100 months and 300,000 data items in the making, Solvency II is now just 1 month away!
Who can remember what they did yesterday? Most of you. How about last Monday? A few hands up at the back. So who remembers Tuesday 10th July 2007? Anyone..? Me neither. A quick Google search will tell you that nothing of major global significance happened on that date. But for those of us in financial services, a chain of events was set in motion on that day that would change the face of our industry forever.
For it was on 10th July 2007 that the European Commission officially adopted a “Proposal for a Directive of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance”. This was given the name Solvency II, the follow up to Solvency I which had previously been implemented in 1973.
100 months in the making, Solvency II is now just over 1 month away.
And the impressive numbers don’t stop there. FundsLibrary, specialists in Solvency II analysis and a provider of Solvency II solutions, has gathered some figures to illuminate the scale of the reporting that Fund Groups and Insurers will need to provide next year.
The standard Solvency II reporting template is known as the Tripartite, currently at version 3.0. This template is designed to present data received from Fund Groups to Insurers who can then use this data to fulfil their Solvency II obligations. A completed Tripartite template will contain 131 data items and this will need to be provided for each security within a fund.
A conservative estimate of securities per fund would be somewhere between 50 and 100 but this could rise to many more depending on the fund. In the case of tracker funds which carry every stock within an Index, the number of securities could be much greater e.g. approximately 500 for the FTSE All Share Index, approximately 1,200 for the FTSE All World Index.
In order to represent a wide range of investment options and objectives, Fund Groups often provide investors with a variety of funds to choose from. Any average figure would likely be misleading but it is certainly not unusual for a Fund Group to administer in the region of 50 funds and sometimes many more. It is reasonable to assume that Insurers and Life Companies might invest into half of these, leaving 25 that would require Solvency II reporting.
Solvency II Wire recently conducted some analysis on the number of Insurers across Europe that would be affected by Solvency II. Whilst the figures were almost impossible to ascertain precisely, they estimated around 3,600 organisations, potentially rising to 4,200, across 28 EU member states. According to 2014’s Key Facts document prepared by the Association of British Insurers, the UK has the largest insurance industry in Europe, and globally comes third behind the US and Japan. Using data acquired from the Bank of England, the document also reports that the UK has 387 authorised life insurance companies.
Whilst it could be considered unwise to attempt to draw averages or industry standards using imprecise data, and some may argue that the numbers presented here have been lowballed, even at these conservative estimates, the numbers begin to mount up pretty quickly:
131 data items required for the Tripartite multiplied by 100 securities per fund comes to 13,100 data items. Multiply this by 25, the estimated number of funds per Fund Group that will require Solvency II reporting, gives a figure of 327,500 data items per Fund Group. And with approximately 4,000 Insurers in Europe, nearly 400 of which are based in the UK; many of whom will require this data, the numbers expand exponentially.
Richard Baillie, Head of FundsLibrary, understands the challenge: “The numbers look daunting but if organisations prepare themselves and implement an end-to-end solution that can source, collect and validate the data from Fund Groups and then distribute it to Insurers in a timely manner, then the process will take care of itself.
“We have been working with hundreds of Fund Groups and Insurers in recent months,” Baillie continues. “Whilst there is much to do before the end of the year, organisations are increasingly aware of the scale of what’s required and we are happy to be able to assist with this historic undertaking.”