1. Solvency II Practical challenges of the framework that really matter
DHO 2016

2. Challenge 1) Pillar 1 readiness
EIOPA “Need for high quality disclosures” and potential role of the External Auditor
Data Quality: incomplete framework and data issues
Models: incomplete modelling (e.g. ref. options and guarantees embedded in contracts) or lack of model stability (e.g. impact from different calibration of negative interest rates) – especially in Life
Assumptions: weak assumption setting process and back testing
Full recognition of obligations (contract boundaries) and identification of Homogeneous Risk Groups – both Life and Non-Life
Usage of existing methods/estimates which includes prudence - especially in Non-Life
Gaps in the classification and fungibility analysis of Own Funds
Documentation: incomplete process and model documentation
IT controls: often not mature due to widespread usage of excel and manual activities
Resources: lack of time/expertise to analyses results (e.g. ref movement analyses)
Group vs Local Company: limits in local ownership and suitability assessment of Group tools and services
Common gaps
Market Value Balance Sheet and Own Funds
Focus on Technical Provisions as part of MVBS
Standard Formula Solvency Capital Requirement
Scope
Governance and processes
Own funds
NAV
Data
Risk Margin MV MV
Methodology
Assets
Synergies with other finance processes
Best estimate
Liabilities
Models
Assumptions
Actuarial models and actuarial estimates are key elements to guarantee “high quality”

3. Challenge 2) Operational set-up and abilities
High workload,
Complex interactions
Need to accelerate
Youth problems…
&
2016
2017
2018
2019
Nov
Dec
Jan-Dec
Interactions and cooperation: lack of an integrated list of priorities, and of an embedded way of working across functions (Risk, Actuarial, Tax, Finance…)
Actuarial Function: weak processes and still defining on how to deal with multiple roles: Product pricing, TP calculation, TP coordination and validation, AF report…)
IT systems: incomplete joining up of multiple sources of information, a lot of manual work still required as well as “ad hoc” fixes (mostly in excel)
Data: poor automation in collection, review and reconciliation of significant amounts of data
Internal education: still rare widespread communication and understanding of framework and results
Spare capacity: very limited ability to accommodate overlapping duties and accelerate activities (or run extra, business relevant analysis)
Common gaps
Individual
QRTs
Annual
Submission + 20 wks* (by 20.05)
Submission + 18 wks*
Submission + 16 wks*
Submission + 26 wks* (by 01.07)
Submission + 24 wks*
Submission + 22 wks*
Q3 Submission + 8 wks*
Quarter
Submission + 7 wks*
Submission + 6 wks*
Submission+ 5 wks*
Submission + 13 wks*
Submission + 12 wks*
Submission + 11 wks*
SFCR
SFCR
SFCR
Narrative
RSR*
RSR
RSR*
Submission + 20 wks*
Submission + 18 wks*
Submission 16 wks*
SFCR
SFCR
SFCR
Llight automation solution as well as co-sourcing / outsourcing solutions pursued
RSR*
RSR
RSR*
Submission wks*
Submission + 24 wks*
Submission + 22 wks*

4. Challenge 3) Business shifts
FINANCIAL ENVIRONMENT
SOLVENCY II
CUSTOMER CENTRICITY
Solvency II shifts risk awareness and influence business steering
Definition of KPIs and limits to risk taking
not just for RMs, but part Investor story
Risk
Building relevance for the customer
Product design Solvency II friendly
Value for customers (products and offering)
Products ?
BUSINESS MODEL
Capital optimizations such: capital structure change, reinsurance and diversification opportunities
Advanced analytics for
customers behavior for value driven commercial actions
claims fraud risk pattern detection
IT and automation
Optimizations
Search for yield - more sophisticated risk taking and risk hedging
SAA/ALM and trade offs between credit/liquidity and return of the assets
Investments
Remuneration and incentives «value» driven
Increase touchpoints, decrease costs and integrate platforms
Distribution and Digital