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Copyright © 2011, Oracle and/or its affiliates. All rights reserved.
Solvency II
September 2011
What is Solvency II?
Three Pillars of Solvency II
SII Technology Platform Actuarial/Risk Calculation Engines
Req
uire
me
nts
S
olu
tion
K
ey Is
su
es
Minimum Capital Requirement (MCR)
Solvency Capital Requirement (SCR)
Technical provisions
Internal model or standard formula
Regulatory approval
Risk management processes
Own Risk & Solvency Assessment
(ORSA)
Use Test Implementation
Model and Risk Management Dox
Market Disclosure - SCFR
Transparency
QRT/SCFR/RSR
Understanding Risk dependencies
Capital aggregation & allocation
Control & repeatability
Quality of risk data
Consistent risk management
Security, audit, control processes
Embedding risk culture in business
Information readily available to
business – e.g. solvency monitoring,
capital allocation
Robust mechanisms and
processes for external reporting
Providing consistent information
on a timely basis
Enterprise deployment
Audit, security & control technology
Computing power
Data Management
Collaboration/integration
Real-time Reporting
Analytics
Dashboards
Three Pillar Requirements
Pillar 1 Capital Adequacy
Pillar 2 Risk Management
Pillar 3 Transparency
Risk Engines
Market Insurance Credit Operational
Compute Grid
4
Chief Actuary
Faster production of information in real
time
Graphical and analytical reports for the
regulators and the business
Sensitivity and what if analysis
Centralised and consistent modelling
platform for all actuarial users
Automated modeling processes
Audit & security controls for Models
and associated data
Chief Risk Officer
Internal model approval
Understanding of key assumptions
Risk calculations to accurately reflect
the underlying risk profile
Enterprise-wide consistent risk
management standards
Auditable and transparent modelling
and risk processes
Graphical and analytical reports for
the regulators and the business –
SCFR/RSR/QRT/ORSA
Chief Information Officer
Robust IT governance
Power to run complex models
Centralised modeling platform
based on enterprise technologies
Deployment across the enterprise
Seamless integration with other
enterprise systems and Automated
data extraction/ transformation
Centralised SII Database for
enterprise access
Chief Financial Officer
Consistency of external reporting
(e.g. IFRS, SII, MCEV)
Financial Consolidation - QRTs
Faster, controlled production of
accounting reports – e.g. inputs to
IFRS statements
Graphical and analytical reports for
the regulators and the business
Faster financial close
CA
CRO
CIO
CFO
CEO
Solvency II Programme
Enhanced business performance
through improved risk-based
decision making
Internal Stakeholder Requirements
SII/EC Typical Program Steps
Business
Requirements
SII/EC Strategy
Gap Analysis
Centralized or
Decentralized
Approach
Resourcing
Requirements
Technology
Requirements
Risk Management
Organization &
Processes
SII
Project Plan
SII/Risk Systems
Architecture
Connectivity, Collaboration &
Integration
Data
Management
Audit, Security & Control
Construct SII
Technology
Infrastructure
SII Implementation Plan
Risk Management
Processes & Control
Deployment of Risk
Management
Systems &
Processes
Training &
Communications
Statutory
Reporting
SCFR/RTS/QRT
Management
Reporting
Business
Analytics &
Dashboards
Review Process
Methodology & Approaches
Internal /Standard
Model
Reporting
Requirements
ORSA/Use Test
Impact
Documentation
Standards
Risk based
Decision Making
Use Test
Audit
Performance
Management
Capital
Allocations
Step 5
Implementation
& Roll Out
Step 1
Requirements
& Strategy
Step 2
Readiness
Review
Step 4
Technology
Infrastructure
Step 6
Reporting
& Analytics
Step 3
Methodology
& Processes
Step 7
Utilization in
Business
Systems Testing
Documentation
Change Management
Programme Management
Regulatory
Approval
QRT Internal Auditor
Processes
Most Insurers are still in
planning, and evaluation
phases
ORSA
6 6
SII Programs – Key Issues with our Clients
QRT Process – Insurers have completed their QIS5 exercise and now the focus is
on the QRT Reporting Process and the associated SFCR/RSR processes. Key
focus on Regulatory Reporting
Data Quality – how do we ensure that the input data is consolidated, accurate and
validated ? Can we trust the data!
