KPMG on Pillar 3 and Public Disclosure - in or out?

Pillar 3 - rude awakening?

The operational reality of Solvency II Pillar 3 is seemingly about to deliver a ruder awakening than breakfast at Chubby Brown's. Whilst for example the UK's regulator has offered an element of flexibility in the content of the QRT reporting to be submitted during the Solvency II preparatory phase (Q21 here), Finance functions across the EU will be in an spreadsheet-fuelled scramble to deliver Solvency I, Solvency II and public reporting from now on in.

The lie of the land is not pretty as it stands. Evidently the PRA's crack team of Pillar 3 regulator and industry expets is tabling some sobering questions, given their recently revised Q&A, and both software solution providers (here) and asset data firms (here) continue to ebb and flow with their contributions to preparedness, depending on the pay-off. Some co-odination efforts have recently begun on asset data transference involving the larger EU players, but doesn't yet sound like the golden ticket for the teams charged with delivering Pillar 3 material.

Even EIOPA, the new custodians of the word ERRATA, are seemingly tied up with the less technologically developed EU members in an Excel-flavoured workaround to the xBRL question which, judging by the number of QRT template amendments already applied, has an air of inevitability about it.

It was therefore nice to see one of the Big 4 release results from this survey on how firms are preparing for Pillar 3 in the content of existing and future public disclosure requirements. Small sample (11 firms, all multinationals), and all evidently have existing plc-type disclosure requirements, but the topics and trends covered should inform anyone in the Pillar 3 space who has transitioning on their agendas.

Worthy of note:

• Pre-Solvency II disclosure of quantitative material not favoured - not much to be gained I suppose
• No-one planning to publish projected capital adequacy!
• Responders in IMAP seemingly working on the basis that "Plan B" won't be required
• Few likely to publish "internal views of capital" ( for this read "overall solvency needs" or "ORSA Capital") - analysts felt unlikely to be looking for it.
• Most common differences between Pillar 1 and OSN used were treatment of contract boundaries and the risk-free rate, with the list of distinctions going into double figures
• Some provisional plans for IFRS alignment on the balance sheet methodology front
• Embedded Value about to be jettisoned as a reporting metric - analysts are of course devastated!

Who said accountancy was boring?

KPMG Survey - Solvency II Benchmarking Survey

Decent piece released by the guys at KPMG covering Solvency II benchmarking. No difficulties in picking out the salient points, so just serve yourselves, but I've hauled some out for my own benefit (NB at 18 in the sample, its a tad light).

For my money, the 40% who feel their budgets are not on track feels instinctively light, but then the survey was taken in September before an extra year was stuck on it! The priorities and areas of concern (documentation, ORSA and governance) all seem fair in relation to other media, and the difference between small company projects (two-thirds resourced internally) and larger insurers (over 90%) in their staffing shows where the extra year's project costs may disproportionately fall. Also 56% feel they still have a lot to do on Pillar 3 (bit easier after last week's papers were released by EIOPA).

On the actuarial front, some very varied responses to Risk Margin calculation, and they flagged ORSA as the main area of cross-functional collaboration. They have also flagged Strategic, Liquidity and Reputational Risk as the main non-modelled risks going into ORSA.

The last section on validation is perhaps the real eye-opener - KPMG advise separating validation from production, and even with this small sample, a range of routes being used (on validation responsibility, ownership of the validation team, and responsibility for producing the validation report, including for the first time in my experience, the roping-in of Internal Audit)!

PwC Annual Corporate Director survey 2011 - more time for Risk?

