Mind the Gap – Reporting in a Solvency II World

Carol Lynch, Maaz Mushir, John Kilbride

19th May 2015

1. Overview of Pillar 3 Requirements

2. Pillar 3 challenges

3. Industry preparedness on Pillar 3

4. What insurers need to do

Agenda

Disclaimer:The material, content and views in the following presentation are those of the presenter(s).

Overview of Pillar 3 Requirements

QRTs NSTs SFCR RSR

FrequencyAnnual/

Quarterly*Annual/

Quarterly*Annual

At least once in 3 years

Deadlines for Annual Submission

For Regular Reporting QRTs, 20 weeks for 2016, reducing by 2 weeks every year to 14 weeks atthe end of transitional period. 2 additional weeks allowed during preparatory phase.

Deadlines for Quarterly Submissions

8 weeks for 2016, reducing by 1 week every year to 5 weeks at the end of transitional period.

N/A N/A

Format XBRL XBRLElectronic copy via company website

Electronic copy

Approval by BoardFor Annual templates

only**Yes** Yes Yes

Public DocumentSubset of templates

are publicNo Yes No

* Some Quarterly templates are required for Q2/Q4 only.** Quarterly templates only require management approval.

Regular Reporting Requirements

In addition to this, some insurers will be required to produce Financial Stability Templates.

Overview of Pillar 3 RequirementsSolvency II Calendar

Day 1 QRTs

CBI Returns

Opening Qualitative Information

Quarterly

QRTs/NSTs

Quarterly

QRTs/NSTs

Quarterly

QRTs/NSTs

Quarterly

QRTs/NSTs

ORSA

Annual

QRTs/NSTs

SFCR

RSR

Overview of Pillar 3 RequirementsQuantitative Reporting Requirements

Category

Individual Group

QRTs FSTsPublic

DisclosureQRTs FSTs

Public Disclosure

Day 1 Qrtly Annual Qrtly Annual Annual Day 1 Qrtly Annual Qrtly Annual Annual

General Information 3 2 3 2 2 0 3 2 3 2 2 0Balance Sheet 1 3 9 0 0 3 1 3 7 2 0 3Assets 0 4 9 3 0 0 0 4 9 5 0 0Technical Provisions 0 2 17 0 1 3 0 0 2 0 1 0Technical Provisions (transitional measures)

0 0 5 0 0 1 0 0 1 0 0 1

Own Funds 1 1 5 0 0 1 1 1 4 1 0 1SCR 3 0 11 1 0 3 3 0 11 1 0 3MCR 2 2 2 0 0 2 0 0 0 0 0 0Variation Analysis 0 0 4 0 0 0 0 0 0 0 0 0Reinsurance 0 0 6 1 2 0 0 0 2 1 2 0Financial Stability 0 0 0 2 2 0 0 0 0 2 2 0Group Specific Templates

0 0 4 0 0 0 3 0 9 0 0 1

Total 10 14 75 9 7 13 11 10 48 14 7 9

In addition to this, there are 11 NSTs, of which 6 are for Non Life companies, and 5 are for Life companies.

Overview of Pillar 3 RequirementsQuantitative Reporting Requirements

Category

Individual Group

QRTs FSTsPublic

DisclosureQRTs FSTs

Public Disclosure

Day 1 Qrtly Annual Qrtly Annual Annual Day 1 Qrtly Annual Qrtly Annual Annual

General Information 3 2 3 2 2 0 3 2 3 2 2 0Balance Sheet 1 3 9 0 0 3 1 3 7 2 0 3Assets 0 4 9 3 0 0 0 4 9 5 0 0Technical Provisions 0 2 17 0 1 3 0 0 2 0 1 0Technical Provisions (transitional measures)

0 0 5 0 0 1 0 0 1 0 0 1

Own Funds 1 1 5 0 0 1 1 1 4 1 0 1SCR 3 0 11 1 0 3 3 0 11 1 0 3MCR 2 2 2 0 0 2 0 0 0 0 0 0Variation Analysis 0 0 4 0 0 0 0 0 0 0 0 0Reinsurance 0 0 6 1 2 0 0 0 2 1 2 0Financial Stability 0 0 0 2 2 0 0 0 0 2 2 0Group Specific Templates

0 0 4 0 0 0 3 0 9 0 0 1

Total 10 14 75 9 7 13 11 10 48 14 7 9

In addition to this, there are 11 NSTs, of which 6 are for Non Life companies, and 5 are for Life companies.

