Solvency II

A Practical Way of Delivery

Gain-Line & Solvency II

Solvency II is the biggest ever exercise in bringing together insurers and re-insurers under one regulatory regime

Solvency II Programme

Slide 2

• Solvency II is a set of principles and guidelines leading to best practice in risk management;

• It is an Enterprise wide initiative that will impact all areas of the business;

• Early adopters are helping Lloyd’s and the FSA set the bar for what is required in the market;

• We can’t give you ‘The Answer’, but only a framework to help provide ‘An Answer’ based on decisions your

business need to make;

• Numerous approaches are being adopted across the market and it is not a case of ‘one size fits all’;

• Resources will be scarce and the deadline is unlikely to move;

• The range and diversity of insurance operations means that a Solvency II solution will vary from company to

company;

• The eventual solution in each case will require a detailed initial assessment and a range of inputs from a number

of different disciplines.

•

• Gain-Line is a consortium of companies formed specifically to provide clients with focused Solvency II expertise

and resources;

• The details of the consortium members are contained within the Appendix.

The Gain-Line Consortium

CEO

CA CIO

CRO CFO

Stakeholder Requirements

There are many stakeholders with differing priorities that need to be integral to the Solvency II Programme

Solvency II Programme

Slide 3

Key Objectives:-

Chief Actuary – centralised and consistent modelling approach for all

actuarial users for realistic ‘what-if’ and scenario planning;

Chief Risk Officer – enterprise wide consistent risk management standards

and transparent risk modelling approach;

Chief Information Officer – robust IT governance with scalable modelling

tools and techniques, with consistent approach to data controls and

architecture;

Chief Financial Officer – faster reporting timetable with consistent approach to financial and management

information;

Chief Executive Officer – enhanced business performance through risk based decision making and efficient

allocation of capital.

Solvency II Components

Programmes will be challenged to align a variety of different functions as Solvency II will impact all elements of the Business

Slide 4

Solven

cy II Pro

gram

me

(including Pro

gram

me Office)

Governance, Compliance & Comms

Balance Sheet &Portfolio

Management

Governance & Oversight

Documentation, Comms & Training

External Reporting

Standard Formula

Portfolio Management

Calculation Kernel

Technical Provisions

Assets & Asset Liability Management

Internal Model/Risk Management

ORSA & the 6 Tests

Data Quality & Governance

Solvency II Data Repository

IT Systems & Processes

Risk Management

Systems &Data

Systems & Data

Different organisations have different priorities for data within the Solvency II context

Slide 5 Source – Xchanging Survey, February 2011

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The Regulator’s View

Highlighted below is the regulator’s view on data

Slide 6

“ Firms must improve their data management and quality –

we will assess firms’ plans and ensure that their project planning

is robust”…

FSA IMAP update on pre-application process – April 2010

FSA Guidance

Highlighted below are extracts from the FSA’s guidance as to why firms must meet the minimum requirements

Solvency II Programme

Slide 7

Systems & Data“5.24 The Directive sets out high-level requirements for the statistical quality standards underlying the model. This

requirement aims to ensure that the methodology underlying the model is sound. The standards apply to:• the methodology used to select, fit and, where appropriate, combine statistical distributions (probability

distribution forecasts);• data quality; • model dependencies and diversification effects;• risk mitigation techniques;• the treatment of financial guarantees and options; and• future management actions.

5.25 Firms seeking internal model approval will need to have accurate, complete and appropriate data, as well as be able to justify assumptions and judgment.

5.26 High quality data is essential for modelling. Firms should pay particular attention to this requirement as experience under the FSA’s existing regime has indicated that the current quality of data in many UK firms may fall short of both existing and Solvency II requirements. We recommend that firms review the following for internal and external sources of data:

• Data collection processes to make sure all data items required are collected;• Data resolution to ensure data is stored and accessible at a level appropriate for the design of the internal

model;• The quality of data to ensure data items are correct and validated as far as possible;• Access to data, to ensure it can be easily and accurately retrieved by relevant users. “

Source : FSA Insurance Risk Management : The Path to Solvency II, September 2009

Systems & Data

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

Solvency II Programme

Slide 8

Key Deliverables

The Key Deliverables for Systems & Data workstream are highlighted below

Solvency II Programme

Slide 9

• Data Policy/Governance

– A robust data policy/governance document which defines the date policy and, key data owners and the

link between the various data deliverables.

• Data Dictionary

– A repository which defines all of the key data elements required for Solvency II, and an explanation of

the data elements and a verbal definition of each specific data element.

• Data Directory

– A definitive repository of each model input into the standard model.

• Data Controls & Flow Diagrams

– A DFD must be created for each input to the standard model, i.e. row of the Data Directory, and cross

reference the Data Dictionary.

• Data Controls Register

– A complete register of all controls applied to the data as it transfers through the organisation. Controls

should also be categorised to show their relevance and strength.

