Taking control for confident decision-making under Solvency II


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Why Solvency II Reporting Demands an Automated Approach. Solvency II requires insurers to disclose an unprecedented amount of reliable information to regulators, senior management and the public on a quarterly basis.

Executive summary

The following topics will be addressed in the whitepaper:

- Why Solvency II Reporting
- Demands an Automated Approach
- Beyond Box-Ticking: Getting the Full
- Benefit of Solvency II Reporting
- Four Core Challenges for Insurers
- The Need for Effective Control
- Benefits of a Workflow-Driven Approach to Solvency II Reporting and Stress Testing
- Process Orchestration is Critical
- Conclusion: Investing in Workflow Delivers
- Widespread Business Benefits

Key take aways

We hope that readers will find this a useful insight into this important topic as they continue with their Solvency II preparations.

For additional information pleas contact info@secondfloor.com

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Taking control for confident decision-making under Solvency II

  1. 1. Taking control forconfident decision-makingunder Solvency IIA Solvency II white paper from SecondFloor www.secondfloor.com
  2. 2. Table of contents 3 Introduction: Why Solvency II Reporting Demands an Automated Approach 3 Beyond Box-Ticking: Getting the Full Benefit of Solvency II Reporting 4 Four Core Challenges for Insurers 5 The Need for Effective Control 5 Benefits of a Workflow-Driven Approach to Solvency II Reporting and Stress Testing 6 Process Orchestration is Critical 6 Conclusion: Investing in Workflow Delivers Widespread Business Benefits
  3. 3. Introduction:Why Solvency II Reporting Demands an Automated Approach Solvency II requires insurers to and risk management framework, and making disclose an unprecedented Solvency II data gathering and reporting an amount of reliable information to integral part of the organisation’s “business regulators, senior management as usual” operations. and the public on a quarterly basis. This approach not only ensures that aManually producing that information complete and accurate set of data caneach time as a discrete activity is almost be disclosed in a timely manner (a majorunworkable, as it relies on many people challenge in itself, given the aggressivetaking time out of the business to gather, reporting deadlines imposed by thecalculate, reconcile, validate and present the new regime), but also provides seniorinformation in the specific formats in which it management with “always-on” access to ais required. single, reliable source of information about the organisation’s risk profile from a solvencyA vastly more efficient approach is to perspective.automate as much of the process as possible,embedding it into the existing governanceBeyond Box-Ticking:Getting the Full Benefit of Solvency II Reporting Such insight delivers benefits far This paper looks at how insurers can best beyond the ability to provide solid approach the task of automating and reports to the supervisor. Crucially, embedding Solvency II processes into it can also guide strategic everyday operations, the risks of not doingdecision-making by offering perspectives on so, and the benefits of having “always-on”the business that are not well illuminated by access to a set of reliable solvency analyticsexisting internal risk management and management reports. It is based on aapproaches, methodologies and systems. webinar discussion hosted by Insurance RiskThe ability to make strategic decisions that in October 2012, and contains views andbenefit the business, while increasing insights contributed by the participants in thatprotection for customers and the industry discussion, including Emmanuel Noblet, Chiefitself, is the ultimate goal of a firm’s Solvency Operations Officer at SecondFloor and formerII regime. deputy Chief Risk Officer at ING. March 2013 | www.secondfloor.com 3
  4. 4. Four Core Challenges for Insurers While insurers generally welcome appreciated as insurers focus on getting the the introduction of Solvency II and initial framework in place – is the requirement the protection it provides for to disclose the required information on a policyholders and the industry, high-frequency repeating basis and withinthere is a widespread sense that the new very tight deadlines; in all likelihood just a fewregime must be adopted in such a way that it weeks from period-end. That means not justdelivers real, tangible, strategic value to the getting it right for the first time of filing, butbusiness. getting it right every single quarter from then on. If significant events occur that threatenMost insurers already have mature, robust the stability of the firm, the supervisor canand proven systems and methodologies also demand more frequent or ad-hocin place for analysing risk, calculating reporting. Insurers that rely on a manuallycapital requirements and delivering reports intensive process to gather and organise datato supervisors, markets and internal from myriad systems across the organisationmanagement. In the vast majority of cases, will find that process under severe strainthe data required under Solvency II already when trying to meet the deadlines, potentiallyexists within the organisation, as does the affecting the quality and completeness of thetechnical, professional and intellectual information submitted.capacity to use it for informed, responsible,strategic decision-making. And fourthly, there is the challenge of making internal, strategic use of the data producedHowever, even given this existing landscape, under Solvency II, rather than treating it asSolvency II introduces four core challenges a box-ticking exercise that creates workfor insurers. without creating value. The Pillar 2 own riskThe first is to extract, organise and present and solvency assessment (ORSA) processdata in the dimensions required under the aims to ensure data used for disclosure isnew regime, which may not correlate with the also used for managing the business. Also,dimensions or structure in which it is currently by putting the emphasis on the organisation’sorganised and analysed internally within the overall market-value balance sheet (MVBS)organisation. The most obvious example is rather than the P&L of individual businessthat Solvency II requires risk to be reported units, Solvency II creates an opportunity tofrom a legal entity perspective, whereas most bring together key functional areas – finance,insurers tend to analyse risk from a business actuarial, investment and risk – to developunit perspective. a unified approach to risk management that benefits the business as well as protectingThe second is to intensify the integrity of policyholders.the data – through the use of governancecontrols by which the data and calculations In summary, then, insurers will have to:can be fully validated, comprehensively • Extract and present data in theaudited, and traced back to their source dimensions required under Solvency II(not just to the source system or calculationengine, but to the person who provided the • Prove that the disclosed results are baseddata or submitted the calculation). on accurate and validated source dataA further challenge – and one whose • Disclose the required informationramifications may not have been fully frequently and within very tight deadlines • Make internal strategic use of the “ information produced The beauty of Solvency II is that it’s creating opportunity, both inside and outside the organisation. And it does so by putting the balance sheet back into ” the centre of the playing field. Emmanuel Noblet, COO, SecondFloor March 2013 | www.secondfloor.com 4
