Moving Ahead To SAM Readiness - PwC

Q: What level of guidance do you require to betterprepare yourself for the ‘comprehensive’ parallelrun?It is not surprising that most insurers (57%) considerthe finalisation of the solo and group QRTs as importantto better prepare them for the ‘comprehensive’ parallelrun. Insurers that form part of a group emphasised theimportance of group QRTs in addition to the solo QRTs.Solo and group QRTsFigure 7.Guidance with regards to the finalisation of both solo andgroup QRTs is required. Group reporting requirements areof particular interest since they will in all likelihood requirenew process and system developments that were notpreviously required.Level of guidance to prepare for the‘comprehensive’ parallel runFinalisation of the Solo QRTs (A)21%Insurers with European parent companies require clarity onthe differences between the SAM and Solvency II QRTs. Thetreatment of groups with non-South African subsidiaries isalso an aspect that requires careful consideration.Finalisation of the Group QRTs (B) 0%Understanding of how the‘light’ parallel run can help informthe ‘comprehensive’ paralell run11%Results of ‘light’ parallel runA and B aboveOther57%11%The ‘light’ parallel run should reveal a great deal in terms ofthe impact of new reporting processes, which will provideinsight for the ‘comprehensive’ run. Insurers believe thatthe SAM requirements should all be stabilised by the time ofthe ‘light’ parallel run.Any differences in technical and reporting requirementsbetween the ‘light’ and ‘comprehensive’ parallel runswill, however, be a key determinant (and potentiallytroublesome) of the level of step up required.“By the time the ‘light’ requirements comethrough, we would not expect any materialdifferences between the ‘light’ and the‘comprehensive’ parallel runs. We wouldthink the differences are only a matter ofdetail.”“Notable systemdevelopments would berequired to completethe QRTs. We wouldwant as few changes aspossible once the QRTsare released.”8 Moving ahead to SAM readiness – SAM Parallel run surveyPillar 3 uncertaintyPillar 3 is the biggest unknown at this stage and being moreinformed about the reporting requirements will be of greathelp to many insurers. In most cases, new data sourcing,process improvements and system implementations will berequired.The lead time from recognising the need for a systemchange to going live with that system could be 12 months orpossibly longer depending on the complexity of the solutionand its implementation.Guidance on qualitative requirementsThere is uncertainty around the qualitative reporting andguidance is required for both parallel runs.Further clarity also needs to be provided in terms ofwhether or not the qualitative reporting will include theORSA report. If that is the case, guidance on the ‘mockORSA’ report will be useful (for example the scope andextent of the document and the supervisory process aroundit).

Q: How long before the ‘comprehensive’ parallel rundo you require the QRTs to be finalised, in order tomeet the quarterly reporting deadlines?Responses were mainly driven by the size and complexityof insurers as well as the progress on their current SAMprogrammes.Figure 8.Time required to prepare once QRTS arefinalised9 months39%6 months39%3 monthsOther15%7%“Nine months is just enough to providea window for delivering final changes tosystems required to populate the QRTs.This is on the assumption that reasonablystable versions of the QRTs are available 18months before the ‘comprehensive’ parallelrun.”“We need at least ninemonths to integratethe QRTs into ourreporting systems.We would be able toprovide the informationwithin a shorter timeframe, but considerablemanual work would berequired.”Time to complyInsurers will need sufficient time to build systemcapabilities and to source data. Large life insurers indicatedthat the diversity of their investments will have an impacton quality and timely collation of data.The time to comply will depend on the level of changesrequired from current reporting to draft QRTs; changesfrom ‘light’ to ‘comprehensive’ parallel run; and takinginto account the extent of changes to finalise the Pillar 1technical specifications.The stability of the QRTs at an early stage is critical, to allowsufficient time for interpretation by insurers so that theycan start data sourcing activities and develop the requiredprocesses and calculation capabilities to deliver the inputinto the reporting systems on time.In addition to time spent on investigating and assessingthe impact, the process of taking the new requirementsand changes through governance structures should not beunderestimated.Medium-sized insurers indicated that they could probablyachieve preparations within a six-month period. However,it will take several reporting cycles before the process isrefined and efficient.Process and systemsThe level of data sourcing required will have an impacton system developments, implementation and testing ofsystems, which could also mean that manual workaroundsmay be needed in the transition period. Essentially at leastnine months would be required to integrate the QRTs intoreporting systems.Group requirementsGroup reporting is of particular importance as it will requiresolo entities to align certain processes, which could have amaterial impact on their operating models. The shorter thetime frame, the more manual and/or costly the preparationand production will be. Some of the larger insurance groupsenvisage potential leveraging off group or parent companysolutions.Quarterly reportingPerforming full quarterly calculations will be a challengerequiring a big business change to meet the quarterlyreporting requirements for the ‘comprehensive’ parallelrun. This will have an impact on insurers’ ability to meet thequarterly reporting deadlines.Moving ahead to SAM readiness – SAM Parallel run survey 9

