Reporting under Solvency II Are you on track? 8 March 2012

Transcription

1 Reporting under Solvency II Are you on track? 8 March 2012

2 Regulatory aspects of reporting under Solvency II Miroslav Kotaška 8 March 2012

3 Agenda Why reporting becomes critical? European legislation current state of play Solvency II Framework Directive Draft Level 2 regulation EIOPA public consultation on reporting Regular QRTs Financial stability reporting XBRL taxonomy Next steps 2

4 Solvency II Framework Insurance risk Market risk Liquidity risk Credit risk Operational risk Organisational structure Pillar I Pillar I Corporate Governance Risk governance Risk governance Pillar II Pillar III Outsourcing Policies, standards and definitions Systems & Data Internal control, Compliance and Actuarial functions Aim of Pillar I: Aim of Pillar II: Aim of Pillar III: To have enough resources when something bad happens. To prevent something bad to happen. To say what I have, what I need and what I do. SCR MCR TP Governance ORSA Add-on SFCR RSR QRT 3

5 Why reporting becomes critical? First information about the company available to the supervisor but several issues remain unresolved: Too many unknowns Only partially tested Interconnection with many internal processes Delays and uncertainty in the legislative process Ever changing calculations Method of submission to the supervisor Two informal consultations not very transparent Full consultation for 2,5 months only Calculations Other local reporting (Solvency II vs. Local accounting standards and/or IFRS) 4

6 European legislation framework Framework Directive Basic principles of regulation Level 1 Regulation Technical details Level 2 Implementing technical standards Regulatory technical standards Further development of technical issues Guidelines, standards, recommendations Comply or explain approach Level 2.5 Binding standards Level 3 Non-binding standards 5

7 next topic Level 1 Legislation current state of play Framework Directive (2009/138/EC) Article 35 Supervisory reporting At predefined periods or upon occurrence of predefined events The information reported must be accessible, complete in all material respects, comparable and consistent over time relevant, reliable and comprehensible Level 1 Level 2 Level 2.5 Level 3 Articles Public disclosure Strengthening of market discipline via regular Solvency and Financial Conditions Report Imposition of capital add-on or failure to comply with capital requirements shall be made public Amendment of the Framework Directive by Omnibus II Currently discussed in European Parliament Approval scheduled for July 6

8 Level 1 Level 2 Legislation current state of play Draft delegated act Level 2 Level 2 Level 2.5 Level 3 Form of regulation directly applicable in all Member States Transposition deadline approximately 18 months Pillar 3 in Level 2 Derived on the basis of former CEIOPS Consultation Paper 58 Contains details on the content and deadlines for supervisory reporting and public disclosure and transitional information requirements Format of submission of supervisory reporting electronic form Insurance risk Market risk Liquidity risk Credit risk Operational risk Organisational structure Pillar I Pillar I Corporate Governance Risk governance Risk governance Pillar II Pillar III Outsourcing Policies, standards and definitions Systems & Data Internal control, Compliance and Actuarial functions 8

9 Level 2 Legislation current state of play Draft level 2 regulation public disclosure Content of Solvency and Financial Condition Report: Summary Business and performance System of governance Risk profile Valuation for solvency purposes Capital management Additional information Means: Website (of the undertaking or of the association) at least for 5 years; Copy upon request Electronic copy (if not disclosed on website) to be sent within 10 days; stored for at least 5 years Printed copy to be sent within 20 days; stored for at least 2 years Deadlines Financial year ending on 31 December weeks after the year end 31 December weeks after the year end 31 December weeks after the year end 31 December weeks after the year end Level 1 Level 2 Level 2.5 Level 3 9

10 Level 2 Legislation current state of play Draft level 2 regulation supervisory reporting Consists of: Level 1 Level 2 Level 2.5 Level 3 Solvency and Financial Condition Report Regular Supervisory Report Once in every three years, unless the supervisory authority requires annual submission ORSA report Regular ORSA report shall be submitted within 2 weeks after concluding the assessment Annual and quarterly quantitative templates Deadlines quarterly templates related to any quarter ending on or after 1 January weeks after the quarter end 1 January weeks after the quarter end 1 January weeks after the quarter end 1 January weeks after the quarter end 10

