European Solvency II Survey 2014
Page 2
Agenda
I. Regulatory update
II. Introduction to survey and findings
III. Pillar 1 findings – Eric Brown
IV. Pillar 2 findings – Frank O’Callaghan
V. Pillar 3 findings
VI. IT Readiness – Hugh Callaghan
VII. Summary and conclusions
VIII. Questions
Solvency II Benchmark Survey 2014
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Regulatory update
Page 4
Regulatory update
► Preparation for SII
► Locking down the requirements
► Driving forward with preparatory requirements
► External assurance
► Comframe field testing
► Phase 1 submission deadlines
► EIOPA stress tests
► Technical standards
► Core modules
► Low interest rates
► Outcome of CP 73
► Reserving requirements for NL, NL Re, Life Re
► Guidance on best estimates and margins for uncertainty
Solvency II Benchmark Survey 2014
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Introduction to survey and findings
Page 6
The study design Participants and features
Solvency II Benchmark Survey 2014
Countries with the largest number of
participants:
► Second European EY Solvency II study
► Analysis of market trends in the European
implementation
► Extensive international
coverage (20 European
countries)
► Single country profiles
► Participants from more than
160 insurance companies
► Unique examination scope of
the study
► Covers implementation status of Solvency II
pillars and of other current topics like IT-
system readiness, regulatory interaction and
capital optimization
Germany
France
Central and Eastern
Europe
Nordics
Poland
UK
Belgium
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Summary
Solvency II Benchmark Survey 2014
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017
Almost There
Mostly there
A way to go
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Pillar 1 Pillar 2 Pillar 3
12%
7%
5%
12%
9%
11%
12%
32%
0% 10% 20% 30% 40% 50%
<(-30)%
(-20) to (-30)%
(-10) to (-20)%
(-10) to 0%
0 to 10%
10 to 20%
20 to 30%
>30%
Ready during Status by pillar Impact on capital
18 months P3 Challenges Impact on capital
Page 8
Implementation readiness – Pillar 1
Solvency II Benchmark Survey 2014
Page 9
Compliance with Solvency II requirements Pillar 1 compliance
Solvency II Benchmark Survey 2014
1 - Requirements not fulfilled 2 - Some requirements
fulfilled
3 - Most requirements fulfilled 4 - All requirements fulfilled
5 - Beyond requirements
0.0
1.0
2.0
3.0
4.0
5.0
Solvency Capitalrequirement(StandardFormula)
Classification andtiering of own
funds
Risk marginBest estimate
liabilities
Valuation ofassets
2012
2013
Focus
Key themes
► Many European insurance companies declare themselves well prepared with regard to the pillar 1 requirements.
► Acceleration of preparation with publication of draft Delegated Acts in January and Technical Specification 30th April
► Own funds
► LTGA compromises
► Key decisions for undertakings
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Compliance with Solvency II requirements Pillar 1 compliance for other European Countries
Solvency II Benchmark Survey 2014
► Significant improvement for France, Italy and Poland
► Many countries, amongst others Germany and Spain, report only a marginal improvement in comparison to the results from last year.
Country comparison
2.9
3.0
3.1
3.2
3.2
3.3
3.4
3.5
3.5
3.6
3.6
3.7
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
CEE
Greece
Portugal
Belgium
United Kingdom
Germany
Spain
Nordics
Poland
France
Netherlands
Italy
2013
2012
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Compliance with Solvency II requirements Internal model readiness
Solvency II Benchmark Survey 2014
0.0
1.0
2.0
3.0
4.0
5.0Use test
Statistical qualitystandards
Calibrationstandards
Profit & lossattribution
Validationstandards
Documentationstandards
Externalmodels/data
2012 2013
Focus
Key themes
► Reduction in number of companies applying for internal model
► Significant developments made, although a long way to go still
► 67% of companies expect the Internal model to be ready for 1.1.2016
► Internal model application ITS sets out detailed requirements for submission
17% 23%
60%
19%
30%
51%
0%
20%
40%
60%
80%
100%
Full internalmodel.
Partial internalmodel.
No internal model.
