Insurance: EY European Solvency II survey 2014

Insurance: European Solvency IIsurvey 2014

3 June 2014

Insurance: European Solvency II survey 2014

Today’s moderator

Martin BradleyErnst & Young LLP (UK)EY Global Insurance Riskand Regulatory Leader

#EYSolvencyIIJoin today’s Twitter discussion:


Today’s agenda

► Introduction & Key Findings► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization



Today’s presenters

Tim FordErnst & Young LLP(UK)

Phil VermeulenErnst & Young AG

David FosterErnst & Young LLP(UK)

The information contained herein is a summary in nature. Viewers should consult their own professionaladvisors to address their individual circumstances and concerns.

Jan LeidingErnst & Young GmbHWpg)

David BurtonErnst & Young LLP(UK)


Key findings

► The insurance industry is on track to implement Solvency II by January 1st2016.

► Preparedness levels vary widely between countries.

► Insurers are seeking to improve the effectiveness of their risk management,including culture, appetite, control, people and systems.

► Challenges of reporting and ensuring robust data and IT remain verysignificant.

► Many insurers are not satisfied with the level of support from their regulators -in part due to the significant resourcing challenges the regulators are facing.

► “Systemically relevant” insurers are facing increasing requests for recoveryand resolution plans.

► Insurance companies are beginning to invest significant effort in capitalmanagement under Solvency II.


Today’s agenda

► Introduction & Key Messages► Study Design & Background► Pillar I► Internal models► Pillar II► Risk Management► Pillar III► Data and IT readiness► RRP► Capital optimization



The study designParticipants and features

Significant participation

Second European EY Solvency II studyAnalysis of market trends in theEuropean implementation

Extensiveinternationalcoverage (20European countries)Single countryprofiles

Participants frommore than 160insurance companiesUnique examinationscope of the study

Covers implementation status ofSolvency II pillars, IT-system readiness,regulatory interaction and capitaloptimization

GermanyFranceCentral andEasternEurope

NordicsPolandUKBelgium


Compliance with Solvency II requirementsGeneral implementation readiness

Expectation to meet Solvency II requirements

2%

20%

58%

19%

1% 1%

56%

32%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Alreadycompliant.

In the course of2014.




Later.

20132012


Compliance with Solvency II requirementsGeneral implementation readiness

Overall implementation status by pillar

3.3

2.9

1.9

3.2

2.7

1.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Pillar 1 Pillar 2 Pillar 3

2013

2012

Requirements not fulfilled

Some requirements fulfilled

Most requirements fulfilled

All requirements fulfilled

Beyond requirements


Compliance with Solvency II requirementsImplementation of Solvency II requirements – country comparison 2013

35%

25%

13%

23%

23%

23%

20%

18%

17%

14%

6%

8%

13%

0%

0% 5% 10% 15% 20% 25% 30% 35% 40%

France

Greece

CEE

Germany

Belgium

Poland

Italy

Spain

Portugal

Nordics

United Kingdom

Netherlands

Implementation after 01.01.2016

During 2016In the course of 2017 and later


Today’s agenda




Compliance with Solvency II requirementsPillar 1 compliance

3.5

2.9

3.5

3.0

3.1

3.4

3.6

3.2

3.7

3.6

3.3

3.2

0.0 1.0 2.0 3.0 4.0

Nordics

CEE

Poland

Greece

Portugal

Spain

Netherlands

Belgium

Italy

France

Germany

United Kingdom

2013

2012

0.0

1.0

2.0

3.0

4.0

5.0

Solvency Capitalrequirement(StandardFormula)

Classificationand tiering of

own funds

Risk marginBest estimateliabilities

Valuation ofassets

20122013

Focus Country comparison

1. Requirements not fulfilled 2. Some requirements fulfilled3. Most requirements fulfilled 4. All requirements fulfilled5. Beyond requirements


Today’s agenda




Compliance with Solvency II requirementsInternal model readiness

0.0

1.0

2.0

3.0Use test

Statistical qualitystandards

Calibrationstandards

Profit & lossattribution

Validationstandards

Documentationstandards

Externalmodels/data

2012 201317%

23%60%

Full internalmodel.

Partial internalmodel.

No internalmodel.

19%

30%51%

Full internalmodelPartial internalmodelNo internalmodel

Focus Structure 2013

Structure 2012


Today’s agenda





0.0

1.0

2.0

3.0

4.0

5.0

Risk strategy (inline withbusinessstrategy)

Risk appetiteframework

Risk controlprocess

Definition of roleof controlfunctions

Outsourcing

ORSA

Remuneration

BusinessContinuity

Management

20122013

Focus Country comparison

3.2

2.5

2.7

2.1

2.5

2.9

3.6

2.8

3.2

2.6

3.0

3.4

0.0 1.0 2.0 3.0 4.0 5.0

Nordics

CEE

Poland

Greece

Portugal

Spain

Netherlands

Belgium

Italy

France

Germany

United Kingdom

20132012


Today’s agenda




Compliance with Solvency II requirementsRisk management & ORSA readiness

Assessment of risk management effectiveness Country comparison:ORSA implementation readiness

15%

33% 35%

17%

6%

26%

48%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Don't know/haveno formal way ofassessing this.

