KPMG Business DialogueS

Transcription

1 KPMG Business DialogueS KPMG Luxembourg May 30, 2012 Solvency II, Pillar 3 Chrystelle Veeckmans, Director, Audit services Geoffroy Gailly, Director, Management Consulting Pascal Föhr, Senior Manager, Audit services

2 Solvency II, Pillar 3 Latest news on the reporting and disclosure elements of the Solvency II directive

3 Solvency II is what you make of it so let us try to take the pillar 3 turn efficiently 3

4 Solvency II implementation timeline Solvency II Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Level 1 Level 1 Directives adopted into national law? Effective Omnibus II Level 2 European Commission proposal for Level 2 delegated acts? Level 2 measurements adopted into national law? Effective Level 3 EIOPA Level 3 guidelines? Effective

5 Introduction Solvency II Framework Measurement of assets, liabilities and capital Corporate and risks governance Own risks and solvency assessment (ORSA) Disclosure requirements Pillar 1 Pillar 2 Pillar 3

6 AGENDA 1. EIOPA draft proposal on reporting Quantivative Reporting Templates (QRT) Other reportings 2. Impacts on organization and IT 3. Q&A 6

7 EIOPA draft proposal on reporting

8 EIOPA proposals Stabilised package of template formats Comparabilty across Europe Facilitate review Minor changes expected More frequent, detailed and faster reporting 8

9 EIOPA draft proposal on reporting Regular Supervision Report (RSR) - To the supervisor - Narrative report / qualitative information - Full report every lhree years Solvency and Financial Condition Report (SFCR) - To the public - Narrative report / qualitative information - Every year - Includes parts of the QRTs Quantitative Reporting Templates (QRT) 9

10 EIOPA draft proposal on reporting Structure and content of the narrative reporting (RSR & SFCR) I. Executive Summary II. III. IV. Business & Performance 1. Business and environment 2. Performance from underwriting and investment activities 3. Related party transactions System of governance 1. Governance structure t 2. Risk Management System 3. ORSA 4. Internal control system / internal audit Risk Profile 1. Exposure, concentration, mitigation and sensitivity of underwriting, market, credit, liquidity & operational risk 2. Risk transfer V. Valuation for Solvency Purposes 1. Valuation methods used for Assets 2. Valuation methods used for Liabilities (especially technical provisions) i VI. Capital Management 1. Own Funds 2. MCR/SCR including any non-compliance 3. Differences between the standard model and an internal model Annex: Qualitative Reporting Templates (QRT)

11 Quantivative Reporting Templates (QRT) Subject Balance sheet Country/cover Own funds Variation analysis SCR and MCR Assets Technical provisions Reinsurance Group-specific Overall Current Consultation 3 forms on BS, off-bs and assets and liabilitites by currencies 3 forms K1 Country and A1 Cover split into annual and quarterly 4 forms, split into annual and quarterly solo and group 4 forms: overall, changes in BOF due to investments, TP and other (including own debt) 10 SCR and 2 MCR froms 9 forms: D1, 1A, 2, 3, 4, 5, 6 with D1 and D2 split 7 life forms and 8 non-life, all only solo 4 reinsurance forms, incl. SPVs 10 forms with G10, 15, 30 and IGT Total of 64 templates, including: public disclosure of 9 QRTs (solo) or 8 QRTs (groups); 35 forms applicable to groups (25 solo ones and 10 group-specific).

12 Quantivative Reporting Templates (QRT) Balance Sheet / Own Funds Area Key findings Frequency Comments QRTs Balance Balance Sheet (C1) Annually / Quarterly (with possible Balance sheet under the Solvency II valuation rules as well as under statutory valuation rules. Exemption Sheet exemption) from quarterly reporting if sufficient information on the reconciliation reserve is provided in the other quarterly QRTs. Public disclosure. QRTs- Own funds QRTs- Variat. Analysis Off-balance sheet items (C1B) Annually Information on guarantees, collaterals and contingient liabilities. Assets and liabilities by currency (C1D) Own Funds Annual and Quarterly (B1A and B1Q) Analysis of changes in BOF (Basic Own Funds) due to Investments, Technical Provisions, Own debt & other items as well as a Summary of all those (VA C2A-D) Annually Annually / Quarterly Annually Only most important currencies have to be reported (up to 90% of assets and liabilities). Overview of types of own funds items (by tier). Templates have been substantially revised and there are still some areas of uncertainty (breakdown of reconciliation reserve; introduction of expected profits included in future premiums). Public disclosure. New templates which need special consideration. Analysis of movements in BOF from one year to another by type of own funds as well as by the different sources. Template will not thave to be prepared in the first year. 12

13 Quantivative Reporting Templates (QRT) Solvency Capital Requirements (SCR) and Minimum Capital Requirements (MCR) Area Key findings Frequency Comments QRTs SCR SCR-B2A summarises the output of the SCR calculation for entities using the standard model or using a partial internal model Annually in aggregate and on a solo basis for each material ringfenced funds This template will also be required to be completed by firms using afullinternal model where they are required to provide an estimate of the standard SCR SCR-B2B summarises the output of the SCR calculation for entities using partial internal models Annually in aggregate and on a solo basis for each material ringfenced funds Firms using partial internal models will complete both B2A and B2B SCR-B2C summarises the output of the SCR calculation for entities using full internal models Annually in aggregate and on a solo basis for each material ringfenced funds Companies should agree with their supervisor the different component of their model to be reported on the template SCR-B3A to B3G provide more detailed information on the calculation of the various modules of the standard SCR: market risk, counterparty default risk, Life, Health, Non-Life, Non-Life catastrophe and operational risks Annually in aggregate and on a solo basis for each material ringfenced funds SCR- Non-Life catastrophe risk was significantly revised These templates are not required by firms using a full internal model except where they are also required to provide an estimate of the standard formula SCR QRTs- MCR These templates provide an analysis of the MCR calculation (both inputs and outputs) Quarterly It has been clarified that MCR is not reported at group level 13

