Thursday, 22 November 2012

KPMG's Solvency II Readiness Survey for CEE - the flaw in EIOPA's plan?

So KPMG released this little gem in the same time period as Solvency II preparedness became something of a moot point!

Drawing in responses from 84 people, with around three-quarters EU-based and 70% under £100m in GWP, the questions were posed in Q2 2012, so with Omnibus II missing the last plenary before summer holidays, the writing was already on the wall - despite that, KPMG reckon most respondees would have been working to a 2014 go-live date. It expands on their 2010 work in this area, where 44% or respondents hadn't got started on their Solvency II projects, so progress on that front would be considered a good start!

I gleaned the following from it;
  • 31% not expecting to be "Solvency II compliant" before 2014 - one problem that's gone away then!
  • Almost half do not have a risk management function in line with the Directive, with smaller companies the main culprits
  • Only 19% (down from 40% in 2010) will be using IM or PIM for SCR calculation. Attributed to the realities of building them as well as Groups rethinking their IMAP strategies over the last few years.
  • 62% of companies not even planning an ORSA dry run until 2013 at the earliest, with 14% not planning for one at all as it stands.
  • Only 14% electing to use more than 3 years as their "business planning period" for ORSA - two thirds settling for 3 years - supports the anecdotal trend of 3-5 years as par for the course
  • 20% reported that their internal models allow for multiple year calculations to project for the ORSA - not sure if that is stochastic or deterministic though, didn't think any of the kernel technologies out there could do multi-year projections
  • Half of companies have 50% or less of the data required to populate their QRTs
  • Extraordinary perceptions on staffing requirements for both project and BAU, which even KPMG are drawn into calling "excessively pessimistic and indeed unrealistic" - it may be led in some respects by subsidiaries using shared Group services, but is still shocking in its naivety.
  • Three quarters would like "more interpretation" from their regulator on Level 1 and 2 texts - not sure what there is to "interpret", so maybe its the Pillar 2 and 3 elements that they are struggling with (the other stats here would certainly lend weight to that).
  • More than half of model applicants strugglinbg with Validation, highlights assumption setting and expert judgement as problem areas (no surprises there)
  • 70% looking to define "new roles and responsibilities" around Data Governance - as referenced in my earlier post, not convinced that will end happily. Over a quarter don't plan to compile their data dictionaries until mid-2013.
  • Only a third looking to do full SCR calculations quarterly, and over 50% look like they will struggle to generate the SCR calculation faster than 8 weeks.
  • 20% have a dedicated Solvency II team - explaining a lot of the shortfalls in preparedness relative to Western Europe, but given the delays and uncertainty, a financially astute move.
What should worry EIOPA is the results around control function preparedness, or lack of it. If Sr Bernadino thinks that the low hanging fruit of Pillar 2 is ripe for picking before 2016, a quick review of those stats would suggest that a decent number of the 27 countries are in no such state.

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