This is a special report that Thomson Reuters has sponsored relating to the practical challenges facing practitioners in adhering to Solvency II. This report provides the read with some unique insights into how the industry is dealing with this matter. if you are working for or connected to an Insurer, Asset Manager, Custodian, Fund Administrator or Prime Broker this will be of interest to you.

1. Sponsored by:
The Data Management Implications of
Solvency II
November 2014

2. 2 | Thought Leadership from ReferenceDataReview November 2014
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S
olvency II is on track for full implementation
across European Union member states by
January 1, 2016. While the regulation’s aim is to
create a single and stable insurance market, its
data management requirements reach beyond insurance
firms and have significant implications for asset
managers and their custodians and fund administrators.
Solvency II
This report details the data management challenges of
Solvency II, describes how firms are developing solutions
to meet the regulatory requirement, and considers
whether compliance with Solvency II will help firms
comply with other incoming regulations. Anthony Belcher,
Director of EMEA Pricing and Reference Data, Interactive
Data; Tim Lind, Pricing and Reference Services,
Thomson Reuters; and Devesh Shukla, Global Head
of Reference Data Product Development, Bloomberg
LP offer insight into the data management issues of
Solvency II.
We hope you find the report useful.
Sarah Underwood
Editor
A-Team Group
The Data Management
Implications of
Solvency II
Managing Editor
Sarah Underwood
sarah.underwood@a-teamgroup.com
A-Team Group
Chief Executive Officer
Angela Wilbraham
angela@a-teamgroup.com
President Chief Content Officer
Andrew P. Delaney
andrew@a-teamgroup.com
Sales Director
Caroline Statman
caroline@a-teamgroup.com
Operational Marketing Director
Jeri-Anne McKeon
jeri-anne@a-teamgroup.com
Client Services Manager
Ron Wilbraham
ron@a-teamgroup.com
Production Manager
Sharon Wilbraham
sharon@a-teamgroup.com
Postal Address
Church Farmhouse,
Old Salisbury Road,
Stapleford, Salisbury,
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+44-(0)20 8090 2055
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www.a-teamgroup.com
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Reference Data
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ReferenceDataReview.com The Data Management Implications of Solvency II n
Tim Lind, Pricing Reference
Services, Thomson Reuters
Anthony Belcher, Director, EMEA,
Pricing and Reference Data,
Interactive Data
Please provide a quick
review of Solvency II,
its implementation
timetable, the types of
firms it covers and its
implications for insurance
and buy-side firms.
Devesh Shukla,
Bloomberg: Solvency
II is a European Union
regulation aimed at
reducing the risk of
insolvency and ensuring
the capital adequacy of
insurance companies. It
includes three main pillars:
ensuring firms are holding
enough capital; ensuring
firms have an effective
governance and risk
management programme;
and creating transparency
through mandatory
disclosures. The results of
the enhanced regulation
are a single EU insurance
market in which insurers
that meet the requirements
can operate in all member
states and offer greater
consumer protection.
The implementation of
Solvency II across all EU
member states is slated for
January 1, 2016, however
firms in some countries
are already starting to
adopt practices aimed
at complying with the
regulation. As an example,
in Denmark, insurance
companies have already
started to comply with
Solvency 1.5, which was
born out of the delays of
the EU-wide Solvency II
implementation. Another
example of this is the Swiss
market, where insurance
companies have been
complying with the Swiss
Solvency Test for a number
of years. In general, the
Swiss and Danish markets
appear to be further along,
especially with regard to
getting their risk models
approved by regulators.
While Solvency II primarily
impacts insurance firms
within the EU, there are
also implications for the
broader asset management
community and custodians
or fund administrators.
Operationally, Solvency II
forces insurance companies to
take a more systematic, data
centric approach to managing
their assets and may
introduce new policies around
governance, risk management
and portfolio construction.