11 Reporting deadlines January February March April May June July August September October November December Year 1 14 weeks Balance sheet, SCR, MCR 8 weeks Quarterly QRTs, 1. Q Quarterly 8 weeks 8 weeks QRTs, 2. Q Quarterly QRTs, 3. Q 8 weeks Quarterly QRTs, 4. Q 7 weeks Quarterly QRTs, 1. Q Quarterly 7 weeks 7 weeks QRTs, 2. Q Quarterly QRTs, 3. Q Year 2 20 weeks Annual QRTs, Year 1 20 weeks RSR, SFCR, Year 1 7 weeks Quarterly QRTs, 4. Q 6 weeks Quarterly QRTs, 1. Q Quarterly 6 weeks 6 weeks QRTs, 2. Q Quarterly QRTs, 3. Q Year 3 18 weeks Annual QRTs, Year 2 18 weeks RSR*, SFCR Year 2 * RSR depends on the decision of the supervisor 11

12 Level 2.5 EIOPA public consultation on reporting Quantitative Reporting Templates 54 solo QRTs + 10 group specific (25 solo will be applicable to groups as well) Level 1 Level 2 Level 2.5 Level 3 7 QRTs to be publicly disclosed (6 by groups) 6 QRTs to be reported quarterly (plus 5 with some exemptions) Accompanied by summary and LOG files with definitions of inputs asked What QRTs are new? Variation analysis ( P&L under Solvency II ) Life technical provisions analysis TP per product Asset list look-through template for investment funds > 60 QRTs 12

13 Level 2.5 EIOPA public consultation on reporting Level 1 Level 2 Level 2.5 Level 3 QRT sample SCR-B3F, Non-life catastrophe risk 13

14 Level 2.5 Overview of Quantitative Reporting Templates Area # QRTs Content Balance sheet 3 Country/cover 3 Balance sheet (SII vs. local valuation) Off balance sheet items Assets & liabilities by currency Activity by country Premiums, claims & expenses (annual & quarterly) Own funds 4 Own funds overview (solo & group; annual & quarterly) Variation analysis 4 SCR 10 Changes in the own funds during the year (overall; due to investments, technical provisions and own debts) SCR overview & break-up to individual risks 2 templates for internal models (full & partial) MCR 2 Separate template for composite undertakings Assets 9 Technical provisions 15 Portfolio overview (annual & quarterly), derivatives (current position and historical trades), profitability, etc. 7 life TPs (including also variable annuities) 8 non-life TPs (including development triangles) Reinsurance 4 Facultative reinsurance, reinsurance cover, SPVs Group specific 10 Entities from the group, intra-group transactions, risk concentrations Total number 64 14

15 Level 2.5 EIOPA public consultation on reporting Reporting guidelines Narrative part of SFCR & RSR Further details to draft Level 2 regulation Level 1 Level 2 Level 2.5 Level 3 Predefined events for ad-hoc reporting Material change in business & performance, system of governance, risk profile and solvency and financial position Example: conducting an ad-hoc ORSA Procedures relating to SFCR & RSR Disclosure and reporting policy 15

16 Level 2.5 EIOPA consultation on Financial Stability reporting Applicability Solo undertakings and groups with balance sheet over EUR 6 bn Level 1 Level 2 Level 2.5 Level 3 Members of the group do not have to report on solo basis Phasing in/out rules Content Mostly data included in standard reporting NEW! Additional information: SCR, Return on assets per portfolio and asset class, Securities lending and repo s, Statutory accounting balance sheet total, P&L, capital and reserves, Lapse/surrender rates (contracts and volume), Average profit sharing, Duration of liabilities in life and non-life (annually) Frequency Quarterly reporting SCR should be based on estimates 16

17 Level 2.5 EIOPA consultation on XBRL taxonomy Consultation took place in July-September 2011 EIOPA is also developing an XBRL taxonomy describing the Solvency II reporting in the harmonised data format to be used for the transmission of QRT. (paragraph 2 of the introduction to the consultation) Level 1 Level 2 Level 2.5 Level 3 Selected QRTs Assets, Balance sheet, Non-life technical provisions Technical consultation focused on technical solution, definitions, implementation costs estimates No feedback published yet, however new procurement for service providers published in January (Data Point Modelling for the XBRL taxonomy). 17