Use Test/ORSA Implementation – is the internal model genuinely important to the
business? Is it widely used in decision making? How do we demonstrate to the
regulators we are using the capital/risk information in business decision
making?
Actuarial/Risk Management Processes - do we actually have defined, controlled
and documented processes? How do we demonstrate full audit trail?
Spread Sheets - How do you reduce the dependency on Spread Sheets –
Insurers can have 100s of spread sheets that are difficult to audit & control
Auditability & Transparency - how do we audit, track and control our actuarial
and risk management processes? Particularly as most of the existing systems
are Desktop based
Documentation Standards – is there a proper documentation to describe the
models, the supporting processes and how is it kept up to date? Documentation is
a real issue
Pilla
r I P
illar s
II & III
Pilla
r s II/III
SII Program Phases
Pillar 1 Capital
Numbers &
Processes
IMAP Process
QRT/SFCR/RSR
Processes
Report Production
Regulatory Reporting/
IMAP Process
Phase 1 QRT/SFRC/RSR
Data Sources
Data ETL
Staging/Manual Input
Data Quality
Data Validation
Data Reconciliation
Data Quality to
support Pillar 1 &
Pillars II/III
Phase 2
Data Quality
SII Reporting Data
Risk Data
Finance Data
Actuarial Data
SII Data Mart
Phase 3
SII Mart
Capital/Risk
Information
Use Test Process
ORSA Process
Utilisation within the
Business
Phase 4
Use Test/ORSA
Fully Integrated Risk,
Finance and Actuarial
Data Warehouse
Solvency II Plus
Phase 5 Fully Integrated Repository
An Integrated Risk Repository will
typically be developed in stages
Pillar 1
Pillars 2/3
Actuarial
Operational Risk Finance Risk Management Process
Change Management Business Processes
Roles/Responsibilities Culture
Current Solvency II technology landscape
Traditional actuarial and risk systems are desktop oriented and
supplemented heavily with manual controls
Often insurers have multiple risk systems as a result of
multinational structures or M&A activity
These systems tend to lack enterprise capabilities making
security, auditability and control difficult
Risk data is collected from multiple sources and generally lacks
consistency, quality and controls
Reporting is split across multiple systems making it difficult to
aggregate risk information
Desktop computing power inhibits the ability to undertake frequent
and ever more complex actuarial/risk models
9
Case study of Actuarial Spaghetti!
Solvency II Projects
SII – Lineage and Compliance
SCR
Policies
For compliance with SII you need to have lineage from an individual
policy to through to the ultimate SCR
Reporting Engine
Capital Aggregation Engine
Actuarial Modelling Engines
Model Points
Risk/Financial Engines/Assets
Data Quality/Ware Houses/Integration Technologies
Source Systems
Ris
k M
an
ag
em
en
t Pro
ce
ss
es
Us
e T
es
t Capital/Risk
Information for Use Test/ORSA
OR
SA
Risk Management process to provide
auditablity & governance
Secrets of Success
There is no one-size fits all solution to Solvency II - no vendor has
one and no insurer would buy one!
Insurers already have a number of existing SII related components -
these will have to be integrated into any strategic SII framework
Plan strategically but implement in a phased manner delivering
defined functionality in other words identify a number of quick wins
Components must be capable of meeting both today's and
tomorrows requirements – they must be flexible – data model,
warehouse, reporting engine etc....
IT must work closely with Actuarial , Risk and Finance to
understand the business requirements
Ultimately business benefits have to be derived from a SII program
so plan for SII plus and finally ................................
