"Dear Deidre" - Cross border insurance flogging under General Good provisions

One for giggles more than anything else. The other day I spotted a response from Lord Hill, the esteemed EC Commissioner for Financial Stability, to a question arising from Deidre Clune, a relatively new Irish member of the European Parliament.

Good question, wrong Deidre...

Specifically, the question related to a Maltese-licenced insurer which hit the skids back in 2014, with the CBoI's summary information here. It seemingly only wrote business in Ireland (hence I suspect it was cheekily named after Ireland's TV sports channel to aid sales!), and therefore left every White Van Man/Woman without cover, until Ireland's Insurance Compensation Fund stepped in.

A few things stood out about this exchange;

• The then prospective MEP used the incident as political currency in the election campaign - "Vote me in, and I'll personally fix the EU insurance industry...", she almost said!
• That Ireland, the log-term epicentre of EU cross-border distribution and birthplace of Quinn (which almost turned over the UK White-Vanners back in 2010), would have the brass to nibble at the hand that feeds it! Only 3 months ago, the CBoI's Sylvia Cronin was warning of a likely "...increase in cross-border activity", and at the same time EIOPA's Sr. Bernadino left a not-too-subtle hint that "In the specific case of the Irish insurance market, special attention needs to be devoted to the fulfilment of the general good provisions of host countries by the companies selling cross-border."
• That it took 6 months to get an answer to Deidre's very basic question (at least according to her first public mention of a response in this media article). It took an extra two months for that answer to be published formally.
• That in that article she was reported to believe that the measures spelled out by Lord Hill were to "...prevent this from happening again" (as opposed to enhance policyholder protection while facilitating orderly failures when they occur, etc etc). To be clear though, that is quoting the article, not the member!

Does anyone think that now, even after EIOPA's efforts to-date, that supervisory colleges will be effective enough to prevent these kind of events, or do we just buy local and hope for the best?

EIOPA Chair's speech in Ireland - Nothing Compares to U2...

The huff has concluded it would appear – EIOPA’s gaffer has returned to the speaking circuit after a few weeks where the institution’s communications had been reduced to Post-It notes on the fridge after the EU butchered their budget.

Bernadino - dodgy stand-up

 

A recent Solvency II industry event was held in sunny Dublin, with Sr. Bernadino providing the keynote address. He chose to start and conclude with U2 jokes, which were as lame as a constipated flamingo (I would have thought Ben Folds Five or Lulu would be top of his playlist right now…)

That aside, the meat in this musical sandwich was pertinent to the whole industry, so I've picked out a few highlights;

General

• Wants to outline EIOPA’s move “from regulation to supervision” (p2), though goes on to say that “…EIOPA does not replace NSAs. The responsibility of the day-to-day supervision…rests with the NSAs” (p10). I think this subject warrants clarification from NSAs and EIOPA in concert, given we can see how having a remit-less overseer is putting the PRA on the back foot
• Acknowledges that the result of the mathematical squabbles is “…perhaps a too complex SCR formulation” (p3)

ORSA

• ORSA considered to be “…best practice at international level” (p4) – not sure if he means ORSA in general IAIS terms, or the ORSA concept he has curated within the EU!
• While he drops some of the usual ORSA bluster in about it being a “game changer”, he beefs up on the Board’s obligations, citing their "fundamental role to play", and stating in particular that "they need to set, communicate and enforce a risk culture".
• Of particular significance to his Irish audience was his emphasis on risk culture as "..an appropriate balance with the natural sales driven culture". This is perhaps the first instance where I have seen insurers' distribution arms formally considered by a supervisory body to be the enemy of 'risk culture', and for EIOPA's chair to choose Ireland, a country which has for years marketed itself as a cross-border sales centre on the right side of General Good provisions, is shown at the end speech to be a pre-emptive strike.

Internal Models

• Like his associates at the PRA, he notes that the use of internal models on the banking side "has been subject to increasing scepticism" in justifying the rigour of the Solvency II approach to modelling
• Worried that models will become a "capital optimization tool" - the PRA's NED briefing (slide 8) paints a similar picture if you read between the lines regarding missing risks and experience not reflected in parameter setting.