18 Probable future development Omnibus II approval and entry into force July 2012? Official proposal of Level 2 delegated act Dependent on Omnibus II finalization (September 2012?) Conclusion of the public consultation and approval of EIOPA s advice to the EC Dependent on Omnibus II finalization (September 2012?) Solvency II comes live 1 January 2014??? 18

19 Thank you Miroslav Kotaška

20 2012 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the Czech Republic. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

21 Efficient reporting processes under Solvency II Marek Salač 8 March 2012

22 Agenda The ongoing pressure has resulted in a number of persistent issues Multiple reporting frameworks Bringing imbalances in processes, governance, skills and data Solvency 2 reporting organizational impacts High level Solvency 2 project road map reporting imbued Solvency 2 closing and reporting preparation Background and key benefits Closing and reporting preparation for Financial Solvency 2 Objectives Approach Building blocks Key Deliverables 22

23 The ongoing pressure has resulted in a number of persistent issues... Excessive costs Differences between internal & external reporting Difficulty in meeting reporting deadlines Time consuming Lack of transparency Quality issues more room for error Inflexibility difficulty coping with new reporting requirements A lot of manual workarounds fewer automated processes and this pressure is expected to continue as a result of the changing regulatory environment 23

24 The ongoing pressure has resulted in a number of persistent issues... Multiple reporting frameworks IFRS Regulatory reporting Statistical data Internal reporting Reports in IFRS Reports in CZ GAAP CZ GAAP Performance reporting Statistical data Integration necessary Solvency 2 reporting Solvency 2 24

25 Multiple reporting frameworks Bringing imbalances in reporting processes, governance, skills and data Solvency 2 reporting WORKAROUNDS GUIDELINES & POLICIES SYSTEMS & PROCESSES DATABASES TRANSACTION DATA 25

26 Solvency 2 reporting Organizational impacts Solvency 2 is a regulatory driven initiative but it will drive substantial changes to business processes, internal controls and personnel information systems and data. Solvency 2 Compliance requirements How will the new reporting requirements be applied? What additional information will be required? Business implications What are the wider implications on how the business is managed? What are the impacts on P&L and Balance sheet? How does the tax reporting change? Process redesign Organization design Systems scalability & architecture Controls Financial Reporting and Tax Impact Regulatory & Risk reporting Data availability in source systems Which processes must be changed to capture and report new data? Is there a sufficient number of suitable and trained employees working in the right position? How many adjustments are necessary to meet the additional requirements arising from Solvency 2? To what extent will controls need to be modified to comply with regulations? What will be the impact on the P&L, the B/S, and measurement and reporting? What impact will Solvency 2 have on companies risk appetite? Do ledgers and business systems contain the necessary data and if so, how are they provided? 26

27 High level Solvency 2 project road map reporting imbued Phase 0 Phase 1 Phase 2 Phase 3 Gap Analysis Identifying gaps and critical path with consideration of the firm s Structural, Business and Operational Strategic Plan Programme Implementation Implementing Solvency II Programme, understanding the interdependencies and interlinking each sub-programme to ensure coordination of project Business As Usual Solvency II Approval Integrating the Solvency II requirements within the business and identifying improvements Risk Management and Governance Reporting impacts Standard Approach Understand the firm s Strategic Objectives Modelling Monitor QIS Exercises the firm s Findings Planning & Business Case Revisit Business Case Gap Analysis Implementation Plan and Actions Systems and Data Documentation Management Information Standard Approach Continuous Review Ongoing validation Transition to BU s Disclosure Integration 27

