Académique Documents
Professionnel Documents
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Contents
Preface
1 Management Summary
Author
Sjaak Bouma
8
8
9
11
11
Contributors
Luca DOnofrio
Augusto Franconi
Giuseppina Aprile
Vincenza Tarallo
Marco Folpmers
13
14
Sponsor
Harmen Meijnen, Global Lead,
Compliance & Risk Management
Centre of Excellence
15
6 Survey results
6.1 Importance and Development of Risk Management
6.2 Risk Management Organisation and Processes
6.3 Internal Reporting
6.4 Legal Framework
6.5 Methods of Risk Management
17
17
22
25
27
28
14
Survey Coordination
Jan van Rompay, Council of Europe
Compliance & Risk Management
Local Survey Coordination
Norway
Jon Qvigstad
Peer Timo Andersen
Germany
Ulrich von Zanthier
Andreas Duldinger
Netherlands
Marien van Riessen
Garnt van Logtestijn
Belgium
Dermot Redmond
33
34
35
38
France
Antoine Pailhes
Portugal
Ana Cerqueira
Spain
Lucia Gonzalez
Italy
Luca DOnofrio
Claudio Trecate
Financial Services
Preface
Insurance is a form of risk management that parties use to protect themselves
against a loss. Ideally, it involves the equitable transfer of the risk of loss from
one entity to another, over a set period of time, in exchange for a reasonable fee.
For insurance companies, risk is more
integral to business than it is in perhaps
any other industry, so why do European
regulators want to introduce new
requirements for solvency and risk
management in the form of Solvency II?
The answer, in short, is that regulators
want to protect the stability of the
financial system. However, there are
three different underlying drivers of
change to consider.
First is the economic development
of the insurance segment itself. The
insurance sector has grown significantly
in recent decades, making it the
second-largest within the European
financial services industry. Due to
this growth, any negative disturbances
within the industry will potentially
affect the entire financial system.
Second, companies and markets are
becoming increasingly complex,
creating new types of risk, such as
operational risk. Insurers may not be
able to manage these new risks as
well as they manage those that are
core to their business, such as the
insurance technical risks. To preserve
systemic stability, regulations must
therefore tackle a broader range of
risks. Concomitantly, technological
developments are creating advanced
risk management possibilities, and
insurance companies must learn to
use these technology-enabled tools
in order to manage both existing and
new risks properly.
Source: Jean-Claude Trichet, Developing the Work and Tools of CEIOPS: the views of the ECB, Keynote speech at the Committee of European Insurance and
Occupational Pensions Supervisors (CEIOPS) conference, Frankfurt, November 2005
1 Management Summary
Financial Services
Questionnaire
The survey questions cover five topics:
1. Key areas of risk. Questions relate
to the current and future importance
of risks, as well as to the processes
and procedures set to manage
these risks.
2. The risk management organisation
and processes, including the presence
of a framework, risk strategies and
responsibilities, and the integration
of risk management.
3. Internal risk reporting, including
processes and the distribution of
risk reports.
4. Legal framework.
5. Available risk management methods.
Some of the questions relate to the
importance, quality or existence of risks,
processes and procedures and require a
self-assessment. The results assume the
respondent was capable of answering
the question and of answering honestly
and objectively. The development of risk
management and the existence of certain
risks may vary anyway, depending on
the insurers size or business segment.
Financial Services
Participants
Capgemini used its international network
of offices to conduct the survey in
local markets. In total, the survey
covers 63 insurance companies across
8 European countries Norway,
Germany, The Netherlands, Belgium,
France, Italy, Spain and Portugal.
Appendix 1 names some of the
participating companies. Note that
five questions reflect answers from
only 7 countries, due to certain
national differences in the survey.
Peer Groups
and Insurance Types
Two peer groups are defined. The first
comprises small and medium-sized
insurance companies with total annual
premium revenue of < 1.5 billion.
The second comprises large companies
with total annual premium revenue
of 1.5 billion.
Country Comparisons
Solvency II is not just a state-of-the-art
solvency framework; it will further
harmonise the existing European
insurance market. As Europe moves
toward unifying legislation and a single
market, national differences should
play a far reduced role, so the findings
are presented from a single European
market perspective, and there is generally
no comparison of regions or countries.
Results
In general, the survey analysis
presented in chapter 6 reflects
the consolidated results from
all participants, but we also offer
comparisons of peer groups or
insurance business types when
those data breakdowns are of
particular interest.