EIOPA's workload

• "Current different supervisory cultures" in the EU are creating work for EIOPA, noting that "our feedback can sometimes be challenging". Wonder who they're getting at there, France!
• They appear to be developing a Supervisory Handbook of good Solvency II practices. Chapters are already written on Risk Assessment, Boards and Governance, PPP and proportionality in Key Functions to name a few. Something to look forward to no doubt

Ireland-specific

• Go out of their way to applaud the onerous reserving governance in Ireland (here?), considering it practice which other countries should emulate.
• On the other hand, "...in the specific case of the Irish insurance market" he targets the country from a conduct risk/General Good perspective as one of the main cross-border players in the Union.

One can't help but feel the latter part of the speech was deliberately laid at the feet of the Irish, rather than aired in a more generic manner, given the country's continued corporation tax-related appeal to cross-border distributors. I guess when it comes to identifying the perfect audience to sketch out EIOPA's inevitable foray into Conduct Risk regulation, Sr. Bernadino found what he was looking for...

Governance flaws in UK financial institutions - complacency or one-offs?

Some very interesting bits released over the weekend which should prick the ears of the UK's banking and insurance entities like a corporate governance-driven piercing gun, hot off the back of last month's Co-operative Group scandal.

Governance structures
- unchallenged by Risk for too long?

Over at RSA, one of the UK's most venerable General Insurance, a house of horrors-style drama appears to be emerging. Starting with what looked like a serious, yet relatively modest, localised valuation issue over in Ireland has developed in short order into the straw which has broken the camel's back with regards to the tenure of the Chief Executive of the entire group - all off the back of a routine audit, according to one source, and perhaps not coincidentally breaking formally as a story one day after the announcement of enormous premium hikes in the country.

Astonishingly, one of the three men suspended at the Irish unit is also one of the biggest hitters in their national industry, being the current president of the Irish Insurance Federation. He was quoted in August thus (my emphasis);

I’m very optimistic about the future. The Irish Insurance Industry is robust, well capitalised, making a significant contribution to the economy and most importantly, delivering for customers.

While it is fair to say that the knives were already out for the Group CEO, who has presided over general bad news over the last year or so (this year's profit warnings one and two for example), to actually see a FTSE 100 insurer crippled to the point of fire sales to plug capital holes by such a matter is pretty remarkable, even if the geographical source of the pain is less surprising after Quinn went down actuary-less a couple of years back.

What's more, the interim CEO (who is pulling off the much-maligned Chairman/CEO double act for now, though was Non-Exec) has sanctioned a root and branch review of governance arrangements in the firm across all markets (cited here from an analyst call), quite an undertaking in itself bearing in mind its geographical spread.

It made me revisit the published feedback to EIOPA's preparatory guidance, where I had remembered that the feedback received from RSA was pretty caustic with regards to the appropriateness of EIOPA's guidance where it seemingly went above and beyond the Directive and Implementing Measures.

Pointedly in the context of this particular failure of their internal controls, they fed back extensively on the Fit and Proper requirements (p237), most of which centred around 'less is more', and emphasised the administrative burden such activity already causes. This is supplemented on p339 with a piece against the rotation of internal audit teams, both of which look discomforting in hindsight!

Actuarial profession and the Risk Function - from 'land grab' to 'colonisation'?

Back in the early days of this Blog I used to post frequently on the Solvency II-sponsored creep towards Risk functions in insurers being 'Chiefed' by members of the actuarial profession as a matter of course rather than choice (here, here and here for a start). It was even a thread in a presentation I delivered to ILAG in late 2012 around areas of control function crossover, in particular that the actuarial profession was acknowledging that there were professional deficiencies in their ability to address the basics of an actuarial function under Solvency II, yet preferred the ambition of conquering a newer (less arduous?) space ahead of remedying them.

Whilst a quant is no doubt a decent fit for such a task, it was an evident snub to the nascent Risk Management 'profession', who took umbridge at the implication of such compulsion from the UK regulator in April 2011, though with seemingly little impact. However, limits to the amount of time and money bodies such as the IRM and FERMA can throw at developing a one-size-fits-all Risk Management qualification package that can appeal to quants and non-quants alike, plus some furious inter-squabbling in the ISO 31000 world, are certainly not lending any credence to "Risk Management" as a profession in its own right as we stand.

