Insurance companies, asset managers and life and pension fund managers face several challenges maintaining compliance with solvency regulations. The standard formula for Solvency II figures is based on stress tests, but complex exceptions and correlation-based combinations create a myriad of algorithms. The complexity of the calculations also makes it difficult to understand contributors and attributors to the market risk and to the Solvency Capital Requirement (SCR), which in turn makes it difficult to analyze and reduce the capital requirements. On top of that, the Solvency II standard formula is occasionally calibrated by regulators, which can create risky operational changes to the calculations. Additionally, the Solvency II Pillar 2, regulation and the ORSA requirements contained therein require that you look forward and take the Solvency II Market Risk figures into account when making investment decisions.
Take control of Solvency Capital Requirements
Strategy Manager is the new and powerful middle office platform for calculation, analysis and reporting of Solvency II market risk figures. The solution is fully integrated into SimCorp Dimension, and uses the IBOR data as a foundation for pricing and calculations. This enables consistency of the stress tests used in regulatory reporting with those used by risk management and portfolio managers, ensuring your Solvency II governance compliance.
Solvency II Analytics
Balance solution between speed, flexibility and easy maintainability
Covering the Solvency II with easily maintainable forms, adaptable to changes and with a sound foundation in IBOR data and valuation
Ensure consistency and lower costs
The calculation definition changes as defined by regulators from time to time are addressed by dedicated Solvency II forms with user-configurable variable parts. To ensure consistency across business lines and reported figures, it is possible to reference ratings/credit quality, stress tests, duration and security categories within these forms that are centrally-defined and version-controlled to stay audit proof. This ensures regulatory and risk management consistency, decreases the operational effort and thereby lowers the cost and compliance risks.
Enhance options and transparency
The stress tests, spread durations and other risk analytics can be monitored individually. It becomes easier to analyze and potentially change the exposures to de-crease the capital requirement figures and make the Solvency II SCR building blocks a part of your daily exposure monitoring as defined by EIOPA in Pillar 2.
Introducing ‘what-if’ scenariosTo analyze Solvency II figures, it’s important to understand the risk exposures included in capital requirements calculations. Strategy Manager saves all relevant intermediate calculations of the Solvency II calculations. They can be monitored on screen, so you can understand the latest figures, and make historical comparisons and reviews.
The Solvency II Pillar 2, ORSA regulation also requires that you look forward and take the Solvency II figures into account when making investment decisions. The what-if functionality of the Strategy Manager solution enables forward-looking analysis to address this regulatory requirement. The what-if analysis makes it possible to analyze the consequences of future scenarios. Here are the three main areas it handles:
- What-if analysis of market changes
The Strategy Manager includes a market data stress test generator which covers the entire range of financial instruments modelled in SimCorp Dimension. The stress testing functionality is integrated in the SimCorp Dimension Asset Manager making it possible to monitor the stress test results used for Solvency II figures and analysis consistently in the front office and end of day reporting flow. The stress tests are configurable and are used not only as an embedded part of the Solvency II analytics, but also to define the future potential market scenarios in which Solvency II analytics can be calculated. The stress tests are defined as changes or estimated values of yield curve tenors, spread curve tenors, implied spreads, security prices, currency rates, volatility tenors, CDS spreads and there are embedded solutions for instruments where the user wishes to use external pricing input.
- What-if simulations of position or asset allocation changes
The what-if definition allows for simulations of the asset allocation, such as an increase or decrease of existing positions and asset reallocation per instrument type. The what-if holding change scenarios can be applied to the Solvency II calculation process and you are able to assess the consequences on the capital requirements with the same analysis transparency as with the reported current figures. In combination with market data stress tests, this provides a powerful simulation solution to support the investment strategy assessments.
- What-if simulations of regulatory calculation changes
It’s possible to define multiple sets of Solvency II analytics so you can make changes to the calculations and compare your own client-specific calculations and analytics with the current standard algorithms as defined by the authority. This makes it possible to foresee the effect on the capital requirement figures of announced or anticipated changes to the parameters of the Solvency II standard formula. The result is less operational impact after changes in regulation. You can also analyze alternatives to the Solvency II calculation. For example, you can use actual full pricing stress tests instead of a spread duration approach for the Solvency II spread risk calculations.
The strengths of the Solvency II solutionThe Solvency II solution is a flexible user-configurable solution backed by a powerful platform. It allows you to combine the following elements to make strategic investment decisions and maintain compliance with Solvency II regulation.
- Controlled configuration of the complex Solvency II analytics
- Transparency into intermediate calculations of the analysis
- What-if impacts of investment changes, market changes and regulatory calculation changes
|Horizon projection||Assessment of the overall solvency needs|
|Asset allocation simulations||Continuous compliance with solvency capital requirements|
|Market data stress tests||Analysis of user-specific deviations compared with the Solvency II
standard assumptions (Article 45 of the Solvency II directive 2009/138/EC)
The Strategy Manager provides us with improved clarity and transparency when managing the multitude of com¬plex Solvency II calculations. The simulation functionality in Strategy Manager saves us a lot of time in our strategic asset allocation work. It enables us to calculate Solvency II figures right away for hypothetical portfolios.Roman Wanek, Expert Financial Risk Management, UNIQA