Q: Once the required formats are known, whatwill be the biggest practical challenge in yourorganisation to produce the QRTs?Figure 9.Designing the end-to-end reporting processes to deliverwithin the timelines is a practical challenge for morethan a third (36%) of insurers. Sourcing the relevantdata and redesigning their reporting solutions followsclosely. Insurers consider that these challenges can beovercome with adequate time and resources. The majorityof participants, who indicated other (14%), noted thata combination of all of these factors have to be in placeto produce the QRTs. In all instances, it is critical for thereporting requirements to be known as soon as possible.Biggest practical challengesRedesigning your reportingsolution to deliver the reports14%Sourcing the relevant data25%Designing the end-to-end reportingprocesses to deliverwithin the timelinesSourcing the data36%Implementing new technologysolutions to supportdelivery of the reports11%Other14%More life insurers (37%) than non-life insurers (16%)indicated that sourcing data remains the key challenge.This is mainly driven by the asset data requirements, thedifferent levels of data granularity currently available andthe quality of such data.Figure 10. Life insurersRedesigning your reportingsolution to deliver the reports18%Sourcing the relevant data37%Designing the end-to-endreporting processes to deliverwithin the timelines27%Implementing new technologysolutions to support deliveryof the reports9%Other9%Sourcing the relevant dataInsurers agree that it will be necessary to use additionalsolutions or tools and implement improved automationto produce the SAM QRTs timely, accurately, and withsufficient granularity.The timing of implementing new systems varies betweeninsurers, but the majority see no alternative to some form ofmanual intervention for the initial implementation.8%16%Designing the end-to-endreporting processes to deliverwithin the timelinesImplementing new technologysolutions to support deliveryof the reportsOtherNearly two-fifths (38%) of the non-life insurers indicatedthat designing an end-to-end reporting process will be thebiggest practical challenge. However, non-life insurers withan outsourced business model or making use of brokers andunderwriting managers (UMAs), view data sourcing as thekey challenge.New technology solutionsFigure 11. Non-life insurersRedesigning your reportingsolution to deliver the reportsInsurers generally see the phased in approach of the parallelrun as beneficial and one insurer indicated that in someaspects (e.g. technical provisions) the current regulatoryreturns could help. This would, however, depend on thedata being of high quality.38%15%Although some insurers have made progress in the levelof automation, others indicated that automating theextraction of data and reporting would only be done in thefuture as the QRTs stabilise.Alignment with Solvency II templates23%“Sourcing the correct data is the biggestchallenge - once this is sourced, the rest willfollow.”10 Moving ahead to SAM readiness – SAM Parallel run surveyThe similarity between the SAM and the Solvency II QRTswill have an impact on the design of certain insurers’reporting solutions. Until recently, the Solvency II QRTswere the only benchmark available for insurers to usein their SAM projects. Should the SAM and Solvency IItemplates radically diverge, redesigning reporting solutionsto deliver the QRTs would then also become one of themajor practical challenges for those insurers.

