1. Implementation Proposition A Practical Way of Delivery
AFM
Solvency II
Implementation Proposition
A Practical Way of Delivery

2. Presentation Contents
The contents of this presentation are shown below
Gain-Line & Solvency II;
What is Solvency II and the Key Elements that will affect your Firm;
The Gain-Line Proposition and Benefits;
How it Will Work in Practice;
Pricing and the Cost Benefits
Key Deliverables. 2

3. Gain-Line & Solvency II The Gain-Line Consortium
Solvency II is the biggest ever exercise in bringing together insurers and re-insurers under one regulatory regime
Solvency II is a set of principles and guidelines that apply to the entire market but implementation for smaller firms becomes an issue of proportionality;
It is an Enterprise wide initiative that will impact all areas of the business requiring a bespoke approach based upon an interpretation of the regulations;
Resources will be scarce and the deadline is unlikely to move;
All firms should now have, as a minimum, a project plan in place and should have started their individual implementations;
Numerous approaches are being adopted across the market and it is not a case of ‘one size fits all’.
Gain-Line is a consortium of companies formed specifically to provide clients with focused Solvency II expertise and resources;
Gain-Line is working with a range of firms ranging from small specialist mutuals to quoted Lloyd’s managing agencies;
This gives Gain-Line valuable knowledge, expertise and templates all of which can be utilised to fast-track our clients’ implementation of Solvency II.
Solvency II Programme
The Gain-Line Consortium

4. Solvency II has adopted a 3-Pillar approach
Pillar 2 – Qualitative Requirements & Supervisory Review
Governance, Risk Management and required functions;
Own Risk & solvency Assessment;
Supervisory Review Process.
Resulting in…
Business Governance;
Risk Based Supervision.
Pillar 3 – Reporting, Disclosure & Market Discipline
SFCR & RSR;
Disclosure;
Transparency;
Support of risk-based supervision through market mechanisms.
Resulting in…
Transparent Markets.
Pillar 1 – Quantitative Requirements
Balance Sheet (including Technical Provisions);
Minimum Capital Requirement (MCR);
Solvency Capital Requirement (SCR).
Resulting in…
Market Consistent Valuation;
Risk Based Requirements. 4 4

5. All firms must have a comprehensive system of governance
The governance system must support and provide for sound and prudent management of the business;
Firms will be required to demonstrate good governance and will be required to document :-
Policies and Procedures;
Roles and Responsibilities;
Reporting and Management Information.
In addition the governance system must include :-
An adequate and transparent organisational structure with a clear allocation and segregation of responsibilities and an effective system for the transmission of information;
Written and implemented policies for, at least, risk management, internal control, internal audit and any outsourcing;
All policies must be reviewed annually for any material change .
The Internal Audit function has to be independent from all other functions;
Fit & Proper – the collective knowledge, competence and experience of the management body shall include – market knowledge, business strategy and business model, system of governance, financial and actuarial analysis and regulatory framework and requirements. 5 5

6. Systems & Data
The Systems & Data Workstream must deliver a scalable IT infrastructure with the data being Complete, Accurate and Appropriate
Solvency II Programme 6

7. The Risk Management Framework
Firms must now ensure that an Enterprise Risk Management is embedded throughout the organisation
ERM Framework Elements
Governance
Accountability
1st line: Line Management
2nd line: Review & Challenge
3rd line: Independent assurance / challenge
Structure
Decision making (inc. Delegation)
Risks & Controls
Identification & Assessment
Systems & controls i.e.:
Policy and approach
Core processes & systems
Risk appetite set
Review & Assurance
MI / KPI’s
Scenario analysis & stress testing
Review & challenge
Independent assurance
Quantification
Base Level (solvency / regulatory)
Economic
Stress testing / tolerance levels
Continually refined risk appetite
“Systemic” / Interdependent Risk
Governance E.g.:
Risks & Controls Financial markets risk
Review & Assurance Currency fluctuations
Quantification Market changing events
Scenario Analysis
Contingency Planning
- Operational
Market changing events
Emerging Risk Management
Linkage to Strategy
Regulatory Risk
Governance
Risks & Controls
Review & Assurance
Quantification
Regularly updated, clearly documented
Group & Capital Risk
Governance
Risks & Controls
Review & Assurance
Quantification
Liquidity Risk
Governance
Risks & Controls
Review & Assurance
Quantification
Disclosure & Reporting
Operational Risk
Governance
Risks & Controls
Review & Assurance
Quantification
Market Risk
Governance
Risks & Controls
Review & Assurance
Quantification
Credit Risk
Governance
Risks & Controls
Review & Assurance
Quantification
Insurance Risk
Governance
Risks & Controls
Review & Assurance
Quantification
Pillar 1
MCR, SCR Capital Model etc
Pillar 2
ORSA & Supervisory Review
Pillar 3
Disclosure & Market Discipline 7