IT represents 50% upwards of total SII Budget
<Insert Picture Here>
1. Stable, repeatable and robust technology platform for risk management
2. Full audit, security and control around risk systems
3. Version control and change management around risk models and process
4. Full documentation of risk models and associated risk management process
Wider CEIOPs Requirements
Oracle Solution
Typical SII Architecture
Repository
ETL/MDM
Source
Operational Data
Warehouses
Policy/Assets Data
Actuarial tables
External Data
Financial Data
Cash flow projection output
QIS5/QRT/SII Data
Aggregation, Analyses
Reconciliation
Policy Admin Systems
Claims
Asset Data
Risk
Bloomberg
3. Data Staging Area
4. SII Repository
ETL
2 . Manual
Data Entry
Data Quality
Process Flow
Automation
1. 1. Source
2. Systems
GLs
Reporting
BI Reporting & Analysis
7. Analytics
Monthly KPIs
Business Dashboards
Risk/Management
Regulatory
6. Pillar II Compliance
ORSA
Use Test
Calculation/Validation
Balance Sheet Forecasting
Financial Consolidation
Annual Reporting - QRTs
8. Actuarial Engines
Assets
LIFE
ALM
Economic Capital
5. Validation Engine
9. Financial Consolidation Engine
P&C
Operational Risk
10. Governance Risk & Compliance Systems – Risk Management Processes/Controls
Typical SII Architecture
Repository
ETL/MDM
Source
Operational Data
Warehouses
Policy/Assets Data
Actuarial tables
External Data
Financial Data
Cash flow projection output
QIS5/QRT/SII Data
Aggregation, Analyses
Reconciliation
Policy Admin Systems
Claims
Asset Data
Risk
Bloomberg
3. Data Staging Area
4. SII Repository
ETL
2 . Manual
Data Entry
Data Quality
Process Flow
Automation
1. 1. Source
2. Systems
GLs
Reporting
BI Reporting & Analysis
7. Analytics
Monthly KPIs
Business Dashboards
Risk/Management
Regulatory
6. Pillar II Compliance
ORSA
Use Test
Calculation/Validation
Balance Sheet Forecasting
Financial Consolidation
Annual Reporting
8. Actuarial Engines
Assets
LIFE
ALM
Economic Capital
5. Validation Engine
9. Financial Consolidation Engine
P&C
Operational Risk
10. Governance Risk & Compliance Systems – Risk Management Processes/Controls
2. Oracle HFM
Financial Consolidation
SII Reporting
XBRL
Audit & Security
Process Flows
1. Oracle OFFSA
Data Quality
Data ETL
Data Staging &Validation
Data Repository
Process Flows
Calculations & Aggregation
3. Oracle Analytics
SII Reporting
Dash Boards
KPIs
Integrated Risk, Actuarial
& Finance
Solvency II Plus
4. Oracle GRC
Risk Process definition
Risk Process flows & controls
Risk Reporting
QMR (SII Regulatory) Reporting Application
Using the HFM platform
What is QMR for SII? (Quantitative Management Reporting)
18
“Out of the Box” solution for SII reporting – QRTs, SFCR, RSR
Based on the existing Oracle financial consolidation engine – Hyperion Financial Management (HFM)
HFM comprises:
Powerful Financial Consolidation Engine with process flow controls (HFM)
Data Quality and Integration Tool (FDQM)
Reporting (Disclosure Management)
QMR is a dedicated application that operates with the HFM environment to specifically provide for QRT, SFCR,RSR functionality.
The QMR application will be maintained and developed by Oracle to keep pace with EIOPA regulations
All insurers need to capture QRT information from all their legal entities, reporting entities, branches or any other organisational structure of the respective insurer.
