KPMG
B i
Business
DialogueS
KPMG Luxembourg
May 30, 2012
Solvency II,
II Pillar 3
Chrystelle Veeckmans, Director, Audit services
Geoffroy Gailly, Director, Management Consulting
Pascal Föhr, Senior Manager, Audit services
Solvency
y II, Pillar 3
Latest news on the reporting and
disclosure elements of the
Solvency II directive
Solvency II is what you make of it…
…so let us try
y to take the p
pillar 3 turn efficiently
y
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
3
Solvency II implementation timeline
Solvency
II
Jan
2011
Jan
2012
Jan
2013
Level 1
Directives
adopted into
national law ?
Level 1
Jan
2014
Jan
2015
Effective
Omnibus II
Level 2
Level 3
European Commission proposal
for Level 2 delegated acts ?
Level 2
measurements
adopted into national
law ?
EIOPA Level 3 guidelines ?
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Effective
Effective
Introduction
Solvency II Framework
Corporate and
risks governance
Measurement of
assets,
t li
liabilities
biliti
and capital
Pillar 1
Own risks
O
i k and
d
solvency
assessment
((ORSA))
Pillar 2
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Disclosure
requirements
Pillar 3
AGENDA
1. EIOPA draft proposal on reporting
Quantivative Reporting Templates (QRT)
Other reportings
2. Impacts on organization and IT
3 Q&A
3.
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
6
EIOPA draft
proposal on
reporting
EIOPA proposals
Stabilised package of template formats
Comparabilty
C
bilt
across Europe
Facilitate review
Minor changes expected
More frequent, detailed and faster reporting
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
8
EIOPA draft proposal on reporting
Regular Supervision Report
(RSR)
Solvency and Financial
Condition Report (SFCR)
- To the supervisor
- Narrative report / qualitative information
- Full report every lhree years
- To the public
- Narrative report / qualitative information
- Every year
- Includes parts of the QRTs
Quantitative Reporting
Templates (QRT)
(Q )
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
9
EIOPA draft proposal on reporting
Structure and content of the narrative reporting (RSR & SFCR)
I.
II.
Executive Summary
Business & Performance
1.
Business and environment
2.
Performance from underwriting and investment activities
3.
Related party transactions
III.
1.
1
2.
3.
4.
System of governance
G
Governance
structure
t t
Risk Management System
ORSA
Internal control system / internal audit
1.
2.
Risk Profile
Exposure, concentration, mitigation and sensitivity of underwriting, market, credit, liquidity & operational risk
Risk transfer
IV.
V.
Valuation for Solvency Purposes
1.
Valuation methods used for Assets
2
2.
V l ti methods
Valuation
th d used
d ffor Li
Liabilities
biliti (especially
(
i ll ttechnical
h i l provisions)
i i
)
VI.
Capital Management
1.
Own Funds
2.
MCR/SCR including any non-compliance
3.
Differences between the standard model and an internal model
Annex: Qualitative Reporting Templates (QRT)
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Quantivative Reporting Templates (QRT)
Subject
Current Consultation
Balance sheet
3 forms on BS, off-BS and assets and liabilitites by currencies
Country/cover
3 forms K1 Country and A1 Cover split into annual and quarterly
Own funds
4 forms, split into annual and quarterly solo and group
Variation analysis
4 forms: overall,
overall changes in BOF due to investments,
investments TP and other (including own
debt)
SCR and MCR
10 SCR and 2 MCR froms
Assets
9 forms: D1, 1A, 2, 3, 4, 5, 6 with D1 and D2 split
Technical provisions
7 life forms and 8 non-life, all only solo
Reinsurance
4 reinsurance forms, incl. SPVs
Group-specific
10 forms with G10, 15, 30 and IGT
Overall
Total of 64 templates, including:
• public disclosure of 9 QRTs (solo) or 8 QRTs (groups);
• 35 forms applicable to groups (25 solo ones and 10 group
group-specific).
specific)
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Quantivative Reporting Templates (QRT) – Balance Sheet / Own Funds
Area
QRTs –
Balance
Sheet
Key findings
Frequency
Balance Sheet (C1)
Annually / Quarterly
(with possible
exemption)
Balance sheet under the Solvency II valuation rules
as well as under statutory valuation rules. Exemption
from quarterly reporting if sufficient information on the
reconciliation reserve is provided in the other
quarterly QRTs. Public disclosure.
Off-balance sheet items (C1B)
Annually
Information on guarantees, collaterals and
contingient liabilities.
Assets and liabilities by currency
Annually
Only most important currencies have to be reported
(up to 90% of assets and liabilities).
Annually / Quarterly
Overview of types of own funds items (by tier).
Templates have been substantially revised and there
are still some areas of uncertainty (breakdown of
reconciliation reserve; introduction of expected profits
included in future premiums). Public disclosure.
Annually
New templates which need special consideration.
Analysis of movements in BOF from one year to
another by type of own funds as well as by the
diff
different
t sources. Template
T
l t will
ill nott have
h
tto be
b
prepared in the first year.
(C1D)
QRTsOwn
funds
QRTsVariat.
Analysis
Comments
Own Funds Annual and Quarterly (B1A
and B1Q)
Analysis of changes in BOF (Basic
Own Funds) due to Investments,
Technical Provisions, Own debt & other
i
items
as wellll as a Summary
S
off allll those
h
(VA C2A-D)
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
12
Quantivative Reporting Templates (QRT) – Solvency Capital Requirements
(SCR) and Minimum Capital Requirements (MCR)
Area
QRTs –
SCR
Key findings
SCR-B2A summarises the output of the
SCR calculation for entities using the
standard model or using a partial
internal model
SCR-B2B summarises the output of the
SCR calculation for entities using partial
internal models
SCR-B2C summarises the output of the
SCR calculation for entities using full
internal models
SCR-B3A to B3G provide more detailed