A-TEAM QA:
The Data Management
Implications of
Solvency II
Sarah Underwood, Editor,
A-Team Group
(Moderator)
Devesh Shukla, Global Head
of Reference Data Product
Development, Bloomberg LP

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These are challenges
that insurance firms have
not had to face in the past.
Because many insurance
firms rely on the traditional
buy-side community to
manage their assets, these
firms may also experience
an impact with regard to
portfolio construction and
disclosure requirements.
Similarly, custodians and
fund administrators are
involved because they
have transparency into the
holdings of each fund and
may be able to provide
portfolio aggregation across
multiple asset managers,
especially for the ‘look
through’ requirement.
The financial implications
for insurance firms may
include a potential shift
in the asset mix across
portfolios to meet the
capital requirements set
out in Pillar 1. For asset
managers, compliance
with Solvency II may be
regarded as a competitive
advantage as insurance
firms will look to understand
the capabilities of fund
managers going forward.
Anthony Belcher,
Interactive Data: The main
goals of Solvency II are to
improve company stability
through a capital adequacy
regime, Pillar 1; reduce
systemic risk through
improved risk management,
Pillar 2; centralise reporting
of Quarterly Reporting
Templates (QRTs), Pillar 3;
and help create a single
market for insurance firms.
The timetable looks like this:
- By 31 March 2015,
deadline for transposition of
Solvency II into UK law
- By 25 May 2015, year
end 2014 annual solo
reporting to the Prudential
Regulation Authority (PRA)
- By 6 July 2015, year end
2014 annual group reporting
to PRA
- By 16 November 2015,
third quarter 2015 solo
reporting to PRA
- By 1 January 2016,
third quarter 2015 quarterly
group reporting to PRA
- 1 January 2016,
application of the Solvency
II regime in the UK
Firms affected by
Solvency II include all
insurance and reinsurance
entities operating in the
European Union and
European Economic Area
with a gross premium
income exceeding €5
million or gross technical
provisions (liabilities) in
excess of €25 million.
The impact on asset
managers, custodians and
third-party administrators is
significant. This arises from
the funds ‘look through’
principle in terms of data
disclosure and the need to
provide insurance clients
with complete, accurate
and timely asset and risk
management data, as
stipulated under Pillars I
and III of Solvency II.
What are the overarching
data management issues
raised by Solvency II?
Shukla: Solvency II raises a
number of data management
issues. The foremost issue
is that the directive forces
smaller insurance companies,
which typically have not
managed their own data, to
develop and implement new
data management strategies
while trying to comply with
the other aspects of the
regulation. Two additional
data management issues
are the availability of data
for aggregation into capital
requirement and stress testing
calculations, as well as the
consistency of data across
multiple asset managers.
A key component of
Solvency II is being able
to ‘look through’ a fund
to its underlying assets.
This has proven to be
challenging because asset
managers and insurers have
historically communicated
data via emailed
spreadsheets. The challenge
compounds as a single
insurer may have multiple
asset managers that deliver
content using multiple
formats and methods.
Firms need to be able to
streamline this workflow
so they can aggregate
data required for Solvency
Capital Requirement (SCR)
calculations for Pillar I, as

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well as for the stress testing
requirement in Pillar II more
effectively and efficiently.
Last, an interesting piece
of feedback from asset
managers has been that
insurance companies are
requiring data in multiple
formats – one for regulatory
reporting and a secondary
format for risk management
– which can complicate data
management even further.
Tim Lind, Thomson
Reuters: Solvency II implies
a significant data aggregation
challenge requiring the
collation of market, liquidity,
credit and operational data to
measure the risks faced by an
insurance undertaking. The
data management challenge
will then be the collection of
asset and liability information
to determine the appropriate
SCR, as well as an auditable
understanding of risk to
maintain adequate capital
and liquidity levels to offset
exposure. This will include
determining the market risk
of investment portfolios,
developing and documenting
internal governance and
risk models for a firm’s
Own Risk and Solvency
Assessment (ORSA), and
the ability to map data
accurately into quarterly
disclosure templates within
required timeframes. It will
also demand the acquisition
of new data classifications
not previously used by the
financial industry, while
requiring greater transparency
on structured products and
compositions of collective
investment vehicles.