63
Peer groups
Small and medium-sized insurance companies
32
31
Insurance type
Life insurance business
20
16
27
See footnote 1
Source: HM Treasury, Solvency II: a new framework for prudential regulation of insurance in the EU, a
discussion paper, London, February 2006
Financial Services
2005
CEIOPS
Answers To Calls
For Advice
2006
2007
Formal
QIS1 QIS2
Adoption of
European Framework
Commission Draft
from
of Directive Commission
(Oct. 2006)
(July 2007)
2008
2009
2010
Definition of
Realisation
Dates
Adoption of
European Commission
Suggestions
Effective Date
Solvency II
2004
Source: European Commission, Amended framework for consultation on Solvency II, April 2006
Pillar I
Quantitative Requirements
Pillar II
Supervisory Review Process
Pillar III
Market Discipline
MCR
Supervisory Disclosure
Public Disclosure
Risk Dependencies
Risk Mitigation
Safety Measures
Solvency Control Levels
Technical Provisions
All Risks
Subjects
Underwriting Risks
Market Risk
Credit Risk
Operational Risk
Liquidity Risk
ALM Risk
Other
Risks
Source: CEIOPS, Answers to the European Commission on the second wave of Calls for Advice in the framework of the Solvency II project, October 2005.
10
Financial Services
Risk
Management
Systems
Return
on Invested
Capital
Capital Allocated
in Line with
Actual Risks
Standard & Poors, Industry Report Card: European Insurance, January 2005
11
12
IV.External Rating
Pillar III includes requirements
not only on supervisory disclosure,
but on market disclosure. Insurance
companies will be required to report
on risks and the management of risk
in their annual reports. For investors
and rating agencies, such information is
useful in determining creditworthiness.
In the future, then, the share prices and
credit ratings of insurance companies
will be more dependent on risk profile
than ever beforeand it will be in the
best interest of insurance companies to
demonstrate sound risk management.
Financial Services
Exposure Draft
Phase 2 (30-Jun)
Discussion Paper
Phase 2 (31-Dec)
IFRS 4
Final IFRS
(30-Sep)
IAS Phase 2
Balance Sheet
Local
Year 1: IAS
& Intl.
Balance Sheet
Acct.
Principles International Accounting Principles
2004
2005
CEIOPS
Answers To Calls
For Advice
2006
2007
Formal
QIS1 QIS2
Adoption of
European Framework
Commission Draft
from
of Directive Commission
(Oct. 2006)
(July 2007)
2008
2009
2010
Definition of
Realisation
Dates
Adoption of
European Commission
Suggestions
Effective Date
Solvency II
Source: Solvency II, une rvolution pour la valorisation et la strategie Analyse Financiere n 20 July,
August, September 2006 from the Dossier Avenir radieux pour lassurance (Translation: Solvency II,
a revolution in value measurement and strategy from the Dossier Great perspectives for insurers)
13
Source: European Commission, Solvency II Roadmap Towards a Framework Directive, July 2005
14
Financial Services
15
Figure 5.1 Project Scope for Adopting a New Enterprise Business Model
Processes and
Procedures
Structure
Risk
Management
System
Internal Control
System
Information System
16
Financial Services
6 Survey results
4.0
Importance
3.5
3.0
2.5
2.0
1.5
1.0
Insurance
Market
Credit
Operational
Liquidity
Risk Area
Source: Capgemini Analysis, 2006
17
14.0%
12.3%
11.7%
12.0%
% Increase
10.0%
8.0%
6.8%
6.0%
4.0%
3.4%
2.1%
2.0%
0.0%
Insurance
Market
Credit
Risk Area
18
Operational
Liquidity
Financial Services
100%
80%
60%
40%
20%
0%
Insurance
Market
Credit
Operational
Liquidity
Risk Area
19
10
20
Methodology: participants are asked for an assessment of their risk profile by dividing total (100%) risk over
the five risk types. Guidance was given by dividing the whole spectrum in five categories. But more specific
answers were also given and used. To assure total risk of 100% per respondent, some of the answers were
calibrated by the survey team.