28 Background Key benefits Inefficiencies in the S2 closing and reporting process Requirement to communicate company results to the stakeholders in a timely and accurate manner after the end of the applicable reporting period Reduction in the number of days to close and report Improvement in productivity and focus coming from more accurate and faster reporting High risk of errors in the data due to many manual workarounds Enhanced internal controls Stricter filing deadlines Ability to back trace data and drill down to detail Prioritization of the work of staff in relevant departments more time and focus on value-added activities Late delivery of data to Finance department and regulator More reliable, consistent and predictable financial results Inconsistencies between internal and external reports Improved data integrity Need for clear definition of roles and responsibilities Lacking use of IT functionalities currently available in use the company Improved process efficiency, quality and reliability of financial reporting Opportunity for more effective budgeting and forecasting Limited number of system interfaces requiring multiple time consuming reconciliations with high degree of manual activities Consistent increase in requirements in complexity and number of stakeholders Enhanced company s preparedness for upcoming audit (both the interim and final) Cost saving stemming from improved process efficiency Projects deliverables can be used as inputs for other projects Integrated reporting using existing synergies and capacities

29 Closing and reporting preparation for Solvency 2 is COMPANY WIDE EVENT - 5 WD Month end 5 WD 10 WD 15 WD Close & reporting cycle Stakeholders Reporting Requirements Transaction processing Time to close General Ledger Close Non-financial information Governance Time to consolidate Consolidation Process Internal reporting External reporting Organization and People (e.g., structure, roles, responsibilities) Process (e.g., policies, procedures, controls, chart of accounts) Information Systems/ Technology Time to report Regulatory reporting Users Local /Group GAAP reporting Plans, budgets and forecasts Management information Other external reporting Access to areas of deep specialization Systems and IT Financial placement Reinsur. Sales Actuaries Claims Human Resources Accounting & Tax Distribution channels Controlling & Repotring Integration is key to success 29

30 Pillar 3 means Disclosing more information More frequently, with Higher degree of granularity than before Ambition Solve quality issues Speed up the closing and reporting process by how many days (year, quarter, month) Realization time Objective - Pillar 3 focuses on timely, regular reporting 30

31 Objectives from 30 days reporting time to 10 days Business Unit Close Corporate Close & Internal Reporting External reporting to stakeholders 14 DAYS 10 DAYS 6 DAYS 30 DAYS 3 quarters initial reduction SU* 8 DAYS 6 DAYS 4 DAYS 18 DAYS 3 quarters secondary reduction SU* 5 DAYS 5 DAYS 10 DAYS * SU Service Units like Asset Management, HRM 31

32 Key steps embedding Solvency 2 in closing and reporting preparation The diagram below illustrates the key steps in approach to integrate and improvement of closing and reporting process. S2 reporting Plan & scope Insight Design To be Implement Monitor C C C C C C = Management Checkpoint Summary of key objectives of each phase Plan & Scope Insight Design To be Implement Monitor Setup project structure, finalize scope define project goals, communication, prepare project plan and kick off Assess current state (people, processes, IT/IS, organization), develop As is closing model, identify improvement opportunities Validate and prioritize critical improvements, develop To be closing model blueprint, discuss & get approval from management, develop roadmap To be Prepare project charters for implementation, develop implementation plan to reach To be, project management and assistance with implementation Measure performance regularly, perform issues analysis, develop action plans to overcome deviations, track lessons learnt Key considerations for evaluating integrated closing and reporting Processes: Manual reintroduction of data, labour-intensive processes, Unclear process descriptions and dependencies, Systems: Different applications, accounting schemes, definitions,... Lack of interfaces, problems with accessibility and availability of applications,... People: Lack of clear job descriptions, absence of documented procedures Organization: Absence of clear measurement points, dependency on internal experts, limited communication, Complex organization structure many disparate business units, time demanding consolidation 32

33 Key characteristics of how to do it right Processes Structured process for close and reporting Integration of processes in finance and reporting Limitation of manual intervention, where possible Financial architecture integrated in the business Visibility and transparency top to bottom Efficient internal controls system, Focus on analysis v. transaction processing Ongoing Management metrics analysis Continuous Improvement program in place Ability to back traces and drill down to more detail Technology IT/IS Information when and where needed Seamless flow of data Maximize the use of automated approvals Integrated systems, standard chart of accounts Optimal use of existing technology Integrated Finance and IT vision Unified data sources Data Quality Organization Effective linking business and accounting operations Business shares responsibility for data integrity Centralized control of the consolidation environment Well documented up to date written documentation (i.e. inter/intra company) Consistent accounting procedures Earliest possible involvement of senior management Embed risk management to business activities People Right people with appropriate skill sets Continual skills assessment and development Clear roles and responsibilities Challenging governance structures Knowledge sharing to avoid dependency on key individuals Setup new rules for communication 33