Belcher: The main issues
around data for Solvency II
are similar to those of other
regulations. However, given
the breadth and depth of
the regulation, the issues
can be more burdensome.
They include: completeness,
the need for all data around
assets and liabilities to be
complete and in one place;
quality, this is key for SCR to
avoid over allocating capital;
complexity, data requirements
are more complex and
introduce a number of cross
regulatory issues such as the
valuation basis allocation;
and timeliness, making the
data required available when
it is needed.
In more detail, what
are the data content
challenges of the
regulation’s Pillar 1
capital requirement
calculations and how can
the necessary data be
sourced and managed?
Shukla: The data content
challenges of the Pillar 1
capital requirement include
the sourcing of high quality,
accurate data ranging from
basic terms and conditions
and pricing content to more
complex datasets including
curves and spread data for
use in the SCR and Minimum
Capital Requirement (MCR)
formulas. Complicating
matters further is that this
information is required at
the underlying holdings level
across potentially multiple
asset managers. It is even
more difficult if firms are
investing in complex funds
and structures. Because of
the nature of this content, it
will likely be acquired from
multiple sources, including
asset managers, vendors
and internal databases, and
will require a strong data
management programme.
Lind: The Pillar 1 challenge
is focused on collecting
the quantitative data inputs
required to model and
calculate the SCR and
MCR. This means that
from cash to high yield
debt, every asset held in
an investment portfolio
must be assigned a risk
weighting according to the
nature of the instrument
held by the insurance firm.
Pillar 1 also introduces
new data requirements
related to coding
conventions, classifications,
credit ratings, benchmark
curves and default
probability analytics, as well
as new data taxonomies
for securities instruments.
The classifications include
new schemes that are not
native to the security master
files typically maintained
by investment managers.
Two prominent examples

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include CIC asset class
and country codes, and
NACE industry sector codes
used by the European
Commission. Bringing
together and reconciling this
data, likely obtained from
different service providers,
will present a tremendous
challenge for insurance firms.
Belcher: Pillar I
calculations are supported
by a complex and wide-
ranging set of data on
assets and liabilities.
On the asset side, the
‘look through’ principle,
which requires individual
components of funds and
associated weightings to
be identified and reported,
is proving challenging
for insurers and asset
managers alike, particularly
for investments locked in
funds of funds.
Other areas of complexity
include bond duration and
the need for both clean
and dirty bond pricing,
detailed and accurate bond
terms and conditions,
comprehensive corporate
actions and income
events, ratings, transparent
and regular pricing for
unlisted and illiquid stocks,
and details of valuation
methodologies.
What are the data
and risk management
challenges of Pillar 2,
which covers governance
and supervision?
Shukla: The key functions
within Pillar II include
governance of the risk
management function,
supervision by the regulator,
development of an internal
model to manage risk, and
an assessment of the risk
and solvency, known as the
ORSA, the firm faces or could
face. There are a number of
similarities between the data
challenges presented by
Pillar I and Pillar II – namely
the acquisition of high quality,
accurate, consistent data and
the ability to aggregate and
report on this data in a timely
manner. Additionally, because
Pillar II effectively requires firms
to stress test their balance
sheet, the risk system required
by the regulators must be
auditable, transparent and
well documented. Roles
and responsibilities must be
documented and adhered
to as part of the governance
process, and models must
be approved through the
enhanced supervision process.
Lind: Pillar 2, the most
comprehensive of the three
pillars, is about developing
a system of governance
to produce an ORSA and
all the processes and
procedures necessary to
identify, assess, manage
and report the risks of an
insurance undertaking. The
challenges are very similar
to the governance of core
data management process
and include organisational
and operational structures
designed to support the
objectives of Solvency II.