Risk and Actuarial professions - 'Poles' apart?

Over in Ireland, the opportunity for the Actuarial profession to secure an additional control function has been pursued so rabidly that the SAI incoming and outgoing presidents were recently able to congratulate themselves on having busted into "the new frontier" of Risk, and are now moving on into "colonisation mode" (p2)! In the UK, the Institute and Faculty of Actuaries already seem to consider that area of influence secured judging by the new president's remarks recently, indicating a desire to influence more mainstream debates than those around risk management systems and corporate governance.

The UK and Ireland don't appear to be the only ones afflicted by the perception of compulsory quants in Risk functions. Munich Re's excellent Knowledge Series delivers a Germanic take that there is "no doubt" that professional mathematicians will be needed for tomorrow's Risk functions.

When considering the history of the Actuarial profession (beautifully summarised here), there should be no reason why Risk Management cannot achieve a similar position given time, regardless of the disparity in existing approaches from representative bodies. A modular qualification which can prepare a 'risk professional' for their favoured activity (insurance buying/continuity management/financial risk/op risk/ERM) is surely an ambition which those bodies can harbour in concert? My concern would naturally be that I probably don't have another 50-100 years to wait for the that convergence to happen and enhance my own career prospects!

Or maybe I do - does anyone know an expert in longevity?

Central Bank of Ireland - Prudential regulatory agenda for 2013

A pretty meaty speech was delivered last week by the CBoI's head of life insurance supervision, covering the prudential regulatory agenda in Ireland for 2013 and beyond. In essence it is a rather sobering take on the flipside of the Celtic Tiger's death and its impact on what was an effervescent, if still fledgling, cross-border insurance industry, noting that new business volumes recorded in Ireland have declined for the 5th year in a row, and currently aggregate out at a break-even APE/PVNBP margin.

I found there was actually a lot to take from this on the ORSA front, and would recommend any readers on the Emerald Isle pick the bones out of it, in particular that the regulator "expects to see";

• Strategies reflecting "current market realities" - highlighting excessive commission to brokers, swollen lapse/surrender rates and reduced margins from over-competition.
• Tight management of costs
• Increased efforts put in place to retain existing in-force business
• "Credible business plans"
• Viable alternatives to grow business through distribution or product range changes (online facilities highlighted specifically)

While much of this may read as common sense, one can reasonably assume that the CBoI is not seeing enough evidence of this in the Financial Condition Reports and strategic plans that currently cross their desks, and are expecting a much meatier ORSA-type approach to managing strategic risks over the business planning period in the immediate future.

Society of Actuaries in Ireland Newsletter - ORSA, Solvency II and Cocktails

Always a riveting read, the Irish Society of Actuaries fired out their newsletter for August, which as ever is a treasure trove for any diet-mathematicians like me who need to have things spelled out for them on all matters actuarial.

Of particular note was their report from the ORSA Working Party (p7), which covers a presentation and paper delivered earlier in the year - to show what a fantastic bunch the SAI are, you can access both the full working party paper (all 52 pages of it) and the presentation slides on their website. I picked out the following from the newsletter (I'll read the working party paper in more detail separately);

• "Compilation of the ORSA Document is quite a significant undertaking" - emphasising the difficulty in selling ORSA in purely process terms
• "ORSA is a risk management exercise, not a compliance exercise" - I would prefer to sell it as both, as it is unfair to undersell the compliance angle, particularly to smaller firms who may not have gone to the nth degree on projecting capital adequacy before.
• "ORSA needs to be readable..." - again, almost impossible not to talk about it as a report, rather than the report being the output of a process
• "ORSA would be of great interest to the Board" - I would hope that the Board would be queueing up next to the printer to get their hands on ORSA reporting output!
• Projecting the business planning period "...likely to be 3-5 years into the future" - interesting to see what the general consensus is on this (I feel this will fit most insurers, but if you are shooting for longer, would love to hear how you're doing it!)
• Some discussion over how prescriptive the Central Bank of Ireland may be on the ORSA documentation front (bearing in mind how liberal the FSA have been on this matter) - seems to suggest that a similar approach will be taken i.e. justify what you have.

