EndUserComputing.org

The Solvency II Impact
According to the third annual Deloitte Solvency II Survey 2010, the regulation will have a significant impact on the insurance industry in the EU. Here are some supporting stats from the firms surveyed:

• 34% will need to restructure or reorganize to support Solvency II initiatives
• 49% will increase usage of actuarial operations
• 70% will increase staffing by 10 or more FTE’s to support the initiative
• 11% are considering relocating their firm outside the EU to avoid Solvency II compliance altogether
• 49% will seek approval for their own internal (capital requirements) model

Spreadsheets & Solvency II
After carefully analyzing the English version of the 685 page directive, it’s clear there is a big focus on the accuracy, integrity and overall governance aspects of the Solvency II models. In fact, there are a number of articles requiring governance and effective internal controls in this area. Here is a quick rundown on mandates impacting the use of spreadsheets, Access databases, and other user-developed applications (UDAs) for Solvency II model development:

• Article 44 – Requires governance over Solvency II model design ,testing, validation , and documentation.
• Article 48 – Requires firms to have an actuarial function to oversee the adequacy of their Solvency II model, data, and calculation.
• Article 82 – Calls for firms to ensure a high level of data quality, accuracy and completeness for Solvency II models.
• Article 83 – Requires firms to compare model results against experience and identify deviations.
• Article 115 – Requires firms to document both minor and major changes to Solvency II models.
• Article 116 – Calls for firms to have systems in place to ensure the Solvency II model “operates properly on a continuous basis.”
• Article 124 – Requires firms to perform model validation activities on a regular cycle.
• Article 125 – Calls for proper documentation of the design and details of the internal model.
• Article 236 – Requires transparency and governance for subsidiaries.

Spreadsheet & UDA Control Leads to Sustainable Governance
Many EU firms are seeking approval to use their own internal model (vs. the standard model, e.g. Lloyds). Internal models provide an opportunity to tailor capital requirements given the proper internal controls and governance processes are in place. Many firms are using spreadsheets for solvency, financial and actuarial models. As such, regulators (including the FSA, CEIOPS, etc.) will be more likely to approve use of internal models if they are accurate and managed in a controlled environment. The Prodiance Enterprise Risk Manager (ERM) System provides a comprehensive solution for spreadsheet and UDA control for firms seeking Solvency II compliance.