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8/2/2019 Accelerating Solvency II INSURANCE
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WHITE PAPER
Accelerating Solvency II Compliance with SASBuilding the bridge to competitive advantage
8/2/2019 Accelerating Solvency II INSURANCE
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SAS White Paper
Table of Contents
Executive Summary 1
Solvency II 1From Planning to Implementation 1
Evolving or Future Flexibility 2
SAS: Building a Bridge to Compliance 2
Implementation in the Spotlight 3
Challenge 1: Data Management 3
Challenge 2: Meeting Solvency II Capital Requirements 4
Challenge 3: Risk Management 5
Challenge 4: Compliance Reassurance 5
Challenge 5: Reporting 6
Challenge 6: IFRS Reconciliation 7
SAS: Our Expertise, Your Solvency II Solution 7
The SAS Solvency II Framework 8
An Integrated, End-to-End Solvency II Data Management Solution 9
A Robust Risk and Capital Modeling Solution 9
Integration o Solvency II and ORSA 10
Reporting 10
Alignment o Solvency II with IFRS Accounting 10
Conclusion and Next Steps 11
The Five Steps to Solvency II Compliance 11
About SAS 14
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Accelerating Solvency II Compliance with SAS
Executive Summary
Solvency II, the biggest transormation o European insurance legislation in almost
40 years, is set to come into eect on January 1, 2014 Designed to introduce a
harmonized, EU-wide insurance regulatory regime that will protect policyholders
and minimize market disruption, the legislation sets stronger requirements or capital
adequacy, risk management and disclosure
The recent proposal to extend the deadline or Solvency II compliance by one year
reects the fnding o a report by the Financial Services Authority (FSA) in the UK that
many insurers have much to do beore they reach the Solvency II standards1
While the proposed deadline would give frms more time to prepare, it should not
be cause or complacency The challenges o meeting Solvency II requirements are
incredibly complex, regardless o whether insurers are using their own internal capital
model or the Solvency II standard ormula Embedding new solvency capital models,data management processes and reporting systems into day-to-day business, across
multiple business lines and subsidiaries, is a complicated and sophisticated task The
extension should, thereore, be viewed as an opportunity to take a structured approach
to the Solvency II transormation project; to use the space to make considered
decisions that will not only lead to compliance, but also inorm strategy and drive
competitive advantage in the long term
SAS has worked closely with customers in the insurance industry or more than 30
years Our extensive experience with regulatory change means that we are able to
understand the needs o insurers and the solutions to those needs Through this
experience and knowledge, we have developed a complete Solvency II ramework to
help our customers accelerate the compliance process, reduce the cost o the project
and reduce the risk in their Solvency II transormation process
In this paper, we share our insight into the challenges customers are acing in the
countdown to Solvency II, and we outline the SAS solutions that are helping insurers
to prepare
Solvency II
From Planning to Implementation
Once implemented, Solvency II will provide a solid risk- and capital-based oundation
or the insurance industry or many decades to come The EU-wide legislation will
improve capital adequacy, risk management and accountability, thereby increasing
protection or policyholders, giving clarity on insurers creditworthiness and reducing
the risk o market disruption and business ailure It will replace the current 14 EU
insurance directives with a single regulatory standard that will harmonize the rules or
the insurance industry across Europe
1 FSA Solvency II: Internal Model Approval Process Thematic review fndings, February 2011, p. 4.
www.sa.gov.uk/pubs/international/imap_fnal.pd
The extension is an opportunity
to take a structured approach to
the Solvency II transormation
project; to use the space to
make considered decisions that
will not only lead to compliance,
but also inorm strategy and
drive competitive advantage in
the long term.
http://www.fsa.gov.uk/pubs/international/imap_final.pdfhttp://www.fsa.gov.uk/pubs/international/imap_final.pdf8/2/2019 Accelerating Solvency II INSURANCE
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SAS White Paper
But the short-term challenges o meeting Solvency II requirements are numerous and
complex Beyond compliance, Solvency II solutions must be woven into an insurers
daily operations The deadline or compliance may potentially be delayed by a year, but
insurers should not be lulled into a alse sense o security Failure to act now will only
result in increased pressure in a years time
Since the inception o Solvency II, many insurers have seen it as an opportunity to
make important strategic decisions or the uture Much time and energy has been put
into planning how the transormation to Solvency II can improve operational efciency,
or how new internal capital models can help insurers understand their business better,
develop new product lines and gain competitive advantage
However, the reality is that despite the time spent in planning the transormation to
Solvency II, many insurers have ound that the toughest challenge is implementation
Embedding new models, rules and processes into their multiaceted businesses is
proving to be complicated and expensive How can they build a platorm that works orall stakeholders rom actuarial to fnance to risk and IT? And how can they build it cost-
eectively and on time?
