RiskAgility Standard Formula

Transcription

1 RiskAgility Standard Formula Solvency Capital Requirement made easy

2 RiskAgility Standard Formula The calculation of the Solvency Capital Requirement (SCR) using the Standard Formula approach remains a core task in the Solvency II process for all insurance businesses regardless of whether an internal model is used. The application of the Standard Formula for Solvency II would appear to be relatively unchallenging compared to the rigours of putting an internal model in place. However, those businesses that went through the QIS5 process in will be fully aware of the challenges of completing the calculation which, despite its deterministic nature, is relatively complex. Add on to this the challenge of performing the calculation across multiple legal entities and attempting to satisfy rules in relation to model governance, and the proposition becomes even more challenging. The challenges of developing appropriate parameters for the Standard Formula are an unavoidable consequence of Solvency II. RiskAgility Standard Formula (RiskAgility SF) has been developed to address these difficulties directly. It retains the readiness of the EIOPA QIS5 spreadsheet approach. Unlike the spreadsheet approach, however, RiskAgility SF effectively addresses the key governance requirements of the Standard Formula Directive. RiskAgility SF makes calculating the SCR a more efficient, less complex undertaking. Model governance The spreadsheet nature of the EIOPA QIS5 solution causes significant concerns over the governance of the Standard Formula calculation, which is a key requirement of the Solvency II framework. RiskAgility SF provides a secure and controlled solution that provides for the governance aspects absent in the EIOPA QIS5 spreadsheet approach and other solutions. s solution provides for secure access to the environment, ensuring that only authorised personnel have access to mission-critical tools. All inputs, outputs and calculations are secured within the RiskAgility environment (Figure 01). It retains a full audit history of model and parameterisation changes, dates of such alterations and details of who made them. This allows for complete audit trails and guarantees reproducibility of historic results at a later date. All interfaces are user-friendly and allow for integration with wider systems and reporting tools. With RiskAgility, your enterprise financial modelling platform becomes a single source of truth for financial risk analytics in your company. 2 towerswatson.com

3 01 Entity level input Entity level input (tbl files) Reporting template RiskAgility SF provides an end-to-end process in which external data is staged, converted and used in the SCR calculation to produce output in Excel fi les, all within the secure RiskAgility environment. Global assumptions Global assumptions (tbl files) SCR calculation Output (csv files) Output report Corporate parameters Corporate parameters (tbl files) Staging area 02 RiskAgility SF automatically generates reports which are stored within the RiskAgility environment. RiskAgility SF 3

4 Multiple legal entities One of the key drawbacks of the EIOPA QIS5 spreadsheet was that it only catered for solo legal entity structures. Whilst this is suitable for many organisations, the vast majority of insurers have somewhat more sophisticated structures which are not explicitly catered for and thus require additional development and calculation. 03 Inputs are secured by user login, which provides access control and an audit trail of changes. The RiskAgility SF solution has been developed with a fl exible legal entity structure, allowing companies to easily tailor it to suit their specifi c circumstances. In allowing for more complex structures, the RiskAgility SF will allow companies to take account of: Ownership structures spanning multiple levels Subsidiary cross-holdings Non-controlled entities and ring-fenced funds With spreadsheet tools and desktop systems, parameterising and reporting across multiple legal entities can create an industry in itself. As an enterprise system, however, RiskAgility accommodates diverse groups of users and legal entities accessing, parameterising and reporting results from the Standard Formula application. 04 Job audit information is available to examine version information for inputs. Part of the RiskAgility MoSes family The RiskAgility SF application comprises a MoSes-based calculation kernel deployed within the RiskAgility MoSes production environment. MoSes is a leading fi nancial modelling platform in the market and, paired with the RiskAgility MoSes toolset, provides an unparalleled solution with the assurance of behind it. RiskAgility SF provides an effi cient and robust approach to Solvency II Standard Formula compliance. This solution can be adopted as a stand-alone system for the calculation of regulatory capital or as part of a broader internal model, either as a useful sense check or as the basis for the development of a partial model. The MoSes-based calculation kernel allows complete fl exibility for companies to develop the model further to cater for other covariance-based approaches. 05 Job monitor shows audit information for the entire calculation process from beginning to end. 4 towerswatson.com

5 06 Users can view calculation results in chart form, here showing SCR by blocks of business and asset holdings. RiskAgility SF 5

6 Key benefits RiskAgility SF fully realises the scope of the QIS5 standard model, re-implemented into a significantly more robust platform. The model includes all risks and sub-risks in precisely the same structure as the EIOPA spreadsheet, and selected helper tabs are integrated within the application. Key features RiskAgility SF provides ancillary supporting calculations, including: Aggregation of group structures, enabling fl exible combinations of insurance entities for analysis. Calculation of the Minimum Capital Requirement (MCR), as well as QIS5-supported risk margin approximations. Approximations for calculating the loss-absorbing impact of deferred taxes. Ease of use RiskAgility SF is designed to reduce the complexity of the calculation process, providing facilities to remove or hide functionality, inputs and outputs that are not required. For example, where non-life functionality is not relevant, this can be hidden within the interface. Maintenance RiskAgility SF users benefi t from: updates RiskAgility SF users will obtain timely updates from to accommodate any changes made by EIOPA either to the Standard Formula parameters or to the calculation logic. RiskAgility SF Client Support A user helpline provides fast and expert advice in the use and deployment of the software. In addition, should consulting advice be required around the application or interpretation of the Standard Formula, offers market-leading expertise and advice that is tailored to your own specifi c requirements. Internal maintenance By virtue of the MoSes-based calculation kernel, users of RiskAgility SF can perform their own maintenance on the product, allowing the business to understand the impact of suggested changes to the Standard Formula prior to scheduled updates becoming available. Changes in standard parameters RiskAgility SF allows all users with appropriate permission to adjust the model parameters. This allows the business to test the impact upon the Standard Formula SCR of changes proposed by EIOPA or to stress test based upon benchmarks or internal viewpoints. 6 towerswatson.com

7 RiskAgility SF gives you a fully supported solution to help you comply with the SCR. It provides a controlled, audited environment to help you meet the governance requirements of the Solvency II framework. This comprehensive solution is backed by, an advisor to more than three-quarters of the world's leading insurers, the industry's pre-eminent risk specialist and provider of financial modelling software. RiskAgility SF 7

8 Software portfolio provides sophisticated risk, analytics and consulting solutions that help P&C and life insurers meet the rapidly evolving demands of today s market. The acquisition of EMB in 2011 has added significantly to s software offerings, providing a truly comprehensive portfolio of analytical software. We combine innovative actuarial thinking with software expertise to develop comprehensive solutions that measure value, manage risk and safeguard solvency. Pricing software Our software tools enable you to plan, manage and optimise your pricing process. Used independently or with our consultancy services, these tools are powerful additions to your business. Financial modelling software Clients in more than 30 countries leading P&C and life insurance companies, multinationals, pension funds, mutual funds and asset managers use our systems for enhanced risk and capital management. Emblem Classifier Igloo MoSes Rate Assessor Optimiser RiskAgility RiskAgility EC Marketing analysis software Optimise media and advertising spend to defined sales and marketing objectives using granular actuarial techniques. ResQ Replica MediaOptimiser For more information, contact your local office or us at software.solutions@towerswatson.com is represented in the UK by Limited and Capital Markets Limited. The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice. To unsubscribe, eu.unsubscribe@towerswatson.com with the publication name as the subject and include your name, title and company address. About is a leading global professional services company that helps organisations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Copyright All rights reserved. TW-EU April towerswatson.com