Various stakeholders and responsibilitiesManaging the process of producing the QRTs is far reachingand complex for the responsible party (generally thefinance function), as there are dependencies on variousstakeholders, such as asset managers, brokers, UMAs andbusiness partners.Insurers indicated that interaction is essential with externalproviders, but also internally with risk and actuarialQ: How do you plan to embed the newrequirements in your ‘business-as-usual’ during the‘comprehensive’ parallel run in 2015 when existinglegislation is still effective?There is uncertainty among insurers especially relatingto how they plan to embed the new requirements in their‘businesses-as-usual’ during the ‘comprehensive’ parallelrun in 2015, while existing legislation is still effective. Thiswill depend on the FSB’s requirements, but all insurers areconcerned about the extent of duplication required. Thiswill, however, receive more attention from insurers in 2014in the hope that more certainty will emerge.An evolving approachfunctions, who are key stakeholders in contributing to asuitable end-to-end process.For insurance groups this is relevant for each soloentity within the group. In addition, there are furtherrequirements at a group level to collate; consolidate; signoff and report on the group results. This will increase thelevel of reporting complexity.Figure 12. Managing the business during the‘comprehensive’ parallel runComplete duplication ofold and new requirements (A)14%Partial embedment of new SAMframework as part of'business-as-usual' (B)New SAM framework embeddedas part of 'business-as-usual' (C)18%7%36%A and B above18%A and C aboveOther7%Insurers are in agreement that they will need to complywith the existing regime, but this will require that a numberof resources also be focused on the parallel runs and theupcoming implementation of the SAM regime.Insurers believe it would be ideal to embed the SAMframework in their business by the time the parallel runscommence, but acknowledge that it would probably beunrealistic in practice. It would therefore be better tointegrate the old and new reporting requirements as far aspossible to avoid unnecessary duplication.The insurers that are in their internal model applicationprocess (IMAP) see a further complication in that they needto report on their internal model as well as the standardmodel during the parallel runs.Nearly a fifth of insurers (18%) consider that selectiveelements of the final SAM solution will be implementedas part of ‘business-as-usual’, but most of it will comprisepartial embedment through manual processes andworkarounds (reducing throughout 2015).Current decisions around product development and designare problematic given that certain products may onlybe launched when SAM is effective or even during thetransition stage to the new SAM regime.The parallel runs are generally viewed as a step towardsphasing in the SAM requirements. Embedding theserequirements, into the day-to-day business will requireintense and continuous effort over the next 18 months.Insurers indicated that embedding the SAM requirementsinto ‘business-as-usual’ will evolve during the parallel runphases.Product development and designIn certain cases, reporting solutions can be consideredeasier to develop than the capital calculation and build upthereto in this transition phase to the new SAM regime.“By definition, insurers will be required toreport on the old and new regime metricsso complete duplication of old and newrequirements appear to go without saying”Moving ahead to SAM readiness – SAM Parallel run survey 11

Q: What area of the ‘comprehensive’ parallel run in2015 will be the most challenging to meet?“ With the QISexercises one getto a stage wherecalculating thenumbers is not thebiggest challenge.”14%Report on these calculationsusing the prescribed QRTs (B)14%4%A and B above18%B and C aboveOtherCalculate the quarterlyand annual Pillar 1 numbers (A)36%14%Insurers consider calculating the SAM numbers as achallenge, but believe that the Pillar 1 numbers should toa large extent be embedded as part of ‘business-as-usual’given the preceding QIS exercises.18%Report on these calculationsusing the prescribed QRTs (B) 0%Meet qualitative reportingrequirements (C) 0%9%B and C aboveOtherCalculate the quarterlyand annual Pillar 1 numbers (A)Meet qualitative reportingrequirements (C)Figure 14. Life insurersA and B aboveFigure 13. Most challenging area during the‘comprehensive’ parallel run55%18%Figure 15. Non-life insurersIntegrating Pillar 1 and Pillar 3 will by far be the mostsignificant challenge facing insurers. The majority ofparticipants, who indicated other (14%), consider thatembedding the ORSA in the business and producing theORSA report will be the most challenging requirement tomeet. Interestingly, more than half (55%) of life insurerswould consider populating the QRTs and the qualitativereporting requirements more challenging compared toalmost a third (30%) of non-life insurers who considerreporting on these calculations using the QRTs morechallenging.Qualitative requirementsCalculate the quarterlyand annual Pillar 1 numbers (A)Given that the qualitative requirements are still unknown,there could be a number of other emerging issues.8%Report on these calculationsusing the prescribed QRTs (B)Meet qualitative reportingrequirements (C)30%8%A and B above23%B and C above23%Other8%“ Qualitative reporting is seen as the biggestchallenge to bring a lot of things together.”12 Moving ahead to SAM readiness – SAM Parallel run surveyIn addition, qualitative reporting for insurance groupswill be new and will create new challenges as this brings anumber of additional aspects together.Duplication of reportingInsurers expressed concern over the potential duplicationof reporting. For example, they have questioned the valueof duplication in work done for the parallel runs and thecurrent regulatory returns, particularly the qualitativerequirements. This would result in a significant level ofadditional work as well as costs.One insurer has recommended that the FSB consider lessreporting on the current basis and that only key statementsof the current regulatory returns be completed. Forexample, where the same information such as movementdata is requested in both the current regulatory returns andthe SAM QRTs, it should only be reported once.

