Solvency II Data & Reporting: Early Observations

Dr Allan Kearns, Head of Function – Analytics (Insurance Supervision)

Presentation to Society of Actuaries Risk Management Perspectives Conference 2016

13th October 2016

Figure 1: Overview of Presentation

Safeguarding Stability, Protecting Consumers 2

Solvency II Data & Reporting: Early Observations

‘What gets measured, gets managed’ - Peter Drucker

• Evolving Analytics Strategy• Aggregate Statistics (Capital, Investment, SI – SII Reconciliation)• Data Quality

Figure 2: Calibration of analytics input into PRISM risk assessments

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Governance Counterparty Investment

Claims and reserving

Pricing and underwriting

Capital

Conduct Environmental Operational

Strategy and business model

No quantitative assessment

Limited quantitative assessment

Significant quantitative assessment

Analytical approaches have

varying impact across risk

categories

• Supervisors and analytics need to speak the same language => PRISM

Figure 3: Phased receipt of Solvency II quantitative data to inform supervisory risk assessments

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Day 1

(May 2016)

Quarterly

(May 2016)

Half Yearly NST

(August 2016)

Annual

(May 2017)

Investment

Pricing/Underwriting

Counterparty

Capital

Claims/Reserving

Environmental

Operational

Strategy/business model

Investment

Pricing/Underwriting

Counterparty

Capital

Claims/Reserving

Environmental

Operational

Strategy/business model

Investment

Pricing/Underwriting

Counterparty

Capital

Claims/Reserving

Environmental

Operational

Strategy/business model

Investment

Pricing/Underwriting

Counterparty

Capital

Claims/Reserving

Environmental

Operational

Strategy/business model

No SII data Moderate SII data All SII dataLimited SII data

PR

ISM

Ris

k C

ateg

ori

es

Figure 4: Capital risk: Life market (Decomposition of Nominal SCR)

-

1

2

3

4

5

6

7

8

Bill

ion

s

Note: Standard formula figures as reported in Day 1 returns. A number of undertakings with (partial) internal models are not represented in this view.

BSCR – Basic Solvency Capital RequirementRFF – Ring fenced fundLAC TP – Loss absorbing capacity of technical provisionsLAC DT – Loss absorbing capacity of deferred tax

5

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Figure 5: Capital risk (further decomposition – preparatory data)

1.2

2.6

0.3

1.9

0.2

2.0 2.0

6.2

-

1

2

3

4

5

6

7

8

9

Bill

ion

s

Market risk

4.2

1.80.3

3.5

0.7 0.02.1

4.2

8.4

-

2

4

6

8

10

12

14

Bill

ion

s

Life underwriting

3.9

0.1

2.31.2

5.1

-

1

2

3

4

5

6

7

Premium andreserve

Non-life lapse Non-life CAT Diversification Non-life U/WSCR

Bill

ion

s

Non-life underwriting

Note: These statistics are based on preparatory data. These data will be available when Annual Solvency II data become available in 2017.

Figure 6: Investment risk (Reinsurance market)

Corporate Bonds48%

Government Bonds35%

Derivative Assets4%

Collateralised Securities

4%

CIUs4%

Structured Notes

2%

Participations1%

Deposits1%

Other1%

Investment allocation

Note: All figures from Q2 Solvency II returns. A number of known data quality issues exist within the submissions, which are currently being worked through with the undertakings concerned.

010%

113%

241%

331%

42%

50%

60%

No rating available

3%

Corporate Bonds

0 --> AAA1 --> AA2 --> A3 --> BBB4 --> BB5 --> B6 --> C*,D*

UNITED STATES47%

UNITED KINGDOM

19%

GERMANY6%

FRANCE6%

NETHERLANDS3%

OTHER12%

BELGIUM2%

E.U. Institutions2%SPAIN

2%

CANADA1%

Government Bonds

7

Figure 7: Investment risk – link to market data

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

Yie

ld %

10 Year Sovereign Bond Yields

Ireland UK Germany Spain Portugal France Italy Netherlands

-1

-0.5

0

0.5

1

1.5

2

2.5

2 5 8 11 14 17 20 23 26 29

Rat

e %

Maturity (Years)