Evolving for Future Flexibility
There are many changes required to meet the Solvency II standards, including fnancial,
actuarial, capital, risk management, audit management and management o the overall
insurance group Unortunately, clarity and guidance rom the EU and the European
Insurance and Occupational Pensions Authority (EIPOA) will not be available or
some time yet,2 and insurers may also need to incorporate changes imposed by the
revised International Financial Reporting Standards (IFRS) This means that platorms,
systems and processes built now must be exible enough to absorb changes to the
requirements in the uture
In the short term, this transormation has become a necessary compliance exercise But,
by building a platorm that can be quickly and cost-eectively adapted later, insurers
can still invest in their long-term competitive advantage Insurers are, thereore, seeking
to build exible IT platorms and data management rameworks that both enable them to
be compliant now and provide a solid oundation or uture innovation and development
SAS: Building a Bridge to Compliance
SAS understands the complexities o the data and IT inrastructure transormationneeded or insurers to be Solvency II compliant In more than 30 years o business,
we have worked with more than 1,000 insurers in more than 50 countries, and have
supported numerous fnancial institutions through regulatory change programs
We also understand that Solvency II is not just about capital management Strong
corporate governance and risk management are at the very heart o Solvency II, and or many
companies, these present a greater compliance challenge than the Pillar 1 requirements
2The EUs Level 2 Implementing Measures and Binding Technical Standards are not due or publicationuntil summer 2012, and EIOPAs Level 3 Guidance documents cannot be published until ater the Level 2is published.
Embedding new models,
rules and processes into their
multiaceted businesses is
proving to be complicated and
expensive.
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Accelerating Solvency II Compliance with SAS
Based on our extensive experience, our solutions will help you meet the minimum
Solvency II requirements within the time rame and help to transorm your companys
culture Using SAS, you can connect the actuarial, risk, fnancial and IT unctions o
your business to build a single ramework that meets all o the regulatory standardsThis ramework can provide a solid oundation or improved capital and cost-efciency,
and continuous product innovation, into the uture
Implementation in the Spotlight
At SAS, we regularly engage with our insurance customers to understand the
challenges that Solvency II presents What is increasingly clear is that the more
progress insurers make, the more they realize they have to do
This anecdotal evidence is supported by the fndings o the FSAs Solvency II: Internal
Model Approval Process Thematic review, which ound that some frms judgedthemselves to be already close to Solvency II standards but, on closer questioning,
were not able to provide evidence to justiy this
By combining the experience o our customers with the FSAs fndings, we have
identifed six key challenges that insurers must address immediately to meet Solvency
II standards in time
Challenge 1: Data Management
Data management or more precisely, managing the quality and consistency o data
is undamental to Solvency II compliance The directive requires data to be accurate,
timely and appropriate or all stakeholders, across actuarial, risk and fnancial unctionsBut, in many frms, siloed use has led to disjointed data This is an issue that must be
addressed or frms to be Solvency II compliant
Many insurers have made plans or improved data management, but have stumbled at
the implementation phase The FSA commented that most frms have overstated their
current level o preparedness against Solvency II criteria
The regulator noted that insurers had started to create data dictionaries to help with
companywide classifcation o data These data dictionaries will help to convert data
into the inormation each stakeholder needs whether that be risk profling or reporting
inormation and ensure that everyone is compliant
However, the FSA also commented that there is little evidence o timely maintenance
and consistent use o the data dictionaries across the business It thereore
recommends that one or more data experts should be the custodians o data quality
and management or the entire frm
In addition, the regulator views multiple spreadsheets as an area o risk, leading to an
uncoordinated approach and a lack o cross-unctional alignment and not the best
route to compliance A centralized sotware solution is thereore essential to ensuring
consistent use and easy maintenance o data, as well as reliable monitoring and
reporting
Insurers are, thereore, seeking
to build exible IT platorms
and data management
rameworks that both enablethem to be compliant now
and provide a solid oundation
or uture innovation and
development.
Data dictionaries will help
to convert data into the
inormation each stakeholder
needs whether that be
risk profling or reporting
inormation and ensure that
everyone is compliant.
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SAS White Paper
But with multiple stakeholders, and limited resources, how can companies ensure
policywide compliance in the remaining time?