34 Our approach detailed steps KPMG s integrated Pillar 3 approach helps provide a consistent, repeatable and sustainable process Objective Plan Effective and efficient project kick-off Insight Understand S2 reporting requirements and define company's Pillar 3 ambition Design Help design TO BE state close and reporting process Implement Help implement the design (incl. systems) Dry run and Monitoring Help improve close and reporting cycle with lessons learned Activities Define the project approach Establish the project infrastructure Kick-off project Conduct Solvency 2 Close and Reporting survey Focus the project by developing a strategy Document and agree as is framework and processes Understand and define company's S2 and overall reporting ambition and conceptual design Identify improvement opportunities (Quick wins) Map the reporting requirements to the company s systems Clarify close and reporting requirements Develop future ( to-be close framework and target architecture model Document to-be close & reporting process Client confirms design Develop redesign implementation plan Build and test new/upgraded reporting systems Launch implementation changes to the close cycle Assist client pilot (rollouts) Roll out to remaining business Document final close & reporting process Assist with other ongoing program activities Conduct a post-implementation review, to analyze process performance levels Identify areas of improvement Establish improvement process Transfer embedding responsibility to business as usual staff Manage the risks to existing reporting as a result of change Tools deployed Rapid Start methodology Integrated Reporting survey KPMG Project management methodology Solvency 2 close and reporting questionnaire Controls portfolio analysis and rationalization tool Illustrative disclosure policy High level draft end state map Industry practices Illustrative: SFCR RSR Future close calendar and checklist template Implementation tools and templates Implementation plan Improvement templates Business sign-off checklists Deliverables Project Plan Solvency 2survey results presentation Documented as is close process maps and applications Gap analysis, comparison to industry practices High level conceptual design of future close and reporting process Regulatory communications strategy To-be close and reporting process framework including organizational design To be close and reporting calendars Detailed Pillar 3implementation plan Process maps & documentation Progress reporting PMO documentation Results of user acceptance testing Process maps Detailed process documentation Pilot roll-out result analysis Continuous improvement plan Staff retention policy Definition of roles and responsibilities Quarterly reporting capability Integrated financial reporting calendars 34

35 Building blocks of integrated Solvency 2 closing and reporting process Intercompany balances are reconciled on timely basis Timely provision of quality operational data Integrated close and reporting calendar in place and instructions issued to all parties Team is appropriately qualified and competent Roles and responsibilities are appropriate and well documented Performance of finance team members is measured and reviewed Key controls & reconciliations performed regularly (each month) Minimal manual adjustments Adjustments reflected through TB and consolidation system PROCESS S2 close and reporting calendar adhered to Effective management review of numbers applied Alignment between S2, mgt, and group reporting Finance team is trained in Group reporting requirements S2 requirements are well understood PEOPLE / CAPABILITY Local GAAP requirements are understood Tax accounting requirements are well understood Cut-Off procedures properly applied and accruals / deferrals accounted for Sense of Materiality applied in making adjustments, prioritising work and mgt review Checklists used to track progress Cover in place for key staff (and succession plans where appropriate) Working conditions and hours are sustainable Post S2 reporting review - Group finance provide regular constructive feedback Chart of Account structures support S2 reporting (local and group) Chart of account structures are consistent Strong controls over data management accounts / cost centres / project codes Transactional systems support the automation of reporting An automated Purchase Order to Payment process is in place An automated fixed asset register is in place for each entity Code descriptions fro SFCR,RSR and QRTs are well defined DATA STRUCTURES Coding instructions are communicated and understood by transaction proc. staff Disaster recovery plans are in place Appropriate security over systems TECHNOLOGY Automated consolidation system upload System supports reversing and recurring journals Compliance with S2 and Group reporting requirements (IFRS) POLICY Compliance with Local GAAP Automated sub-ledger interfaces Substantial automation of controls and reconciliations Connectivity and Performance of systems are fit for purpose Technology is well supported by IM / External Providers 35