information on the calculation of the
various modules of the standard
SCR: market risk, counterparty default
Frequency
Annually in aggregate
and on a solo basis for
each material ringfenced funds
This template will also be required to be completed
by firms using a full internal model where they are
required to provide an estimate of the standard SCR
Annually in aggregate
and on a solo basis for
each material ring
ringfenced funds
Firms using partial internal models will complete both
B2A and B2B
Annually in aggregate
and on a solo basis for
each material ringfenced funds
Companies should agree with their supervisor the
different component of their model to be reported on
the template
Annually in aggregate
and on a solo basis for
each material ringfenced funds
SCR- Non-Life catastrophe risk was significantly
revised
These templates are not required by firms using a full
internal model except where they are also required to
provide an estimate of the standard formula SCR
Quarterly
It has been clarified that MCR is not reported at
group level
risk, Life, Health, Non-Life, Non-Life
catastrophe and operational risks
QRTsMCR
These templates provide an analysis of
the MCR calculation (both inputs and
outputs)
Comments
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
13
Quantivative Reporting Templates (QRT) - Assets
Area
QRTs Assets
Key findings
Frequency
Comments
Annually
All insurers still have to provide a detailed list of
assets annually
Quarterly
Larger firms will have to provide a detailed list of
Investment quarterly. Other firms will produce a
Summary of investment. This will be decided by CAA
taking into account the proportionality principle to
achieve
hi
att least
l
t 90 % coverage att EU level
l
l and
d 75 %
coverage at Lux level.
Structured products data - portfolio
list (D1S)
Annually
Materiality thresholds: when structured products >
5% investments
Derivatives data – open positions
Annually
y / Quarterly
y
Investment Data – portfolio list (D1)
A detailed list of investments is required
annually
Investment Data – quarterly (D1Q)
detailed list of investments OR Summary
of investments
(D20)
Derivatives data – historical
derivatives trades (D2T)
Annually / Quarterly
Provide information a performance by asset category
and CF from investments.
Return an investment asset – P3
Annually
Provide information a performance by asset category
and
d CF from
f
i
investments.
t
t
Investment funds (look through
Annually / Quarterly
Gives information a main asset categories,
geographical zones and currency quarterly risk
exemption when funds < 20% investments.
approach) – D4
Securities lending and repos – D5
Annually
Assets had as collateral – D6
Annually
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
14
Quantivative Reporting Templates (QRT) – Technical provisions
Area
QRTs
Techn
Provi
Provi.
Key findings
Frequency
Comments
Life & health SLT as well as non life –
Technical provisions (TP(L)-F1/E1)
Annually /
Quarterly
Technical provisions split into type of contract and best
estimate / risk margin.
Public disclosure.
disclosure
Projection of future cash flows (Best
Annually
Overview over the duration of liabilities used for the best
estimate calculations.
Life obligation analysis (TP(L)F3)
Annually
Details to the different life insurance products.
Variable Annuities – Description /
Annually
Supplement to F3. For VA only.
Information on annuities stemming from
Non-Life insurance obligations (TP(L)F4)
Annually
Development and Best Estimate by line of business and
accident year.
Non-Life Insurance Claims information
Annually
Detailled claims development triangles for each line of
business and currency for the last 15 years. Separate
reporting for gross and reinsurance amonts and regress.
Movement of RBNS claims (TP(NL)E4)
Annually
Movement in value and number of RBNS claims for
each line of business and currency (by UWY).
Loss distribution profile (TP(NL)E6)
Annually
Details of claims incurred (number and value) in the last
15 calendar years (by underwriting year and LoB)
Underwriting risk (peak risk) (TPE7A)
Annually
Details of the 20 biggest risk over all LoB.
Underwriting risk (mass risk) (TPE7B)
Annually
Sum insured and annual premium for all underwriting
risks for certain LoBs (motor, transport, fire, credit)
estimate – Life/Non life) (TP(L)F2/E2)
Hedging of guarantees (TP(L)F3A/B)
(TP(NL)E3)
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
15
Other reportings
QRT for Financial Stability Purposes
 Affects (re)insurance companies with a total balance sheet of more that 6bn only
(inclusion/exclusion if total assets more/less than 6bn in two consecutive years or more than
7bn/less than 5bn)
rates duration of liabilities…)
liabilities ) as well as higher
 Additional reporting requirements (surrender rates,
frequency of known reportings (Own Funds, SCR/MCR, investment data, technical provisions…)
 Not if the (re)insurance company is part of a group
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
16
Reporting timeline *
31.12.2014
31.12.2015
31.12.2016
31.12.2017
and
th
thereafter
ft
SFCR/RSR/Annual
QRT
20 weeks
18 weeks
16 weeks
14 weeks
Quarterly QRT
8 weeks
7 weeks
6 weeks
5 weeks
* Final decision to be made in Level 2 implementing
p
g measures
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Impacts on
organization and
IT
Key challenge in Pillar 3 – Data quality
Cl i process
Closing
IT architecture
hit t
Availability
y
Consistency
Traceability
Governance
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Variation analysis
Impacts on Organization and IT
Governance
Financial risk
mgt system
Liabilities
mgt system
Operational risk
mgt system
ORSA
Assets
mgt system
Accounting
system
?
SCR
MCR
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
_____
_____
_____
___
SII reports
(XBRL)
Impacts on Organization and IT
Governance
Financial risk
mgt system
Liabilities
mgt system
Operational risk
mgt system
ORSA
Option 1 :
manual reporting