Financial Services
Insurance
31%
Liquidity
3%
Operational
11%
Region South
Liquidity
10%
Insurance
32%
Operational
19%
Insurance
31%
Credit
12%
Credit
13%
Market
44%
Market
38%
Credit
15%
Market
25%
Insurance
22%
Liquidity
2%
Operational
11%
Credit
9%
Credit
16%
Market
45%
Insurance
47%
Liquidity
7%
Operational
16%
Insurance
29%
Credit
13%
Market
32%
Market
35%
21
Comply with
regulatory requirements
4.0
Image driven
3.5
3.0
Comply with
the requirements
of the owner
2.5
2.0
1.5
Comply with
market requirements
Be a pioneer in
risk management
Business
driven logic
Losses made
by others
Losses in
own company
Source: Capgemini Analysis, 2006
22
Financial Services
3.2%
6.3%
90%
11.1%
3.2%
4.8%
6.3%
15.9%
80%
3.2%
11.1%
9.5%
17.8%
17.7%
15.6%
14.5%
13.3%
12.9%
9.5%
11.1%
20.6%
22.2%
22.2%
70%
69.8%
60%
22.2%
57.1%
8.9%
52.4%
50%
17.7%
44.4%
40%
38.1%
37.1%
30%
20%
10%
0%
Insurance
Market
Credit
Operational
Liquidity
Overall Risk
In Place
Partly In Place
Planned
Decision Not Taken
No
Source: Capgemini Analysis, 2006
Departments
2.3%
23.3%
51.2%
4.7%
25.6%
6. Corporate level
23.3%
7. Others
9.3%
139.5%
23
100%
8.3%
90%
12.5%
4.2%
4.2%
16.7%
12.5%
20.8%
80%
12.5%
29.2%
70%
22.9%
8.3%
60%
16.7%
50%
45.8%
43.8%
40%
41.7%
30%
20%
In Place
Partly In Place
Planned
Decision Not Taken
No
10%
0%
All Insurance
Companies
Large Insurance
Companies
Figure 6.9 Presence of Internal Risk Reporting Processes Per Risk Type
100%
90%
7.9%
6.3%
6.3%
6.3%
3.2%
9.5%
4.8%
11.1%
12.7%
17.5%
16.1%
17.4%
16.1%
4.8%
6.3%
80%
17.4%
12.7%
17.5%
77.8%
70%
11.1%
60%
23.8%
61.9%
58.7%
8.7%
8.7%
9.7%
21.0%
50%
47.8%
40%
39.7%
37.1%
30%
20%
10%
0%
Insurance
Market
Credit
Operational
Liquidity
Overall Risk
In Place
Partly In Place
Planned
Decision Not Taken
No
Source: Capgemini Analysis, 2006
24
Financial Services
Figure 6.10 Presence of Internal Risk Reporting Processes Per Risk Type, by Business
100%
80%
60%
40%
20%
0%
Insurance
Market
Credit
Operational
Liquidity
Overall Risk
Risk Area
25
83.6%
Market Risk
90.7%
Credit Risk
83.3%
Operational Risk
69.8%
Liquidity Risk
60.5%
66.0%
26
10%
20%
30%
40%
50%
60%
70%
80%
90%
Financial Services
Existent
Partly Existent
Non Existent
60%
50%
% of Total
40%
30%
20%
10%
0%
Know-How
Level of
Free Capacity
for SII
Information of
for SII
Employees on SII Implementation Implementation
Risk Area
Not Defined
11.1%
Department
Project Team in IC
25.4%
17.5%
42.9%
15.9%
17.5%
12.7%
Others
9.5%
152.4%
27
100.0%
As Is
As Is/To Be
To Be
90.0%
80.0%
25.5%
12.7%
70.0%
18.2%
18.2%
60.0%
18.2%
50.0%
10.9%
47.3%
40.0%
14.5%
43.6%
9.1%
34.5%
30.0%
30.9%
20.0%
10.0%
0.0%
Insurance
Market
ALM
Loss/Solvency/Credit
100.0%
As Is
As Is/To Be
To Be
90.0%
80.0%
16.4%
12.7%
70.0%
60.0%
20.0%
16.4%
23.6%
18.2%
50.0%
40.0%
30.0%
9.1%
45.5%
40.0%
10.9%
34.5%
30.9%
20.0%
10.0%
0.0%
Insurance
28
Market
ALM
Loss/Solvency/Credit
Financial Services
100.0%
As Is
As Is/To Be
To Be
90.0%
80.0%
70.0%
27.8%
21.8%
60.0%
25.5%
50.0%
16.4%
40.0%
27.3%
9.3%
30.0%
29.6%
7.3%
27.3%
23.6%
20.0%
3.6%
12.7%
10.0%
0.0%
Insurance
Market
ALM
Loss/Solvency/Credit
100.0%
As Is
As Is/To Be
To Be
90.0%
10.9%
80.0%
25.5%
70.0%
60.0%
50.0%
52.7%
5.5%
40.0%
12.7%
30.0%
5.5%
10.9%
29.1%
3.6%
21.8%
20.0%
3.6%
18.2%
10.0%
0.0%
Insurance
Market
