Implementing Solvency II
The Asset side of the business
Presented by Philippe Denis
January 27th, 2011
The closer, the better
Agenda
 BNP Paribas – a brief introduction
 Expected capabilities for Solvency II
 Summary
2
BNP Paribas Group: Introduction
BNP Paribas Group
 2nd bank in the Euro zone1
 5th largest global custodian (in AUC)
 3rd most valuable international banking brand
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in Europe, 6th worldwide2
Among the world’s strongest banks3
One of the lowest CDS spreads in the industry
Ranks 9th among the world’s safest banks4
Present in 85 countries worldwide
205, 000 employees
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Retail Banking
Investment Solutions
 Asset Management
 Securities Services
Corporate & Investment Banking
‘Global 2000 Forbes, 2009’
Brand finance February 2010
According to Standard & Poor’s, Moody’s and Fitch
Global Finance world’s safest banks 2009
Access to multiple channels in a full service bank
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BNP Paribas Securities Services:
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Agenda
 BNP Paribas – a brief introduction
 Expected capabilities
 Summary
5
S-II “Middle Office”
Decision & Implementation
Five capabilities relating to Asset Management:
Solvency II Processes
Insurance Company
Mutual Society
D e c is io n
C a p a b ility 4
A n a lytic a l
S e rvic e s
C a p a b ility 3
E n rich m en t &
S ta nd ard is ation
Capability 5
Asset Management
C a p a b ility 2
A g g re g atio n
Financial Engineering
C a p a b ility 1
D a ta & In fo rm a tio n
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A view of BNP Paribas in context:
Solvency II Measurement
Insurance Risk Office
Actuarial Perspectives
Finance Office
Strategy Decision and Implementation
Indicators
Asset Allocation Committee
Solvency II Governance office
Decision
Analytical
Services
Capability 4
ALM / LDI Mandate
Structured Product
Overlay Asset Mgt
Inflation Swap
Other strategy
Other Derivative
Capability 3
Enrichment &
Standardisation
Capability 2
Aggregation
Capability 5
Capability 5
Data & Information
BNP Paribas
Investment
Partners
BNP Paribas
Corporate
Investment Bank
Capability 1
BNP Paribas Securities Services
Your Asset Management Platform
In
House
Pooled
Fund 1
Pooled
Fund 2
AM4
AM5
Segregated
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A Solvency II “Middle Office”
Capability 1
Data & Information
Project managing collection
Portfolio list
Properties held
Derivatives
Collective scheme values
Hedge Funds
Market associated data
Evidence of governance
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Multiple fund managers
Multiple outsource providers
Look through of fund of fund
Consolidated view of assets
A dynamic view of assets
 Basis for clean data for all types of analysis
 Not restricted to Solvency II
 For example stock-level attribution
Capability 3
Enrichment & Standardisation
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Additional S-II information
Make consistent for analysis
Map to standard dictionary
A dynamic view of assets
 Can show evidence of handling multiple Fund
Managers and their respective outsource partners
 Has evidence of data governance in their processes
 Ability to look through your underlying investments
 Can evidence the Solvency II universe catalogue
 Has capability of “attribution” as this typically drives
the requirement for consistency and standardisation
Provider Characteristics
Expected Benefits
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Capability 2
Aggregation
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Provision of Analytical Services for Pillar I & Pillar II
Capability 4a
Pillar 1: Scenario Testing
 Market
 Interest rate
 Equity
 Spread
 Currency
 Concentration
 Illiquidity
Capability 4c
Pillar II: Market & Credit Risk
 Counterparty Risk
 Market risk reporting:
 Asset classes
 Manager
 Volatility
 Value at risk
 Risk v Contribution
 A “DNA” view of assets
 Independent view of risk versus known events
 Has capability to manage the data middle office
 Understanding of assets to provide a complete
Market SCR calculation
 Can handle “multi-manager” and “multi-outsource”
providers in the above model
 Remain focussed on your business products risks:
 Health Risk
 Life Insurance Risk
 P&C Insurance Risk
 Skills in place for risk (& performance measurement)
 Flexible reporting, decision support, web delivered
 Integrates with any downstream Asset Management
capability to support a particular risk resolution
Provider Characteristics
Anticipated Benefits
 Market risk
 Back & Stress testing
 Counterparty failure
 Market shock
 Market Up and Down
 Attribution
 Versus performance
Capability 4b
Pillar I: SCR Calculation
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Example of Capability 4: Asset Allocation, Stress Testing, Risk:
Stress
DOWN
Measuring the risk perspectives….