36 Key deliverables Deliverables Project structure, project plan, communication plan, Kick off meeting presentation Illustrative example outputs Definition and approval of the project scope Project structure Planning the project Communication plan Preparation for Kick off Description AS is process flows S2 closing and reporting process AS is critical path closing and reporting process Summary of bottlenecks and suggested improvement opportunities Assess people, organization, processes and IT and prepare closing process flows Conduct interviews, discussions workshop(where necessary) Create S2 closing and reporting process descriptions (process flows) in Visio Create critical path of the closing and reporting process Prioritization of the identified bottlenecks with management representatives Indentify bottlenecks and recurring issues and prepare summary of improvements (quick wins medium term an log term) Prepare as is closing plan without waiting times Management board presentation 8 AS is closing & reporting plan 36

37 Key deliverables Deliverables Illustrative example outputs Description 9 To Be Solvecny 2 closing process design and calendar development Validate indentified critical improvements Incorporate agreed improvements Develop future S2 closing and reporting process including integrated calendar in MS project Incorporates the proposed organisational structure, roles and high level job description of closing coordinator 10 High level Implementation plan (roadmap) for To Be Solvency 2 closing and reporting process The high level implementation plan includes key milestone and objectives leading to desired future state if implemented Management board presentation Assist the Company with project charters composition Assist with project management (PMO) Assist with the implementation and monitoring 37

38 Thank you Marek Salač

39 2012 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the Czech Republic. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

40 Data quality under Solvency II David Slánský Radka Haluzíková 8 March 2012

41 Agenda Why start thinking about data quality? Solvency II and data quality Data governance and Data policy Data directories Data quality Data quality process High level action plan 41

42 Why start thinking about data quality? Regulation Business benefits The Solvency II directive and available guidance from EIOPA sets out requirements for data quality The local regulator stresses the importance of data quality Our experience indicates that the scope of data quality is wider than Pillar 1 Competitiveness and cross selling Cost reduction Effective operations Decision making based on correct data and increased collaboration

43 Solvency II and Data quality Data governance and Data policy SII focuses on understanding the end to end process in the acquisition and use of data throughout the organisation so that the reporting is reliable and correct. Therefore data management, and especially data quality management, is a crucial component of Solvency II. Data sources Policy Asset Accounting Re-Insurance Assumptions Market data Claims ETL Data preparation Experience analysis Model points Economic scenarios Data quality Calculations Solvency capital requirements Economic capital Technical provisions SII Balance sheet Data directories/ Systems Agregation Reporting Regulatory: QRTs SFCR RSR Internal & Risk MI Business planning 44

44 Data governance and Data policy (1/2) Must haves A written Data policy approved by the board Implemented Data policy across the organisation Data policy sets out objectives on data quality and data update and reflects data strategy. Data governance framework ensures delivery of the objectives set out in the Data Policy. Data Policy Data Governance Framework Data Quality Process Business processes The policy should include: definition of data sets ownership and responsibility for data sets and data governance standards for maintaining and assessing data quality use of assumptions process for data updates risk and impact assessment process frequency of review 45

45 Business ěnazm I T změna BI Suppor t Team Document management syst em 1 Specialist a MD Met odici Lekt oř i 1. Zm ěna. Schválení 2 St andar 3. Zm du ěna r elevant ních 4. Vzdělání / St andar du m et odik Kom unikace Smal l Changes Pr oj ect Team 6 2 BI Manager Vybr ané út var y banky Tools Wor kf l ow management syst em 3 4 Bi g Changes Proj ect Team BI Compet ency Cent er Set s of di f f er ent r eposi t or i es 5 Data governance and Data policy (2/2) Must haves Data Governance includes the people, skills, leadership, organization, processes, policies and standards required to successfully administer and manage a company s information resources. Data governance structures and processes Strategy Goals, Vision Business requirements Why? Why are we undertaking this exercise? Clearly defined roles and responsibilities Objects Processes What? How? What are we going to govern? How do we manage the governance objects? Organizational structure Who? Who does what? Tools Whereby? Whereby do we achieve maximum effectiveness? Metrics How well? How well are we doing? 46