Ireland Yield Curve

13/10/2015 12/09/2016 11/10/2016

Yield % 52 Week High 52 Week Low 52 Week Change Monthly Change

Ireland 0.483 1.265 0.318 -0.68 -0.05

UK 0.978 2.051 0.517 -0.85 0.07

Germany 0.024 0.692 -0.189 -0.56 -0.05

Spain 1.013 1.954 0.878 -0.78 -0.09

Portugal 3.357 4.084 2.257 0.95 0.08

France 0.318 1.02 0.101 -0.64 -0.05

Italy 0.266 0.931 0.148 -0.42 -0.07

US 1.7692 42643 1.3579 -0.76 -0.13

IE Gov Yield Yield % 52 Week High 52 Week Low YTD Change Monthly Change

2 Year -0.479 -0.094 -0.479 -0.31 -0.13

3 Year -0.459 -0.01 -0.459 -0.45 -0.12

6 year -0.225 0.603 -0.255 -0.82 -0.11

7 Year -0.042 0.857 -0.136 -0.84 -0.07

15 Year 0.792 1.786 0.625 -0.89 -0.06

30 Year 1.332 2.333 1.097 -0.83 -0.02

Sovereign Bond Yields1 mth CDS Co.1 Co.2 Co.3 Co.4 Co.5 Co.6 Co.7 Co.8 Co.9 Co.10 Co.11 Co.12

Co.1 1.000

Co.2 0.982 1.000

Co.3 0.993 0.979 1.000

Co.4 0.984 0.972 0.992 1.000

Co.5 0.991 0.966 0.989 0.979 1.000

Co.6 0.982 0.994 0.973 0.973 0.969 1.000

Co.7 0.815 0.820 0.780 0.722 0.790 0.811 1.000

Co.8 0.975 0.996 0.967 0.960 0.958 0.993 0.832 1.000

Co.9 0.985 0.998 0.979 0.970 0.972 0.993 0.828 0.996 1.000

Co.10 0.985 0.997 0.979 0.974 0.968 0.995 0.822 0.995 0.997 1.000

Co.11 0.702 0.707 0.661 0.597 0.678 0.701 0.969 0.719 0.712 0.705 1.000

Co.12 0.928 0.873 0.925 0.890 0.950 0.867 0.796 0.858 0.887 0.876 0.696 1.000

CDS Spread Correlation

-50

-40

-30

-20

-10

0

10

20

Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

Pe

rfo

rman

ce %

European Equity Indicies

EuroStoxx 600 EuroStoxx Banks EuroStoxx Insurance EuroStoxx 50

8

Figure 8: Aggregate Solvency II statistics – day 1 opening balance sheet reconciliation (all Industry)

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37.1

2.0 1.0 0.0

1.2 3.0

25.8 1.9

13.4 0.8 2.3

-

5

10

15

20

25

30

35

40

45

Net SI Assets ValuationRestrictions

/adjustmentsimposed by SI

Reduction Invalue of

TechnicalProvisions

Reinsurance DeferredAcquisition

Costs

Insurance &intermediariesreceivables /

payables

Other TechnicalProvisions

Reclassificationsof Provsionsfrom Balance

Sheet toTechnicalProvisions

Deferred Tax OtherRevaluations

Net SII Asset

€ Bn Net Asset Movement - Total

Figure 9: Aggregate Solvency II statistics – day 1 opening balance sheet reconciliation

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Figure 10: Data compliance and validation (SII)

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• Data quality is foundational in

ensuring the reliability of

analytics for making decisions

• For SII data we proactively

check that data are: Complete

Accurate

Consistent

Valid

Taxonomy validations•Minimum standard for ONR acceptance

Supervisory analytics•Automated checks of data quality / plausibility

Supervisory review•Detailed checks by supervisors on individual entities

EIOPA data quality checks

Multi-layered data quality assessments

Firm

s m

ay b

e as

ked

fo

r fu

rth

er

info

rmat

ion

an

d/o

r re

sub

mis

sio

n

Figure 11: Data quality – an on-going journey

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0

5

10

15

Q1 Q2

Nu

mb

er

of

Firm

s

-

1

2

3

4

5

31 March 30 June

€ b

n

• 3 Risk Management Questions:Examples of Incorrect Reporting

(Q1) and Improvement (Q2)

(i) Notes/Coins in Circulation

(ii) Incorrect Approvals Reported

What controls are in place to mitigate risks to the quality of reporting?

To what extent is there certainty of the integrity of the data from origin to final reporting?

To what extent has the review and governance process been validated?

‘What gets measured accurately, gets managed!’

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For general queries on SII reporting:Please email

InsuranceRegulatoryReportingQueries@centralbank.ie

Thank you