IBM’s Algorithmics, Insurers Analyze Solvency II Compliance Preparation

By Charles E. Boyle | March 30, 2012

Despite delays and complaints the European Union’s Solvency II regulations, which cover the insurance industry, are slowly but surely moving forward. While most of the industry is primarily concerned with the regulations governing capital requirements – Solvency II’s “Pillar I,” the other two pillars, governing “workflow, governance and reporting should go hand in hand with Solvency II’s quantitative capital calculations,” according to Algorithmics, an IBM subsidiary.

How to organize “workflow and governance surrounding the capital calculations, and the reporting that follows from them” pose a significant challenge. Algorithmics noted: “By addressing Pillar 1 hand in hand with Pillars 2 and 3, insurers will not only meet compliance requirements but will streamline and automate their processes to save time and minimize opportunities for errors.”

In a new white paper, produced in conjunction with three European insurers, the solutions provider said it “explores how to balance the requirements of the three pillars of Solvency II. Their experience suggests that projects that, from the start, give at least equal weight to workflow, governance and reporting as they do to analytics, progress more quickly and successfully.

“Pillars 2 and 3 of Solvency II require insurance firms conducting business in Europe to develop appropriate governance and reporting procedures so that solvency capital requirement calculations are repeatable and auditable, as well as transparent.

“While this paper is focused on insurers following an internal model approach, the same issues and principles apply to adding workflow and governance for those insurers concentrating on a Standard Formula approach.”

Curt Burmeister, Vice President, Risk Solutions, Algorithmics, commented: “Many insurers underestimate how hard the task of managing the workflow, governance and reporting for Solvency II will be. In an ideal world, insurers would look at the end requirements of Solvency II and work backwards to devise the workflow.

“But with Solvency II still a work-in-progress, insurers have to be creative while remaining flexible to accommodate the final specifications of the regulation. In our experience of working with these and other clients, the most efficient and cost-effective approach is to work on all three pillars – the modeling, the auditability and workflow – at the same time.”

The paper – WORKFLOW, GOVERNANCE AND REPORTING: Insights into addressing the challenges of Solvency II Pillars 2 and 3 from leading European insurers - defines the elements of Pillars 2 and 3 and explores the following issues:
• Balancing a single, integrated workflow with many complex stages and maximizing automation
• Meeting data requirements – onerous validation standards, process control and auditability
• Understanding the impact of different risk definitions under Standard and Internal model approaches and managing concurrent reporting processes
• Identifying and controlling users, permissions and responsibilities
• Dealing with the complexities of multiple business units and geographies.

Burmeister, together with two of the contributors to the white paper, will be hosting a joint webinar entitled ‘Establishing a strong foundation for Risk Management’ at 3:00pm GMT on Wednesday, April 25th 2012.

Person interested in registering for the webinar Establishing a strong foundation for Risk Management – may do so.

Source: Algorithmics

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