There are a couple of nice pieces towards the back on unintended consequences of Solvency II and Basel III (on cost of capital and funding patterns), as well as some nice real world examples of why one should be wary of actuaries who manage to change internal model parameters in a way that magically reduces capital requirements each year!

The less said about the actuarial cocktail making class on the back page (complete with bottle of Kia-ora in centre shot) the better I suspect...

Society of Actuaries in Ireland Newsletter, April 2012 - ERM and ORSA features

Always a riveting read, the SAI pushed out their latest newsletter, which generally provides enough consumable detail on actuarial concept to help relative novices like me!

Get stuck in to the sections on contract boundaries, and the reason for professional vs EIOPA divergence on p4, some ERM activity over the last couple of months on p9 (and slides from those both here for ERM and here for ORSA). Some brief analysis of the older presentation from Towers Watson on ORSA is also summarised.

Central Bank of Ireland - Solvency Matters newsletter, ORSA and models

The Central Bank of Ireland have released their latest Solvency II briefing letter (thanks to Mike Claffey for tweeting it).

Important to note the following from a UK and Ireland practitioner's perspective, on the premise that the two regulatory bodies in the UK and Ireland are setting the benchmarks in many respects;

• 'No panic' message given regarding the Omnibus II 'delays' - timetable unchanged in this regard
• No references to the Commission's draft Level 2 text as a basis for undertakings to use for internal model application activity (which the FSA went out of their way to advocate at their February IMAP event). Is there a legitimate reason for this, bearing in mind how useful the document is for applicants in ensuring their documentation addresses the final requirements, even if only 'there or there abouts'?
• Model applicants should be "well advanced with the technical aspects of their model build" - this is somewhat to the FSA's take, which was that build should be pretty much complete by now (p10)
• Some nice visceral examples of Use Test evidence requirements from undertakings, particularly around evidencing Board 'understanding' of the model - I would add that these seem onerous for NEDs, but reasonable for executives, so I would be interested to see how this is applied (could you for example see your non-industry, non-executive director justifying diversification benefits to your friendly local regulator? Is that a reasonable use of project resource/Board training time?)
• Board members will be interviewed by the CBoI individually "without the support of their technical experts" - I'll get my coat then...
• On ORSA, they "recognise that individual undertakings would like to get more details on specifics of the ORSA Reporting Process", but want undertakings to focus on the contributing processes themselves - easier said than done, particularly when even EIOPA had to relent from the mantra of 'ORSA is process, not a report' when they got to public consultation stage!

I'm sure that the industry will appreciate some of the clarity in here - they may appreciate the Commission's Level 2 draft a bit more though!

Irish boards - the clean up commences

First sign of the wholesale changes demanded by the Financial Regulator over in Dublin, as Bank of Ireland get cracking with the boardroom changes.

Bearing in mind the size of the talent pool and the restrictions on number of directorships (anecdotally I have heard they have been particularly tardy in turning around NED applications) I suspect there will be a whiff of "new bottles for old beer" about this process, but it is important for the jurisdiction to at least practice the discipline.

ORSA Presentation to Society of Actuaries in Ireland by Towers Watson

Nice and swift - TW's finest laid on a presentation to the Society of Actuaries over on the Emerald Isle on engaging the business in Solvency II through the ORSA.

Not really anything to dispute in this, bearing in mind we have had all the guidance that the EU institutions are prepared to give on the matter, but some interesting reference points on

• ORSA-type activity in other jurisdictions,
• Operationalising (my made-up word, not theirs!) risk appetite,
• Creating a positive risk culture,
• Modelling considerations, plus a nice slide on the difference in scope between "current actuarial models" that just spew out TPs and internal models 
• An ORSA 'health check'

Obviously cheaper to administer these views/tools yourselves than call the lads in, but if your wallet can stand it, they clearly know their onions!

Risk Appetite Statements and Solvency II project planning - Milliman and Ireland, douze points!

Not content with hustling the Irish insurance industry towards quality (legally required) Risk Appetite Statements this time last year, Mike Claffey has repeated the trick with another quality breakfast briefing on reviewing those very same risk appetite statements!

