Solvency II: Optimizing your Required Funding
The Solvency II directive requires sufficient funding of all material risks, based on professional, companywide embedded risk management. The directive has two main goals:
- Transparent, standardized external reporting, creating a level playing field for the insurance and reinsurance market in Europe
- Given all material risks, insurers are held accountable that they secure with sufficient funds all risks and liabilities
A process-based risk approach is the best foundation to manage market, credit, liquidity, insurance and operational risks. Implementing such a Solvency program is an especially extensive and complex project for multisite insurance companies. It is imperative that insurers develop a qualitative and quantitative process-based risk management approach, implement a single standard risk taxonomy and integrate such a program with their quantitative expertise systems.
Risk management framework
Pillar 2 of Solvency II prescribes that the risk handling of all material risks be embedded in the organization on a daily basis. Pillar 2 also includes procedures on how the board and management are held accountable by the supervisor; the regular and non-regular Own Risk and Solvency Assessment (ORSA). Each organization is unique in structure, processes, procedures and authorizations and therefore has unique risks. This will result in a tailor made risk-control framework per insurer, changes in relevant organizational aspects and a risk-based awareness of the employees.
Identify risks, realize transparency, and get in control
Based on best practices and standard capabilities, BWise has developed an approach for embedding this required risk management, enhancing managerial control significantly. BWise also supports monitoring both six-step ORSA processes. The system assists managers and employees to identify risks, realize transparency, monitor risks and embed risk management into the organization. As a result, insurers more accurately understand their operation resulting in decreased risks, less losses and incidents and ultimately reduce required funding.
In addition to cost savings, using the BWise solution enables insurers to identify potential business process improvements and create in-depth reports for management. Insurance companies can use the BWise® GRC platform for the operational risk management of Pillar 2 and for its required compliance and audit functions. BWise has many years of experience in implementing internal control and risk management systems for insurance companies.