insurance: ey european solvency ii survey 2014
DESCRIPTION
Nearly 80% of European insurers are on track to implement Solvency II by 1 Jan 2016, but there is wide variation in the level of preparedness by country. Dutch, UK and Nordic insurers are most confident in meeting the requirements, while French, German, Greek and Eastern European insurers are less confident. Our survey of more than 170 insurance companies across 20 European countries sheds light on key areas of implementing Solvency II, including data and IT readiness, organizational change, regulatory interaction, recovery and resolution planning, and capital optimization. We will also discuss our other findings: - Insurers are seeking to improve the effectiveness of their risk management. - Challenges of reporting and ensuring robust data and information technology (IT) remain very significant. - Preparedness for Pillar 3 remains relatively low, and action is needed in 2014 to meet the requirements on time. - Many insurers are not satisfied with the level of support from their regulators in providing timely feedback on plans and interpretation of new requirements. This is due, in part, to the significant resourcing challenges regulators face. - Automation of many risk management activities, particularly reporting, remains relatively low. Link to on-demand webcast: http://www.ey.com/GL/en/Issues/webcast_2014-06-03-1500_insurance-european-solvency-ii-survey-2014 Link to survey report: http://www.ey.com/GL/en/Industries/Financial-Services/Insurance/EY-european-solvency-ii-survey-2014TRANSCRIPT
Insurance: European Solvency IIsurvey 2014
3 June 2014
Page 2 Insurance: European Solvency II survey 2014
Today’s moderator
Martin BradleyErnst & Young LLP (UK)EY Global Insurance Riskand Regulatory Leader
#EYSolvencyIIJoin today’s Twitter discussion:
Page 3 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Findings► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
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Page 4 Insurance: European Solvency II survey 2014
Today’s presenters
Tim FordErnst & Young LLP(UK)
Phil VermeulenErnst & Young AG
David FosterErnst & Young LLP(UK)
The information contained herein is a summary in nature. Viewers should consult their own professionaladvisors to address their individual circumstances and concerns.
Jan LeidingErnst & Young GmbHWpg)
David BurtonErnst & Young LLP(UK)
Page 5 Insurance: European Solvency II survey 2014
Key findings
► The insurance industry is on track to implement Solvency II by January 1st2016.
► Preparedness levels vary widely between countries.
► Insurers are seeking to improve the effectiveness of their risk management,including culture, appetite, control, people and systems.
► Challenges of reporting and ensuring robust data and IT remain verysignificant.
► Many insurers are not satisfied with the level of support from their regulators -in part due to the significant resourcing challenges the regulators are facing.
► “Systemically relevant” insurers are facing increasing requests for recoveryand resolution plans.
► Insurance companies are beginning to invest significant effort in capitalmanagement under Solvency II.
Page 6 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 7 Insurance: European Solvency II survey 2014
The study designParticipants and features
Significant participation
Second European EY Solvency II studyAnalysis of market trends in theEuropean implementation
Extensiveinternationalcoverage (20European countries)Single countryprofiles
Participants frommore than 160insurance companiesUnique examinationscope of the study
Covers implementation status ofSolvency II pillars, IT-system readiness,regulatory interaction and capitaloptimization
GermanyFranceCentral andEasternEurope
NordicsPolandUKBelgium
Page 8 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsGeneral implementation readiness
Expectation to meet Solvency II requirements
2%
20%
58%
19%
1% 1%
56%
32%
11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Alreadycompliant.
In the course of2014.
In the course of2015.
In the course of2016.
In the course of2017.
Later.
20132012
Page 9 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsGeneral implementation readiness
Overall implementation status by pillar
3.3
2.9
1.9
3.2
2.7
1.8
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Pillar 1 Pillar 2 Pillar 3
2013
2012
Requirements not fulfilled
Some requirements fulfilled
Most requirements fulfilled
All requirements fulfilled
Beyond requirements
Page 10 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsImplementation of Solvency II requirements – country comparison 2013
35%
25%
13%
23%
23%
23%
20%
18%
17%
14%
6%
8%
13%
0%
0% 5% 10% 15% 20% 25% 30% 35% 40%
France
Greece
CEE
Germany
Belgium
Poland
Italy
Spain
Portugal
Nordics
United Kingdom
Netherlands
Implementation after 01.01.2016
During 2016In the course of 2017 and later
Page 11 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 12 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsPillar 1 compliance
3.5
2.9
3.5
3.0
3.1
3.4
3.6
3.2
3.7
3.6
3.3
3.2
0.0 1.0 2.0 3.0 4.0
Nordics
CEE
Poland
Greece
Portugal
Spain
Netherlands
Belgium
Italy
France
Germany
United Kingdom
2013
2012
0.0
1.0
2.0
3.0
4.0
5.0
Solvency Capitalrequirement(StandardFormula)
Classificationand tiering of
own funds
Risk marginBest estimateliabilities
Valuation ofassets
20122013
Focus Country comparison
1. Requirements not fulfilled 2. Some requirements fulfilled3. Most requirements fulfilled 4. All requirements fulfilled5. Beyond requirements
Page 13 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 14 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsInternal model readiness
0.0
1.0
2.0
3.0Use test
Statistical qualitystandards
Calibrationstandards
Profit & lossattribution
Validationstandards
Documentationstandards
Externalmodels/data
2012 201317%
23%60%
Full internalmodel.
