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March 2013 | www.secondfloor.comLike its counterparts across Europe, in 2010this leading UK life and pensions provider wasfacing a pressing deadline. Its capital allocation,risk management and governance processes had tocomply with the new Solvency II regulations by 1stNovember 2012. The deadlines slipped from theregulator’s side, but the insurer saw the businessbenefits of improving its risk and capitalmanagement capabilities and continued with itschange program.The insurer already had a functioning but manualinternal model in place for analysing risk andcalculating economic capital requirements acrossits diversified lines of business. It was confident itsinternal model would more than satisfy therequirements of the UK regulator, the FinancialServices Authority (FSA). However, the underlyingprocess and the technical provisions for gatheringthe data, calculating the capital requirements andreporting the results needed urgent attention.Leading UK Life ProviderAutomates Internal ModelProcesses for Solvency IICompliance and Business AnalyticsA customised workflow solution from SecondFloorcreates an automated and repeatable reportingprocess – delivering benefits that extend far beyondSolvency II compliance.TheProblem
Manual processes meant deadlinescould not be metPrior to 2010 this process was a manually-intensivetask, requiring a team of actuaries to assembleand validate the data, reconcile the outputs fromthe calculation engines and format the results intoreports for review by senior management and theFSA.This process was time-consuming and an inefficientuse of skilled actuaries’ time. Crucially, it alsomeant the insurer would not be able to meet thereporting deadlines that would come into forcewith Solvency II. Before it could submit its internalmodel to the FSA for approval, it had to be ableto demonstrate the existence of an end-to-end,controlled process for producing accurate andauditable reports within the yearly and quarterlydeadlines.An automated solution in time forSolvency IIIn early 2010 the insurer initiated a project toautomate its internal capital management activitiesusing a workflow-driven approach. The aim was tohave an automated, repeatable process to submit tothe FSA for approval, and to have it up and runningwell in advance of the November 2012 deadlinethen in force, in order to be able to carry out some‘dry runs’ performing the important and challenging‘Use Test’ before Solvency II became law.The key to the project’s success would be unifyingto orchestrate many different involved people,data sources and calculation engines required toproduce the final reports, as well as the productionof the reports themselves to the required formats(annual SFCR, RTS and QRTs). Key considerationswere:• Gathering data from multiple internal and externalsource systems• Reconciling different data models into a singlemodel to allow calculations to be conductedSuccessCriteriaTheSolution2June 2013 | www.secondfloor.com
• Gaining qualitative sign-off showing that thedata is ready to be transmitted to the calculationengines• Passing the validated data to the calculationengines• Production of reports for internal managementuse and regulatory submission• Completion of the entire process within a definedtime-window• Creation of a full audit trail covering everyelement of the process.SecondFloor experts develop acustom workflow solutionThe insurer had hired a leading systemsintegrator to manage its Solvency II complianceprogramme. The SI recommended the use of aworkflow management tool to create the controlledprocesses. When the insurer needed it to becustomised to meet its specific requirements,SecondFloor experts were brought in to carryout the customisations as part of the 50+-strongSolvency II team.Paul van Rangelrooy, SecondFloor’s projectmanager in charge of delivering the customisedsolution, says it was a complex project with somekey challenges that most insurers will recognise:“Like most insurers, this company had quite a fewlegacy systems in place, so it was a challenge to tiedown what data was needed, what aspects of thedata needed to be in the internal model, and whatformat it should be in before it could go into theinternal model,” he says.ResultsSolvency II requires that eachlegal entity produces its ownreports, but the company ismanaged in a different way.That meant mapping thedifferent legal and businessreporting hierarchies in thesystem to ensure the correcthierarchical reports areproduced for the regulator,“”says Paul van Rangelrooy.3June 2013 | www.secondfloor.com
A customised workflow to meetspecific requirementsWorking closely with the insurer’s internal IT team,the Solvency II programme team, and consultantsfrom the calculation engine vendor, SecondFloor’sconsultants delivered a customised product to afixed budget and within a tight project deadline. Thecustomised tool provided the following functionality:• A web-based portal for business users to inputdata for internal model calculations• Integration with multiple source systems,including finance systems, Excel spreadsheetsand other data feeds for internal modelcalculations• Integration with two core modeling and capitalcalculation engines• Workflow to ensure qualitative validation of data,under the “four eyes” principle• User interface displaying the risk models, entitystructures and scenarios enabling users tomodify existing data to conduct ‘what-if’ analysesProduction of reports in Solvency II-compliantformats.Following a period of successful integration testing,user acceptance testing and end-user training, thesolution went live on time in March 2012, creating acomplete, end-to-end, automated and repeatableprocess for generating accurate and timely reportsin line with Solvency II reporting deadlines.Importantly, the solution required no changes to theinsurer’s existing IT landscape, ensuring that thebusiness was not disrupted during theimplementation.The workflow solution was submitted to the regulatorfor approval as an integral part of the organisation’sinternal model for Solvency II compliance. As theintroduction of Solvency II was subsequentlypushed back to January 2014 and beyond, FSAapproval is still pending at the time of writing.The insurer has been making good use of thesolution in the meantime, not only by carrying out‘dry runs’ of Solvency II reporting cycles, but also inthe production of period-end management reportsfor use by senior management to direct thebusiness.Results4June 2013 | www.secondfloor.com
Benefits that extend beyond Solvency IIcomplianceBy implementing a workflow-driven solution foreconomic capital calculations, risk analysis andreporting, the insurer is already enjoying severalsignificant business benefits, even before thedelayed Solvency II regime comes into force. Thosebenefits include:• Greater insight into capital allocations: with theability to run reports and scenarios when needed• Better use of actuaries’ time: enabling more timeto be spent on analysis rather than gathering data• Reliable data for internal decision-making:supporting more informed decisions about riskand capital• Early compliance with Solvency II: avoiding arushed compliance project nearer to the deadlineWith an Ernst & Young survey revealing inOctober 2012* that nearly 69% of Europeaninsurers were having problems meeting SolvencyII data management requirements, the workflowsolution has given this particular insurer acompetitive edge – both in its ability to makecapital-related decisions more efficiently, and inits advance readiness for Solvency II.When the deadline for enforcement approaches itwill face fewer preparation distractions and beable to focus on growing the business in what willlikely be times of greater opportunity than thosein which it spent its energy building a frameworkand culture for compliance.*Ernst & Young, European Solvency II Survey, October 2012Summary5June 2013 | www.secondfloor.com