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Insurance: European Solvency II
survey 2014
3 June 2014
Page 2 Insurance: European Solvency II survey 2014
Today’s moderator
Martin Bradley
Ernst & Young LLP (UK)
EY Global Insur...
Page 3 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Findings
► Study Design & Backgroun...
Page 4 Insurance: European Solvency II survey 2014
Today’s presenters
Tim Ford
Ernst & Young LLP
(UK)
Phil Vermeulen
Ernst...
Page 5 Insurance: European Solvency II survey 2014
Key findings
► The insurance industry is on track to implement Solvency...
Page 6 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgroun...
Page 7 Insurance: European Solvency II survey 2014
The study design
Participants and features
Significant participation
Se...
Page 8 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
General implementation readine...
Page 9 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
General implementation readine...
Page 10 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
Implementation of Solvency II...
Page 11 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 12 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
Pillar 1 compliance
3.5
2.9
3...
Page 13 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 14 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
Internal model readiness
0.0
...
Page 15 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 16 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
Pillar 2 compliance
0.0
1.0
2...
Page 17 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 18 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
Risk management & ORSA readin...
Page 19 Insurance: European Solvency II survey 2014
Development of risk management
Organizational transformation
What is t...
Page 20 Insurance: European Solvency II survey 2014
Development of risk management
Organizational transformation
Expectati...
Page 21 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 22 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
Pillar 3 compliance
Focus
0.0...
Page 23 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 24 Insurance: European Solvency II survey 2014
Compliance with Solvency II requirements
Data & IT readiness
32%
26%
2...
Page 25 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 26 Insurance: European Solvency II survey 2014
Recovery and Resolution Planning (RRP)
How many more insurance
compani...
Page 27 Insurance: European Solvency II survey 2014
Today’s agenda
► Introduction & Key Messages
► Study Design & Backgrou...
Page 28 Insurance: European Solvency II survey 2014
Capital optimization
Importance of initiatives
1.7
1.7
1.3
1.6
2.2
1.6...
Page 29 Insurance: European Solvency II survey 2014
Contacts
Global Solvency II Leader
Martin Bradley
mbradley@uk.ey.com
B...
Page 30 Insurance: European Solvency II survey 2014
Resources
Full survey: www.ey.com/Solvency2
www.ey.com/insurance
2014 ...
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Insurance: EY European Solvency II survey 2014

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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-2014

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Transcript of "Insurance: EY European Solvency II survey 2014"