The system starts with
the engagement of key
operational functions that
will need to contribute
to the ORSA, including
management committees,
operations, portfolio
managers, data operations,
reporting functions, risk
and actuarial functions.
Governance includes
documenting policies,
procedures, understanding
conflicts of interest and
defining controls that can
stand up to internal review.
However, documentation
of controls and methods
related to the expert
judgment applied to internal
models and risk assessment
is perhaps the biggest
challenge, especially as
the ORSA will need to be
approved and audited by
qualified third parties.
Belcher: One of the main
reported difficulties of Pillar 2
is that while the pillar’s articles
and implementing measures
define underlying principles,
they offer no standards on
practical application. In terms
of data quality, measuring
and managing risks, and then
applying them to strategic
capital planning, requires
confidence in the reliability
of the data and calculation
processes used. A wide
range of data will need to
be sourced, normalised and

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vetted on an ongoing basis in
order to meet the standards
of risk management
contained in Pillar 2.
What are the challenges
around new asset data
required for Pillar 3
reporting?
Shukla: One of the biggest
challenges related to new
asset data requirements
for Pillar III reporting
involves the definition and
consistency of requirements
set forth by the regulator.
Only recently have three
investment associations
in the UK, Germany and
France offered guidance on
a common set of definitions
and interpretations related
to the type of data that
must be exchanged
between asset managers
and insurers. As an
example, duration can be
calculated through different
methods, but because
Solvency II is principles
based, the regulator has
not necessarily provided
sufficient detail on which
data point the industry
should use. Aside from
the CIC and NACE asset
and industry bespoke
classification system, which
most vendors are providing,
the asset data required for
Pillar III reporting is similar
to that which other financial
participants have historically
used internally in risk and
reporting functions.
Lind: Pillar 3 is about
meeting the supervisory
demands of regulators
for disclosure and the
prudential oversight of
insurance undertakings.
This raises both technical
and interpretation
challenges when
completing the changing
requirements of QRTs and
Solvency and Financial
Condition Reports.
One key element of
implementing Pillar 3
reporting solutions is the
appropriate mapping
of asset and risk data
into eXtensible Business
Reporting Language (XBRL)
according to the business
definitions of EIOPA and
their interpretation by
industry associations.
This calls for a reporting
infrastructure that must be
sufficiently robust to meet
quarterly deadlines and
flexible enough to manage
changes in the disclosure
templates as new guidance
is provided by regulators.
Belcher: QRTs introduce
new bespoke instrument
classifications, such as CIC
and NACE 2 codes. Ultimate
parent identification for
investments and the use of
the Legal Entity Identifier are
another potential challenge
for insurers. Other complex
areas of QRT reporting
include structured bond data
and derivatives reporting.
The complexity of the
‘look through’ requirement
described under Pillar 1 also
applies to QRT reporting.
For instance, duration
information needs to include
fixed income securities
contained within funds.
What are the data quality
requirements of Solvency
II and how can firms be
sure to meet them?
Shukla: In many
respects, the data quality
requirements of Solvency II
are similar to those of other
regulations and traditional
middle- and back-office
functions. Firms require
consistent, accurate and
timely data with a breadth
and depth necessary for risk
and reporting requirements.
The challenge around
data quality is related to
sourcing the content. Firms
must piece together data
that has been sourced from
multiple places – asset
managers, custodians,
vendors, internally and so
on – as inputs to capital,
risk and reporting systems.
Because of the multitude
of participants that firms
must engage to obtain
all of the data necessary
to comply with Solvency
II obligations, they will
require a strong data
management programme
that is able to systematically
obtain, cleanse, organise
and format data for use
in reporting and risk

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management operations.
Belcher: The directive
includes three criteria of
data quality: completeness,
accuracy and
appropriateness. Firms will
need to ensure they have a
way of assessing the three
criteria with regard to their
data suppliers and internal
systems. This is a key
component of Pillar 2.
