By guest blogger – Matthew Grant, Executive Director of Abernite
It’s less than one month until the third and final pillar of Solvency II, “Reporting & Disclosure” comes into effect on 1 January 2017. From April 2017 Lloyd’s managing agents will be required to publish the details of the risks that could impact on their capital adequacy and risk management. Lloyd’s has said it will fine those that provide incomplete or late information. So, how ready is the market for these new requirements? In Part One, I take a look at what is currently happening in the industry when it comes to providing good quality data in compliance with industry regulations, such as Solvency II.
The current situation
The standard of data coming into Lloyd’s has improved in some areas over the last few years, yet there are still big gaps and errors that need to be addressed. The quality of the business that comes through the Delegated Authority market (binders) continues to be a cause for concern.
The Lloyd’s TOM (Target Operating Model) has established a Delegated Authority (DA) Initiative as one of the key areas of focus. Tenders were due in early November from companies interested in building a central data service for the London Market. This service is intended to enable data that is submitted into London to be accessed and transformed in a co-ordinated manner to produce consistent outputs to market participants.
The scope and scale of this project acknowledges the major challenges that London faces when it comes to collecting good quality data with few industry wide standards leading to huge frictional costs, as each managing agent and company has to clean the data itself. Solvency II Pillar requires annual and quarterly reporting and data must be accurate, traceable, timely and consistent, provided through standardised templates.
There continues to be major challenges in collecting standard data and quality data from MGAs and brokers. Few standards exist and where they do, they are rarely followed. Data continues to come in different formats: hard copy, PDF files, word files and Excel. There is no consistency in terminology of reporting structure. Data is often mis-keyed, resulting in major errors associated with value and geographical location, fundamentally changing the characteristics of what is being written.
In the UK, the Prudential Regulation Authority (PRA) is the regulator for Solvency II. In the eyes of the PRA, Lloyd’s is a single undertaking for the purposes of Solvency II. The PRA is delegating responsibility for managing adherence to Lloyd’s, but that doesn’t mean that individual Managing Agents will get any concessions. The PRA expects standards to be at least as rigorous as those expected of any standard insurer and in fact, Lloyd’s has the ability to be even more rigorous than the PRA. It has explicitly declared that it expects each managing agent to meet the full set of Solvency II tests and standards, and it already has both the staff and oversight framework set up to enable it to audit the syndicates as part of their annual franchise board review.
There is an extensive list of criteria that must be fulfilled, as set out in the recently released Solvency II Pillar 3 Annual Operating Instructions. At 105 pages, this is no light read and there is a lot of information to collect.
In Part Two, I uncover a clear outline of what is required and how to get ready for Pillar 3, as well as the repercussions of failing to comply with regulations.
Matthew Grant has spent 25 years building a global modelling business before launching Abernite in early 2016. Abernite offer experienced professionals to support fast growing companies providing data and analytics to the insurance industry.