Risk managers lack Pillar II confidence

Vicky Beckett 26/01/2012

In a Solvency II survey only 20% of firms had a high level of confidence in having a strong risk management framework for Pillar II.

Only 62% of respondents had ‘medium confidence’ in the validation of their company’s internal solvency II model and its use, post implementation.

Limited or low confidence was reported by 48% of respondents in their company’s board of senior management understanding the weakness or limitations of the internal model.

The risk management survey was carried out by Nile Blue, a business consultancy.

Andrew Bird, Nile Blue managing director and Solvency II and risk management consultant, said: “Overall, this suggests to us that Risk Managers are not confident that Pillar 2 requirements are sufficiently well considered.

“Many firms focus has centred around Pillar one and the internal model, however, as Tomas Steffen (former chairman of the committee of European insurance and occupational pensions Supervisors Chair) famously said ‘Solvency II isn't just about capital, is a change of behaviour’.

“This could mean significant rework is required - even though firms have entered the internal model approval process (IMAP) - it doesn't necessarily mean that IMAP approval will be granted.

“There will be a heavy focus on boards, executives and non-executives, to be able to 'walk the talk' in terms of risk management, and I’m not sure that many are really ready to do so. “

Bird said data management was also a big concern as 45% of respondents suggested only 'medium confidence' in being able to meet the data standards required, and a further 35% had low or limited confidence.

Not one respondent had 'high confidence'.

“For firms that have aged portfolios, or consolidated portfolios there could be significant issues in meeting the standards required,” said Bird.

Tags: Andrew bird, Nile Blue, Pillar II, Risk management, Solvency II

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