlining how systems will support the evidencing of Solvencyoutside of regular reporting cycles if required under Pillar 2

Reporting systems are selected, designed and implemented for Pillar 3

Tests of alignment between group and solo numbers are defined and tested via dry runs

RSR, SFCR and ORSA reports are specified, designed and built

XBRL tagging and validation systems are selected

Financial and technical reconciliations of data held in different systems are defined anddeveloped

Automation of data integration, data quality and data lineage is developed and tested for highvolume data

Controls and workflow supporting low volume high value data are defined and implemented

End User Computing tools fully documented and controlled

End-to-end system test plans are established and approved

Parallel run and cutover plans are established including decommissioning and archiving asrelevant

IT Development and Support model in BAU is defined

Compliance with Solvency II requirements IT readiness


Step 1 & 2: Requirements are not fulfilled / only some requirements are fulfilled.

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


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!


Summary and conclusions


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


Questions


http://eyfsthoughtgallery.ie/

http://eyfinancialservicesthoughtgallery.ie/solutions/insurance/solvency-ii/

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european solvency ii survey 2014 - financial …...page 11 compliance with solvency ii requirements...

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