Solvency II

Solvency II regulations, which will have to be implemented in South Africa by 2014, will require organisations to establish risk management systems and controls, including integrated risk based capital models. All of this should be supported by efficient processes to result in a comprehensive and timely enterprise risk management framework.

In Europe, where implementation is due by end-2012, the cost of implementing Solvency II has come as a shock to company boards. Early in 2010 London-based Old Mutual indicated it would be allocating about £100m towards the implementation, which is not dissimilar to the cost expectation of many other insurers.

While most insurers in SA have preliminary Solvency II programmes in place, these are generally at a very early stage and significant additional effort will be required over the next couple of years. It is expected that a shortage of actuaries in SA may develop once insurers start working on implementation in earnest.

Through our EU partnership with Global Actuarial (a niche European consultancy) we are in a position to locally and cost effectively deliver global best practise Solvency II implementation for our clients in Africa in the following broad framework:

Defining an individually tailored "risk appetite": A key part of risk management is to give risk managers the ability to take on risk or to de-risk the organisation where suitable or required. We assist clients to clearly articulate their risk appetite, in order to build the key bridge between corporate strategy and the risk framework. This will include attention to stating and measuring risk boundaries, setting risk limits and considering the resultant key governance responsibilities.

Development of integrated risk capital models: Solvency II allows organisations the option of developing an internal model for calculating their Solvency Capital Requirement (SCR). We help our clients in the very important decision process between the various options and if an internal model is shown to be the optimal option we also assist them in the development thereof and the various reviews required for it to be Regulator approved (use test, statistical quality test, calibration, P&L attribution, documentation standards and the governance structure).

Establishing and embedding efficient processes: Efficient risk reporting processes are pivotal to the establishment and embedding of an enterprise risk management framework. Drawing on EU implementation experience we assist clients to tailor an approach that is suitably rigorous and appropriate for the specifics of the organisation.

Macro project design: It is important to structure the overall Solvency II implementation in a way that avoids some of the costly mistakes that have been made in the past. An example hereof would be to develop an internal model and then subsequently try to shape the risk framework around the model, as opposed to a parallel process with early and full involvement from the key executives. Our involvement at the design phase of the implementation project adds greatly to the efficiency thereof and helps to bring down total cost of implementation.