A sse t a llo ca tio n / B re a k d o w n co m p lia n t
w ith S o lv e n cy II
E q u ity
G lo b a l
12%
6%
GBP
4%
EUR
1%
USD
1%
O th e rs
4%
C o st in ca p ita l
E qu ity
A sse t
In te re st rate
allo catio n
risk
C re d it risk
Illiq u id ity
risk
E q u ity risk
P ro p e rty
risk
F X risk
TO TAL
100%
9 .2
1 7 .9
3 .2
4 .0
1 .3
3 .6
3 9 .2
12%
-
-
-
4 .0
-
0 .5
4 .5
0 .5
2 .8
6%
2 .3
GBP
4%
1 .6
EUR
1%
0 .4
0 .3
USD
1%
0 .4
0 .3
O th ers
4%
2 .0
2 .0
G lo b a l
1 .6
0 .6
0 .6
L iste d a n d n o t liste d e q u ity
2%
L isted a n d n o t listed eq u ity
2%
1 .0
1 .0
E q u ity U C IT S F u n d s
1%
E q u ity U C IT S F u n d s
1%
0 .5
0 .5
E q u ity H e d g e F u n d s
1%
E q u ity H ed g e F u n d s
1%
0 .5
0 .5
2%
0 .4
0 .4
P a rtic ip a tio n s
R e a l E sta te
F ix e d In co m e
G o v e rn m e n t B o n d (O E C D & E E A )
2%
5%
80%
40%
GBP
35%
EUR
2%
USD
3%
C o rp o ra te B o n d
40%
P a rticip a tio n s
R ea l E sta te
F ixed In co m e
5%
-
-
-
-
1 .3
0 .0
1 .3
80%
9 .2
1 7 .9
3 .2
-
-
3 .1
3 3 .4
1 .3
7 .4
40%
4 .6
1 .6
GBP
35%
4 .1
1 .4
EUR
2%
0 .2
0 .1
0 .5
USD
3%
0 .3
0 .1
0 .8
1 .2
40%
4 .6
1 7 .9
1 .6
1 .8
2 6 .0
1%
G o vern m en t B o n d (O E C D & E E A )
C o rp o ra te B o n d
AAA
AAA
1%
AA
AA
8%
A
0 .1
0 .1
0 .0
8%
0 .9
0 .9
0 .3
18%
2 .1
2 .6
0 .7
5 .5
0 .7
0 .2
2 .1
0 .9
6 .3
18%
GBP
15%
1 .7
2 .1
0 .6
15%
USD
4%
0 .4
0 .5
0 .1
USD
4%
BBB
12%
1 .4
3 .7
0 .5
5 .6
BBB
12%
B o r lo w er
1%
0 .1
1 .7
0 .0
1 .8
U n ra ted
0%
0 .0
9 .0
0 .0
9 .0
3%
0 .0
0 .0
0 .0
A
GBP
B o r lo w e r
1%
U n ra te d
0%
C a sh & ca sh e q u iva le n t
C a sh & ca sh equ iva len t
4 .4
0 .9
0 .0
0 .0
0 .0
2 .0
0 .0
3%
Stress UP
10
Event / Market
Stress Testing
Capability 4: Joining-up Assets to the liabilities
A sset allo catio n / B reak d o w n co m p lian t
w ith S o lven cy II
12%
E qu ity
G lo b a l
Asset
side
6%
GBP
4%
EUR
1%
USD
1%
O th ers
4%
L isted a n d n o t listed eq u ity
2%
E q u ity U C IT S F u n d s
1%
1%
E q u ity H ed g e F u n d s
P a rticip a tio n s
Stress
DOWN
R ea l E sta te
F ixed In co m e
G o vern m en t B o n d (O E C D & E E A )
2%
5%
80%
40%
GBP
35%
EUR
2%
3%
USD
C o rp o ra te B o n d
40%
1%
AAA
M kt D o w n
In terest rate risk
Liability
side
0 .0
C red it risk
2 .5
Illiq u id ity risk
1 .5
E q u ity risk
4 .0
C o st in cap ital
8%
AA
C o st in cap ital
Stress
UP
18%
A
M kt U p
15%
GBP
USD
4%
BBB
12%
In terest rate risk
1 .2
B o r lo w er
1%
U n ra ted
0%
C red it risk
2 .5
3%
Illiq u id ity risk
1 .5
E q u ity risk
4 .0
1 .3
1 0 .5
C a sh & ca sh equ iva len t
P ro p erty risk
F X risk
1 .3
0 .0
P ro p erty risk
F X risk
TO TAL
9 .3
TO TAL
0 .0
Liability allocation
Stress
DOWN
0-2 years
15%
2-5 years
5%
5-10 years
40%
10-15 years
40%
Stress
UP
11
S-II “Middle Office”
Decision & Implementation
Extending beyond Market Risk:
Solvency II Processes
Insurance Company
Mutual Society
D e c is io n
C a p a b ility 4
C a p a b ility 3
E n rich m e n t &
S ta n d a rd is a tio n