This is could be a violation of upcoming Solvency II reporting requirements (Pillar II) and will impose future liabilities regarding insurers filling Solvency II (based on further developments of QRT principles)
Many insurers are using manual Excel procedures to capture and consolidate information
QMR Process Flow
19
Reporting
Financial
Actuarial
Asset
Financial
Data Sources
SII Cycles
Process Management
Rules Engine
Validations
Journals
Audit Tracking
Inter-company Processing
HFM
QRT specific calculations
QRT Data forms
QRT Report structures
Dimensionality to support QRTS
SFCR/RSR Templates
QMR
User Driven ETL
Data Load Repository
Audit, Security & Control
Drill-through
FDQM
Source Mappings Target
Processing
Manual Entry
ETL
Report Generation (pdf/html/MS Office)
Adjustments
Explanations
XBRL Tagging
Qualitative Text
Dashboards
OB
IEE
, S
ma
rt V
iew
& F
ina
ncia
l R
ep
ort
s
Dis
clo
su
re M
an
ag
em
en
t &
FC
M
QR
T
SF
CR
R
SR
other
QMR Application within HFM
Pre-Built application that supports (both independently and in conjunction with
Oracle S-II Repository) the generation of the QRT reporting requirements as
prescribed by the European Insurance regulators (EIOPA) for both for solo
and group reporting
Incorporates calculations for SCR/MCR and Diversification calculations
Our approach and release management will support future upgrades in the
underlying platform (HFM) and future regulations – e.g. QRTs/
SFCRs/RSRs….
QMR supports both Life, Non-life business and composite Insurers
Capability for the customisation of QRT templates (for local regulator
requirements) and generation of user specific templates
QRT specific calculations
QRT Data forms
QRT Reports
Dimensionality to support QRTS
SFCR/RSR Templates
QMR
XBRL Taxonomy
21
The announcement that XBRL will be the reporting standard for Solvency II has been welcomed by many. Now EIOPA has revealed that in July it will launch the first of two public consultations on the use of the XBRL for Solvency II. For Solvency II this data is defined by the final reporting template.
After the Board approves the taxonomy in October, EIOPA will launch a full public consultation of the reporting templates and the underlying taxonomy. The July consultation will focus on technical aspects.
“The final draft of the taxonomy will depend on the final reporting template, which will be decided upon in the EIOPA Board meeting of October 2011. It is, however, possible that some small modification will be needed due to
changes in the Level 2 Text”
“The July consultation will relate to the design of the taxonomy” Mr. Hoedjes explained. “It will not relate to the reporting templates, just the pure technical XBRL solutions chosen to accommodate the complexity of the reporting templates.”
Benefits of QMR
HFM/QMR
5. More than just a reporting solution – it provides essential capabilities for Pillar 2/3 SII controls:
Data Quality, Auditabilty, ETL
Validations and Calculation capabilities
Embedded process flows with inbuilt approvals and signs-off procedures
Support for Internal and Standard Models
2. Fully supported and maintained by Oracle with a discounted “bundled price” for SII reporting
1. “Out of the Box” solution for QRT- Specially bundled package of HFM/QMR for SII reporting
3. Fully customisable to an insurers specific legal structures, regulatory environment and internal requirements
4. Relatively quick implementation process – estimated 3-4 months to support SII reporting - can be quicker in a existing HFM client
EIOPA QRT Templates
23
Template
Content
S G QS IAG DS DG
BS - C1 Balance sheet X X Tbd Tbd X X
BS - C1B Off-balance sheet items X X X X X X
BS - C1D Assets and liabilities by currency X X
OF - B1A Own funds - Annual X X X X
OF - B1Q Own funds - Quarterly X X X X
SCR - B2A Solvency capital requirement (for undertaking on standard formula or partial internal model)
X X X X SCR - B2B Solvency capital requirement (for undertakings on partial internal models)
SCR - B2C Solvency capital requirement (for undertaking on full internal models)
SCR - B3A Solvency capital requirement - market risk X X
SCR - B3B Solvency capital requirement - counterparty risk5 X X
SCR - B3C Solvency capital requirement - life underwriting risk5 X X
SCR - B3D Solvency capital requirement - health underwriting risk5 X X
SCR - B3E Solvency capital requirement - non-life underwriting risk5 X X
SCR - B3F Solvency capital requirement - non-life catastrophe risk5 X X
SCR - B3G Solvency capital requirement - operational risk5 X X
MCR - B4A Minimum capital requirement (except for composite undertakings)
X X X
MCR - B4B Minimum capital requirement (for composite insurance undertakings)
Oracle - SII Reporting Pack
Solvency II – Repository
Asset Data
External Data
Reporting Data
Financial Data
Portfolio, Asset Types, Duration ,QRT inputs etc
Balance Sheet, P&L, IFRS, GAAP
ESG files, Catastrophe Models, Reuters, Bloomberg etc
QRTs, SFCR, RSR, MVEV, IFRS etc...
