2016 Approach to Model Change

Transcription

1 2016 Approach to Model Change Market Briefing 21 January 2016 Lloyd s 1

2 Agenda Summary of the 9/10 December workshop The 2016 process Quarterly model change data collection Next steps Lloyd s 2

3 Agenda Summary of the 9/10 December workshop The 2016 process Quarterly model change data collection Next steps Lloyd s 3

4 Lloyd s view pre December workshop Positives Major changes now being submitted for pre-approval Quarterly submissions a useful checkpoint and information source for Lloyd s Profile of major changes risen significantly SAG review and approval beneficial and increasing ongoing knowledge of agent models Clear alignment between consideration of major changes and overall Solvency II considerations and ratings Development Clarity and guidance on how SCR approval process will integrate with Model Change process Treatment of aggregation of minor changes Lloyd s review process Lloyd s formal communications Treatment of data changes Lloyd s 4

5 Additional areas raised through workshop discussion.. the overlap of the model change process with the existing SCR approval process focus on model changes which may have a SII impact timing of major model change requests Major model requests v quarterly submissions the format of the quarterly submissions holding meetings with agents early in 2016 process for approval of major model changes Lloyd s 5

6 Agenda Summary of the 9/10 December workshop The 2016 process Quarterly model change data collection Data Next steps Lloyd s 6

7 The 2016 process Overall objectives Meet regulatory requirements Provide an efficient mechanism for Lloyd s to stay up-to-date with syndicate models To act as a key input to the LIM and potential LIM changes To facilitate the capital setting process Lloyd s 7

8 The 2016 process Key points Revised Lloyd s process to address feedback: Review timetable for each major change Risk based approach to review and approval Early engagement Impact on Agents: Major model change requests to be submitted with: Application form Minutes evidencing Board sign off Supporting validation evidence Major Model change request form amended Quarterly return updated Lloyd s 8

9 2016 process Lloyd s will allocate a review timetable to each major change to determine review and timetable for approval Agreed by the SAG and communicated to agents within 2 weeks Factors to be considered: Type of change e.g. quantitative, qualitative, methodology, parameters etc Materiality of the change to the LIM Impact on syndicate 1yr and Ultimate SCR Impact on model compliance e.g. data only changes Q1 engagement to consider the driver of the intended changes. The more Lloyd's can understand upfront the smoother and more efficient the process should be. Lloyd s 9

10 Some real examples from 2015 Change type Description Possible 2016 approach Model Methodology Revised methodology for calculation 1yr SCR Detailed technical review to understand changes to methodology CPG review to agree impact on capital SAG review to agree ongoing SII compliance Model Design Change to ESG Detailed technical review to understand changes to methodology CPG review to agree impact on capital SAG review to agree ongoing SII compliance Governance/ controls Change to Model Change Policy Technical review to understand changes made and impact on overall approach No impact on capital = No CPG review required SAG review to agree ongoing SII compliance Model Parameterisation Data Update Re-parameterisation for 2016 SBF Increase in current class of business Review to understand drivers for re-parameterisation and impact on model CPG review to agree impact on capital Possible SAG review (depending on drivers and whether model compliance could be impacted) CPG review to agree impact on capital No SAG review required Lloyd s 10

11 Other points of feedback Data Inclusion of Data changes has to date been left to Managing Agent discretion and Data changes reported to us whether in or out of the policy Lloyd s now comfortable that pure data changes e.g. FX changes can be excluded from policies. Out of scope data changes will no longer need to be reported to Lloyd s. Aggregation of minor changes Previous confusion as to whether a major model change included all minor changes up to that date Major change submission must include all minor changes since the last approval. This then resets the clock to zero for aggregating changes. Lloyd s 11

12 Example of aggregation of minor changes Example 1 Change Type % impact on last approved SCR Minor change 1 3% 3% Minor change 2 6% 9% Major change % 19.5% Aggregation of changes Example 2 Change Type % impact on last approved SCR Minor change 1 3% 3% Minor change 2 7% 10% Major change % 10.5% Aggregation of changes Lloyd s 12

13 Impact on Agents. Major model change forms should be completed with detail of the change and MUST be submitted with: Board approved minutes Relevant validation Approval for a major model change does not need to be before it is used to produce a SCR for Lloyd s review (we will remove preapproval from our forms) Ability to back out the change should it not be approved Incomplete applications will be returned to the Managing Agent and not submitted for initial SAG review Lloyd s 13

14 New major model change submission form Lloyd s 14

15 What does Board sign-off mean? MS3.7 Managing agents shall ensure that as a minimum the following areas are approved at the full managing agency board: Major internal model changes; Board approved minutes supporting the review and approval of the model change to be submitted with the application. Detailed review can be delegated to committee of the Board but the Board must discuss and challenge the changes. An information paper from a delegated committee is not sufficient. Lloyd s 15

16 Relevant validation Major changes should be submitted with evidence of validation activity in line with Validation policies. Expectation that certain changes would be subject to independent validation ahead of submission for approval. Lloyd s will issue guidance later in 2016 setting out our expectations in relation to the validation activity undertaken for differing change types. Lloyd s 16

17 Agenda Summary of the 9/10 December workshop The 2016 process Quarterly model change data collection Next steps Lloyd s 17

18 Quarterly model change data collection We have reviewed our MI requirements Upgraded the submission template so less data input required by agents Guidance will be issued with the form to be completed with the March submission in early February Lloyd s 18

19 Report Template Lloyd s 19

20 Report Template Buttons Lloyd s 20

21 Report Template lloyd s change type Design/Methodology Dependencies Design/Methodology Insurance - Underwriting (non catastrophe) Design/Methodology Insurance - Underwriting (catastrophe) Design/Methodology Insurance - Reserves including Risk Margin Design/Methodology Operational Risk Design/Methodology Market Risk Design/Methodology Credit Risk Design/Methodology Other Parameterisation & Parameterisation Methodology Risk Profile Governance - including Change Policy, Validation, Scope & model use IT changes - including change in modelling platform Data Changes as a result of movements in exchange rates Lloyd s 21

22 Report Template Buttons Lloyd s 22

23 Report Template Lloyd s 23

24 Report Template Agreed SCR Lloyd s 24

25 Report Template Lloyd s 25

26 Report Template SCR Calculations Lloyd s 26

27 Report Template Lloyd s 27

28 Front Page Section 1 Lloyd s 28

29 Front Page Section 2 Lloyd s 29

30 Guidance for completion Lloyd s 30

31 Agenda Summary of the 9/10 December workshop The 2016 process Quarterly model change data collection Next steps Lloyd s 31

32 What happens next? Slides will be made available on lloyds.com New application form for a major model change published Friday 22 January on lloyds.com MS9 Reserving self-assessment due 28 January Quarterly model change guidance and form issued to agents 12 February 3 March first quarterly model change submission Next scheduled workshop/ briefings Capital Briefing 26 January MS10 kick off workshop 22 February Contact risk.assurance@lloyds.com 32 Lloyd s 32

33 Lloyd s 33