EFAMA KPMG Solvency II Report

10 | SOLVENCY II REPORT
2 Executive Summary
Asset allocation – The capital charges set out in the Solvency II Directive rely on
accurate and granular data, and in some cases are increased if the data are not
provided. For example, a fully defined equity attracts 39% capital charge but that
charge can potentially increase significantly if the equity is not fully defi ned.
Insurers may decide that certain assets should not be held if the data are impractical
to assemble.
Asset valuation – Solvency II imposes market based valuation of assets and
liabilities as well as the capital requirements. However, the interplay between
Solvency II and local Generally Accepted Accounting Principles (GAAP) rules may
lead to conflicting views on the measurement of risk and return. Differences with
accounting rules may also lead to conflicting key performance indicators (KPIs),
making optimal asset allocation less straightforward, as certain trade-offs will need
to be made. The International Financial Reporting Standards (IFRS) 4 Phase 2 will
go some way to increase convergence between the Solvency II framework and
accounting standards since it is generally expected to be more market-consistent,
although much is still to be decided.
Conclusion
Although Solvency II programmes have been running in insurers for the past two
years, and in many cases have begun migration into business as usual, engagement
between asset managers and insurers has been relatively slow and therefore asset
managers are typically not well-progressed.
The lack of certainty around key issues such as the finalisation of the QRT content
and the degree of look-through that will be required and achievable continues to add
further complexity to the Solvency II challenge.
The detailed data requirements, together with the very short data delivery timescales,
will require much greater interaction between asset managers and their insurance
clients than is usually evident. Accordingly, relationships between asset managers
and insurers will need to be significantly strengthened to meet this challenge and
ensure that the asset manager does not jeopardise an insurer’s ability to comply
with Solvency II.
Solvency II is only one of a ‘perfect storm’ of regulations impacting, directly or
indirectly, the asset management community and many of these regulations have a
number of shared data requirements. Organisations that can take an holistic view of
the regulatory landscape and convert that view into integrated and fl exible solutions
will be best placed to service their clients.
© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International
Cooperative, a Swiss entity. All rights reserved.