Capital Aggregation Inputs/Results
(Algo- Risk, Ortec)
Actuarial Results Files, Risk Factors, Asset Data (super-set). Results – Curve Fitting, Replicating Portfolios
Actuarial Modelling Input Data
(MoSes, Profit, Igloo, ReMetrica, Mo.Net)
Actuarial Modelling Results Data
(MoSes, Profit, Igloo, ReMetrica, Mo.Net)
Assumptions Tables, Yield Tables, Mortality Tables, Run Parameters, Policy Data
Results Files, Cash Flows etc..........
SCR
Solvency II – Reporting
Statutory/SII
SCR
QIS5, QRT, SFCR, RSR ORSA, Use Test
Management Reports/Dashboards
Executive
Management/Business Information
SCR Projection/SCR Breaches/SCR Breakdown
Risk Management Risk Factors/Capital/Risk Analysis/Geographies
Asset Management Asset Mix/Asset Durations/Intangible Assets
Actuarial Shocks/SCR Scenarios/Sensitivity Analyses
Finance
Ad Hoc Reports
Operating Expenses/Income, Claims Analysis, Liquidity, Key Ratios, Capital Adequacy etc
Executive Economic Capital/KPIs/SCR
Executive Reports
Risk Adjusted Return on Capital
Group SCR
Reconciliation of ECaR
SCR by Line of Business
Examples Solvency II
Dashboards
Executive
Dashboards Answers More Products
Settings
Log Out
Executive Reports
SCR Development
Key Indicators
SCR Minimum Values
SCR Decomposition
Examples Solvency II
Dashboards
Executive
Dashboards Answers More Products
Settings
Log Out
0,00
50,00
100,00
150,00
2010 2011 212 2013
Tier 3
0
10
20
30
40
50
60
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
2010 2011 212 2013
TIer1
tier3
Tier 2
Tier 1 scr req (1/3)
scr
0,00
0,50
1,00
1,50
2,00
2,50
2009 2010 2011 2012 Goal
tier2+tier3/tier1
min 2
0,00
0,10
0,20
0,30
0,40
0,50
0,60
2009 2010 2011 2012 Goal
tier 3/ tier
1+ tier 2
breach .5
0
1000
2000
3000
4000
5000
0
1
2
3
4
5
6
7
8
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
SCR
Yield
Linear (SCR)
Linear (Yield)
Risk Reports
SCR by Region
SCR Breach Level
Risk Factors over Time
MCR Breach Level
Examples Solvency II
Dashboards
Executive
Dashboards Answers More Products
Settings
Log Out
Actuarial Reports
SCR Killer Scenarios
Impact of the 26 EIOPA Shocks
Internal v Standard Models
Impact of the 26 EIOPA Shocks – Projected Forward
Examples Solvency II
Dashboards
Executive
Dashboards Answers More Products
Settings
Log Out
SII is spreading around the globe
South Africa is adopting a SII
regime by 2014
Australia is also considering an
SII regime
USA currently has Principal Based
Approach regulation but
likely to move to SII regime in a few
years
Japan is adopting an SII
type regime
Israel is considering SII
type regime Mexico is adopting SII
Equivalence for 2012
32
Rating Agencies have similar requirements…
“All insurers will need to have at a strong enterprise risk
management assessment before we will consider
undertaking an Economic Capital Review”
These insurers will have demonstrated to us that their
Economic Capital Model (e.g. Internal Model) is an integral
part of the way in which they manage their business and
thus will tend to have better and more robust models
It is important that management relies on the ECM as a
key management tool and not just as a determinate of
capital adequacy
Source S&P
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