PwC kindly fired out the findings from their (US-centric) poll of corporate directors. Decent sample at 834 respondents, and two-thirds were sitting on boards with $1bn+ in revenue, so worth heeding. Both RM Professional and Norman Marks have taken it to task, so I won't dwell on the findings other than the following;

• 72% would reconsider pay awards in the face of "significant shareholder dissatisfaction" - just wondering what "significant" is.
• Relatively little planned change in reaction to clawback legislation embedded in Dodd-Frank
• Almost 60% of boards wanted to spend more time on Risk Management, putting it third behind Strategic and Succession planning
• Less than 10% plan further than 5 years ahead
• Almost half discuss strategy viability no more frequently than annually
• Amusingly, both racial and gender diversity is referred to as a "Skillset/Attribute" - 23% find it very difficult to obtain directors with the racial "attribute", while 15% struggle to get the "gender" one!

Handy in its own way for the Europeans amongst us as a proxy, a more pertinent document for the statesiders.

McKinsey survey - Governance since the economics crisis

The guys at McKinsey have fired out an interesting survey on the activities they currently spend time on (and indeed what they would like to spend more time on!) Sample is around 1,600 respondents with a decent worldwide spread in April 2011. What they came up with was;

• Boards are spending around 14% of their time on corporate governance and compliance - relative to the value the activity adds, fewer boards wish to increase time spent on this matter (and more wish to reduce time spent) than on any other activity. Most would rather increase time spent on Strategy and Talent Management.
• Surprising number of boards either develop strategy with management (41%) - wouldn't say I am phenomenally convinced by boards trying to do "a bit of both"
• Only 14% have "complete understanding" of the risks that their company faces, with 32% having "little or no" understanding - sobering and, in the context of their wish to spend more time on strategy, offensive.
• Almost half though a better mix of board member backgrounds/skills would improve performance, a third would prefer more timely company information, and a quarter would prefer better induction and director assessment processes
• Both Chairs and normal directors would prefer to spend significantly more time on board work (around an extra 33%)

Nice bit of work, as you would expect from the big boys. Always good to take a look at the wider picture every now and then, and in this instance it points at boards wishing to get busy with anything as long at it doesn't involve risk.

LRN Ethics and Compliance Leadership survey - contradictions

I read through this US-centric publication on corporate Ethics and Compliance trends (107 companies in the sample, you may need to quickly register).

I was surprised to see that, with the majority supporting existing imperatives such as aligning "core values with day-to-day operations" and improving applicability and understanding of individual "Codes of Conduct" that the emphasis on data security centred around privacy and preventing hacks or malicious leaks - surely if one runs an ethical and compliant business, they would not need to worry about Wikileak-style unmasking of institutional misconduct!

Also, over half of respondents report through the General Counsel - not traditionally a path that would allow for enterprise-wide enlightenment, and the recommendations of the research certainly advise as much with its "Less legalistic, more business orientated" theme.

Amusing was the Sales/Distribution function coming top of the ""areas of greatest concern in promoting a strong ethical culture" - poor them!

Marsh & RIMS ERM Survey - so good I can't get at it!

You will need to register to get this in full (and incidentally, I still can't, even after registering!), but a very strong survey from Marsh and RIMS on opportunities for Risk Managers to get their feet under the top table was put out today. I suspect it will be a little US-centric (hence the c-suite references!), but I got out of this some strong Solvency II-themed messages;

• Lot of respondents not even on firm-wide risk committees - this is the time to insist upon it for Op Risk and Cyber Risk managers for example (assuming your CRO is already there!)
• 61% of execs want to see risk managers work integrate deeper with operations - absolutely bizarre: if they are not in the c-suite, where else are they!
• 58% of execs want risk to lead ERM actvities within the organisation - pure crazy: if Risk is going to lead, you need Risk on the exec board, it's not rocket science!
• 54% of execs want Risk to improve its quantification techniques and knowledge of non-insurance risks - really like this, and it leads in to ORSA demands on the function beautifully
• Only 30% of respondents said their Risk Committee was "very effective"

 Over 1,000 respondents, so decent sample, but if I ever get to see the full thing, I suspect it will be more of the same - the key difference is that Stateside they seem to be inviting Risk to come and participate, whereas the ORSA on the EU side will make it compulsory!