  5. 5. The Need for Effective Control For all but the smallest insurers, Insurers that are already well advanced the size and complexity of the in their preparations for Solvency II are business (and its underlying IT demonstrating that incorporating robust systems) mean that automation controls and automation across excisingthrough workflow, data governance and systems not only ensures that the requiredprocess control is the only way to ensure data can be produced in time to meetthese four challenges are addressed to the supervisors’’ disclosure deadlines, butadvantage of the insurer. While there are can also significantly increase seniorother potential technological solutions – such management trust in the reports – enablingas replacing heterogeneous legacy systems the information they contain to be used as thewith a single, integrated, enterprise-wide core basis of internal strategic decision-making.insurance platform – they are prohibitivelyexpensive and, initially, highly disruptive tothe business.Benefits of a Workflow-Driven Approach to Solvency II Reportingand Stress Testing Insurers that have embedded of a shock and discuss more effective Solvency II reporting workflows approaches to capital allocation and risk around their “business as usual” management. systems and operations have the And the same applies at every level ofadvantage of being able to run Solvency the business. Organisations that have aII-style reports whenever they need to, rather structured and documented process in placethan the data having to be gathered and for gathering and validating the underlyingenriched manually every time it’s required. data, and a structured and documentedThat delivers major advantages in terms of process for applying risk analyses to it, findevaluating the organisation’s risk profile from that senior management have far greater trusta Solvency II perspective. in the data produced and are far more willingA good example is stress testing, which to use it to make risk-based decisions. many insurers find an onerous task to carry That’s not only true of capital managersout manually, but which is something that looking to make the best decisions aboutis increasingly required by regulators and capital allocations for Solvency II, but alsosenior management, and can contribute of senior finance professionals looking tosignificantly to the ORSA element of Solvency comply with IFRS. Developing an agreedII’s Pillar 2. That’s important because it is workflow to orchestrate all the systems,Pillar 2 that really enables senior executives people, processes and data involved into understand the risk profile of the business reporting processes can help to harmonisefrom a holistic point of view. Solvency II and IFRS efforts by enabling theThe ability to conduct regular stress tests in organisation to generate, whenever required,a structured and documented way creates a single view of the MVBS that everyone canan opportunity to bring different areas of agree on. Once that MVBS is in place, therethe business together to analyse the impact can be consensus on what capital is, whether its fund or economic capital, which can lead “ to productive discussions about risk-based return. Pillar 2 is really the cornerstone of what Solvency II should be aiming at. We’ve been spending a lot of time on Pillar I and Pillar 3 but the real essence of ” Solvency II is Pillar 2 Emmanuel Noblet, COO, SecondFloor March 2013 | www.secondfloor.com 5
  6. 6. Process Orchestration is Critical All this will happen when the There is a lot of talk about “big data” and workflow is gathering the right the ability to generate insight from the vast data, ensuring it’s clearly amounts of data produced around the validated, applying the right business every day. More important fromcalculations, and presenting the results in a a Solvency II point of view is to identify thetimely manner in a way that is useful to the “right data” and to have a process in placebusiness as well as to the external supervisor. that works only with it. That means starting with the outcome – i.e. deciding whatThe challenge for insurance businesses information the business and the regulator– particularly those with multinational need to know – and creating a process thatoperations, a complex legacy systems focuses only on that.environment and multiple data models – isto decide what those data, calculations Once that’s in place, the organisation willand presentation formats should be and, benefit from “always-on” access to a singleto orchestrate the workflow accordingly. source of structured, validated, embeddedFortunately the tools and expertise are data that can support confident decision-available to enable this. making and enable a more holistic approach to risk management across the business.Conclusion:Investing in Workflow Delivers Widespread Business Benefits Ultimately, Solvency II presents a embed the reporting process into “business great opportunity to bring senior as usual” operations – and that will only come management together to make from defining, agreeing and implementing informed capital and risk decisions a workflow that enables the data to bebased on a single set of agreed, reconciled automatically produced and analysed anyand validated information about the business. time it’s required.The challenge is to produce that information While defining and implementing the workflowin a way that’s transparent and trusted by all can be a challenging project, the benefitsareas of the business – and not just once, but speak for themselves: with a single sourceon a repeatable basis and in line with of truth about the business, insurers can notregulatory disclosure timescales. only efficiently meet regulatory obligations,None of this can be achieved by taking a but also make better risk managementmanually intensive, ad-hoc approach to data decisions, make more efficient use of capital,gathering and reporting. Insurers that want to and identify opportunities for profitableuse Solvency II as an opportunity to improve business growth.internal risk management must be able to March 2013 | www.secondfloor.com 6
  7. 7. For more details please contactSecondFloor.About SecondFloorSecondFloor helps firms to complyand produce regulatory informationefficiently, consistently. Companiesthat turn to SecondFloor’ solutionsbenefit from timely, complete, accurate,traceable, auditable and repeatablereports and analytics. Facilitating stresstesting, economic capital calculations,and regulatory reporting in complexenvironments are key elements ofSecondFloor’s credentials that haveestablished it as a successful enablerof business analytics. eFrame®,SecondFloor’s software application,reflects best practice approaches andproject accelerators learned with clientsduring years of experience. SecondFlooris also an IBM risk analytics reseller.For more informationcontact us on +31 (0)20 6589 700email us at info@secondfloor.com or visitour website at www.secondfloor.com© Copyright 2013 | SecondFloorAll Rights Reserved | www.secondfloor.com