Internal Model development
2013
2012
1 - Requirements not fulfilled 2 - Some requirements
fulfilled
3 - Most requirements fulfilled 4 - All requirements fulfilled
5 - Beyond requirements
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Implementation readiness – Pillar 2
Solvency II Benchmark Survey 2014
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Compliance with Solvency II requirements Pillar 2 compliance
Solvency II Benchmark Survey 2014
0.0
1.0
2.0
3.0
4.0
5.0
Risk strategy (in linewith business strategy)
Risk appetiteframework
Risk control process
Definition of role ofcontrol functions
Outsourcing
ORSA
Remuneration
Business ContinuityManagement
2012 2013
1 - Requirements not fulfilled 2 - Some requirements
fulfilled
3 - Most requirements fulfilled 4 - All requirements fulfilled
5 - Beyond requirements
Focus Country comparison
Key themes
► Progress made but not yet there
► ORSA has seen most progress
► EIOPA preparatory guidelines drive agenda
2.1
2.5
2.5
2.6
2.7
2.8
2.9
3.0
3.2
3.2
3.4
3.6
0.0 1.0 2.0 3.0 4.0 5.0
Greece
Portugal
CEE
France
Poland
Belgium
Spain
Germany
Nordics
Italy
United Kingdom
Netherlands
2013
2012
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Compliance with Solvency II requirements Risk management effectiveness
Solvency II Benchmark Survey 2014
Assessment of the risk management effectiveness Assessment of risk management system
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.
2012
2013
66%
75%
65%
87%
91%
91%
34%
25%
35%
13%
9%
9%
0% 20% 40% 60% 80% 100%
Self-assessment by riskmanagement department.
ORSA assessment
Internal audit
Assessment by auditor
External advisor
Assessment by regulator
Not/ partiallyassessed
Fullyassessed
Key themes
► Solvency II minimum compliance is more than existence
► Attestation to effectiveness of RMS
► Progress but still considerable work needed
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Compliance with Solvency II requirements Effort and benefit for increasing risk management effectiveness
Solvency II Benchmark Survey 2014
Effort and benefit for increasing risk management effectiveness
Key themes
► Benefit outweighs the effort for almost all cases
► Improving risk culture seen as biggest benefit
► Better collaboration has a big benefit relative to effort
► Notable exception would be ERM and systemic risk
2
2.5
3
3.5
4
4.5
5
2 2.5 3 3.5 4 4.5 5
Eff
ort
Benefit
Effort vs Benefit
2.7
2.7
2.9
3.0
3.0
3.1
3.2
3.2
3.3
3.3
3.4
3.4
3.5
3.7
3.7
3.9
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Increased use of training/ e-learning for RM
Develop ERM to address systemic risk
Improved Grp risk aggregation mechanisms
Improved clarification RM Grp responsibilities
Remuneration more focused on risk taking
Better collaboration between 2nd & 3rd lines
More formal mgt. of conduct/customer risk
More efficient RM activity
More comprehensive planning for RM…
More formal mgt. of risk in change programs
Improved RM skills in 2nd & 3rd line
More flexible, reliable, focused risk reports
Better collaboration between 3 lines
Improved RM skils in 1st line
RA mechanisms embedded in decisions
Improved risk culture
Benefit Effort
1= low, 5 = high
Opportunity
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Compliance with Solvency II requirements Fulfilment of selected pillar 2 requirements
Solvency II Benchmark Survey 2014
Fulfilment of selected pillar 2 requirements
Key themes
► In most areas, organisations consider not yet reached minimum Solvency II compliance
► Most advanced on governance and control functions
0% 20% 40% 60% 80% 100%
Other important items
Risk Appetite
Outsourcing
Risk & Control Processes
Governance & Control Functions
Compliant
Not compliant
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Compliance with Solvency II requirements ORSA readiness
Solvency II Benchmark Survey 2014
ORSA implementation readiness spread
1.5
1.3
1.7
1.3 1.2
3,6 3,6 3,6 3,7
3,4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Projection ofcapital and
solvency withinthe planning
horizon (3-5 y.)
