Netik, a global financial information management provider, has released a whitepaper exploring Solvency II governance, investment and data implementation issues. The whitepaper, in association with Paradigm Risk, a multi-disciplinary risk strategy and governance consulting firm, finds that data coverage and quality is central to Solvency II initiatives.
The whitepaper focuses on the area in which Solvency II will have the greatest management impact: what the changes will mean for firms’ management of the asset side of their balance sheets and the data they will need to support their investment activities.
The whitepaper makes apparent that Solvency II establishes the need for the firm to create an ‘analytic core’ – a clear and demonstrable linkage between its data, modelling and capital requirements. Regulation will require insurance firms to enforce minimum capital standards, governance and risk management routines, but firms also face the commercial imperative of linking the business decision-making to the economic capital position of the firm. This places data coverage and quality front and centre in the firm’s Solvency II initiatives and at the heart of its ongoing governance.
John Mason, chief operating officer (COO), Netik, said: “Firms need to ensure and show that they can follow markets closely and for many that will mean greatly increased market risk infrastructures. Choosing the right data warehouse and aggregation engine will be one of the most critical choices during the Solvency II implementation.”
Additional analysis includes the implications of the challenges that have been posed to value-at-risk (VaR) in recent years and more significantly the risks of those not reflected in normal VaR distributions, including ‘fat-tail’ risks and sudden and unexpected changes to risk correlations under stressed conditions.
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