SAS Recommendation
Solvency II compliance is a massive and multiaceted exercise, but it does not require
frms to tackle data management at a policy-by-policy level Insurers using the
regulators standard ormula will fnd that homogenous risk groups are acceptable
We advise that others should prioritize the data that has a material impact on their
compliance issues, and ensure that these are clearly defned in the data dictionary
Our Solvency II solution eatures products that enable data experts to quickly, easily and
cost-eectively improve data quality, harmonize the data dictionary and meet the basic
requirements or compliance Firms can use these tools or all uture data management,
maintenance and reporting as they develop their data dictionary
Read about SAS end-to-end Solvency II data management solution on page 8
Challenge 2: Meeting Solvency II Capital Requirements
In the past, insurers have used numerous, separate actuarial models to calculate capital
requirements and project cash ow or individual products or subsidiaries This siloed
approach has meant that balance sheets and thereore regulatory capital have not
always truly reected all o the risk undertaken by the business (eg, market, credit,
underwriting, liquidity and operational risk)
Solvency II requires all insurers to integrate the models used to calculate their solvency
capital requirement (SCR) to produce an accurate balance sheet that is reectiveo all risk taken at product, subsidiary and corporate levels This applies to all frms,
regardless o which approach insurers base their capital requirement calculations on:
internal model, standard ormula or a combination o the two
However, there are very ew sotware solutions on the market that can apply these
complex calculations in a compliant and harmonized way And with the delays to
the publication o the directive, there is still uncertainty as to the exact calculation
requirements o the uture
SAS Recommendation
Insurers must develop a central risk calculation engine that will analyze risk and
calculate capital requirements in line with both Solvency II and company strategy This
engine should be quick and easy to use whenever frms need to measure actuarial risk
at a subsidiary or corporate level Furthermore, it should not only be used or capital and
risk calculations, but also or aggregation and stress testing, as well as or validation and
reporting purposes
SAS oers an out-o-the-box solution, SAS Risk Management or Insurance, which both
integrates and accelerates the risk and capital modeling process We use a standard,
predefned ormula, but oer the exibility to adapt the calculations to accommodate
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SAS White Paper
But, as we have already noted, the regulators (in this case, the FSA) ound that frms
oten judged themselves to be ready or Solvency II, but were unable to provide
sufcient evidence to justiy this In the midst o a massively complex actuarial and IT
transormation program, how can insurers quickly and easily document and record
their journey to Solvency II compliance?
SAS Recommendation
Because the SAS Solvency II ramework helps insurers to establish the business
processes required or ull Solvency II compliance, we also ully support compliance
sel-assessment and progress monitoring An intuitive project management interace
enables frms to quickly access evidence o Solvency II compliance processes and
ormula development Results can be used or both external and internal audit, saving
time and giving valuable insight into Solvency II implementation
For more inormation, on SAS Enterprise GRC see page 9
Challenge 5: Reporting
Greater transparency through public disclosure and reporting requirements is one
o the central oundations o Solvency II Insurers will be expected to produce more
reports than ever beore such as capital calculation and risk management results
on a monthly, quarterly and annual basis both or internal, regulatory and market
scrutiny
Not only will frms need to produce more reports, but turnaround times have now
been cut rom months to a matter o days Also, fnal reporting requirements will not be
defned until Solvency II enters the fnal Guidance phase
Meeting the new reporting standards will require an unprecedented amount o work, in
a time o immense pressure and limited resources For many insurers, reporting is the
fnal hurdle to compliance and they stand to ail i they do not put sufcient reporting
tools in place now
SAS Recommendation
Managing separate reporting systems or regulatory, market and management
reporting will not be practical or cost-efcient once Solvency II legislation comes into
eect Insurers must save time and money by integrating their reporting system to
produce consistent, timely and relevant inormation or all stakeholders
Only SAS oers a predefned Solvency II compliant reporting ormat SAS Risk
Management or Insurance with all the necessary data structures or both internal
and external reporting SAS Risk Management or Insurance oers the opportunity
to develop meaningul management and market inormation to meet the needs o
all stakeholders In addition, it can be easily updated as new regulatory reporting
requirements are defned No other sotware provider can oer a complete reporting
solution out o the box To fnd out more about the reporting capabilities o SAS Risk
Management or Insurance, please see page 9
Insurers should develop one
calculation engine to helpproduce both the SCR and the
economic capital requirements
under the ORSA.
Companies that conduct
sel-assessments o their own
compliance with the rules have
better relationships with the
FSA, are less at risk o fnes
or censure, and ultimately
have a lower overall cost
o compliance.
