European Solvency II Survey Finds Insurers On Track for 2016 Implementation

Insurance: European Solvency II
survey 2014
3 June 2014

Insurance: European Solvency II survey 2014
Today’s moderator
Martin Bradley
Ernst & Young LLP (UK)
EY Global Insurance Risk
and 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 Ford
Ernst & Young LLP
(UK)
Phil Vermeulen
Ernst & Young AG
David Foster
Ernst & Young LLP
(UK)
The information contained herein is a summary in nature. Viewers should consult their own professional
advisors to address their individual circumstances and concerns.
Jan Leiding
Ernst & Young GmbH
Wpg)
David Burton
Ernst & Young LLP
(UK)

Key findings
► The insurance industry is on track to implement Solvency II by January 1st
2016.
► 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 very
significant.
► 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 recovery
and resolution plans.
► Insurance companies are beginning to invest significant effort in capital
management 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 design
Participants and features
Significant participation
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, IT-system readiness,
regulatory interaction and capital
optimization
Germany
France
Central and
Eastern
Europe
Nordics
Poland
UK
Belgium

Compliance with Solvency II requirements
General 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%
Already
compliant.
In the course of
2014.
In the course of
2015.
In the course of
2016.
In the course of
2017.
Later.
2013
2012

General 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

Implementation 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 2016
In the course of 2017 and later

Pillar 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 Capital
requirement
(Standard
Formula)
Classification
and tiering of
own funds
Risk margin
Best estimate
liabilities
Valuation of
assets
2012
2013
Focus Country comparison
1. Requirements not fulfilled 2. Some requirements fulfilled
3. Most requirements fulfilled 4. All requirements fulfilled
5. Beyond requirements

Internal model readiness
0.0
1.0
2.0
3.0
Use test
Statistical quality
standards
Calibration
standards
Profit & loss
attribution
Validation
standards
Documentation
standards
External
models/data
2012 2013
17%
23%60%
Full internal
model.
Partial internal
model.
No internal
model.
19%
30%
51%
Full internal
model
Partial internal
model
No internal
model
Focus Structure 2013
Structure 2012

Pillar 2 compliance
0.0
1.0
2.0
3.0
4.0
5.0
Risk strategy (in
line with
business
strategy)
Risk appetite
framework
Risk control
process
Definition of role
of control
functions
Outsourcing
ORSA
Remuneration
Business
Continuity
Management
2012
2013
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
2013
2012

Risk 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/have
no formal way of
assessing this.
Believe it is
effective overall,
but this is not
assessed against
outcomes in any
formal and reliable
way.
Partially effective,
some components
have been
assessed formally.
It is effective in
bringing out the
desired outcomes
we want in the
business and this
has been formally
assessed and
validated.
2012
2013
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 management
Organizational transformation
What is the current level of automation for risk reporting
and calculation of key risk management metrics?
32%
29%
24%
14%
1%
0-20% 20-40% 40-60% 60-80% 80-100%

Development of risk management
Organizational transformation
Expectation of relevant changes due to Solvency II
0% 20% 40% 60%
Change of operating model between group
and operating entities
Change of responsibilities of Chief Risk
Officer
Change of governance structures
Change of risk capabilities
Change of IT landscape
Change of risk culture
Focus of Top Management on risk
management
Change of risk information flow

Pillar 3 compliance
Focus
0.0
1.0
2.0
3.0
4.0
5.0
Analysis and
population of QRTs
(data requirements
defined and
sourced)
Analysis and
population of SFCR
& RSR (data
requirements
defined & sourced
SII reporting
processes
designed/
redesigned &
integrated to
current reporting
processes (incl.
interdependencies
with ORSA)
Development of
disclosure policy
Control framework
updated for SII
reporting (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

Data & 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 are
defined and developed
Tests of alignment between group and solo numbers are defined and tested
via dry runs
Reporting systems are selected, designed and implemented for Pillar 3
Controls and workflow supporting low volume high value data are defined
and implemented
Automation of data integration, data quality and data lineage is developed
and 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 decommissioning
and archiving as relevant

Recovery and Resolution Planning (RRP)
How many more insurance
companies do you expect to be
defined as systemically relevant
in your country?
Assessment of the importance
of 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 of
liquidity
Ring-fencing
Disposals
Run-offs
Use of other
contingent capital
67%
26%
3% 4%
1-5 5-10 10-15 >15

Capital optimization
Importance of initiatives
1.7
1.7
1.3
1.6
2.2
1.6
2.4
2.1
2.1
1.7
2.0
2.3
1.5
2.4
2.2
2.4
1.8
2.3
3.1
2.4
3.3
3.1
3.0
2.2
2.8
3.6
2.0
3.4
4.0 3.0 2.0 1.0 0 1.0 2.0 3.0 4.0
Mergers & acquisitions
Intra-group reinsurance
Securization
Restructuring of legal entities
Optimization of the risk capital structure
Active run-off management
Optimization of external reinsurance
Pricing review
Development of new products
Alternative investment
Hedging
Optimization of asset mix
Optimization of currency matching
Optimization of durations match
Importance for optimizing risk capital Use of (internal) capital model

Contacts
Global Solvency II Leader
Martin Bradley
mbradley@uk.ey.com
Belgium
Kris Volkaerts
kris.volkaerts@be.ey.com
France and Luxembourg
Pierre Planchon
pierre.planchon@fr.ey.com
Germany/Austria
Dr. Bernd Greuel
bernd.greuel@de.ey.com
Jan Leiding
jan.leiding@de.ey.com
Greece and Cyprus
Lampros Gkogkos
lampros.gkogkos@gr.ey.com
Ireland
James Maher
james.maher@ie.ey.com
Italy
Stefano Battista
stefano.battista@it.ey.com
Netherlands
Paul de Beus
paul.de.beus@nl.ey.com
Nordics
Pehr Ambuhm
pehr.ambuhm@se.ey.com
Henrik Axelson
henrik.axelsen@dk.ey.com
Poland
Marcin Sadek
marcin.sadek@pl.ey.com
Portugal
Rita Costa
rita.costa@pt.ey.com
Spain
Manuel Martinez
manuel.martinezpedraza@es.ey.com
Angel Campomanes Mañueco
angel.campomanesmanueco@es.ey.
com
Switzerland
Hans-Jürgen Wolter
hans-juergen.wolter@ch.ey.com
Phil Vermeulen
phil.vermeulen@ch.ey.com
UK
Rodney Bonnard
rbonnard@uk.ey.com
Roy O‘Neil
roneil@uk.ey.com

Resources
Full survey: www.ey.com/Solvency2
www.ey.com/insurance
2014 Global Insurance outlook
Papers from the Insurance Governance
Leadership Network.

European Solvency II Survey Finds Insurers On Track for 2016 Implementation

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