Preparatory Phase

Day 1 Quarterly

First Annual

Subsequent Annual

2 BS + 2 Asset

Full excep

t VA

VA templates

QRTs

Financial Stability Templates

Companies with assets > 12bn, subject to 50% market share

To be reported in Quarterly + 1 week deadline

Quarterly calculation of SCR

Full recalculation of Market Risk module

Overview of Pillar 3 RequirementsQuantitative Reporting Requirements

Additional information required through quantitative forms.

Overview of Pillar 3 RequirementsQualitative Reporting Requirements

Structure of SFCR/RSR

Overview of Pillar 3 RequirementsQualitative Reporting Requirements

Structure of SFCR/RSR

How long do they take to produce?

What information is already available?

How similar are the reports?

Pillar 3 challengesThe multiple dimensions of Pillar 3 Reporting

Increased complexity

Increased granularity

Tighter deadlines

Increased frequency

Organisation & Governance

Tech

no

logy

Re

po

rting P

roce

sses

DataForward Looking

Public disclosure

Efficiency, Traceability,

Comparability.

Clear allocation of roles and responsibilities.

Flexibility, Integration.Multiple stakeholders

4 Key Dimensions

Quality,Granularity,Auditability.

• 1st line of defense• 2nd line of defense• 3rd line of defense

• Information collection

• Information transformation

• Analysis• Sign-off• Disclosure• QA, etc.

SII reporting is a complex issue

that affects many

stakeholders

Identify the processes

Identify the roles

Pillar 3 challengesThe multiple dimensions of Pillar 3 Reporting

• 1st line of defense• 2nd line of defense• 3rd line of defense

• Information collection

• Information transformation

• Analysis• Sign-off• Disclosure• QA, etc.

SII reporting is a complex issue

that affects many

stakeholders

Identify the processes

Identify the roles

The amount of information to be produced is very large, and in very short timeframes.

Coordinating and setting clear roles and responsibilities is a key enabler in delivering a successful Pillar 3 project.

Auditability and traceability are one of the key outcomes of an effective risk management system.

There are multiple contributors in a Pillar 3 reporting cycle, and multiple users of the information.

Pillar 3 challengesThe multiple dimensions of Pillar 3 Reporting

Pillar 3 challengesThe multiple dimensions – Reporting Processes

5. Reporting processes

Reporting

QRTs, FSTs, NSTs

SFCR & RSR

Internal

Reports

1. Data processes 2. Calculation processes

3. Valuation of assets and other liabilities

4. Conso and aggregation processes

Life:

Contracts and

claims

Non life / Health:

Contracts and

claims

Asset Data

Accounting Data

Data sourcesData

CollectionCalculation

Conso. and aggreg.

Ris

k C

lass

agg

rega

tor

and

co

nso

lidat

ion

Risk

Market

MVL & Tech

Provisions Life

MVL & Tech

Provisions Non

Counterparty

Default Risk

Operational

Risk

Economic

Scenario

Generation

Cash Flow

projection Life

Cash Flow

projection

Non -life /

Health

Cash Flow

projection

Assets

Extr

act

Tran

sfo

rm a

nd

Lo

ad

Co

her

ence

co

ntr

ol,

valid

atio

n a

nd

sig

n o

ff

Val

idat

ion

an

d s

ign

off

Monitor and Control

Results:

SII Balance

sheet, Capital

Requirements

Operational

Losses

Counterparty

information

Life

Liabilities

Model Point

Assets

Model Point

Data Preparation

Experience

analysis and

assumptions

setting

External Market

Data

Co

her

ence

co

ntr

ol,

valid

atio

n a

nd

sig

n o

ff

Life Insurance

Risk

Non-life andHealth Risk

Asset

Pricing

Life and Health

Pillar 3 challengesThe multiple dimensions – Reporting Processes

5. Reporting processes

Reporting

QRTs, FSTs, NSTs

SFCR & RSR

Internal

Reports

1. Data processes 2. Calculation processes

3. Valuation of assets and other liabilities

4. Conso and aggregation processes

Life:

Contracts and

claims

Non life / Health:

Contracts and

claims

Asset Data

Accounting Data

Data sourcesData

CollectionCalculation

Conso. and aggreg.

Ris

k C

lass

agg

rega

tor

and

co

nso

lidat

ion

Risk

Market

MVL & Tech

Provisions Life

MVL & Tech

Provisions Non

Counterparty

Default Risk

Operational

Risk

Economic

Scenario

Generation

Cash Flow

projection Life

Cash Flow

projection

Non -life /

Health

Cash Flow

projection

Assets

Extr

act

Tran

sfo

rm a

nd

Lo

ad

Co

her

ence

co

ntr

ol,

valid

atio

n a

nd

sig

n o

ff

Val

idat

ion

an

d s

ign

off

Monitor and Control

Results:

SII Balance

sheet, Capital

Requirements

Operational

Losses

Counterparty

information

Life

Liabilities

Model Point

Assets

Model Point

Data Preparation

Experience

analysis and

assumptions

setting

External Market

Data

Co

her

ence

co

ntr

ol,

valid

atio

n a

nd

sig

n o

ff

Life Insurance

Risk

Non-life andHealth Risk

Asset

Pricing

Life and Health

Your Pillar 3 deliverables may be situated at the end of the reporting chain, but they cannot be dissociated from upstream processes.

An efficient upstream processes is a key enabler in meeting your Pillar 3 objectives.

It is important for the process to address information coming from multiple systems.

The timing and dependencies from multiple processes, people and systems must be recognised.

Pillar 3 challengesReporting Processes

Solvency II reconciliations

Solvency I

Solvency II Solvency II

Accounting

Solvency II(n-1)

Accounting(n-1)

Solvency II(n)

Accounting(n)

Day 1

reporting

First Annual

Reporting

Subsequent

Annual Reporting

Items to Reconcile?

Quantitative or Qualitative?

Where to Report?

Pillar 3 challengesData

Asset Data Challenges

Reporting gains and losses by asset class

Sourcing and compilation of data

Granularity of information

Collective investment vehicles

Identifying ring fenced funds

Valuation of assets and liabilities

Survey of IT Solutions for Solvency IIEvaluation process

38

14

24

0 10 20 30 40

Contacted

Decline/ Did not participate

Participated

3. Demonstration

sessions

4. Validation and

report

2. Request for

information

•Request

documentation from

Vendors

• 500+ question RFI

•Evaluate RFI

responses through

interview and

demonstration

sessions

•Validate the

evaluation with each

vendor

•Publish the report.

1. Short listing

• Identify the universe

of relevant solutions

•Define a short list

Overview of the Solvency II IT Market Since 2011 we have noted the appearance of Pillar 3 solutions

Number of References(log)