46 Data quality Must haves Undertakings need to demonstrate the fulfillment of the criteria of accuracy, completeness and appropriateness for all data used in internal model, technical provisions and ultimately disclosure data. Examples: Own concept of data quality and the actual implementation Accuracy data is free from material errors data from different time periods is consistent data is recorded in a timely manner data is recorded consistently over time. Reconciliation of imported data against official balance sheet Birth date is not prior to the value date of a policy Policy code corresponds to product code table Premium periodicity is coherent with the type of policy Completeness data is of sufficient granularity there is sufficient historical information to identify trends there is sufficient historical information to assess the characteristics of underlying risk All relevant products are contained - comparison with data from other lines of business or reference data All payments are recorded separately for run off triangles Appropriateness data is fit for purpose data is free from material estimation error data reflects the risks to which the organisation is exposed Data for managing auto industry risk might not be appropriate for managing life underwriting risk 47

47 Data quality process Must haves Defined and embedded data quality assesment processes (ongoing at ETL stage for each model run, one-off for new business system) Defined and embedded data quality reporting Data quality management is a continuous process that should comprise the following steps: Definition of the data identification of data quality rules Assessment of the quality of data validation of data against completeness, accuracy and appropriateness Resolution of the material problems identified appropriate measures to remedy the situation corrected data should be stored together with the adjustment Monitoring data quality 48

48 Data directories Must haves: Catalogued data required for reporting templates A directory of all data used specifying the source, its characteristics (quality) and usage Business and Data Dictionaries enable the business and technical data to be documented, joined up and understood across the organisation. Data relevant to the dictionary can be assembled through a review of current or proposed data flows through the in-scope architecture and reporting requirements. In addition, appropriate tools and mechanism for hosting the dictionary should be determined. This is often built into the ETL or DW implementations to provide an active dictionary that will be less prone to data decay over time. The dictionaries should also contain Data quality metrics or be linked to Data quality catalogue. Field Description Example Data item L1 Data item L2 Functional Definition Data Class Description from the Data Definition Level 1 Investment Portfolio Unique attribute name which best describes ISIN this data item Unique market Brief business description of the data item identifier of the security Class of data item e.g Assets, Liabilities, Assets Scenarios Data Location System where the data item is located HiPortfolio System Table System Field Name of the system table (entity) where the HiPoAssetTable1 data item exists Name of the field (attribute) in the system ISIN code table (entity) Internal Data Source Internal source of the data item N/A External Data Source Input Method Field Format External source of the data item i.e. Bloomberg, Valuelink etc Method of initial field input i.e. Manual, Automated, Batch Field format e.g Alphanumeric, Numeric, Character, Interger, Date, etc Field Length Length of the field 12 Bloomberg Manual Alphanumeric 49

49 High level action plan start 3 6 months 1 3 years 1. Assess current state 2. Define scope 3. Set Data governance vision 4. Design Data governance framework 5. Identify data requirements 6. Introduce and compile Business and Data dictionaries 7. Draft Data quality rules 8. Perform ongoing assessment of Data quality 9. Design and establish Data quality monitoring and reporting SII GO LIVE DATE 10. Remediate Data quality findings 50

50 Thank you David Slánský Radka Haluzíková

51 2012 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the Czech Republic. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

52 Reporting under Solvency II UK experience and insights Derek Haynes 8 March 2012

53 Agenda Planning your Pillar 3 project Key issues on Pillar 3 reports Reporting to Group Key issues on Financial Stability Templates Concluding comments Appendices - Treatment of participations Questions and answers 54

54 Planning your Pillar 3 project If you have not already started, you should start planning now! Understand the reporting requirements and the extent to which these differ from current reporting requirements Develop a plan Establish resource requirements Calculate costs Get buy-in from senior management etc. Maximise benefits arising from new information e.g. reassess Management Information 55

55 Pillar 3 plan Key milestones Some of the key milestones Establish data requirements Complete gap analysis Capture and store data - data warehouse? Modify existing / new reporting systems and processes Determine whether the reports will be produced locally or centrally Reconciliation processes Dry runs - timing / phasing Embedding into BAU 56