Design of stressand scenario
tests
Assessment ofgovernance
effectiveness
Assessment ofthe significance of
the risk profiledeviating fromassumptions
underlying theSCR calculation
Integration ofORSA result
(forward lookingassessment) in
the strategicbusiness planning
process
Key themes
► Wide spread across respondents and at country level
► Some country views are close to the extremes
► EIOPA preparatory guidelines drive the agenda
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Implementation readiness – Pillar 3
Solvency II Benchmark Survey 2014
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Compliance with Solvency II requirements Pillar 3 compliance
Solvency II Benchmark Survey 2014
Focus
► Approximately 76% of European insurers only partially fulfil the respective requirements or do not fulfil any of the requirements yet.
► The phasing-in planned for 2015 puts additional pressure on the insurance companies
► Manual solutions by automated and integrated reporting concepts is expected for 2016 and follow-up years.
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
0.0 1.0 2.0 3.0
Nordics
Greece
Portugal
Belgium
Poland
United Kingdom
France
Spain
CEE
Germany
Italy
Netherlands
1.13 Implementation of pillar 3 requirements
2013
2012
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Data and IT readiness
Solvency II Benchmark Survey 2014
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IT and data readiness – some positive progress
► Significant system investments made, especially
on Pillar 1
► Responses indicate Pillar 2 also well advanced
► Organisations have made good progress in
meeting most of the standard formula
requirements
— 53% now indicating that they can produce
standard formula results in a repeatable,
controlled and robust manner
— Just 9% have not met any requirements
► 42% have met all or most requirements for
investment data
Solvency II Benchmark Survey 2014
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47%
58%
66%
75%
74%
80%
80%
68%
76%
75%
79%
78%
84%
82%
0% 20% 40% 60% 80% 100%
Standard formula results are produced, and can be reproduced using a controlled and robustsystem
Investment data storage and analysis solutions are specified, developed and tested usingactual third party data
Clear architecture exists outlining how systems will support the evidencing of Solvencyoutside of regular reporting cycles if required under Pillar 2
Reporting systems are selected, designed and implemented for Pillar 3
Tests of alignment between group and solo numbers are defined and tested via dry runs
RSR, SFCR and ORSA reports are specified, designed and built
XBRL tagging and validation systems are selected
Financial and technical reconciliations of data held in different systems are defined anddeveloped
Automation of data integration, data quality and data lineage is developed and tested for highvolume data
Controls and workflow supporting low volume high value data are defined and implemented
End User Computing tools fully documented and controlled
End-to-end system test plans are established and approved
Parallel run and cutover plans are established including decommissioning and archiving asrelevant
IT Development and Support model in BAU is defined
Compliance with Solvency II requirements IT readiness
Solvency II Benchmark Survey 2014
Step 1 & 2: Requirements are not fulfilled / only some requirements are fulfilled.
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IT and data readiness – significant challenges remain
► Arguably greatest challenge is design of IT infrastructure
allowing consistent data exchange across all three pillars
► Re-using business rules and sharing common data
► Sufficiently flexible and scalable for ad-hoc reporting
► Across data integration, quality and control
► Manual approaches common
► Only 24% meeting most or all data requirements
through automation
► 66% of respondents noted for Pillar 2 that data and
systems not designed or ready to support ORSA beyond
normal reporting cycle
► 79% of European insurance companies say they have
met none or only some of the requirements to document
and control end-user computing tools
Solvency II Benchmark Survey 2014
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IT and data readiness – short term horizon
► Decision to freeze or place programmes into BAU
has led to limited progress across all Pillars
► Overall data and systems readiness for Pillar 3
continues to lag behind Pillars 1 and 2
► Only 25% of respondents indicate they had
selected and designed a system to meet most or
all of the Pillar 3 requirements
► Surprising 52% not selected a system to meet
mandatory XBRL tagging requirements
► Significant near-term activity required ... however
some lack of forward thinking apparent
► 41% without end-to-end test plans
► 44% without parallel run and cut-over plans
► Very significant challenges in reporting and ensuring
robust data and IT remain – lots left to do quickly!
Solvency II Benchmark Survey 2014
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Summary and conclusions
Solvency II Benchmark Survey 2014
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Summary and conclusions
► Push to completion - project management and program governance
► Pillar 1 - decision making on options and IMAP readiness
► Pillar 2 - effectiveness is compliance the goal is efficiency
► Pillar 3 – tactical and strategic options
► IT and Data Investment – unavoidable
► Capital optimisation and operational transformation
Solvency II Benchmark Survey 2014
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Questions
Solvency II Benchmark Survey 2014
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