I like his approach to defining tolerances (acceptable variances) and limits (hard maximum/minimums gross and net of controls), which most practitioners should be able to roll with (alternative ideas are covered in a recent post), as well as a glorious slide with my old favourite, the 3 StDevs!

There is of course a suite of utility here for non-Ireland based practitioners, particularly for ORSA (scenario testing, business planning, financial condition reporting etc etc), so I recommend a leaf through, and to get hooked up to Mike's twitter feed if you haven't already done so.

Of as much utility to anyone who has been slow off the mark with their Solvency II planning (or who has been waiting, fingers crossed for a 2015 kick-off!) is a presentation by another of Milliman's finest on what to do in 2012 to avoid Solvency II project failure.

Nicely split into pillars, the priorities all seem fair, although one would expect 2012 to be the tying-up process, rather than commencement, of Pillar 1 activity on data requirements, documentation etc (or else what did you spend your cash on last year!). I also don't think targeting 14 weeks for results turnaround is necessary at present, bearing in mind the commission have got transitionals built in to their draft Level 2 text to give us until 2017 to get to this turnaround time (these guys may know something I don't however)...

For Pillar 2, the list of "required policies" in the slideshow looked very light indeed, but this may be becasue it is focused on 2012 priorities - Remuneration Policy can probably wait until 2013, eh! The other pieces on ORSA and Pillar 3 are all fair, so don't be afraid to check off against these, whether in Ireland or elsewhere.

Well done lads, and keep up the good work.

Risk Appetite Statements - Central Bank of Ireland not impressed

Good spot from Mike Claffey, flagging an finance industry-wide rollicking from the Central Bank of Ireland on the quality of Risk Appetite Statements, now of course a regulatory requirement.

Some extraordinary findings appear to have emerged, judging by the recommendations, for example;

• Board not signing off the appetite statement (never mind just signing off, how about formulating!)
• Non-coverage of material risks
• Statement not being communicated to relevant staff

With the advent of PRISM in 2012, there is clearly a desire to get ducks in a line on the Emerald Isle, and of course there is plenty of Risk Appetite guidance out there (some from Mr. Claffey himself at Milliman here, the IRM's take here, the Society of Actuaries in Ireland had a good stab here, but strangely nothing extensive on the FAQ front from the CBoI). Fair to say that excuses should be hard to come by then?

However, as I have mentioned earlier, having some paper perfect statements doesn't necessarily deliver the right outcome, as UBS will attest to!

Solvency II Forum in Dublin - Central Bank of Ireland

All manner of fun no doubt had over on the Emerald Isle today at the CBoI's Solvency II forum. Would love to have been a fly on the wall, however consultants don't get the luxury of days off! Five presentations were seemingly put on the table, and if any of you guys reading in Ireland have anything to add, I'd love to hear it!

First presentation features a nice calendar for 2012, but more importantly the results of a "preparedness for Solvency II" survey issued in September. The following seemed pertinent;

• Around 15% didn't bother replying to and of those who did, over 10% said they were 'not preparing' at all!
• Only 40% into the "implementation and execution" phase
• Very high number of 'other' responses to questions on sponsorship and rollout responsibility, where the options provided were the obvious suspects (CEO, CFO, CRO, COO) - Appointed Actuary the missing link?
• Three quarters were "quite confident" that they will be ready from end of 2012
• Almost 90% think their boards (including NEDs) have "satisfactory" Solvency II knowledge - seems generous to say the least, however these were responses to the Central Bank, so one would be unlikely to say different!
• Top ranked aim of Solvency II programmes was regulatory compliance - that's the spirit, no flannel about business benefits and policyholder protection, just comply!
• 6% not very confident that the CBoI will be ready to conduct supervisory reviews "effectively and appropriately"
• Over 20% "not very confident" that their governance structures are Solvency II compliant (odd, as the requirements of the corporate governance code mirror or indeed surpass Solvency II requirements, and they ought to be complying with those now!)
• 50% haven't defined their ORSA Process yet!