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Accelerating Solvency II Compliance with SAS
Challenge 6: IFRS Reconciliation
The move to Solvency II and the upcoming IFRS accounting changes will both have
huge implications or how insurers measure their perormance and are viewed by the
fnancial markets and regulators Failure to communicate capital management and
value creation eectively will lead to greater market scrutiny and an increased cost o
capital Firms must thereore be able to report both standards clearly, and help the
market and regulators understand any discrepancies the two methodologies create
SAS Recommendation
The crossover o the implementation o Solvency II with the IFRS changes presents
an opportunity to integrate the two reporting rameworks The logistics o this will
present huge challenges However, expense and risk associated with managing them
separately make reconciliation the most prudent long-term strategy
SAS believes that insurers should consider IFRS evolution and Solvency II compliance
as part o the same process Using SAS Financial Management, insurers can manage
and plan operational budgets and regulatory capital under one reconciled view For
more inormation, see page 10
SAS: Our Expertise, Your Solvency II Solution
SAS is the leader in business analytics and sotware services, and the largest
independent vendor in the business intelligence market For more than 30 years,
we have worked closely with our 1,000 insurance industry customers to understand
their needs and develop solutions that help them to do more with increasingly limitedresources We also have extensive experience with regulatory change, having enabled
more than 100 Basel II implementations worldwide
Thats why no other vendor can oer the comprehensive, end-to-end risk management
capabilities you get with SAS Unlike other solutions, SAS provides a single, integrated
risk platorm that supports the entire Solvency II process rom data management
through to advanced risk analytics and reporting
With the SAS Solvency II ramework, you can:
Accelerate Solvency II compliance projects with a robust risk analytics ramework
Improve data quality or an accurate risk profle and better-inormed decision
making
Reduce the impact o risks and mitigate losses using advanced analytics
Lower your cost o ownership with a single integrated solution
Ensure transparency and traceability across the entire process
You can also save money and gain competitive advantage by using the same solution
or advanced, non-regulatory measures and ully integrating the system into your
business decision making Plus, our solution is uture-prooed; it is exible enough to
quickly and easily meet any regulatory changes as they occur
Greater transparency
through public disclosure and
reporting requirements is one
o the central oundations o
Solvency II.
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SAS White Paper
The SAS Solvency II Framework
The SAS Solvency II approach starts with a exible, modular ramework that can be
integrated into insurers existing actuarial tools where required We use a phased
implementation approach to bridge any compliance gaps in legacy systems, data
stores and data models
Because the solution is modular, you can implement only those components that
address your specifc business needs, and then expand the solution over time as your
needs change With SAS, you can adopt a single platorm or compliance across all
three pillars o Solvency II, plus achieve real business benefts now and in the uture
The crossover o the
implementation o Solvency II
with the IFRS changes presents
an opportunity to integrate the
two reporting rameworks. The
logistics will be challenging, but
the expense and risk associated
with managing them separately
make reconciliation the most
prudent long-term strategy.
StressTesting
RiskA
ggregation
TechnicalProvisions
Standard Formula
Internal Model
Pillar 1Risk-BasedMeasures
Risk
Appetite
SupervisoryReview
Model Change
Asset and LiabilityManagement
Pillar 2
Portal
Run Models Risk Dashboard Distribute Reports
Risk Management
Do
cumentManagement
Workow
Risk-BasedMeasures
Pillar 3
Regulatory Reporting
Internal MI
Financial Reporting
Monitoring / AuditReconciliation
Business Glossary
Conguration
Data Quality Data Deciencies Data Warehouse
DATA
Data Dictionary Data Proling Data Lineage
Metadata Management
Liabilities Third Party Finance Other SourceAssets
DATA
DATA
DATA
DATA
DATA
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Accelerating Solvency II Compliance with SAS
An Integrated, End-to-End Solvency II Data Management Solution
Only SAS oers an integrated, end-to-end data management solution or Solvency II
compliance We can provide:
A single process or data management and data quality throughout the ramework
Deployment o a Solvency II data warehouse or a complete insurance data model
A preconfgured Solvency II analytical data model or the capital management
process
Integration o a risk management ramework into the internal model process
A result-reporting data model
Repository o quantitative regulatory reporting (by company or group)
Metadata management or improved controls and governance, data lineage rom
source to report, with a data dictionary o business and technical metadata
Data profling capability with built-in data quality management routines to ensure
data integrity and drive maximum value or the business Full audit control unctionality via a simple user interace
Workow management, including escalation o tasks and automation o processes
to and rom actuarial models
A Robust Risk and Capital Modeling Solution