Data Flows & Controls Diagrams

The Data Flows & Controls Diagrams (DFDs) pictorially represent how the data is manipulated and physically moves within the organisation

Slide 10

• The DFDs are created for each row on the Data Directory – i.e. for each Internal Model Input;

• Best practice shows that it should cross-reference the Data Dictionary;

• Overall data quality, control and governance can be seen by incorporating the data controls.

The Gain-line Consortium

Member Companies

Magellan’s Proposition is based on deep Project & Programme Management skills within this sector:-

• Specific Insurance experience (client references are available);

• Extensive Project & Programme Management experience within this environment with the

Management Team coming from Big-4 consultancies and senior operational roles within industry;

• A wide range of programme services, including strategy definition, project and programme

management, project delivery and QA;

• An innovative approach to delivering programme services;

• A collaborative approach to project delivery which has delivered in excess of £30m of savings in the

programmes we have worked on with our clients.

Magellan Consultancy Services

Magellan are an independent management consultancy focussing on programme management and project delivery

Slide 12

Phase 0

'Discovery'

Phase 1

'Initiation'

Phase 2

'Analysis'

Phase 3

'Implementation'

Phase 4

'Realisation'

Risks, Assumptions, Issues, Dependencies

Initial Feasibility Planning and Definition Detailed Planning and

Design

'Go-Live' and Roll-out Benefits Realisation

and Review

Benefits Tracking

Benefits Realisation Plan

Supplier Review Forum

Define Technical Strategy

BAU Handover

Future Training Plans

Supplier Review Strategy

Recommendation Report

High Level Planning

Initial Cost Benefit Analysis

'To-Be' Operational Design

'To-Be' Organisational Design

Detailed Systems Design

Initial Implementation Planning

Stage 1 Business Case

Define ContractualsSupplier Selection / Evaluation

Detailed mplementation Planning

Stage 2 Business Case Post Implementation Review

Testing and Roll-OutTechnical Requirements

Initial Process Analysis

High Level Process Documentation

Testing Strategy

Systems Pilot

Create Contractual Framework

Agree Terms and Conditions

Define Roles and Resposibilities Recruit/Re-organise Key Staff

Operational Review

Organisational Review

Process Review

Communications Plan and Execution

Project Initiation Document

Initial Technical Review

Review Organisation Structures

Techni cal Design Document

People Strategy

Initial Supplier Review

Operational Risk Assessments

High Level Operational Risk Assessment

Detailed Staff/Union ConsultationsHigh Level Staff/Union Consultations

Detailed Supplier Analysis

Reference Site Visits

Supplier Due Diligence

Detailed Operational Risk Assessment

Define Controls and Checks

Detailed Training Plans

Roll-out Strategy

Implement 'To-Be' Processess

Techni cal Requirements Document

Define Technical Specifications

Define Workflow Requirements

Service Level Agreements

Agree Service Levels

Define MI Requirements Agree Escalation Routes

People Strategy

Ongoing Review of Structure

Analyse FTE numbers

Review Staff Locations

Business Continuity Planning

Technology Strategy

Review Systems Performance

Implement Final SolutionDefine Systems Interfaces

JMR’s Proposition is based on the provision of experienced technical resource who have skills within this sector:-

• Specific Insurance experience (client references are available);

• Extensive analysis, design and modelling skills within this environment having delivered individual

assignments and fixed price projects for data migration;

• A strong network of associates that that can join a team to deliver specific assignments;

• Willing to work on flexible commercial models;

• A collaborative approach to project delivery with a ‘can do’ attitude;

• A strong focus on clients requirements and delivery.

JMR

JMR are an independent software services and solutions company that has been providing quality technical resource for 20 years

Slide 13

Hillway Consulting

Hillway Consulting is an independent organisation focusing on operational and management issues in the London insurance market

Slide 14

Hillway Consulting has:-

• Over 30 years experience in the London Insurance market;

• Operational and management experience in both active and run-off environments with particular

knowledge of underwriting, claims and reinsurance operations;

• Experience at Board Level in regulated environments and in working with regulators;

• Excellent network and contacts within the UK and overseas;

• First hand experience of capital markets, risk and capital modelling;

• Experience in corporate formations, restructuring and M&A in both the direct and reinsurance

markets.

Summary

• Key sectors; Insurance, Retail Banking, Investment Banking and Big 4 Consulting and Strategy;

• Market discipline; Credit, Market and Operational Risk, Solvency II, Liquidity & Capital Management,

Basel II, Economic Capital, Quantitative and Risk Strategy;

• We typically place Senior Managers, Directors, Programme Directors & Managers, Head’s of and

Project Managers;

• We operate a search methodology whether working contingently or retained supported by a

dedicated research function providing detailed market mapping and ensuring we stay in regular contact

with our candidate community/key people.

CirclePeople

Circle People are a boutique executive search firm operating across the FS Risk Management community

Slide 15

End of Presentation