It’s rather appropriate that the rock band Europe recorded the hit “The Final Countdown”, because today, September 22nd, represents 100 days until the much anticipated (and delayed) European insurance legislation Solvency II will come into effect on January 1st 2016.
Designed to introduce a harmonized, EU-wide insurance regulation, Solvency II demands a more comprehensive approach to risk management. To not only ensure Solvency II compliance, but to help insurance companies anticipate the regulatory and risk changes ahead and deal with them efficiently and proactively, these essential steps are recommended:
Step 1 – Data Management
Data management or more precisely, managing the quality and consistency of data – is fundamental to Solvency II compliance. A good data management strategy is a prerequisite for meeting Solvency II regulations. However, an excellent strategy not only ensures Solvency II compliance, it can also help increase risk awareness and improve business decision making processes throughout the organization.
Step 2 – Risk Calculations
Insurers must develop a central risk calculation “engine” that will analyze risks and calculate capital requirements that are in line with both Solvency II and company strategy, taking into account all quantifiable risks that an insurer may encounter, including underwriting risk, market risk, credit risk, liquidity risk and operational risk.
Step 3 – ORSA
Own Risk and Solvency Assessment (ORSA) is a relatively new concept. It’s a forward-looking assessment aimed at enhancing insurer awareness and understanding significant risks and their interdependency. With an integrated environment, users can align business planning processes and capital projects with income statements and balance sheets.
Step 4 – Reporting
Greater transparency, through public disclosure and reporting requirements, is one of the central foundations of Solvency II. Insurers will be expected to produce more reports than ever. Managing separate reporting systems for regulatory and management purposes will not be practical or cost-efficient. Insurers must save time and money by integrating their existing reporting system with their Solvency II implementation to produce consistent, timely and relevant information for all stakeholders.
The SAS approach to Solvency II and risk management is a flexible framework leading companies through the minefield of data, risk models and reporting. Our framework includes the solutions SAS Firmwide Risk for Solvency II and SAS Capital Planning and Management.
The lyrics of Europe’s “The Final Countdown” include the lines “Will things ever be the same again? It’s the final countdown.” There is no doubt, ensuring Solvency II compliance has been a long and difficult journey for many insurance companies. However January 2016 should not represent the finish line; it’s just the beginning of a new risk management playbook and things may never be the same again.