Assets
mgt system
Accounting
system
SCR
MCR
SII reports
(XBRL editor)

• It works !
• Easy to setup provided the knowledge
is available
• Easily tailorable

•
•
•
•
•
Time consuming
Potentially increases headcount
Not reusable
Unprotected know-how
Still requires XBRL edition tool
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Impacts on Organization and IT
Governance
Financial risk
mgt system
Liabilities
mgt system
Option 2:
Data warehouse and
reporting
p
g engine
g
Operational risk
mgt system
ORSA
Assets
mgt system
Accounting
system
DWH
SCR
MCR
Reporting
engine
SII reports
(XBRL)

•
•
•
•
Very effective
Tailorable (at cost)
Reusable
Si eable to an
Sizeable
any compan
company si
size
e

• Costly
• Potentially long initial proper setup
• Requires technical expertise and
maintenance
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Typical Solvency II pillar 3 questions
I was told Pillar 3 is an IT only matter
Do you really believe doing it manually is unrealistic ?
Do I really need to purchase a full data warehouse system ?
Can I reuse available IT assets within my company ?
What is XBRL ? Why XBRL ?
Does pillar 3 imply many organizational changes ? Which ones ?
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
How KPMG can help
Solvency II Framework
■ Preliminary gap analysis – Solvency II roadmap
■ Definition of the reports and reports templates
■ Definition of data requirements, including data mapping and
t
traceability
bilit documentation
d
t ti
Disclosure
requirements
■ IT readiness roadmap
■ Organizational transformation
■ Dry run of the SFCR, RSR and QRTs
■ Compliance of your SFCR and RSR pro forma
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
Pillar 3
Q&A
25
Thank you
Chrystelle Veeckmans
chrystelle.veeckmans@kpmg.lu
+352 22 51 51 62 44
Geoffroy Gailly
geoffroy.gailly@kpmg.lu
+352 22 51 51 72 50
Pascal Föhr
pascal.foehr@kpmg.lu
+352 22 51 51 68 14
© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a
subsidiary of KPMG Europe LLP and a member of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG
( KPMG International
International”)), a
Swiss entity. All rights reserved.
The information contained herein is of a general nature and is not intended to address
the circumstances of any particular individual or entity. Although we endeavour to provide
guarantee that such information is
accurate and timelyy information,, there can be no g
accurate as of the date it is received or that it will continue to be accurate in the future.
No one should act on such information without appropriate professional advice after a
thorough examination of the particular situation.