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What is Solvency II?

Since the introduction of the harmonised Solvency II capital requirement regime, all European insurance companies have followed the same capital requirements, designed to reduce the risk of insolvency. The regulatory requirements cover financial resources, risk assessments & management, supervision, reporting, governance & accountability and public disclosure.

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The three pillars of Solvency II

To protect consumers, insurance companies must adhere to solvency standards represented in three pillars:

Pillar I

What is Pillar I?

Insurers must demonstrate they have sufficient financial resources to meet all potential liabilities. A risk-responsive capital measure – the Solvency Capital Requirement (SCR) – is calculated to ensure that insurers have a 99.5% probability of fulfilling their obligations for the next year.

The SCR helps insurers plan how much capital they should hold, and whether or not they can afford to continue writing further business.

The challenge:

Data management is often the biggest challenge for insurance companies. For accurate SCR calculations and reporting, carefully managed data is essential. Advanced actuarial skills might be needed to calculate the SCR and it is a serious matter for insurers if they do not report correctly.

Additionally, many insurance companies may record this sensitive, ever-evolving data in spreadsheets or use similar labour-intensive processes. This process lacks the technology necessary to support the requirements of this pillar in an efficient way.

The VantagePoint solution:

VantagePoint provides you with a model that calculates your SCR: your data is used to automatically calculate the numbers. The SCR can be calculated using the EIOPA standard formula model, or we can help you develop an internal model, to provide supervisors with the requirements they need. This saves you time and protects against the risk of human error.

Pillar II

What is Pillar II?

This pillar requires insurers to take the Own Risk & Solvency Assessment (ORSA) into consideration. The ORSA is evidence of the processes and procedures insurance companies have in place to review short- and long-term risks. The aim is to determine whether the necessary funds are available for the organisation’s solvency needs.

This documentation must form a central part of your wider business strategy and combine your risk capital modelling capability with your operations. Not only does this documentation help you look forward and plan for the next 3-5 years, but it must take into account and plan for any reasonably probable future risks.

The evidence of this internal governance framework may be only a couple of pages long, running up to several hundred pages, depending on your organisation’s size.

The challenge:

There is no framework or guideline for the output of this document. This can make it challenging to structure or know how much detail to go into; the ORSA should not be overly complex. Regulators state that they want the insurance company’s board to take ownership of the ORSA process.

Many companies manage different versions of documents, disclosures, and other evidence. They might use a dedicated disclosure tool, but it’s likely the majority of the documentation is currently conducted through error-prone, manually updated, Microsoft Word files.

The VantagePoint solution:

To help you format your documentation, VantagePoint provides insurers with templates to comply with ORSA for Pillar II. Additionally, the documentation is produced automatically, with greater accuracy and speed than manual alternatives.

It’s never been easier to demonstrate management’s ability to assess, measure and manage the fundamental risks within your organisation.

Pillar III

What is Pillar III?

Quarterly and annually, insurance companies must provide their local regulator with a suite of reports. In the UK, this is The Bank of England, and they require proof that an insurance company is meeting their Solvency II obligations. This disclosure is necessary for supervisory purposes and to ensure complete transparency.

Reports such as the Solvency & Financial Condition Report (SFCR) and Quantitative Report Templates (QRTs) are required for submission, both for regulators and the public.

The challenge:

Solvency II requires a significant volume of reporting, such as: P&L, balance sheets, technical provisions, reinsurance contracts, and investments held. Collecting information about liabilities, cash and calculations can be logistically challenging.

An insurer’s existing solution is unlikely to be as advanced as the unified Solvency II solution that VantagePoint implements.

The VantagePoint solution:

Insurance companies are provided with a personalised model for all reporting needs. This will automate a Solvency II report periodically through the year for all key dates, and demonstrate clarity, compliance and robustness.

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Why VantagePoint?

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Working with a unified solution, VantagePoint covers all three pillars in one software, from capital modelling to reporting, instead of juggling multiple point solutions for each Solvency II pillar.

Modern unified solutions store data in a central location, offering the ability to produce dashboards and reports that benefit the wider business.

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VantagePoint can help you:

• Achieve an automated, integrated, end-to-end Solvency II process.
• Migrate to a fully supported and maintained solution.
• Automatically stay compliant with the regular updates made to the Solvency II regulations.

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VantagePoint eases the burden of this process, utilises automation and provides collaboration across multiple sources – from your investments, underwriting and claims teams, to finance, actuarial, reinsurance and IT departments. Save weeks of your team’s time and minimise costs to your business.

If you’d like to explore your Solvency II options, speak to one of our specialists today.

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