Believe it iseffective overall,

but this is notassessed againstoutcomes in any

formal and reliableway.

Partially effective,some components

have beenassessed formally.

It is effective inbringing out the

desired outcomeswe want in the

business and thishas been formally

assessed andvalidated.

20122013

3.0

1.8

2.1

1.4

1.9

2.4

3.6

2.4

2.2

2.3

2.6

3.0

0.0 1.0 2.0 3.0 4.0

Nordics

CEE

Poland

Greece

Portugal

Spain

Netherlands

Belgium

Italy

France

Germany

United Kingdom


Development of risk managementOrganizational transformation

What is the current level of automation for risk reportingand calculation of key risk management metrics?

32% 29%24%

14%

1%

0-20% 20-40% 40-60% 60-80% 80-100%


Development of risk managementOrganizational transformation

Expectation of relevant changes due to Solvency II

0% 20% 40% 60%

Change of operating model between groupand operating entities

Change of responsibilities of Chief RiskOfficer

Change of governance structures

Change of risk capabilities

Change of IT landscape

Change of risk culture

Focus of Top Management on riskmanagement

Change of risk information flow


Today’s agenda





Focus

0.0

1.0

2.0

3.0

4.0

5.0

Analysis andpopulation of QRTs(data requirements

defined andsourced)

Analysis andpopulation of SFCR

& RSR (datarequirements

defined & sourced

SII reportingprocessesdesigned/

redesigned &integrated to

current reportingprocesses (incl.

interdependencieswith ORSA)

Development ofdisclosure policy

Control frameworkupdated for SIIreporting (to an

auditable standard)

2012 2013

Country comparison

1.8

2.1

1.8

1.4

1.5

2.0

2.6

1.7

2.2

1.9

2.2

1.9

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Nordics

CEE

Poland

Greece

Portugal

Spain

Netherlands

Belgium

Italy

France

Germany

United Kingdom

2013

2012


Today’s agenda




Compliance with Solvency II requirementsData & IT readiness

32%

26%

25%

25%

24%

23%

22%

21%

20%

20%

18%

16%

0% 10% 20% 30%

Financial and technical reconciliations of data held in different systems aredefined and developed

Tests of alignment between group and solo numbers are defined and testedvia dry runs

Reporting systems are selected, designed and implemented for Pillar 3

Controls and workflow supporting low volume high value data are definedand implemented

Automation of data integration, data quality and data lineage is developedand tested for high volume data

Change is effectively governed in live SII supporting systems

End-to-end system test plans are established and approved

End User Computing tools fully documented and controlled

XBRL tagging and validation systems are selected

RSR, SFCR and ORSA reports are specified, designed and built

IT Development and Support model in BAU is defined

Parallel run and cutover plans are established including decommissioningand archiving as relevant


Today’s agenda




Recovery and Resolution Planning (RRP)

How many more insurancecompanies do you expect to bedefined as systemically relevant

in your country?

Assessment of the importanceof instruments for RRP

3.9

3.3

2.6

3.1

1.9

2.3

2.5

2.8

Raising Capital

Risk mitigation (e.g.insurance)

Restructuring

Improvement ofliquidity

Ring-fencing

Disposals

Run-offs

Use of othercontingent capital

67%

26%

3% 4%

1-5 5-10 10-15 >15


Today’s agenda




Capital optimization

Importance of initiatives

1.71.7

1.31.6

2.21.6

2.42.12.1

1.72.0

2.31.5

2.4

2.22.4

1.82.3

3.12.4

3.33.13.0

2.22.8

3.62.0

3.4

4.0 3.0 2.0 1.0 0 1.0 2.0 3.0 4.0

Mergers & acquisitionsIntra-group reinsurance

SecurizationRestructuring of legal entities

Optimization of the risk capital structureActive run-off management

Optimization of external reinsurancePricing review

Development of new productsAlternative investment

HedgingOptimization of asset mix

Optimization of currency matchingOptimization of durations match

Importance for optimizing risk capital Use of (internal) capital model


Contacts

Global Solvency II LeaderMartin [email protected]

BelgiumKris [email protected]

France and LuxembourgPierre [email protected]

Germany/AustriaDr. Bernd [email protected] [email protected]

Greece and CyprusLampros [email protected]

IrelandJames [email protected]

ItalyStefano [email protected]

NetherlandsPaul de [email protected]

NordicsPehr [email protected] [email protected]

PolandMarcin [email protected]

PortugalRita [email protected]

SpainManuel [email protected]

Angel Campomanes Mañ[email protected]

SwitzerlandHans-Jürgen [email protected] [email protected]

UKRodney [email protected] O‘[email protected]


Resources

Full survey: www.ey.com/Solvency2

www.ey.com/insurance2014 Global Insurance outlook

Papers from the Insurance GovernanceLeadership Network.

Insurance: EY European Solvency II survey 2014

Business

Transcript of Insurance: EY European Solvency II survey 2014