Industry experts give us a valuable insight into the Solvency II Regulation and where it may be headed
On the morning of Wednesday 27th February, FundsLibrary (in conjunction with EY) held a Solvency II breakfast panel with the theme “How to address the demands of European expectations and how it might impact your business”. We were lucky enough to have some very highly regarded panellists speaking, each covering a different aspect of the regulation, including; Gareth Mee, Partner EMEIA Insurance at EY, who works closely with some of the UK and Europe’s leading Insurers and is well-placed to comment on their views and challenges; Melanie Leavold, Manager of EMEA Client and Regulatory Reporting at Invesco, voicing the perspective of Asset Managers; and finally Ghislain Perisse, Head of Insurance Strategy EMEA at Schroders, a member of the Financial European Working Group and involved in the evolution of the regulation since its inception. The panel was moderated by Paul Poletti-Gadd, Solutions Director at FundsLibrary.
The Main Challenges
From the outset of the discussion it seemed clear that each of the panellists agreed there was a lack of understanding between Asset Managers and Insurers around each other’s requirements and resources. Mel, voicing the Asset Manager’s point of view, expressed that one of Invesco’s main challenges is the timeliness of Tripartite (TPT) delivery, for which they are being pressed by Insurers to move towards T+5 (business day 5) output. This gives the Asset Manager an incredibly short period to produce their reporting. Gareth, explaining the Insurer’s perspective, commented that the reason Insurers require the reports so promptly is that once received they then load the data into heavy models which usually take at least a day to run. They then match, analyse and rebalance before the final figures are available. The increasing time pressure placed on Asset Managers is likely to impact on the consistency and quality of the reporting data. It is therefore apparent that in order to avoid an impasse, it is necessary for both parties, Asset Manager and Insurer, to effectively engage and co-operate in order to coordinate timely delivery of Solvency II reports.
In addition, Mel felt that the enrichment process and data upload to various European distribution platforms were a further burden on the Asset Manager. To facilitate delivery via these interfaces, Asset Managers are often required to upload the data via a user portal. These portals are not uniform and are regularly unstable, resulting in a stressful and lengthy task. Similarly, Insurers often require information (at short notice) that Asset Managers are not used to collecting. It seems that there is no clear solution for these difficulties. No one particular body is driving the demand for higher quality and Insurers all have differing ideas of what the best in class should look like.
Discussion then turned to the difference in expectation of the UK Insurance industry versus those of their European counterparts. As mentioned, timeframes and a better understanding are key, however in Europe (especially in Germany and Austria) there is a further expectation that every field of the Tripartite Template (“TPT”) be completed, not just those that are mandatory. Furthermore, Ghislain explained that the decision to invest in a fund there is very likely based upon the provision of accurate and timely data.
This seemed a pertinent time for the panel to discuss the potential evolution of the Solvency II regulation. There appear to be no plans for any change to the template itself although Gareth asserted that the inclusion of Solvency Capital Requirements (“SCRs”) is fast becoming a key requirement and that any further evolution of the regulations firmly depends upon the market. In terms of further development, he commented that going forward there should be more disclosure on infrastructure, securitisation and any unrated assets.
Conversation moved to the development of environmental, social and governance (“ESG”) reporting, which is likely to be one of the biggest changes within the next year. Gareth thinks that in terms of ESG, Asset Managers are way ahead of the Insurers and the majority already have policies in place. He feels that Insurers now need to pick up the pace as they aren’t ready for this move and will certainly need help from their Asset Manager counterparts. Ghislain stated that the European Working Group is currently working on reducing capital charges for specific ESG investments which will help result in a greener investment universe. Further updates are expected in due course.
Since there is obviously some dissatisfaction surrounding the regulation as it currently stands, Paul asked what changes each of the panellists would make if they were able? In response, Mel wanted complete enrichment across all fields of the TPT, which she expects to be a standard requirement going forward. Ghislain hoped for more awareness surrounding Insurer culture amongst Asset Managers in general as he feels there is a definite gap in their knowledge at present. Given the opportunity, Gareth would go back to the first discussions regarding the advent of TPTs in 2012, where he would have encouraged more collaboration between Asset Managers and Insurers. It was agreed by all three panellists that service providers such as administrators and third parties could, and probably will have a bigger part to play in the collation and distribution of the data in future.
We had over 60 attendees at the event consisting of a wide range of industry representatives. There was some really thought-provoking and useful discussion post-panel and it seems clear that the Solvency II directive is and will continue to be contentious and challenging.
We see it as our responsibility to support our clients and help them to navigate their way through complex regulatory challenges. We will continue to engage with relevant parties and will hold future sessions around key themes which we are sure will prove useful and interesting.
If you would like to know more please contact our Regulatory Experts here or on +44 117 311 3254.
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All figures correct as at 31.12.2019.