Saturday, 31 March 2012

InsuranceERM's Roundtable on Solvency II - extracting value and meeting challenges

InsuranceERM have kindly taken their pay barrier off the outputs of the Roundtable they hosted with Deloitte, bringing some of the talking heads we know and love and discussing the challenges of Solvency II, as well as the struggle to extract value from the project.

I thought the following was worthy of comment (too much effort to attibute to each commentator, so read the article if something tickles your fancy!);

From the value section;
  • Suggestion that small/medium sized insurers required "education" on risk management to attain the awareness and levels of larger firms (patronising but fair?)
  • Comment tha "documentation probably isn't as good as it should be" - the FSA would certain concur, based on their speech last month, and indeed the deal they cut with Lloyds last week.
  • All references to ORSA centre on the ORSA Report/"Record of the ORSA Process", rather than the process itself. This is very natural (I fight it on a daily basis), but if it is a continuous assessment process, then we must redouble our efforts to talk of it as such, and not as a reporting process.
  • Strange comment that non-executive directors feel they are being asked to do too much ("act like executive directors"). Appreciating this is a once-in a career suite of legislative activity, it's not that bad for a few days work, get on with it!
  • Big statement made about Boards having internal model knowledge "before Solvency II came in" - I suspect the depth and breadth of what the Board needs to know about their models will be one of the hardest knowledge gaps to bridge for the 70-odd model applicants, so surprised to hear someone so dismissive.
  • On Risk Appetite, a comment that ORSA is "forcing boards to actually reflect and achieve concensus around risk appetite" (which I would be mortified if Boards didn't already do), followed by a mention of monitoring "unused risk-bearing capacity" in one's risk profile, which I really like.
  • One guy notes that UK capital requirements are not driven by regulatory capital, but rather ratings agency capital (or economic capital/overall solvency needs by another name) - while its a big statement, it is probably fair, bearing in mind where the big boys have calibrated their EC measures (all at or around AA - coincidence?).
  • Quite a disappointing section on diversification benefits, which pretty much touched on M&A, and not much else
From the challenges section;
  • Beautifully timetabled comment regarding the FSA and Lloyds "not delaying their timetables" - obviously didn't get the inside track on that one!
  • One personal concern tabled that "given the level of resources in the FSA, the tier-one approval process may well drag out longer" - obviously DID get the inside track!
  • "Many UK firms are targeting IMAP in the fourth quarter of this year" - so now we know?
  • Guarded comment about regulators needing to be open and honest "about the basis and whether reliefs and concessions are going to be extended" regarding IMAP.
  • Good comment regarding contingency plans for failed model applications - "capital loadings will come into play, rather than having to revert back to a standard formula", which is easy to forget when constructing said plans
  • Another less well trodden discussion regardin the FSA compelling an organisation without resource to use an internal model - not certain of likelihood, but always good to be reminded of the Standard Formula not being a safety blanket in that respect.
  • Nice piece on difficulties for groups, with "parents and subsidiaries running at different speeds depending on where they are located", followed on by regulatory arbitrage comment - is the FSA effective enough to coax the less well armed regulators to work at their speed?
  • One commentator with a US presence noted he is participating lobbying the NAIC on ORSA and its value (it would certainly help the equivalence argument no end if they could get that one to stick, and it's already going well).
  • Ends with one of my pet peeves, the CRO/Actuary debate - one commentator nails it with the CROs needing to be "broad-based business leaders with a high level of financial literacy", as opposed to an actuary, while another commends the "wave" of actuarial CROs, but is generous enough to say he can see it "broadening out a little bit" - thanks pal!

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