  1. 1. Insurance: European Solvency II survey 2014 3 June 2014
  2. 2. Page 2 Insurance: European Solvency II survey 2014 Today’s moderator Martin Bradley Ernst & Young LLP (UK) EY Global Insurance Risk and Regulatory Leader #EYSolvencyIIJoin today’s Twitter discussion:
  3. 3. 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 #EYSolvencyIIJoin today’s Twitter discussion:
  4. 4. Page 4 Insurance: European Solvency II survey 2014 Today’s presenters Tim Ford Ernst & Young LLP (UK) Phil Vermeulen Ernst & Young AG David Foster Ernst & Young LLP (UK) The information contained herein is a summary in nature. Viewers should consult their own professional advisors to address their individual circumstances and concerns. Jan Leiding Ernst & Young GmbH Wpg) David Burton Ernst & Young LLP (UK)
  5. 5. Page 5 Insurance: European Solvency II survey 2014 Key findings ► The insurance industry is on track to implement Solvency II by January 1st 2016. ► 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 very significant. ► 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 recovery and resolution plans. ► Insurance companies are beginning to invest significant effort in capital management under Solvency II.
  6. 6. 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:
  7. 7. Page 7 Insurance: European Solvency II survey 2014 The study design Participants and features Significant participation 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, IT-system readiness, regulatory interaction and capital optimization Germany France Central and Eastern Europe Nordics Poland UK Belgium
  8. 8. Page 8 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements General 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% Already compliant. In the course of 2014. In the course of 2015. In the course of 2016. In the course of 2017. Later. 2013 2012
  9. 9. Page 9 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements General 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
  10. 10. Page 10 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements Implementation 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 2016 In the course of 2017 and later
  11. 11. 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:
  12. 12. Page 12 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements Pillar 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 Capital requirement (Standard Formula) Classification and tiering of own funds Risk margin Best estimate liabilities Valuation of assets 2012 2013 Focus Country comparison 1. Requirements not fulfilled 2. Some requirements fulfilled 3. Most requirements fulfilled 4. All requirements fulfilled 5. Beyond requirements
  13. 13. 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:
  14. 14. Page 14 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements Internal model readiness 0.0 1.0 2.0 3.0 Use test Statistical quality standards Calibration standards Profit & loss attribution Validation standards Documentation standards External models/data 2012 2013 17% 23%60% Full internal model. Partial internal model. No internal model. 19% 30% 51% Full internal model Partial internal model No internal model Focus Structure 2013 Structure 2012
  15. 15. 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:
  16. 16. Page 16 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements Pillar 2 compliance 0.0 1.0 2.0 3.0 4.0 5.0 Risk strategy (in line with business strategy) Risk appetite framework Risk control process Definition of role of control functions Outsourcing ORSA Remuneration Business Continuity Management 2012 2013 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 2013 2012
  17. 17. 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:
  18. 18. Page 18 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements Risk 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/have no formal way of assessing this. Believe it is effective overall, but this is not assessed against outcomes in any formal and reliable way. Partially effective, some components have been assessed formally. It is effective in bringing out the desired outcomes we want in the business and this has been formally assessed and validated. 2012 2013 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
  19. 19. Page 19 Insurance: European Solvency II survey 2014 Development of risk management Organizational transformation What is the current level of automation for risk reporting and calculation of key risk management metrics? 32% 29% 24% 14% 1% 0-20% 20-40% 40-60% 60-80% 80-100%
  20. 20. Page 20 Insurance: European Solvency II survey 2014 Development of risk management Organizational transformation Expectation of relevant changes due to Solvency II 0% 20% 40% 60% Change of operating model between group and operating entities Change of responsibilities of Chief Risk Officer Change of governance structures Change of risk capabilities Change of IT landscape Change of risk culture Focus of Top Management on risk management Change of risk information flow
  21. 21. 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:
  22. 22. Page 22 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements Pillar 3 compliance Focus 0.0 1.0 2.0 3.0 4.0 5.0 Analysis and population of QRTs (data requirements defined and sourced) Analysis and population of SFCR & RSR (data requirements defined & sourced SII reporting processes designed/ redesigned & integrated to current reporting processes (incl. interdependencies with ORSA) Development of disclosure policy Control framework updated for SII reporting (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
  23. 23. 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:
  24. 24. Page 24 Insurance: European Solvency II survey 2014 Compliance with Solvency II requirements Data & 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 are defined and developed Tests of alignment between group and solo numbers are defined and tested via dry runs Reporting systems are selected, designed and implemented for Pillar 3 Controls and workflow supporting low volume high value data are defined and implemented Automation of data integration, data quality and data lineage is developed and 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 decommissioning and archiving as relevant
  25. 25. 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:
  26. 26. Page 26 Insurance: European Solvency II survey 2014 Recovery and Resolution Planning (RRP) How many more insurance companies do you expect to be defined as systemically relevant in your country? Assessment of the importance of 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 of liquidity Ring-fencing Disposals Run-offs Use of other contingent capital 67% 26% 3% 4% 1-5 5-10 10-15 >15
  27. 27. 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:
  28. 28. Page 28 Insurance: European Solvency II survey 2014 Capital optimization Importance of initiatives 1.7 1.7 1.3 1.6 2.2 1.6 2.4 2.1 2.1 1.7 2.0 2.3 1.5 2.4 2.2 2.4 1.8 2.3 3.1 2.4 3.3 3.1 3.0 2.2 2.8 3.6 2.0 3.4 4.0 3.0 2.0 1.0 0 1.0 2.0 3.0 4.0 Mergers & acquisitions Intra-group reinsurance Securization Restructuring of legal entities Optimization of the risk capital structure Active run-off management Optimization of external reinsurance Pricing review Development of new products Alternative investment Hedging Optimization of asset mix Optimization of currency matching Optimization of durations match Importance for optimizing risk capital Use of (internal) capital model
  29. 29. Page 29 Insurance: European Solvency II survey 2014 Contacts Global Solvency II Leader Martin Bradley mbradley@uk.ey.com Belgium Kris Volkaerts kris.volkaerts@be.ey.com France and Luxembourg Pierre Planchon pierre.planchon@fr.ey.com Germany/Austria Dr. Bernd Greuel bernd.greuel@de.ey.com Jan Leiding jan.leiding@de.ey.com Greece and Cyprus Lampros Gkogkos lampros.gkogkos@gr.ey.com Ireland James Maher james.maher@ie.ey.com Italy Stefano Battista stefano.battista@it.ey.com Netherlands Paul de Beus paul.de.beus@nl.ey.com Nordics Pehr Ambuhm pehr.ambuhm@se.ey.com Henrik Axelson henrik.axelsen@dk.ey.com Poland Marcin Sadek marcin.sadek@pl.ey.com Portugal Rita Costa rita.costa@pt.ey.com Spain Manuel Martinez manuel.martinezpedraza@es.ey.com Angel Campomanes Mañueco angel.campomanesmanueco@es.ey. com Switzerland Hans-Jürgen Wolter hans-juergen.wolter@ch.ey.com Phil Vermeulen phil.vermeulen@ch.ey.com UK Rodney Bonnard rbonnard@uk.ey.com Roy O‘Neil roneil@uk.ey.com
  30. 30. Page 30 Insurance: European Solvency II survey 2014 Resources Full survey: www.ey.com/Solvency2 www.ey.com/insurance 2014 Global Insurance outlook Papers from the Insurance Governance Leadership Network.
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