Partial internalmodel.
No internalmodel.
19%
30%51%
Full internalmodelPartial internalmodelNo internalmodel
Focus Structure 2013
Structure 2012
Page 15 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 16 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsPillar 2 compliance
0.0
1.0
2.0
3.0
4.0
5.0
Risk strategy (inline withbusinessstrategy)
Risk appetiteframework
Risk controlprocess
Definition of roleof controlfunctions
Outsourcing
ORSA
Remuneration
BusinessContinuity
Management
20122013
Focus Country comparison
3.2
2.5
2.7
2.1
2.5
2.9
3.6
2.8
3.2
2.6
3.0
3.4
0.0 1.0 2.0 3.0 4.0 5.0
Nordics
CEE
Poland
Greece
Portugal
Spain
Netherlands
Belgium
Italy
France
Germany
United Kingdom
20132012
Page 17 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 18 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsRisk management & ORSA readiness
Assessment of risk management effectiveness Country comparison:ORSA implementation readiness
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.
20122013
3.0
1.8
2.1
1.4
1.9
2.4
3.6
2.4
2.2
2.3
2.6
3.0
0.0 1.0 2.0 3.0 4.0
Nordics
CEE
Poland
Greece
Portugal
Spain
Netherlands
Belgium
Italy
France
Germany
United Kingdom
Page 19 Insurance: European Solvency II survey 2014
Development of risk managementOrganizational transformation
What is the current level of automation for risk reportingand calculation of key risk management metrics?
32% 29%24%
14%
1%
0-20% 20-40% 40-60% 60-80% 80-100%
Page 20 Insurance: European Solvency II survey 2014
Development of risk managementOrganizational transformation
Expectation of relevant changes due to Solvency II
0% 20% 40% 60%
Change of operating model between groupand operating entities
Change of responsibilities of Chief RiskOfficer
Change of governance structures
Change of risk capabilities
Change of IT landscape
Change of risk culture
Focus of Top Management on riskmanagement
Change of risk information flow
Page 21 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 22 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsPillar 3 compliance
Focus
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
1.8
2.1
1.8
1.4
1.5
2.0
2.6
1.7
2.2
1.9
2.2
1.9
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
United Kingdom
2013
2012
Page 23 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 24 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirementsData & IT readiness
32%
26%
25%
25%
24%
23%
22%
21%
20%
20%
18%
16%
0% 10% 20% 30%
Financial and technical reconciliations of data held in different systems aredefined and developed
Tests of alignment between group and solo numbers are defined and testedvia dry runs
Reporting systems are selected, designed and implemented for Pillar 3
Controls and workflow supporting low volume high value data are definedand implemented
Automation of data integration, data quality and data lineage is developedand tested for high volume data
Change is effectively governed in live SII supporting systems
End-to-end system test plans are established and approved
End User Computing tools fully documented and controlled
XBRL tagging and validation systems are selected
RSR, SFCR and ORSA reports are specified, designed and built
IT Development and Support model in BAU is defined
Parallel run and cutover plans are established including decommissioningand archiving as relevant
Page 25 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 26 Insurance: European Solvency II survey 2014
Recovery and Resolution Planning (RRP)
How many more insurancecompanies do you expect to bedefined as systemically relevant
in your country?
Assessment of the importanceof instruments for RRP
3.9
3.3
2.6
3.1
1.9
2.3
2.5
2.8
Raising Capital
Risk mitigation (e.g.insurance)
Restructuring
Improvement ofliquidity
Ring-fencing
Disposals
Run-offs
Use of othercontingent capital
67%
26%
3% 4%
1-5 5-10 10-15 >15
Page 27 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization
#EYSolvencyIIJoin today’s Twitter discussion:
Page 28 Insurance: European Solvency II survey 2014
Capital optimization
Importance of initiatives
1.71.7
1.31.6
2.21.6
2.42.12.1
1.72.0
2.31.5
2.4
2.22.4
1.82.3
3.12.4
3.33.13.0
2.22.8
3.62.0
3.4
4.0 3.0 2.0 1.0 0 1.0 2.0 3.0 4.0
Mergers & acquisitionsIntra-group reinsurance
SecurizationRestructuring of legal entities
Optimization of the risk capital structureActive run-off management
Optimization of external reinsurancePricing review
Development of new productsAlternative investment
HedgingOptimization of asset mix
Optimization of currency matchingOptimization of durations match
Importance for optimizing risk capital Use of (internal) capital model
Page 29 Insurance: European Solvency II survey 2014
Contacts
Global Solvency II LeaderMartin [email protected]
BelgiumKris [email protected]
France and LuxembourgPierre [email protected]
Germany/AustriaDr. Bernd [email protected] [email protected]
Greece and CyprusLampros [email protected]
IrelandJames [email protected]
ItalyStefano [email protected]
NetherlandsPaul de [email protected]
NordicsPehr [email protected] [email protected]
PolandMarcin [email protected]
PortugalRita [email protected]
SpainManuel [email protected]
Angel Campomanes Mañ[email protected]
SwitzerlandHans-Jürgen [email protected] [email protected]
UKRodney [email protected] O‘[email protected]
Page 30 Insurance: European Solvency II survey 2014
Resources
Full survey: www.ey.com/Solvency2
www.ey.com/insurance2014 Global Insurance outlook
Papers from the Insurance GovernanceLeadership Network.