14 Quantivative Reporting Templates (QRT) - Assets Area Key findings Frequency Comments QRTs - Assets Investment Data portfolio list (D1) A detailed list of investments is required annually Annually All insurers still have to provide a detailed list of assets annually Investment Data quarterly (D1Q) detailed list of investments OR Summary of investments Structured products data - portfolio list (D1S) Derivatives data open positions (D20) Derivatives data historical derivatives trades (D2T) Quarterly Larger firms will have to provide a detailed list of Investment quarterly. Other firms will produce a Summary of investment. This will be decided by CAA taking into account the proportionality principle to achieve at least 90 % coverage at EU levell and d75% coverage at Lux level. Annually Materiality thresholds: when structured products > 5% investments Annually / Quarterly Annually / Quarterly Provide information a performance by asset category and CF from investments. Return an investment asset P3 Annually Provide information a performance by asset category and dcff from investments. t Investment funds (look through approach) D4 Securities lending and repos D5 Annually / Quarterly Annually Gives information a main asset categories, geographical zones and currency quarterly risk exemption when funds < 20% investments. Assets had as collateral D6 Annually 14

15 Quantivative Reporting Templates (QRT) Technical provisions Area Key findings Frequency Comments QRTs Techn Provi. Life & health SLT as well as non life Technical provisions (TP(L)-F1/E1) Annually / Quarterly Technical provisions split into type of contract and best estimate / risk margin. Public disclosure. Projection of future cash flows (Best estimate Life/Non life) (TP(L)F2/E2) Annually Overview over the duration of liabilities used for the best estimate calculations. Life obligation analysis (TP(L)F3) Annually Details to the different life insurance products. Variable Annuities Description / Hedging of guarantees (TP(L)F3A/B) Information on annuities stemming from Non-Life insurance obligations (TP(L)F4) Annually Annually Supplement to F3. For VA only. Development and Best Estimate by line of business and accident year. Non-Life Insurance Claims information (TP(NL)E3) Annually Detailled claims development triangles for each line of business and currency for the last 15 years. Separate reporting for gross and reinsurance amonts and regress. Movement of RBNS claims (TP(NL)E4) Annually Movement in value and number of RBNS claims for each line of business and currency (by UWY). Loss distribution profile (TP(NL)E6) Annually Details of claims incurred (number and value) in the last 15 calendar years (by underwriting year and LoB) Underwriting risk (peak risk) (TPE7A) Annually Details of the 20 biggest risk over all LoB. Underwriting risk (mass risk) (TPE7B) Annually Sum insured and annual premium for all underwriting risks for certain LoBs (motor, transport, fire, credit) 15

16 Other reportings QRT for Financial Stability Purposes Affects (re)insurance companies with a total balance sheet of more that 6bn only (inclusion/exclusion if total assets more/less than 6bn in two consecutive years or more than 7bn/less than 5bn) Additional reporting requirements (surrender rates, duration of liabilities ) )aswell as higher frequency of known reportings (Own Funds, SCR/MCR, investment data, technical provisions ) Not if the (re)insurance company is part of a group 16

17 Reporting timeline * and thereafter SFCR/RSR/Annual QRT 20 weeks 18 weeks 16 weeks 14 weeks Quarterly QRT 8 weeks 7 weeks 6 weeks 5 weeks * Final decision to be made in Level 2 implementing measures

18 Impacts on organization and IT

19 Key challenge in Pillar 3 Data quality Closing process IT architecture t Availability Consistency Traceability Governance Variation analysis

20 Impacts on Organization and IT Governance Financial risk mgt system ORSA Operational risk mgt system Liabilities mgt system Accounting system Assets mgt system SCR MCR? SII reports (XBRL)

21 Impacts on Organization and IT Governance Liabilities mgt system Financial risk mgt system Accounting system ORSA Operational risk mgt system Assets mgt system SCR MCR It works! Easy to setup provided the knowledge is available Easily tailorable Option 1 : manual reporting Time consuming Potentially increases headcount Not reusable Unprotected know-how Still requires XBRL edition tool SII reports (XBRL editor)

22 Impacts on Organization and IT Governance Financial risk mgt system ORSA Operational risk mgt system Option 2: Data warehouse and reporting engine Liabilities mgt system Assets mgt system DWH Accounting system SCR MCR Reporting engine SII reports (XBRL) Very effective Tailorable (at cost) Reusable Sizeable to any company size Costly Potentially long initial proper setup Requires technical expertise and maintenance

23 Typical Solvency II pillar 3 questions I was told Pillar 3 is an IT only matter Do you really believe doing it manually is unrealistic? Do I really need to purchase a full data warehouse system? Can I reuse available IT assets within my company? What is XBRL? Why XBRL? Does pillar 3 imply many organizational changes? Which ones?

24 How KPMG can help Solvency II Framework Preliminary gap analysis Solvency II roadmap Definition of the reports and reports templates Definition of data requirements, including data mapping and traceability documentation ti IT readiness roadmap Disclosure requirements Organizational transformation Dry run of the SFCR, RSR and QRTs Compliance of your SFCR and RSR pro forma Pillar 3

25 Q&A 25

26 Thank you Chrystelle Veeckmans Geoffroy Gailly Pascal Föhr

27 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ) ), a Swiss entity. All rights The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.