How can firms best
meet the ‘look through’
requirement of the
regulation?
Shukla: The ‘look through’
requirement of Solvency
II has proven difficult to
meet, in large part due to
the number of financial
participants and the level of
data aggregation required.
In some cases, firms only
need to look through one or
two levels, in other cases,
firms may need to look
through the entire universe
of assets.
Firms are approaching
these requirements
in a variety of ways.
For example, they are
aggregating the data
themselves and consulting
with data management
providers, such as
Bloomberg PolarLake, to
assist in the process. In
addition, custodians and
fund administrators will play
a critical role in helping firms
meet the ‘look through’
requirement as they can
aggregate holdings across
multiple fund managers.
Lind: ‘Look through’ has
two connotations in the
context of Solvency II. First,
it refers to a look through
into the structure of a fund,
or fund of funds, to the
underlying instruments held
by those vehicles. This will
require extensive data on
the constituent holdings
and individual instruments
held by funds.
The second aspect of
‘look through’ relates to
asset-backed instruments
and requires additional data
on the value or performance
of underlying assets such
as loans or mortgage pools
that make up a structured
obligation. However, the
availability of underlying
performance data can be
very limited on many asset
classes and might be the
biggest challenge of all. As
a result, we should expect
some asset managers
to divest certain asset
classes where underlying
performance data is not
available or where the
instruments create a large
capital charge.
Belcher: Insurance firms
may choose to approach
their asset managers one
by one for information. This
task is labour intensive for
both parties. It also runs the
inherent risk of generating
data files in a multitude of
formats with potential data
gaps and little information
on the quality of the
information therein.
Specialised ‘look through’
providers are working to
promote their solutions to
asset managers and insurers.
Essentially, ‘look through’
providers consolidate and
manage underlying asset
data from multiple sources
on a common platform that
insurers can plug in to. The
providers aim to offer a
joined up solution for what
would otherwise be a hugely
fragmented issue for insurers.
Given the lack of a
common standard between
insurers and their asset
managers with regards to the
expected ‘look through’ data
flow, trade associations like
the Investment Management
Association in the UK, BVI in
Germany and Club Ampere
in France are working on
implementing a common
data template, the tripartite
template, with their members.
Are there common data
requirements in Solvency
II and other regulations
such that Solvency
II data management
processes could be
used to meet multiple
regulatory requirements?
Shukla: In many respects,
the data requirements
of Solvency II and other
regulations are very

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similar, if not identical,
to the enhanced risk,
reporting and compliance
functions that many buy-
side and sell-side firms
already operate. The data
management processes,
including acquisition,
cleansing and aggregation
of quality content, will
apply to all. Solvency II
specifically pertains to
insurance companies,
but its principles apply to
many types of financial
participants. As an
example, AIFMD has
similar, although not exactly
the same, principles
focused on alternative
investment managers, such
as hedge funds and private
equity funds.
Lind: Absolutely. Many
new regulations will require
financial institutions to
manage new classification
and descriptive data
related to an instrument,
a counterparty and an
issuer. There is also overlap
with other regulations that
target capital adequacy and
systemic risk management,
such as BCBS 239 and Risk
Data Aggregation (RDA).
The common theme is the
ability to roll up exposure
of trading positions and
market concentrations to
the appropriate countries,
sectors, asset classes and
counterparties that are
creating the exposure. For
example, just like Solvency
II, RDA requires the
establishment of common
data taxonomies and
an architecture across a
banking group in which the
value of exposure can be
aggregated. This includes
common definitions and
classifications of data and
common identifiers, codes
and naming conventions of
entities and counterparties.
Most of the burden of RDA
is in the development of
internal systems in the bank
that can link information
across legal entities,
geographies and lines
of business at the group
level, which highlights the
complexity of legacy IT and
business silos.
When it comes to
regulatory compliance, the
common theme is data
governance and operations.
Ultimately, I believe data
used for risk aggregation
and capital adequacy in all
its forms must be managed
with the same level of
controls and attestation as
that applied to accounting
data for financial reporting.