8. Reporting & Disclosure Quarterly and Annual Report
Firms will be required to produce Internal Reports and Management Information and also submit regular reports to the FSA
Internal
FSA Only
Publicly Disclosed
Own Risk & Solvency Assessment (ORSA)
Routine Report
Qualitative elements and Quantitative reporting templates
All information necessary to monitor capital adequacy (MCR and SCR) and demonstrate performance of governance structure
Regular Supervisory Report (RSR)
Quarterly and Annual Report
Qualitative elements and Quantitative reporting templates
All information necessary for the purposes of supervision
Solvency and Financial Condition Report (SFCR)
Annual Report
Qualitative report with Quantitative reporting templates
Required on a regular basis to support management decision making
Both reports can also be required in the event of predefined events – i.e. Change of business plan, etc;
Reports and additional information can also be requested during a supervisory review. 8 8

9. The Proposition
The Proposition is based on members sharing resources and best practice across the member firms
Gain-Line will work with those AFM member firms wishing to participate in a collaborative approach to assist in meeting the overall Solvency II requirements;
Gain-Line will work with each company individually, as required, to meet their specific requirements;
Gain-Line will utilise a core team to co-ordinate all project activities associated with the individual Solvency II projects and co-ordinate resources accordingly across the various projects;
The core team will be available to support the production of specific deliverables for individual firms to ensure the minimum requirements are met;
Gain-Line will also co-ordinate with third parties such as -
AFM – to help influence policy work and define minimum standards for members;
Actuarial Firms – to ensure future requirements are dealt with in a co-ordinated way;
FSA – to ensure that requirements as they evolve are incorporated into each firm’s implementation project as they develop and key issues are shared for discussion.
In this way member firms will share resources and will benefit from learning from what the other member firms are doing;
Gain-Line have developed an innovative pricing mechanism for the AFM members wishing to participate based on firm size and resource requirements.
Solvency II Programme 9

10. The Benefits of Membership
The benefits of this approach for the member firms are many
Programme management and regular updates with Quarterly User Group meetings
Common and consistent approach to Solvency II implementation
Availability of specialist resources with high level experience
Access to standard templates and project delivery tools
Lower cost for Solvency II compliance
Efficient co-ordination of third party resources between members
Benchmarking individual projects against other AFM Member companies
Implementation of Enterprise Risk Management within firms
Opportunity to develop AFM member specific solutions
Access to market knowledge and updates of regulatory developments and initiatives
Development of AFM specific minimum standards, with the ability to influence policy for smaller and non-directive firms 10

11. Gaps Identified & Plans Updated
Key Programme Modules
Gain-Line has segmented the key implementation areas into modules to facilitate management and resource delivery – see Appendix for sample deliverables
Programme Management/Change Management
Set-Up
Implementation
Go-Live
Project Review
Gap Analysis
Risk Function
Data Policy
Risk Management Framework
SFCR
Use Test
Resource Analysis
Compliance Function
Data Dictionary
Risk Strategy & Appetite
RSR
Internal Audit Programme
Internal Audit Function
Data
Directory
Risk Profile
Regular MI
Consolidated project plan
Actuarial Function
Data Controls & Documentation
ORSA
Documentation
Documentation
Gaps Identified & Plans Updated
SII Project
Plan
Governance
Systems & Data
ERM
Reporting
Go-Live 11

12. Gaps Identified & Plans Updated
Programme Set-Up
The Programme Setup phase is key to understanding your individual firm’s Solvency II Project status, identifying gaps and the work effort required to become compliant
Project Review
Detailed project review to understand your particular firm’s priorities, objectives and status
Gaps Identified & Plans Updated
Gap Analysis
Identification of particular gaps that may be present with respect to Governance, Systems & Data, ERM & Reporting
Consolidated project plan
Resource Analysis
Analysis of your current and future resource requirements during the length of the project
SII Project
Plan
As a bare minimum, you will have an independent QA review of your current Solvency II Project
Firms that have previously completed the Gap Analysis, will also benefit from reviewing the progress of their individual projects, and being benchmarked with similar firms 12

13. Pillar V Implementation
Once the reviews have taken place, we will work with individual firms on their own, specific requirements for implementation
Firm A
Programme Management/Change Management
Data Policy
Risk Management Framework
SFCR
Data Dictionary
Risk Strategy & Appetite
RSR
Data Directory
Risk Profile
Regular MI
Data Controls & Documentation
ORSA
Documentation
Governance
Systems & Data
ERM
Reporting
Implementation
Risk Function
Compliance Function
Internal Audit Function
Actuarial Function
Solvency II Programme
Firm B
Programme Management/Change Management
Data Policy
Risk Management Framework
SFCR
Data Dictionary
Risk Strategy & Appetite
RSR
Data
Directory
Risk Profile
Regular MI
Data Controls & Documentation
ORSA
Documentation
Governance
Systems & Data
ERM
Reporting
Implementation
Risk Function
Compliance Function
Internal Audit Function
Actuarial Function 13

