Friday, 28 September 2012

KPMG on Solvency II - Progress in an uncertain world?

Handy survey from KPMG pushed around today touching on technical practices of UK Life firms (35 responded to the survey, so a decent enough sample). Appreciating the irony of the title in the same week as the rumour mill on an extension of Solvency II go-live to 2015 went into overdrive, the content is still valid on the benchmarking front, so worth a comb through.

Of particular interest I noted;
  • IMAP remains top priority for those in the application process, though KPMG highlight that firms are closely reviewing the advantages of the IM versus standard formula due to FSA fussiness, implementation costs snowballing and less-than-attractive results coming out of the model (i.e the fabled 20% reduction guess-timates are perhaps out of reach!). Some comfort there for anyone struggling with the same issues.
  • Documentation second priority for IMAP and non-IMAP firms - concerning at this stage, bearing in mind the FSA will have had plenty of opportunity to feed back on the big ticket items. If the industry still doesn't have a handle on regulatory requirements (or it does, but is not meeting them!), then perhaps it's a good job there is an extra year in the offing! 87% of the IMAP respondents said IM documentation specifically is causing challenges.
  • Pillar 3 also high on priority lists - might we expect that to slip back on the agenda with the extra year? Particularly around software solutions, which may have previously been the only way for some laggards to populate QRTs etc within the proposed timeframes, some may decide to do something a little more ad-hoc for 2013 rather than full dry-running. Two-thirds of respondents note that turnaround time is a concern, and unsurprisingly 'achieving sign off' is a concern of around half, with the tight timescales naturally impacting on the likelihood of getting an executive to confidently put pen to paper.
  • Only a third of respondents have dry-run their ORSAs - feels instinctively light, with those yet to run spread across the next 5 quarters. Natural areas of concern are later highlighted in this area, with ability (or lack of) to project across the business planning period, and plugging the ORSA process into the BAU strategic decision making process troubling around half of respondents. Bearing in mind only a third of respondents have performed any on-to-one training (with group training/workshops seemingly the preferred route), they may find that one will facilitate the other!
Some other noteworthy points;
  • Only 80% think Solvency II will "significantly" impact the wider business - struggle to see how it could not frankly, but appreciate their are non-IMAP firms in the mix here
  • Disturbingly large number of IMAP candidates appear to be behind the curve on P&L Attribution and Validation - interesting to know on the latter whether that is in respect of their internal findings or the FSA's view.
  • Two-thirds of IMAP candidates using external assistance for validation - wonder how long that gravy train stays on the tracks with a shift to 2015?
  • 20% don't have TPs in their IM scope - is that a bit chancey at this stage? I thought the FSA view on scope was a bit more onerous than some applicants may wish for.
  • Datawarehousing seemingly moving towards being the preferred route to meet Pillar 3 obligations where an existing solution has not already been implemented prior to Solvency II
Good intelligence for both IMAP and Non-IMAP firms, and should provide some programme managers with crumbs of comfort when they see what's eating their counterparts right now.


  1. Thanks for the summary... nothing on Use-Test in there per se, which is a bit surprising. Or are they just not there yet?

  2. Hi Owe, they have focused on the highest priorities (or in the case of deferred tax, opportunities!), which I guess rules Use Test out on the grounds that it would appear a number of respondents are struggling to get their models up and running, let alone demonstrate use of the outputs!