Belcher: On the positive
side, pricing, valuation
methodologies and ratings
are generally common to
all regulations. Entity and
counterparty information, as
well as ultimate entity data,
are also common across
regulations. Reference data
and corporate actions are
another common area,
particularly where data is
predefined by existing ISO
standards.
On the negative side, the
data management process
deviates in at least two
key areas. First, bespoke
instrument classifications
do not overlap as they are
tailored around specific
activities such as the AIFMD
sub-asset code for hedge
fund managers, the Solvency
II CIC code for insurers
or the EMIR UPI code for
derivatives transaction
reporting. Second, the
application of the common
set of data required to
meet different regulatory
expectations varies. Formulae
and risk measurement
approaches may well operate
under different assumptions,
and frequency of reporting
and aggregation methods
for reporting can also vary
substantially from regulation
to regulation.
Do you expect firms
to develop Solvency II
solutions in-house, use
outsourced services,
or implement vendor
solutions?
Shukla: As is the case in
many implementations of
regulatory initiatives, firms
will leverage a variety of
solutions that best fit their
needs. Some insurance
firms, especially the larger
ones that manage their
own assets, may already

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have or will develop
in-house solutions. On
the other hand, small- to
mid-sized firms may rely
on either outsourced or
vendor based solutions. In
particular, the ‘look through’
requirement continues to
pose an industry challenge
that may be best solved by
using a vendor or third-
party solution that is able
to bridge the gap between
asset managers’ concerns
about public disclosure of
investments with insurance
firms and their regulatory
reporting obligations.
Lind: Sourcing data inputs
for SCR, ORSA models
and disclosure templates
will require unprecedented
cooperation between
insurance companies,
their investment advisors
and data vendors to
provide portfolio and new
instrument data. From
a data management
infrastructure perspective,
we would expect institutions
to leverage and extend their
existing capabilities rather
than deploy any specific
solutions just for Solvency II.
We would also expect
insurance companies to
license credit ratings,
benchmark curves
and default probability
analytics from market
data vendors. Likewise,
asset managers will meet
new data requirements on
instrument valuation, ‘look
through’ and classification
taxonomies using reference
data suppliers.
Belcher: Based on
feedback, we expect firms
to use a mix of in-house
development, outsourced
services and vendor
solutions to comply with
Solvency II. The important
thing is for affected
institutions to start data
planning now to ensure on-
time compliance, especially
with the first deadline dates
coming up very soon.
Finally, what advice
would you give to data
managers tackling the
challenges of Solvency II
compliance?
Shukla: Solvency II is a
comprehensive regulation
aimed at ensuring the
capital adequacy of
insurance providers. It
will require firms to adopt
thorough data management,
governance and risk
programmes. Firms must
also have confidence in
the quality of their data,
and for that, they need to
understand where data
originates and how to
manage and make use of
the data. Vendors and other
market participants may be
able to assist with some of
these tasks, but the onus is
on the insurance industry
to leverage content to drive
decision-making processes.
Solvency II gives us the
opportunity to use data
as an asset by leveraging
content to drive enhanced
risk and governance
programmes, while also
optimising the construction
of a firm’s portfolio.
Lind: I would recommend
that data managers engage
with service providers,
audit firms, data vendors
and industry associations
that have developed
expertise in Solvency II
compliance and the new
data requirements. Various
trade associations are
demonstrating value to their
members and are engaged
in the interpretation of the
regulation and preparation
for 2016 deadline dates.
Notably, the Investment
Management Association
in the UK, Club Ampere
in France, and BVI in
Germany have worked
together to develop a
tripartite data exchange
table containing around 130
fields that are needed for
Solvency II. This is a clear
attempt to standardise the
data exchange process
and make the insurers’
aggregation processes a
little easier. The PRA in the
UK has also been active in
establishing working groups
that can offer valuable
insight into Solvency II.