Q: Are your ORSA developments on track to submityour ORSA report for the ‘mock ORSA’?The initial results of insurers’ self-assessment for theFSB’s Pillar 2 Readiness Survey, conducted in July 2012,indicated that approximately 33% of insurers consideredtheir ORSA readiness to be weak. Given that the FSB willconduct a ‘mock-ORSA’ exercise in 2015, it is concerningthat apparently no progress was made over the ensuingnine months, as 39% of insurers indicated their ORSAdevelopments are not on track.Figure 16. ORSA developmentsWhat does a ‘mock-ORSA’ mean?NoThe consensus among insurers is that they are not yet clearof the scope of the ‘mock-ORSA’ or on the approach the FSBwill take with the ‘mock-ORSA’ exercise.OtherEarly stages of developmentYes18%61%21%Most insurers indicated that they are in the early stages ofdeveloping their ORSA, which includes: Developing an ORSA policy; Performing a gap analysis; Producing a skeleton ORSA report; Working groups analysing the expected requirements;“Without a doubtensuring that allof the processes arein place in order toperform and reporton the ‘mock-ORSA’in 2015 will remaina key challenge forbusinesses. Thisis because manyprocesses and modelsneed to be developed,after which theseprocesses, modelsand metrics need tobe embedded in thebusiness in order tobe reported on in theORSA report.” Identifying existing ORSA principles already embeddedin the business; Internal ORSA dry runs prior to the ‘mock-ORSA’exercise; and Leveraging of group or parent company’s ORSA.Guidance requiredMore guidance is required for various aspects of the ORSA.This includes: Timing of ORSA reporting and whether it has to bealigned with SAM Regulatory Returns; The requirements for qualitative reporting versus therequirements for ORSA reporting; Whether a group will be allowed to submit a group-wideORSA report and not solo ORSA reports; and The level of governance and review that will be requiredfor the ‘mock-ORSA’.Moving ahead to SAM readiness – SAM Parallel run survey 13

Q: What other important comments or questions doyou have that are not covered above?Given the far-reaching practical implications of the SAMparallel runs, insurers had the following comments: QIS3 changes to the standard modelIf the QIS 3 specifications are close to what the finalposition should be, then one could assume that most ofthe work around Pillar 1 would not be that challenging.The extension of the QIS 3 timelines, however, addsanother dynamic to calculating and submission of theQIS 3 results, especially for insurers with December yearends. Valuation dateIt is clear in the SAM 2013 update when the quarterlycalendar reporting timelines are. The valuation datefor reporting purposes is, however, not specifiedfor quarterly submissions. For example, for the first‘light’ parallel submission on 31 August 2014, would acompany with a June year end use a valuation date upto June 2014 (four quarters) or up to March 2014 (threequarters) to do the submissions. It is also noted that forinsurers with year ends such as February and Augustto report their initial quarterly results will not resultin a two-month post-quarter timeline unless the FSB’squarterly calendar reporting timelines are changed. Resolution of FSB policy decisionsThere are still a number of policy decisions, such assegmentation, reinsurance and tax, which could have asignificant impact on insurers’ readiness for the parallelruns. Keeping to SAM timelinesThere are questions and concerns whether the SAMtimelines can be achieved given the significantdevelopment work that still needs to happen. Additionalquestions were asked about whether any further delaysin Solvency II will potentially impact SAM deadlines. FSB’s own assessment of supervision during parallelrunsThere is a concern that the FSB still has to consider itsown operating model of supervision during the parallelruns and after January 2016. One insurer noted thatuntil the FSB has considered how they will providesupervision and what they will do with all the data theyreceive, the requirements and specifications cannot trulybe final. Audit scope and requirementsFurther guidance is sought regarding the level of auditassurance that is required. Guidance on practical problemsSome insurers noted that they desire practical guidancein the following areas:–– The principal of proportionality and its application,especially for medium and small insurers to ens

Moving ahead to SAM readiness - SAM Parallel run survey 5 Background The questions This survey focuses on the practical implications and challenges of the SAM parallel runs in 2014 and 2015. It sought to provide industry-wide perspectives across large and medium-sized insurers. Where meaningful, it also