ALM
Loss/Solvency/Credit
29
As Is
As Is/To Be
To Be
90.0%
80.0%
70.0%
60.0%
23.6%
50.0%
40.0%
18.2%
7.3%
12.7%
30.0%
9.1%
20.0%
3.6%
5.5%
10.0%
7.3%
21.8%
16.4%
7.3%
12.7%
20.0%
3.6%
5.5%
0.0%
Variance
Coefficient Probability of
of Variation Economic
Ruin
VaR
Expected
Policy Holder
Deficit
9.1%
3.6%
1.8%
RAROC
7.3%
3.6%
5.5%
RORAC
As Is
As Is/To Be
To Be
90.0%
80.0%
70.0%
60.0%
50.0%
18.5%
40.0%
14.8%
30.0%
11.1%
20.0%
5.5%
5.6%
5.5%
10.0%
3.6%
5.5%
12.7%
0.0%
Variance
30
12.7%
12.7%
13.0%
3.6%
Coefficient Probability of
of Variation Economic
Ruin
18.5%
VaR
3.6%
3.6%
3.6%
1.8%
1.8%
Expected
RAROC
Policy Holder
Deficit
3.6%
3.6%
RORAC
Financial Services
As Is
As Is/To Be
To Be
90.0%
80.0%
16.4%
70.0%
60.0%
20.0%
50.0%
40.0%
7.3%
30.0%
36.4%
5.5%
12.7%
25.5%
20.0%
12.7%
5.5%
5.5%
10.0%
3.6%
14.5%
12.7%
3.6%
7.3%
10.9%
0.0%
Variance
Coefficient Probability of
of Variation Economic
Ruin
VaR
5.5%
3.6%
1.8%
1.8%
Expected
RAROC
Policy Holder
Deficit
RORAC
As Is
As Is/To Be
To Be
90.0%
80.0%
70.0%
60.0%
50.0%
14.8%
40.0%
30.0%
14.5%
9.3%
5.5%
20.0%
22.2%
3.6%
18.2%
1.8%
3.6%
9.1%
10.0%
1.8%
14.5%
0.0%
Variance
Coefficient Probability of
of Variation Economic
Ruin
VaR
14.5%
1.8%
3.6%
3.6%
1.8%
Expected
RAROC
Policy Holder
Deficit
12.7%
1.8%
7.3%
RORAC
31
100%
5.5%
14.5%
90%
80%
12.7%
70%
18.2%
60%
50%
49.1%
40%
30%
20%
10%
Present
Under Implementation
Planned
Decision Open
Not Present
0%
32
Financial Services
33
Appendix 1
Sample Insurance
Company Participants
Table 1.1 provides a partial listing of the survey participants11 by peer group and
business type.
Life Business
Non-Life Business
Atradius
Bayerische Beamten Versicherung
BBV Krankenversicherung
Rural Seguros
SB1 Skade
Verenigde Assurantiebedrijven Nederland
Aoreana Seguros
Agrupaci Mutua
Cardif
Imprio Bonana
Mutua General
Pelayo
Santalucia
V VAA Groep
11
34
Aviva
CNP
Eurizon Vita
Storebrand
Tranquilidade
Vital
Giensidige
IF
KLP Skade
Allianz Portugal
AXA
Caser
Delta Lloyd
Dexia Insurance Belgium
Eureko
Fidelidade Mundial
Fondiaria-SAI
Fortis Verzekeringen Nederland
ING Insurance Belgium
KBC
Lloyd Adriatico
MAIF
Mapfre
MMA
Nationale-Nederlanden
SNS Reaal
Some responses pertain to companies that are part of a larger insurance group, and some insurance
groups are represented by responses from more than one business unit.
Financial Services
Appendix 2
Economic Capital
as an Implementation
Framework
Solvency II sets standards for risk
management practices, and uses an
economic capital approach that offers
a powerful performance management
solution for insurance companies. Here
we outline Capgeminis assessment of
the benefits of a risk-based approach.
In short, Capgeminis Economic Capital
approach to handling Solvency II offers
three main advantages. First, the
approach is dynamic, as opposed to
the static directive, which offers no
roadmap for implementation. Second,
the risk-based solvency approach can
help to frame operational and strategic
decision-making, turning a compliance
requirement into a business benefit.
Third, economic and regulatory capital
will be harmonised.
Of course, regulatory requirements and
economic capital guidelines have already
started to converge in recent years, and
Solvency II represents the next step.