56 Pillar 3 plan Overview of approach Inputs form Pillar I and Pillar II Provide input to Data gap analysis work stream Achieve re-design required to meet target state Analysis of requirements End state definition Data requirements Reporting process re-design Implementatio n of changes Dry run and monitoring Inputs from existing reporting Under Solvency II regulation, Pillar III focuses on timely regular reporting which in practical terms means disclosing more on a more frequent basis and to higher degree of granularity than before. 57

57 Pillar 3 plan Tools and deliverables Examples of tools and deliverables Audit trail - mapping back to Directive requirements, implementing measures etc. Data checklist - quantitative (including forecasts) and qualitative, dependencies to/from other workstreams, use of IFRs disclosures Pro-forma templates Disclosure policies / review and approval process Reporting calendar Group instructions and reporting pack Training Detailed reporting plan Above will require regular updating as requirements change 58

58 Key issues on Pillar 3 reports Quarterly reporting will be particularly challenging Significant increase in the volume and sensitivity of information Latest draft of Level 2 delegated acts is not publicly available Certain templates are not in their final form General ledger - granularity of data (chart of accounts) Investment reporting - granularity of data Data collection from non-eea insurance subsidiaries and other financial sector entities for group reporting may prove difficult

59 Key issues on Pillar 3 reports (continued) Assets templates requires very detailed information, with an inadequate number of CIC categories Guidance required on consolidation methodology Basis of reporting Business and Performance Judgement required - material, significant, key etc. Communications With other work-streams (Systems & Data, Governance, Risk, etc) Internal External Commercial sensitivity

60 Reporting to Group Submission of information to EEA Holding Company Method of reporting solo reports or group reporting pack? Centralised or local production? Materiality / proportionality Review and approval at a local and a group level Review and challenge Local ownership/responsibility of information 61

61 Key issues on Financial Stability Templates NEW! Additional quarterly reporting (either by Group or by solo entity) SCR, Return on assets per portfolio and asset class, Securities lending and repo s, Statutory accounting balance sheet total, P&L, capital and reserves, Lapse/surrender rates (contracts and volume), Average profit sharing, Duration of liabilities in life and non-life (annually) Some inconsistencies with general reporting QRTs Insurance groups required to submit by the date applicable to Solo entities Need to produce certain quarterly information on the same basis as the statutory financial statements (which may not be IFRS) Regular prescribed reporting better than ad-hoc reporting? 62

62 Concluding comments The major UK insurers started Pillar 3 projects 2 years ago The requirements have not been finalised The devil is in the detail the new reporting requirements are substantial Other than for small insurers with a limited product range it is essential to start Pillar 3 projects Delays will limit options 63

63 Appendix 1 Participations in Solo Economic Balance Sheet Where 20% or more held Related Undertaking Treatment Valuation Insurance or reinsurance undertakings Adjusted equity method SII rules Insurance intermediate holding company Adjusted equity method SII rules Ancillary service undertakings Adjusted equity method SII rules Credit institutions, investment firms and financial institutions Adjusted equity method Sectoral rules Institutions for occupational retirement provision Adjusted equity method Sectoral rules Non-regulated entities carrying on financial activities Adjusted equity method Notional sectoral rules Other non-financial undertakings Adjusted equity method SII rules 64

64 Appendix 2 Participations in Group Economic Balance Sheet Where accounting consolidation method used Related Undertaking Control Treatment Valuation Insurance or reinsurance undertakings Insurance intermediate holding company Ancillary service undertakings Credit institutions, investment firms and financial institutions Institutions for occupational retirement provision Non-regulated entities carrying on financial activities Other non-financial undertakings Subsidiary Full consolidation SII rules Associate Adjusted equity method SII rules Joint Venture Proportional consolidation SII rules Subsidiary Full consolidation SII rules Associate Adjusted equity method SII rules Subsidiary Full consolidation SII rules Associate Adjusted equity method SII rules Subsidiary and associate Subsidiary and associate Subsidiary and associate Subsidiary and associate Proportional consolidation Proportional consolidation Proportional consolidation Adjusted equity method Sectoral rules Sectoral rules Notional sectoral rules SII rules 65

65 Questions and Answers

66 Thank you Thank you Derek Haynes

67 2012 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the Czech Republic. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).