0

5

10

15

20

25

100 1000ActuarisERMS

Actuaris – IBNRS

Air Worldwide Clasic/2

Algorithmics – EconomicCapital and Solvency II

AlgorithmicsVIPitech

Aonbenfield ReMetrica

10

EQECAT- worldcat enterpriseTM

Guy CarpenterMetaRisk Tool Suite

IBM – SolvencyII Solution

Moody’s Analytics –Solvency II Product Suite

Orfival –GPMS

Ortec Finance ALS

RMS

SAS RMfI

Sungard –iWorks Prophet

Insureware –ICRFS-Plus

Datanomic - dn:Director for Solvency II

DataFlux –dfPower Studio

Trillium – EnterpriseData Quality

Oracle –OFSAA S-II

Addactis –Pillar 3 Asseco

BearingPoint ABACUS

Invoke FAS Regulatory S2

SecondFloor eFrame

Collibra

Diaku

Number of years since the first release

Solution surveyed in 2010 Solution surveyed in 2014

Legend

Pillar 3 SolutionsSample candidate solutions

Solutions specifically developed

for pillar 3 requirements:

Some solutions with broader

coverage…

• Templates for regulatory reports (e.g. QRTs) but also guaranty that

those templates will be maintained over time in.

• XBRL capabilities for generating automatically files in this required

format.

• Capability to monitoring report generation and sign-off

Characteristics required to address the issue Sample candidate solutions

Description of the issue

• Industrialise the process to produce, sign off and distribute quantitative (XBRL) & qualitative reports

• Leverage content to drive Business Intelligence to enable faster more effective decision making

Collect Prepare Calculate Report

ETL

Dat

a q

ual

ity

ESG

Experience analysis

Proxy Methodo.

Stress tests

Data

Liabilities data

Assets data

Market data

Other data

Model points

Accounting data

Operation and monitoring

Data historisation and archiving

Security Workflow & monitoring Scalability & performance

Data storage

Agg

rega

tio

n

Capital planning

KRI

Life TP

Health TP

ORSA

QRTs

XBRL

Assets

Non life TP Premium

Non lifeTP CO

Life standard

Life internal

Non life standard

Non life internal

Health standard

Health internal

Market standard

Market internal

Default standard

Default internal

Op.standard

Op. internal

Integration

Qualitative reporting

Internal reporting

And others…

How to differentiate Pillar 3 Solutions?What functionality does a best in class solution offer

Monitoring and Control: • Monitoring of report generation & automate the

testing of completed reports.

• Audit trail for any modification on data.

• Sign-off of the final report

Integration:• Ability to automate the population of calculation

results to generic reporting templates.

Internal reporting:• Execute ad-hoc queries.

• Modify regulatory reports for

internal Business Intelligence

QRTs:• Predefined templates for QRTs.

• Vendor updates software shortly after

template changes.

XBRL:• Engine to

automatically convert

a report to XBRL

format.

Qualitative reporting:• Predefined templates.

Data Quality: • Ability to run data quality checks

both on input data (i.e. calculation

results) and also reports.

What insurers need to do?Survey of Insurer Preparedness

Highlights of a survey conducted in Q1 2015 at 70 European insurers (18 in Ireland)

CFO / Finance function is typically is key sponsor / driver

firms at build, test or implementation of Pillar 3 project

‘on track’ for the preparatory measures,

Whilst less than 20% are close to being ‘fully operational’

Firms delivering a tactical solution. In contrast, 33% of firms

who are directly implementing a strategic solution

Firms have selected a Pillar 3 specific IT solution

39%

65%

60%

36%

31%

What insurers need to do?Technology

Organisation & Governance

Tech

no

logy

Re

po

rting P

roce

sses

Data

Buy v build?

Tactical vs Strategic

Speed, accuracy and

control including Data

Quality

Level of Automation:

Reduce the risk and

cost of manual work Integration with core

systems and upstream SII

technology

Flexibility &

Future Proof

What insurers need to do?Organisation and Governance

Organisation & Governance

Tech

no

logy

Re

po

rting P

roce

sses

DataApproval and Sign

offs

Documentation of

Auditable Standard

Review Process

Linkages between ORSA,

SFCR, RSR and QRTs

Integration to

current WDT Transfer from Project

to BAU teams.

Scope of data

requirements

Third party

dependencies

Data Validations &

consistency

Questions