25 June 2012

Solvency II: Data Impacts on Asset Management - an EFAMA-KPMG Report

Solvency II – which overhauls the capital and risk management regulatory framework for European insurers – should not be viewed as an ‘insurance-only issue’ as data provided to insurers from third parties, including asset managers, will also be held to the same strict quality standards.

The report, commissioned by EFAMA to highlight the key impacts the Directive’s data management and delivery requirements will have on the asset management industry, draws on feedback from a working group of industry executives led by KPMG and Aviva Investors.

The report highlights the key challenges facing asset managers which include: data management, data delivery and look-through data.

Data management:

Under Solvency II, asset managers will need to be able to demonstrate that their data management processes are at least equivalent to their insurance clients’. The required level of granularity in data reporting is heavy, and the need to provide data for each asset on a security-by-security basis will present a major challenge for insurers, particularly where they hold large, diverse investment pools across multiple service providers.

Data delivery:

Asset managers will be required to supply insurers with complete data reports on a monthly basis. The trend, already visible in the market, is for Solvency II asset data to be requested for delivery by the third business day of each month. Meeting these tight timelines will have a considerable impact on the operating models of asset managers and their third party administrators, as the information currently available at this date may not meet the rigorous granularity and quality standards demanded under Solvency II.

Look-through data:

Insurers must be able to ‘look through’ fund of fund and other investment structures to identify the ultimate asset. This will require a dramatic increase in data exchanges between asset managers within a given asset hierarchy and will demand an increased level of disclosure between asset managers.

Peter De Proft, Director General of EFAMA, comments: “The implementation of the Solvency II Directive will open the way for a new relationship between insurers and asset managers. One of EFAMA’s primary goals is to put investors at the heart of its strategy and with insurance companies accounting for 42 per cent of total assets under management for institutional investors, asset managers can considerably boost their significance, attractiveness and credibility by working closely with insurance businesses on this Directive. As the buy-side players of the financial industry, we hope to strengthen long-term trust among our customers in the insurance business and encourage policymakers to support the development of long-term investment.”

Tom Brown, European Head of Investment Management at KPMG, comments: “While Solvency II has been a top priority for the insurance industry for the past few years, engagement between asset managers and insurers should gain momentum to ensure that asset managers get their data systems ready to meet the 1 January 2014 deadline”.

Daniel Gorton, Solvency II Systems and Data Lead at KPMG, adds: “The report makes it clear that detailed data requirements call for a higher level of interaction between asset managers and their insurance clients than has traditionally been the case. The absence of a common standard for data transmission between asset managers and insurers greatly increases the complexity of data governance, and the required changes to the asset managers’ model of data provision will require careful preparation.”

The report also discusses the regulatory process in place for the finalisation of the Solvency II Directive. Tom Brown concludes: “As the final Omnibus II details are decided over the coming months, which will provide the missing details of the Solvency II regulatory regime, the asset management industry has a last minute window of opportunity to engage with the regulators to voice key concerns. Together with EFAMA, we encourage the industry to get involved.”

Full report

© EFAMA - European Fund and Asset Management Association