C a p a b ility 2
A g g re g a tio n
C a p a b ility 1
Capability 4d…
Support full SCR Analysis
A n a lytic a l
S e rvic e s
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Health
Life
Non-Life
Default
Other
D a ta & In fo rm a tio n
Provide for the full analysis life-cycle as a “toolset service provider”
complementing your existing risk & actuarial capabilities
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Agenda
 BNP Paribas – a brief introduction
 Expected capabilities
 Summary
13
Summary:
 E&Y and JP Morgan Asset Management continue
 E&Y – more on Capability 1 – 3
 JP Morgan Asset Management – Capability 5
 For consideration:
 Asset Manager service providers supporting your Solvency II challenges:
 Must have solid capability in performance, attribution and risk analysis
 Have the expected governance processes in place for detailed data
 Have the tools to step beyond just the “Market SCR” analysis
 Have Asset Management overlays / skills to implement Solvency II change
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The information contained within this document (‘information’) is believed to be reliable but BNP Paribas Securities Services does not warrant its completeness or
accuracy. Opinions and estimates contained herein constitute BNP Paribas Securities Services’ judgment and are subject to change without notice. BNP Paribas
Securities Services and its subsidiaries shall not be liable for any errors, omissions or opinions contained within this document. This material is not intended as an
offer or solicitation for the purchase or sale of any financial instrument. For the avoidance of doubt, any information contained within this document will not form an
agreement between parties. Additional information is available on request.
BNP Paribas Securities Services is incorporated in France with limited liability and is authorised by the CECEI and supervised by the AMF. BNP Paribas
Securities Services' London branch is subject to limited regulation by the Financial Services Authority for the conduct of its investment business in the United
Kingdom and is a member of the London Stock Exchange. BNP Paribas Trust Corporation UK Limited and Investment Fund Services Limited are wholly owned
subsidiaries of BNP Paribas Securities Services, incorporated in the UK and are authorised and regulated by the Financial Services Authority. Details on the extent
of our regulation by the Financial Services Authority are available from us on request.
The services described in this document, if offered in the U.S., are offered through BNP Paribas and its subsidiaries and its affiliates. Securities products are offered
through BNP Paribas Securities Corp., a subsidiary of BNP Paribas, a broker-dealer registered with the Securities and Exchange Commission and a member of
SIPC, the Financial Industry Regulatory Authority, New York Stock Exchange and other principal exchanges.
The closer, the better