Solvency II in focus – The Challenges of Pillar III
In the fourth part of the serialisation of a Solvency II study, published recently by Clear Path Analysis, a roundtable discusses the challenges of Pillar III, and how asset managers need to communicate more with insurers about the upcoming regulation.
The full report is available at https://www.clearpathanalysis.com/reports/solvency-ii-the-global-dimension-2012/
In the extract, below, BNY Mellon product manager Peter Luckhurst says: “There is still a level of disconnect between the insurers and the asset managers [and] the level of engagement is still fairly low compared with the short period we have left in terms of local assessment of the regulations, versus the live date currently projected as 1st January 2014.”
David Walker, journalist, Investment Europe: Does the panel have any examples of good data management translating into business value, and is there an opportunity to find insights into new types of data and content to make one’s business more efficient or better controlled?
Renzo Avesani, group chief risk officer, Unipol Gruppo: The first thing to mention is on the credit risk side because as insurers, the new regulatory environment is forcing us to look into credit risk issues more closely. For example, we will have to look at counterparty risk data in both our reinsurance policies and in the relationships with our policyholders and agents. These are areas where better data management will mean a better managed business and therefore, less risk on our balance sheet; as long as we are able to take advantage of possible correlations between the credit risk of different counterparties, we can manage credit risk more effectively from a portfolio perspective.
Peter Luckhurst, product manager, BNY Mellon: With Solvency II there are a number of different flavours in relation to counterparty whether you think of it in terms of a counterparty to a lending contract, the credit rated instrument or the insurance side of the activity, etc.. It is very clear that EIPOA (European Insurance and Occupational Pensions Authority) want the insurer to understand all aspects of their risk exposures. Having a clear picture of your counterparty exposure is obviously a significant element of that and it is not something which has previously been looked at that closely.
Solvency II though is a whole balance sheet of regulation. That holds true for the information that the insurance company needs on the assets they hold. The key to good data management is the ability to gather and consolidate on a consistent basis the data needed to support Solvency II, both in risk management and reporting terms.
One of the key features is the look through, not just in terms of the fund look through issue but security, and the transparency of understanding the underlying risk. In regards to new data and types of data it is not just the data point but the linkage of the data that is important.
A number of insurance companies will need to understand the underlying assets as much as where the investments are held and being able to associate that information across their portfolios in order to achieve that holistic view.