1 September 2010 Insurance

Solvency II – the great race: Getting to grips with Solvency II

Moody’s Analytics Solvency II Solution

Insurance risk managers are under increasing pressure to understand the Solvency II directive and build compliant strategies to meet the mandate. At the same time, they are striving to improve overall risk assessment as well as product and services profitability.

We offer a complete risk management framework for insurance companies, enabling them to comply with all facets of the Solvency II directive while providing the foundation for improved strategy and performance. From a single platform, the solution allows clients to fully calculate the solvency capital requirement (SCR), perform client behaviour modelling, and deliver integrated business and regulatory reporting, enabling better risk-adjusted decision-making.

End-to-end regulatory solution

Capital Calculation (Pillar 1)

We deliver a complete solution for the two key capital calculations of Pillar 1: the Minimum Capital Requirement (MCR) and Solvency Capital Requirement (SCR). A key strength of the solution is its ability to calculate SCR, the key control that requires quantification of all types of risks insurers face, including insurance risk, market risk, credit risk and operational risk.

Risk Management Assessment (Pillar 2)

Data management, security, auditability and supervision are among the embedded functionalities of our platform that enables firms to demonstrate risk management. Pillar 2 also requires Own Risk and Solvency Assessment (ORSA), which aims to accurately capture a firm’s unique risk profile. Our solution provides an enterprise risk management framework for these demanding requirements by being able to provide multi-year financial projections, advanced modelling capabilities and a complete framework to deal with scenarios and stress testing.

Reporting (Pillar 3)

All the reports required by the mandate can be delivered through our Regulatory Reporting Tool (RRT), which is part of our Solvency II solution. Moody’s Analytics delivers updates to RRT’s reports as the regulation evolves, and all reports are fully auditable.

Advanced risk management capabilities

Integrated business reporting

Insurance risk professionals need clear reports that enable action. We deliver reports on RAROC, solvency ratio, balance sheet forecasts, and we also allow clients to build their own reports. Additionally, our solution offers a set of analytical reports with slice, dice and drill-down features across many dimensions, such as product/policy type, counterparty type, asset class, country, industry and user-defined criteria.

Client behaviour modelling

Our Solvency II solution enables firms to monitor the impact of voluntary deposits, lapse, renewal, mortality and other potential customer actions on the income statement and other indicators. Our solution also integrates advanced modelling techniques, including a multidimensional modelling of client behaviour, and can also include renewals and new business in your simulations.

ALM: Better manage the asset mix and profit-sharing

In its advanced ALM engine, we take into consideration assets, liabilities and their interaction as a whole. Indeed, it dynamically computes the position of an insurer’s cash account by simulating asset and liability cash flows. Any surplus can be reinvested to change the asset mix according to a user’s specifications or using allocation rules such as matching duration or increasing equities proportion. In addition to this dynamic asset allocation, our solution offers a flexible and versatile framework for profit-sharing modelling in its ALM.

Flexible around your needs

A key characteristic of the Solvency II solution is its modularity: it is built on Moody’s Analytics’ robust Fermat Data Mart which enables clients to leverage an initial investment in order to incrementally build a robust enterprise risk management solution. The Fermat Data Mart was built to mirror business practices and is proven to handle large volumes of data.

It provides a comprehensive data management and reporting platform with full auditability and compatibility with leading-edge calculation technologies. It also manages integrity and consistency controls on data, and it offers the ability to rapidly load source data, audit data quality and reconcile source data with the general ledger (GL).

Robust and open architecture

Our data foundation, the Fermat Data Mart, and its calculation engines are built for openness. The database server is based on standard technology, which can be accessed from any authorised external application.

The solution’s calculation engines are delivered with application programming interfaces (APIs) that can be called from external scheduling tools as well as Moody’s Analytics Workflow, and it can interact with third-party components through multiple technologies. For complete compliance with internal models for regulatory purpose, or advanced modelling for specific business needs, the calculation engine offers a complete framework to manage user-designed code and functions.

For more information, visit: www.moodys.com/solvency2 or email: solvency2@moodys.com

This article is part of the series Solvency II – the great race.

Previous articles in the series:

Transparent, practical and proven
Preparing for Solvency II
An integration challenge

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Financial risk software

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