Insurance Regulations

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Solvency II

Solvency II is the updated set of regulatory requirements for insurance firms operating in the European Union. Similar to Basel II in many respects, it aims at bringing new standards to the insurance world. Markets are indeed pushing towards more objectivity and transparence in the financial performance and risk management metrics used.

Solvency II has grounds in the economic principles for the measurement of assets and liabilities. It is a risk-based system as risk is measured on consistent principles on which the capital requirements will depend directly. While the Solvency I Directive was aimed at revising and updating the current EU Solvency regime, Solvency II has a much wider scope. Among other goals, the new accord strives to :

  • Reduce the default risk of an insurer (i.e. that an insurer would be unable to meet its claims)
  • Minimize the losses suffered by policyholders in the event that a firm is unable to meet all claims fully
  • Provide supervisors early warnings to that they can intervene promptly if capital falls below the required level
  • Promote confidence in the financial stability of the insurance sector

Solvency II Challenges

Key Challenges Sovency II

Seen by many as similar to the banking regulation Basel II, the proposed Solvency II Framework has three main areas (pillars) as well:

Pillar I

Relates to the calculation rules and quantitative requirements (for example, the various ways to calculate the amount of capital an insurer should hold).

The Business & Decision Risk Management team has worked extensively on Pillar I calculation projects. We have successfully completed more than a dozen projects at more than 10 reference customers in Europe and beyond.

Our interventions covered the following aspects: 

  • Capital calculation
    • Solvency II standard model approach
    • Individual risk internal model calculation.
    • Risk aggregation, also using results from other existing models
  • Quantitative Risk Management:
    • Risk modelling
    • Discounting and shocking cashflows
    • Stress testing and projection
  • Engine deployment
    • Implementation and deployment of regulatory software packages
    • Customisation of SAS® Risk Solution
  • Fully integrated Solvency II data management
    • Wider understanding of insurance data model implementation and deployment to support an Enterprise data warehouse
    • Integration with existing financial models
    • Functional analysis (source-to-target mapping)
    • Technical implementation of data (ETL), including data quality routines to ensure maximum value to the business
    • Implementation of  data governance tools
    • Creation and inquiry of automatic audit control data lineage and reverse impact analysis

Solvency II Pillar I reporting dashboard

Pillar II

Pillar II highlights requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers. 

Pillar IIII

Pillar III focuses on disclosure and transparency requirements towards all external parties. Business & Decision Risk Technology Consulting key services:

  • Flexible reporting capabilities at Group, Division and Product level
  • Experienced in reporting including:
    • Asset and liability valuation
    • Valuation assumption
    • Capital adequacy
    • Stress testing analysis
  • Dashboard capabilities to publish Key Risk Indicators (KRIs) to web, Excel, Word, PowerPoint.
  • Functional analysis, design and implementation of:
    • Data requirements of regulatory reporting : Solvency 2 QRT’s
    • A single logical structure and business oriented data mart to enable efficient QRT report generation
    • A detailed and standardised QRT data dictionary to map data elements
    • Easy-to-use and very flexible interface to feed the EIOPA QRT’s

Solvency II Pillar III Reporting process

Why B&D?

With an experience based on more than 40 risk management projects (a majority related to Basel II), Business & Decision's consultants can help you implement a risk management approach in compliance with Solvency II. Going beyond the strict compliance to the principles depicted in the directive, we will assist you in turning the regulatory obligation into a value driver that will enhance your competitive advantage. We provide guidance through all the step of the process from data integration to the capital amount calculation.

The Business & Decision Risk Management team has worked extensively on Solvency II projects, especially on the Pillar I and III. We have successfully completed more than a dozen projects at more than 10 reference customers in Belgium and Europe since 2011.

Summary of our interventions covered the following aspects of the capital assessment: 

Functional knowledge and experience in risk management:

  • Hands-on experience in Insurance companies and knowledge of insurance products: vast experience across the different disciplines
  • Financial theory and standard market models including financial risk management, pricing models for products, market risk modeling and validation, credit risk modeling and validation
  • Prudential regulation implementation experience for Basel II & III, National and European regulations
  • Regulatory reporting expertise
  • Technology knowledge – we helped some of our software partners to customize their solution for Solvency II regulatory requirement

Systems integration and delivery of custom-built solutions:

  • Solvency II specific data models: SAS RMfI (Risk Management for Insurance)

Statistical data modeling and knowledge of standard market models:

  • Modeling of risk factors at the transaction level
  • Modeling of the whole portfolio risk
  • Bespoke models, built to specific client needs

Risk data governance:

  • Business Intelligence, Data warehousing
  • Revisit data quality and governance processes to ensure a scalable data platform with the required level of granularity and quality
  • Financial- and risk analytics
  • Data mining and reporting

Business engineering

  • Business Process Management (BPM) and performance monitoring
  • Process assessment and re-engineering
  • Identification of key risk indicators (KRI) within the heart of existing business
  • Definition of necessary referential data structure enabling efficient risk management.

Change & Project Management: 

  • Control evolving business requirements and change requests function of budget, scope and end user requirements
  • Business & Decision has developed a dedicated Change Management centre servicing customers in the financial industry

Partners


Experience with the following risk technologiesInformation text on the opening of the image in lightbox (magnifying glass)

 

Risk in Insurance Companies

As of January 2016, the new risk framework Solvency II has become applicable in the Insurance world.  Coupled with a low interest rate environment, its introduction can mean a significant change in the way of doing business as well as its risk assessment. This note summarizes the most important risk related challenges for the future of the Insurance business.
Click on the image to download the paper


 

Solvency II and You

To get to know the challenges of the Solvency II and how Business & Decision adressed them practically:

Click on the image to download the white paper "Solvency II and You"

RTC White Paper - Solvency II and You