In addition, some other CBoI preparation detail was laid down, most notably;

• Looking to build processes in order to formally accept internal model applications from 1st June 2013 which instinctively feels very late
• Liaising with the industry on the ORSA Supervisory Reporting requirement (which might lead to some element of prescribing content, bearing in mind the ORSA Consultation paper opens up the possibility of using one's ORSA Report to meet that requirement)
• Details on what the CBoI expectes in the "transition year" of 2013 yet to be finalised

Interestingly, in the Internal Models presentation, they are very explicit that Validation must cover all aspects of the models inputs, processes and outputs, not just the internal model itself - this "narrow vs wide" validation scope is something which I haven't seen the FSA be this specific about.

Irish Corporate Governance Code - updated FAQs

I'm guessing the "video conferencing" absentee-landlord insurance company directors have lobbied hard over in Ireland in the last few months, as the very extensive FAQs already issued have had to be supplemented.

Lexology do a nice summary of the main additions to the FAQ doc, which other than a couple of more genuine clarifications centre around the very important topic of attendance at meetings. Video and teleconferencing are now permissible, provided directors attend "wherever possible".

Troubling in some respects, particularly with Ireland likely to be used for hub and spoke purposes under Solvency II - I would ready myself for a series of "family issues", "plane delays" and "medical emergencies" that prevent a decent number of directors from fulfilling their physical attendance duties over 2012, followed by a themed inspection from the Central Bank!

Capital Management in the new regulatory environment - Towers Watson

A cracking piece from TW on capital management in Solvency II context, highlighting a number of critical areas for consideration as we approach ORSA public consultation. I noted;

• Experience of the Swiss Solvency Test on capital, which TW suggest caused such an immediate shift in capital strategies to accomodate (i.e de-risking Asset/Liability mismatches and purchasing additional reinsurance), that one's current capital plans should be revisited for future-state appropriateness , and not just taken as read.
• A suite of 7 key questions on capital management - all of these worth asking at any juncture, but even more so now.
• The capital management toolbox depicted is worth considering in the context of potential management actions in the ORSA
• Big section of branching and redomiciling, in the context of (publicly commented on by the head of the Irish regulator) "hub and spoke" approaches to reducing capital requirements, in the absence of the Group Support elements of early Solvency II drafts. The Central Bank is having to think specifically about the practicalities of supervising such arrangements, I guess on the premise that, with 12.5% corporation tax, they might be the main landing area for such schemes!

All in all a very good, and very timely effort

Society of Actuaries in Ireland - newsletter treats

As ever, the Society of Actuaries in Ireland produced a riveting read this month, with some hot topics covered very succinctly, and useful to multiple jurisdications for benchmarking.

Risk Appetite (specifically how best to communicate and document it) is particularly prominent with new obligations under the corporate governance code kicking in throughout this year, and the Society's ERM committee hauled in one of the CBIs top men to talk through options, with another couple of private sector big hitters. I spotted in particular;

• Risk Appetite Statement cannot be vague, and should include some financials
• Traffic Light system of monitoring was viewed favourably (amber being a warning sign to act)
• Breach alerts best in real time
• Solvency I and Solvency II measures matter - so don't rush for future state
• Very sketchy response on how to quantify "material" breaches of appetite, with no response documented from the regulator in this letter
• CBI want to know about "misses and near misses" - not quite sure about what the difference is frankly - are we now tiering 'misses' into categories? RAG's and traffic lights?
• No firm guidance on quantifying appetite for Op Risk
• Willingness (from the floor I imagine) for CBI to use standard definitions for risk appetite/tolerance/preference - amen to that brothers!
• Risk Appetite Statements should not be purely downside based

I must highlight the spectacular comment that "The risk appetite statement ensures decisions are made by the business rather than just by actuaries" - there's an eyeopener for all you insurance CEO's that thought you were the boss!

Some other very cute stuff included on Internal Model progress (a massive 45 models in the IMAP process - good luck staffing that!). On a serious note, one suggestion from the CBI was for 'independent validation' engagement documents to be submitted to the regulator to ensure they pass muster, which suggests there is a hot market for this type of service.

Two other parts of this jumped out. A sharp piece on diversification, where the CBI acknowledge that heavy use of expert judgement is anticipated, and point towards senior management understanding and ensuring the statistical quality standards can be met as aspects to consider.

The second linked piece was whether, as Insurance is a "mathematical business", that it is "not too much to expect" that the board and senior management to understand copulas and variance-covariance matrices.

You can tell that to the ex-politician NEDs first buddy...