SAS Risk Management or Insurance is designed to perorm risk analysis and
risk-based capital calculations or lie, property and casualty, and health insurance
companies
As a modular approach, it can be exible in line with a frms changing needs It can
also provide open data interaces to import liability cash ows rom third-party actuarialapplications
The application supports the standard ormula and the internal model approaches,
enabling insurers to perorm complex risk calculations, defne control measures and
maintain compliant capital ratios It can provide the platorm or the calculation o:
Technical provisions
Market risk
Counterparty deault risk
Underwriting risk
Risk margin
Operational risk
Firmwide risk (SCR/minimum capital requirement)
Group risk capital
Concentration risk
Stress-testing analysis
Regulatory and internal risk model reporting
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SAS White Paper
Integration of Solvency II and ORSA
SAS Enterprise GRC provides a Web-based application that enables insurers to
identiy, collect, measure, manage, monitor, analyze and report on all exposure to risk
That inormation can be applied across your Solvency II implementation and as part o
an ongoing internal risk management process
Business strategy is an integral part o the application, so SAS Enterprise GRC will
enable better-inormed decision making based on a coherent, accurate risk profle
and expected changes to this and SCR
The solution also oers:
Integration o business planning into the risk profle or use in the capital modeling
process
Risk identifcation and assessment at group or subsidiary level
Control testing and assurance reporting in line with both regulatory and businessrequirements
Mitigation action alerts or policy management purposes
Risk monitoring using key risk indicators
Stress testing and scenario planning using advanced analytics
Remediation and action plan management to report and mitigate identifed issues
Reporting
SAS Risk Management or Insurance includes standard and ad hoc reporting
capabilities that are critical or disseminating risk inormation to regulators or Solvency
II compliance and to senior management or improved risk decision making The
application provides unctional, data and reporting components o the SAS Solvency II
ramework to deliver:
Aggregation o results rom solo to group level
Solvency and fnancial condition reporting and reports to supervisors
Internal reporting and management inormation
Risk reporting
Alignment of Solvency II with IFRS Accounting
SAS Financial Management is designed to meet Solvency II fnance unction
requirements, including statutory consolidation, fnancial reporting, budgeting andplanning
By implementing this solution, insurers can greatly reduce the workload involved in
complying with multiple reporting standards ie, IFRS, local GAAP and Solvency
II SAS Financial Management can accommodate any specifed structure, and the
solution enables separate hierarchies to be defned, or example, or local and/or group
reporting
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Accelerating Solvency II Compliance with SAS
The application enables fnancial managers to:
Easily handle currency conversions, intercompany eliminations, reconciliations,
minority interests, new acquisitions, etc
Use either a top-down or bottom-up approach (or a combination o the two) orthe budgeting process
Customize budget orms to allow users exibility on how they submit budgets
eg, via Excel or a Web page
Automatically calculate results based on the latest approved data or a more
dynamic operational environment
Conclusion and Next Steps
As we have seen, time is o the essence i insurers are to meet minimum requirements
to be Solvency II compliant by January 2014 And there is still much to do
While considered an exceptionally ambitious project, Solvency II was designed to
generate benefts or policyholders, the market and insurance companies themselves
Its implementation should make the European insurance industry more competitive
while opening the door to many new opportunities
The SAS Solvency II ramework builds a bridge to compliance and provides a solid
oundation or frms to reap the benefts o a truly EU-wide insurance industry We are
the only sotware company that can oer a exible ramework to meet the needs o all
insurers, large and small, regardless o which ormula they have chosen or where they
are along the path to implementation
The Five Steps to Solvency II Compliance
1 Review your Solvency II program with SAS
2 Incorporate the SAS Solvency II ramework into your existing architecture
3 Deploy a exible Solvency II platorm to meet solo and group compliance
4 Take a phased approach to ensuring completeness and cultural change
5 Deliver regulatory reports, and improve business management inormation
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SAS Institute Inc. World Headquarters +1 919 677 8000
To contact your local SAS ofce, please visit:www.sas.com/ofces
SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks o SAS Institute Inc. in the USA
and other countries. indicates USA registration. Other brand and product names are trademarks o their respective companies.
Copyright 2011, SAS Institute Inc. All rights reserved. 105485_S82559_1211
About SAS
SAS is the leader in business analytics sotware and services, and the largest independent vendor in the business intelligence market
Through innovative solutions delivered within an integrated ramework, SAS helps customers at more than 50,000 sites improve
perormance and deliver value by making better decisions aster Since 1976 SAS has been giving customers around
the world THE POWER TO KNOW