14. Pricing
We have developed an innovative pricing approach based on the size of firms and the level of their involvement
Set-Up Costs Covered by AFM
Monthly Participation
Annual Premium Income < £10m £1,000 per month
Annual Premium Income between £10m and £50m £1,500 per month
Annual Premium Income > £50m £2,000 per month
Resource Costs As required by Individual Firms
Ability to influence the development of an AFM sponsored proportionate response to the Solvency II requirements;
A review of each member firm’s current Implementation Plan and a revision to reflect integration into a shared solution;
Access to shared expert resources of varying skill-sets as required for varying lengths of time;
Attendance at quarterly User Group meetings to discuss Solvency II specific issues and progress of the overall Programme and new developments;
Interface with the FSA as Level 3 Guidance is published (Gain-Line are on the Pillar V Expert Group and the information from these meetings will be reported back to the Members);
Access to standard tools and toolsets to support the Programme, which have been specifically chosen to help support the various implementations. 14

15. The Cost Benefits - Example
This approach enables the collaborating companies to choose which resources to use as opposed to only having access to one skill-set committed for a period of time
Standard Approach*
1 x Project Manager £600 per day for 6 months £ 64,800
1 x Governance Specialist £600 per day for 6 months £ 64,800
1 x IT Specialist £500 per day for 6 months £ 54,000
1 x ERM Specialist £750 per day for 6 months £ 81,000
1 x Reporting Specialist £500 per day for 6 months £ 54,000
Total £318,600
Solvency II Programme
Gain-Line Approach*
1 x Project Manager £600 per day for 50 days £ 30,000
1 x Governance Specialist £600 per day for 50 days £ 30,000
1 x IT Specialist £500 per day for 70 days £ 35,000
1 x ERM Specialist £750 per day for 40 days £ 30,000
1 x Reporting Specialist £500 per day for 50 days £ 25,000
Programme Setup £ 4,000
Programme Co-ordination £1,500 per month £ 18,000
Total £172,000
Savings £146,600 15
* Indicative costs for a medium sized company assuming implementation yet to begin

16. Appendix

17. Governance Key Deliverables
Terms of Reference
Project overview that includes project objectives, key sponsor & stakeholders, steering committee, reference committee and indicative timescales for implementation;
Governance Approach
Overall approach to governance, to include :-
Compliance Approach
The ORSA should assess their solvency needs, risk profile, risk profile and risk tolerances of the organisation, and should be based on historical information, but must consider the forward looking view by incorporating the business plan.
Reporting lines;
Escalation procedures;
Decision making processes;
Function interactions;
Reporting arrangements;
Policies for approved persons;
Risk management processes for emerging risks;
Risk & MI Reporting;
Strategic planning;
Outsourcing;
Internal controls;
Actuarial;
Internal audit;
Business continuity. 17

18. Systems & Data Key Deliverables
Data Policy/Governance
A robust data policy/governance document which defines the date policy and, key data owners and the link between the various data deliverables.
Data Dictionary
A repository which defines all of the key data elements required for Solvency II, and an explanation of the data elements and a verbal definition of each specific data element.
Data Directory
A definitive repository of each model input into the standard model.
Data Controls & Flow Diagrams
A Data Control and Flow Diagram must be created for each input to the standard model, i.e. row of the Data Directory, and cross reference the Data Dictionary.
Data Controls Register
A complete register of all controls applied to the data as it transfers through the organisation. Controls should also be categorised to show their relevance and strength. 18

19. ERM Key Deliverables Risk Strategy
Defines and documents the firm’s risk strategy comprising the objectives, key principles, risk appetite and assignment of responsibilities.
Risk Profile
Documentation of current risk profile and amendment of risk register (if appropriate), inclusion of other risks (market, intangible, counterparty).
Risk Appetite
Documentation of the board’s appetite to risk and to ensure that appropriate policies and procedures are in place to monitor and manage exposures within specified boundaries.
Risk Management Framework
Need to ensure there is an adequate and appropriate process in place to manage the risks that are defined within the Risk Strategy.
The ORSA
The ORSA should assess their solvency needs, risk profile, risk profile and risk tolerances of the organisation, and should be based on historical information, but must consider the forward looking view by incorporating the business plan. 19

20. Reporting Key Deliverables
Management Information
Specification of regular M.I. where different from existing reports;
Templates, management responsibility and process procedures.
Own Risk & Solvency Assessment
Pro-forma template – subject to Level 3 guidelines;
Management responsibility schedule;
Process and procedure plan;
Draft ORSA policy;
Business plan.
Regular Supervisory Report
Report format and template;
Management responsibility schedule and sign-off process.
Solvency & Financial Condition Report 20