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Implementation of Solvency II Eureko Asigurari. Solvency II conference 22 nd April 2010 Jozef Koma. Solvency II. BENEFITS Purpose of Solvency II is to protect the interest of clients and to increase greater financial stability of insurance industry.
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Implementation of Solvency II Eureko Asigurari Solvency II conference 22nd April 2010 Jozef Koma
Solvency II BENEFITS Purpose of Solvency II is to protect the interest of clients and to increase greater financial stability of insurance industry. Solvency II helps insurance companies to understand the risk better, to set up measures to mitigate the risks and to actively manage the business on value and risk indicators rather than on P&L or volume based indicators. CHALLENGES Solvency II brings new sophisticated model to assess the risk that company takes New tools, requirements are introduced: Market valuations, Stochastic approaches, economic balance sheet, clear audit trails, proper documentation of processes Moving target – not all principles are defined at this stage
Project Organization • Project is supported by Value Management Team (Eureko Holding working group), which coordinates the steps of Eureko operations. • Knowledge transfer / Consultancy • Processing Solvency II requirements • Organizing / Consolidating QIS studies • Model development • Internally the project is split in 9 key areas (requirement packs). For each pack a project team will be formed based on skills needed and focus of requirements. Whole process is coordinated by steering group - CFO, CA and CO, which reports to EMT.
What do we need to do! PILLAR 1 Calculate solvency capital requirement (SCR) – model is being developed. So far 4 quantitative impact studies were performed. Eureko Asigurari has not been participating in QIS yet. We expect to perform QIS 5 which will take place in August 2010. PILLAR 2 Prepare ORSA – Own Risk and Solvency Assessment – describe all the risks, even those which were not quantified. Function of risk manager has to be defined. Define risk strategy of the company. PILLAR 3 Disclosure, Financial Condition Report – all the process has to be auditable and properly documented. Clear audit trail from actuarial calculation to internal data.
What do we need to do! Solvency requirements have been streamlined by Group Team. Relevant parts are extracted and summarized in 9 requirement packs
We are not at the beginning Eureko Romania made several steps towards risk measurement in the past. We perform Economic Capital calculation what is Eureko’s own internal risk assessment model – some risks are based on QIS methods Market valuation of assets and liabilities is present from various studies – MCEV, ALM, LAT Documentation of the processes and implementing ICS increases the understanding of business flow and sets good base for processes disclosure. Models, assumptions, data and documentation are on good level, but still an improvement is needed.
Present status • At the moment the “Economic balance sheet and Own Funds” requirement pack is being handled - main goals are: • to identify the gap between Romanian GAAP and Economic Balance Sheet. • to construct the economic balance sheet. • Preparation for QIS 5 • Cover note received on Friday (16/4) – main differences between QIS 4 and QIS 5 described • Comparison of with ECAP study (internal model) • Performing QIS 5 should reveal where we stand – gaps to be tackled over 2011.
Key risks of SII implementation • Market valuations – low liquidity of financial instruments, non-existence of long term financial instruments makes it difficult to assess the market value of long term liabilities • Time value of options and guarantees - absence of implied volatility information results in subjective view on certain market sub-risks • Spreading the knowledge – more sophisticated models brings more complexity – full understanding of models can be done when there is proper knowledge. Education of experts but also management and other involved parties is needed. • Moving target – definition of Solvency II is not complete. Successful implementation can be jeopardized in case of severe changes in method or late communication. Thus increased attention to development is needed.