In practice, the SCR under the internal
model approach will converge with
economic capital. (Both tend to include
all quantifiable risks. The minimum of
the SCRthe MCRcan be calculated
with a prescribed formula.) Aside from
solvency standards, the economic
capital framework includes reporting,
governance, usage and quality
management guidance. So why use
the more complex economic capital
approach? The answer lies in benefits.
Without an economic capital provision,
Solvency II would simply be the latest
in a long line of compliance initiatives.
Economic capital turns Solvency II
into a business enabler. Economic
35
Risk Appetite
1. Set Conference
Level
Ruin Probability
95%
97.5%
99%
99.5%
2. Define Risks
and Controls
3. Define
Organisational Scope
4. Develop Data
Systems and
Methods
IAA Risks
Underwriting Risk
Market Risk
Credit Risk
Operational Risk
Liquidity Risk
Entities Involved
Main Entity
Daughters/Affiliates
Suppliers
Data
Supplier
Input
Process
Output
Customer
5. Economic Capital
Reporting Use
and Governance
EC Reporting
Reporting of EC
Risk Contributions/
Component VARs
Diversification
Benefits
Extra Risks
ALM Risk
Other Risks
VAR Calculation
Horizon
Frequency
Management
Intervention
Risk
Classification
Pillar 1
Pillar 2
Systems
Data Warehouse
QRM
Statistical Systems
BI Tools
Solvency Measures
Minimum Capital
Requirement (MCR)
Solvency Capital
Requirement (SCR)
Methods
VAR vs TVAR
Delta-Normal
Delta-Gamma
Historical Simulation
Monte Carlo
Simulation
Methods for
Correlation &
Diversification
Scaling EC
IFRS and Valuation
Mitigation
Reinsurance
Alternative Risk
Transfer
36
Quality
6. Economic Capital
Quality Management
Quality
Management
Data Quality
Documentation
Validation
Back Testing
Stress Testing
MCR and SCR
Comparison
Supervisor
Involvement
Use
Solvency Target/
Capital Management
Economic Profit
Risk-Based Pricing
Prospective Control
Governance
Senior Management
Involvement
Responsibilities
Changes
Financial Services
Not to scale
Mean
37
Appendix 3
Literature
38
Financial Services
About Us
With nearly 5,000 Financial Services
professionals, over 700 clients
worldwide and a reputation for
unparalleled delivery, Capgemini is
uniquely positioned to serve the
financial services industry. We help
move businesses forward with proven
solutions in banking, insurance,
wealth management, compliance and
risk management, payments, leasing,
asset management and business
process outsourcing.
Capgeminis Compliance & Risk
Management Centre of Excellence helps
financial services institutions set up
leading edge risk management or
compliance functions globally. More
than 500 Capgemini compliance &
risk management consultants worldwide
work with clients in multi national
teams to realise sustainable results
in a wide range of areas including:
organisational restructuring,
development of capital management
methodology, risk modelling, risk
systems selection and transformation,
establishment of compliance frameworks
and regulatory compliance impact
analysis as well as implementation.
Capgemini, one of the worlds foremost
providers of Consulting, Technology
and Outsourcing services, has a unique
way of working with its clients, which
it calls the Collaborative Business
Experience. Through commitment to
mutual success and the achievement
of tangible value, Capgemini helps
businesses implement growth strategies,
leverage technology, and thrive through
the power of collaboration. Capgemini
employs approximately 61,000 people
worldwide and reported 2005 global
revenues of 6,954 million euros.
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Financial Management
& Marketing Association
The European Financial Management &
Marketing Association is a not-for-profit
association with a membership uniquely
composed of banking and financial
services organisations in Europe. EFMA
seeks to promote innovation in the
banking and financial communities
by fostering debate and discussion in
a setting removed from the pressures
of commercial competition. Through
meetings and an open exchange of
information, EFMA facilitates dialogue
and collaboration among its members,
creating a forum for the recognition
and study of best practice. EFMA is
funded by membership fees and income
earned from events and services. The
fees paid by members finance an array
of services strictly reserved for members.
The income earned from supporting
activities enables the association to
reduce these fees. This original
arrangement maintains EFMAs
neutrality, protecting programs and
activities from commercial pressures
and ensuring a standard of programme
quality that is highly valued by members.
The loyalty of EFMA members,
representing over three quarters of the
largest banking organisations in Europe,
is a testament to its effectiveness in
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Visit www.efma.com
Visit www.capgemini.com/compliance
39
www.capgemini.com/compliance
www.efma.com
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