Reconciling inventories and Solvency II asset look-through
Create a harmonized and collaborative repository
Like its Basel cousin, Solvency II raises the regulatory bar and ushers in acute data management challenges. Managing and aggregating reference and transaction data, maintaining rigorous data quality and verifying data are a significant draw on resources in meeting calculation and reporting implementation requirements. It comes as no surprise that the Solvency II Directive requires insurers to satisfy strict data management standards, especially in terms of quality and completeness. The European Insurance and Occupational Pensions Authority (EIOPA) also published Guidelines on data quality for Solvency II implementation.
The real challenge for firms is to take a consistent approach to these challenges, to ensure consistency between data systems (integration, queries, governance and calculations) and between business lines and IT. When it comes to regulatory compliance, firms need an agile approach that keeps them on the right trajectory, without locking them into a tunnel effect in the search for perfection.
For insurance groups with a strong subsidiary structure and multiple entities that manage assets independently, just reconciling inventories under the look-through approach can quickly turn into a technical minefield. Data format may be piecemeal. Multiple sources (custodians/valuers) and different valuation methods make the reconciliation stage far more complicated than the look-through itself. The difficulty builds exponentially as the level of transparency rises (funds of funds of funds, for example).