Annual QRTs: Getting it right first time, every time

This blog is part of the Pillar 3 Reporting series. For more blogs in this series click here.

Over the next few weeks, companies will be finalising their first sets of annual Quantitative Reporting Templates (QRTs) to be submitted under Solvency II. For companies with a financial year-end of 31 December, the reporting deadline is 20 May 2017.

A key part of preparing the annual (or quarterly) QRTs is ensuring the accuracy of the information provided. In this blog post, we highlight some validation processes available to companies.

In recent speaking engagements and publications, the Central Bank of Ireland (CBI) has underlined the importance of ensuring that the supervisory returns are validated and that there is appropriate governance in place so that the directors, who sign off on the annual QRTs, are satisfied that the returns are accurate and complete. In its recent Insurance Quarterly bulletin, the CBI stated that its ‘experience to date has shown that successfully meeting the dual requirements of “fit for purpose” and “right first time” requires firms to manage much better the governance and operational risks around the reporting process.’

Pressure to put in place a validation and governance process also comes from the board as the annual QRTs must be approved at a board level under the Solvency II text. In addition, in Ireland three named directors are required to submit an accuracy certificate on the annual QRTs. The CBI points out that ‘while those signing off returns may not be the people reviewing them, they should ensure that they have a clear process that they can rely on.’

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Lender credit risk transfer considerations for government-sponsored enterprises

One of the roadblocks for lender credit risk transfer (CRT) has been a lack of knowledge and understanding of the risk/reward profile of a potential lender CRT transaction. This article by Milliman’s Madeline Johnson and Jonathan Glowacki provides an overview of lender CRT and uses public information to demonstrate the expected premium and loss rates for a potential lender CRT transaction.

This article was originally published in the March/April 2017 issue of Secondary Marketing Executive.

Infographic: Insurance for craft brewers

April 7th marked National Beer Day, in honor of President Franklin Roosevelt signing a law on that date in 1933 to once again legalize the brewing and selling of beer. It was one of FDR’s first steps toward ending prohibition.

Today, craft beer is a growing market, with the number of small and independent operating breweries in the U.S. totaling 5,301 – a 16.6% increase over the year before. But as with any small, closely held business, this expanding industry faces some unique liabilities. The infographic below is based on an article by Milliman consultant Michael Henk, which examines some of the liabilities that both craft brewers and insurers should consider in order to minimize the financial impact of the risks they face.

Wedding insurance: An infographic on getting hitched without the hitch

Spring has sprung, which means wedding season is just around the corner. But what if there is trouble in paradise—and someone calls off the wedding? Or weather prevents the parents of the groom from making it to the ceremony? Or the venue closes? Or the photographer gets lost?

The average wedding in the United States costs $35,329 (ranging from $12,769 in Mississippi to $88,176 in Manhattan). Pulling off a typical wedding involves a lot of variables–which all introduce the possibility of financial loss. So if you’re looking for information on wedding insurance – either buying it or offering it – check out our “Wedding Insurance 101” infographic, based on an article by Milliman consultant Elizabeth Bart.

SFCR: Some more reports published

This blog is part of the Pillar 3 Reporting series. For more blogs in this series, click here.

Two new Solvency and Financial Condition Reports (SFCRs) were published in the past week. In both cases, the financial reporting date is 31 December 2016, representing an impressive turnaround time for public disclosure. They are both useful examples of Group SFCRs:

• St. James’s Place Group prepared a single SFCR encompassing the public disclosures for the Group and all of the solo entities within the Group with two life company subsidiaries.
• ASR understood it is a Group SFCR and so each of the solo entities has prepared separate SFCRs. ASR has published the public Quantitative Reporting Templates (QRTs) in a separate document which is available on the same web page as the SFCR report.

Company Link Country Reporting Date
St James’s Place Group Link UK 31/12/2016
ASR Group Link

Link

Netherlands 31/12/2016

Compliance risk: Box-ticking or ticking all the boxes?

‘Box-ticking’ can be a phrase synonymous with poor practice in Enterprise Risk Management (ERM). When poorly executed it can mean going through the motions to display minimum levels of compliance, rather than engaging in any meaningful activity that would deliver any real benefit. Such an approach is not encouraged by regulators.

However, do companies, and indeed individuals, spend enough time making sure they have ticked all the boxes from a compliance perspective? This is an activity that regulators certainly encourage.

With the general direction of regulatory oversight and the formality of Solvency II, companies and boards are now confirming compliance in many areas. There is a risk that the compliance process itself becomes a risk. Compliance risk is one of those intangible issues that can’t be quantified using actuarial models or managed through setting aside capital. It is a risk that is dealt with on a qualitative basis and is managed and controlled rather than measured and capitalised. This means that managing compliance risk might not be front of mind for many companies, especially with such a focus on capital amounts and getting the numbers “right”.

This becomes even more apparent at this time of year, when statutory sign-offs and certifications come into play. If you are being asked to put pen to paper to certify compliance or sign-off on the accuracy of regulatory submissions, how do you know that all the requirements have been adequately met?

The implementation of Solvency II significantly increased the amount of requirements and guidance that companies and individuals have to follow in relation to certifying solvency. This is in addition to increased compliance in other areas over the last number of years, including the Corporate Governance Code in Ireland, policyholder disclosures, etc. A lot of governance tasks that would have developed over time based on industry knowledge and practical sense now have to run the rule against a checklist or a set of requirements.

The very nature of financial reporting is changing to fit this new world. Getting the numbers right is no longer enough, you now also have to evidence how you ensured the figures are accurate and reliable and not misleading. In a Solvency II world the sheer number of requirements (and the very prescriptive and specific nature of some of them) means that the only way to be sure that each and every requirement is covered is to sit down and mark each item off. It is boring, and it doesn’t feel particularly efficient or creative—but it is disciplined and leads to identifying areas for improvement. Going through this value-adding process of identifying and closing gaps in a systematic way clearly is valuable and can help you spot patterns over time. It is also the best way of documenting and demonstrating compliance.

Being able to demonstrate compliance is also a defensive requirement in this new Solvency II world. If an issue arises or a query is raised by a regulator, the drawbacks of ignoring compliance checks quickly become apparent. Your ability to defend what you do now from a challenge in the future depends on your audit trail. So as a parting thought—don’t be afraid to spend some time ticking boxes. It might be more valuable that you think.

The Milliman Solvency II Compliance Assessment Tool distils the Solvency II requirements into easily digestible self-assessment questions and allows insurers to track and evidence their compliance with all the requirements of Solvency II. The tool is already being used by 25 entities in Ireland and the UK. For more information click here.