Central Bank of Ireland - Annual Compliance Statement guidance for new Corporate Governance Code

The fun never stops in the world of Irish corporate governance and risk management - new guidance from the Central Bank has been released to aid with the completion of Annual Compliance Statement (and how to evidence the statement's content) - "compliance" of course being with the new corporate governance code. Some fascinating elements, which should have crossover uses regardless of your jurisdiction, such as;

• Boards must determine breach "materiality", in the context that "the Central Bank views all areas of the Code to be equally important"
• Code will be reviewed "in light of relevant EU developments", naming Solvency II specifically - I personally read that to mean that the new code will be subservient to any Solvency II requirements.
• Retention of supporting documentation section - excellent as a checklist of the kind of materials all Solvency II-affected undertakings should be reviewing as part of System of Governance and ORSA requirements, as well as likely sources of Use Test evidence
• Risk Appetite section (sub section of the above) - confirms that, by implementing these requirements effectively, one should be in great shape for Pillar II

 Look forward to seeing some of the "material deviations" being made public once the guys get up and running, should be some nice test cases over 2012.

Central Bank of Ireland - Solvency Matters number 5

Still a touch light from a forward looking perspective, the Solvency Matters bulletin from the Central Bank of Ireland. As well as a few reviews of activity already long passed, they "strongly recommend that your working assumption should be that the implementation date of Solvency II remains 1 January 2013... This is what we continue to aim for in the Central Bank of Ireland"

Society of Actuaries in Ireland - Land grab for the Solvency II grey areas?

Having already blogged on the brewing discomfort of the Institute of Risk Management regarding the perceived preference of the FSA for Actuaries to run Risk functions under Solvency II (and had to follow up as the story developed), I was very interested to read through the Irish Society of Actuaries strategic plan released today.

There is definitely the beginnings of a land grab here, with a number of statements eagle-eying the juicy cuts of what is currently ascribed to the Risk function as per the extracts below;

“We also aim to have our members recognised as being committed to the highest standards

of skill and professionalism and well equipped to take up both actuarial and risk management

roles under Solvency II.”

"enhance the standing and role of actuaries within insurance and reinsurance

companies, and in particular, to enhance the standing of actuaries as risk managers"

"Promote the qualifications and relevant experience of actuaries as risk managers."

"Increase awareness of the CERA (Chartered Enterprise Risk Actuary) qualification."

"Another area that is becoming increasingly important for actuaries is risk management,

including the management of risks beyond financial risks. We have already delivered a

number of CPD events aimed at improving members’ knowledge and understanding of risk

management concepts and skills and this will remain an important area of focus."

And perhaps the most land-grabby target;

"Explore the feasibility of partnering with an appropriate university or similar body to

develop a comprehensive risk management training programme for actuaries who want

to skill up quickly in this area."

It's a good job I'm all about openness and competition, otherwise I might start to get an inferiority complex!

Society of Actuaries in Ireland - response on Market Consistent ESGs discussion paper

In the interests of being prepared to scrutinise internal models to the letter of the existing text, I have spent more examining the hot topics on Pillar 1, and the SOA have provided an excellent response paper to the Central Bank of Ireland's ongoing discussion on market consistent black boxes.

I have tried to pick out the key themes in the absence of having detailed knowledge!

• Difficulty is calibrating market-consistent ESGs where deep and liquid markets don't exist
• Risk margin consideration appears and reappears throughout - the SOA advocate clarity and methodology disclosure wherever a risk margin is allowed for (which in my head would be an area the risk function could then scrutinise when validating the Internal Model)
• Process of converging insurance pricing with market-based pricing will involve considerable expert judgement (problematic for pure Risk functions to validate I suspect).
• Easier to use the ESG for interpolation as opposed to extrapolation - organisations need to be able to "show its work" when extrapolating beyond the region of the data (another good area for would-be validators to focus on)
• Also need to be careful when accounting for margins (implicit, explicit, illiquidity premia) that they are also appropriately extrapolated.

I suspect I will be referring back to this as the Level 2s and 3s make there way into their final form, as I found it a reasonably accessible pointer for potential Internal Model weaknesses (and I make no apologies for misinterpretations as a non-mathematician!).