16 August 2012

PropertyCasualty360: Building on legacy systems essential for impending Solvency II challenge

While American insurers may take a blasé attitude about the upcoming Solvency II standards, for large multi-national insurers with operations in Europe and North America, the deadline looms and the time for implementation is growing shorter.

Meeting the Solvency II standards requires an industrialised methodology to regulatory reporting and accountancy. Without scalable IT infrastructure in place, insurers will find the redesigned regulatory landscape unmanageable.

While most insurers have developed relatively progressive risk and capital analyses, companies continue to grapple with storing exponentially heightened volumes of granular data. This challenge is only further exacerbated by the fragmentation of records across disparate reporting systems and accounting processes.

Multinational clients have vocalised the pressures associated with Solvency II data quality and reporting frequency. European insurance groups preparing for reassessment of their third-country operations are at particular risk for breaching the regulatory deadline.

As defined by the Solvency II framework, international companies must reconcile the reporting gaps between global outfits, while balancing international standards. The need to submit comprehensive balance sheet analyses within two to three weeks post quarter-end results requires a central alignment of risk assumptions and governance among Solvency II-based entities and non-EEA subsidiaries.

Consequently, insurers must adjust for variations among conflicting interest rates, reinsurance strategies, and currencies and time differences of multiple subsidiaries before the new regulatory deadline. The need to collect, translate, aggregate and store such detailed data has left many searching for a specialised engine of compliance—a scalable, enterprise-wide data warehouse system.

Initially, many insurers considered adopting a best-of-breed approach to cope with the exhaustive Solvency II data requirements. This process of complete system overhaul and re-engineering can greatly diminish the burden of implementing siloed solutions at an ad-hoc basis. However, the effort and budget needed to create, test and fully integrate a novel operating system into a current business landscape is immense. Insurers must delegate time wisely, as Solvency II enforcement is imminent.

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