BearingPoint’s New ABACUS Solvency II Tool Profiled in the Irish Times on 12/03/2012
Solvency II legislation presents major challenges for the insurance industry, with a minimum reporting requirement for all insurers operating in the European Union to submit a complex set of quarterly and annual reports to the respective EU supervisory authorities in each country. The article below offers insights from finance journalist Barry McCall and BearingPoint’s insurance and solvency experts; Martin McKenna and Patrick Maeder. It includes useful information on an approach to streamlining Solvency II reporting processes and improving overall efficiency using a solution BearingPoint has created to help organisations comply with the reporting requirements.
BearingPoint has created new software tools to aid companies comply with the EU’s complex new insurance regulations EU insurance legislation aims to unify a single EU insurance market and enhance consumer protection and a key element of this is the new Solvency II Directive. Due to come into effect on January 1st, 2014, it harmonises EU insurance regulation and primarily concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.
The directive aims to reduce the risk that an insurer would be unable to meet claims; reducing the losses suffered by policy holders in the event that a firm is unable to meet all claims fully; providing early-warning to supervisors so that they can intervene promptly if capital falls below the required level; and promoting confidence in the financial stability of the insurance sector.
One of the main pillars of the legislation focuses on disclosure and transparency requirements. In order to assist the industry in meeting these specific requirements management and technology consultancy BearingPoint recently launched its ABACUS/Solvency II reporting solution.
"The legislation presents major challenges for the insurance industry, as all insurers operating in the European Union must submit a complex set of quarterly and annual reports to the respective EU supervisory authorities in each country,” says Martin McKenna, financial services partner with BearingPoint. He says most insurers underestimate the complexity of the new reporting structure. “Furthermore, existing IT systems are not designed to fulfil the legislation’s requirements,” he explains.
Working closely with insurance industry representatives, BearingPoint has developed a pan-European reporting solution for Solvency II that covers the standard and local requirements of regulators. It covers all Quantitative Reporting Templates (QRTs) currently defined by the European Insurance and Occupational Pensions Authority (EIOPA) and will be continuously adapted to reflect subsequent regulatory changes.
“The legislation is not a totally new concept,” says Patrick Maeder, insurance lead for Europe with BearingPoint. “It’s about setting the underlying capital needed for insurers. Many countries such as the Netherlands, the UK and Switzerland already had similar concepts. And the Swiss solvency test is already further ahead than Solvency II. The actuaries, risk managers and compliance officers in the industry are already fully aware of the requirements of the directive – the main challenge for the companies will be compliance with the process and reporting requirements.”
The big change for companies will be the new regular reporting regime. “Previously the solvency tests were carried out on an ad hoc basis,”says Maeder. “Any time a test was carried out they had to set up a project for it. As of 2014 most of the companies will have to do quarterly reporting on their capital ratios and other compliance issues to the regulators in each of the EU countries in which they operate on a quarterly basis. This will require them to operationalise the testing and reporting process. They will need to set up data warehouses to collect the data required and they will need to put the right reporting infrastructure in place."
Martin McKenna explains that the reporting requirements are quite onerous. “The 63 detailed reporting templates defined by EIOPA will require a tremendous amount of effort by companies. They will have to build systems to generate the data and to report back up the line to the regulators. One of our clients has 200 legal entities operating within the EU and they will have to generate reports for all of them. Our value proposition is that we are providing the insurance industry with standard tools and technology to comply with the directive.”
Built on the ABACUS/DaVinci technology platform, which is used extensively for regulatory reporting in banking, the Solvency II solution offers insurers a number of key benefits including economies of scale in terms of lower cost of development and maintenance due to sharing across multiple insurance companies.
BearingPoint’s track record in the banking space is impressive. “ABACUS/DaVinci is used by more than 140 banking clients in Germany alone and is used by more than 500 across Europe,” says Maeder.
“We offer a complete service portfolio including Solvency II transformation support, a professional helpdesk as well as ongoing solution adaptations.” McKenna says.
“This is more than just a technology product, it is a service. We will ensure that the software keeps pace with all changes to the legislation and regulations as they occur. Whenever a change occurs, our clients will receive a new release or a service pack to update the software.”
The alternative to ABACUS/Solvency II is for companies to go it alone and develop homegrown solutions. However, Maeder reckons that insurers who go it lone face significant hidden costs and risks. “They face the high costs associated with in-house software development, the difficulties of interfacing with existing systems, and problems associated with ongoing monitoring of regulatory changes in every country of operation. They also face the costs of having to adapt and localise software for different countries and languages. And there are considerable risks associated with not being ready on time or finding that the system they develop is non-compliant.”
This latter point is extremely important. Any proprietary system developed by a company on its own would have to be validated with regulators across Europe on an individual basis at enormous cost.
Maeder says the ABACUS/Solvency II solution is by no means exclusively for large insurance companies. “It is fully scalable and is just as appropriate for a small company with just a few employees in one country as it is to one with a presence in every country in the EU,” he says.