FSA on Technical Provisions - "The question bank" part 1

The FSA have already publicly stated (about halfway down) that internal model applications will not get a final decision before applicants have the tyres kicked on their Technical Provision calculations, though like one of a hundred Solvency II-related Damoclesean swords, the precise nature of that kicking was beautifully unclear.

Happily, they have released a technical provisions question bank which, while not necessarily departing much from the line of questioning that an EV auditor might take, at least brings some clarity to the level of granularity required to commence this work (appreciating that Julian Adams also stressed in that speech that he wants to review based on the YE 2012 balance sheet).

As you will see, it is GI-related only at this point, with a Life version to follow next week. Neatly, they are already aligned to the L1 and L2 text, which should make any compliance checking aspects of the work more robust for firms.

Luckily I am too handsome to be an TP Actuary (?), but at first glance, the lines of questioning are extremely flabby to say the least (lots of "How do you do x", and references to "materiality", "proportionality" and "significance"), all of which point towards a rather subjective and painful administrative exercise for the first line to go on top of a similar "tell us what you think" exercise when populating the internal model application template.

Is it feasible to expect the regulator to consume this level of subjectivity around how one arrives at their technical provisions when, in their own words (p10), "proportionality" means focusing IMAP activity around the 300-or-so regulatory requirements (of which the TP-related L1 articles do not feature)? Not convinced that this method of condensing data is a bad idea as such, more that I'm not certain what the guys at the Wharf can do with it!

Interestingly, they note that they are "aligning" their TP review work with Lloyds of London - not sure entirely what this means, but would guess it means the syndicates are guinea pigging on behalf of the rest of the applicants, which probably suits the industry just fine!

FSA interpretations and Q&A on ORSA, Supervisory Reporting and transposition

Couple of very nice Q&As out today from the FSA (well spotted by Gideon on the Solvency II Wire) which cover last week's releases from EIOPA on ORSA and Supervisory Reporting.

The ORSA Q&A gives a detailed interpretation of what the regulator thinks the processes and reporting entail. Stand-outs for me were;

• Process of recalibrating one's internal model from economic to regulatory capital purposes must be included (difficult if your EC measure is not a straightforward read off a later point on the PDF?)
• National supervisor "cannot act" if actual capital is below EC, and it "cannot be used as an intervention point" - not really sure why they need the information then!
• Sadly don't elaborate on the potential for the ORSA Report to form the basis of the supervisory report - would have been ideal comment
• IMAP does not require ORSA output - I had heard this on the grapevine, but nice to have confirmation
• Confirms the expectation that the ORSA Process must include a process for recalibrating one's internal model to the standard formula SCR

Also has a handy "what you should do now" list - would hate to think anyone has not ostensibly done any of these things by now, but reassure yourselves by having a look! Q&As on the last page may be handy to show your project managers/execs/NEDS, but they are a little light.

The piece on Pillar 3 reporting is more concise, and probably worth running by your execs - however, it is a little 'scattergun' without much opinion, and you may find the summaries from the big consultancies of more use

Finally, The FSA's documents on the legal transposition of Solvency II into their Handbook is probably of little use to anyone outside of the UK (fascinating though it is!), so grab what you can if you're based elsewhere!