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State Street Corporation (NYSE: STT), one of the world's leading providers of financial services to institutional investors, today announced the launch of a Solvency II solution designed to help insurers tackle the data and reporting challenges imposed by this regulation. The product, called Data Cube, provides insurers with the underlying investment data needed for their solvency calculations and regulatory reporting.
The announcement comes as State Street publishes a new Vision Report entitled ‘Solvency II: Tackling the Asset Data Challenge.’ While the Solvency II directive is principles based, meaning regulators demand high-level outcomes and leave firms flexibility in achieving them, the requirements regarding data governance, reporting and transparency are detailed and wide-ranging. This paper warns that the data challenge insurers now face under Solvency II, along with the high-cost impact and the risk and capital management rigour, are of a complexity never before required by regulators.
The State Street Solvency II Data Cube provides attribute-level data including issuer tree, credit ratings, securities lending and collateral for holdings and securities in an insurer’s portfolio. Designed using standardized data, the Data Cube provides the level of information required, in respect of assets, for the solvency calculation and reporting requirements as outlined by Solvency II.
State Street has developed a comprehensive toolset to manage the data and to ensure that data quality standards are continuously achieved. The toolset will be run on a continuous basis to validate the completeness and accuracy of the data and highlight where remedial action is needed. State Street will systematically import and aggregate the required asset data from internal systems and external vendor sources prior to automated delivery through a data governance framework that has been developed to oversee and proof the asset data for increased transparency and data quality reporting. The resulting reports can be delivered via the my.statestreet.com platform.
David Howie, State Street head of client management for insurance companies and banks in the UK said, “Although compliance with Solvency II will demand considerable rigour, insurers are advantaged by establishing the required robust systems and processes. While Solvency II introduces potentially higher capital charges on certain assets, it also impresses on insurers a disciplined approach to optimising their use of capital. For example, where an insurance company chooses to employ an internal model that operates a single underwriting platform for all its group activities, it can achieve a capital saving of up to 30 percent compared with firms that prefer to operate through several subsidiaries. The use of a consolidated model enables a potential automatic diversification of risk and a consolidated capital requirement. These benefits are likely to encourage insurers to implement a consistent approach across domiciles.”
Mark Westwell, State Street regional client management executive for EMEA added, “Initial estimates put the cost of Solvency II to the European insurance sector in the range of €2-3 billion over a period of five years; some larger insurance firms are thought to be earmarking sums in excess of €100 million for their Solvency II projects. The principal reason for this estimate of the costs is that insurance firms may need to upgrade or replace legacy systems to support the production and on-going maintenance of the types and level of data. They may also need to invest in employees and expertise in order to reorganize their businesses for a Solvency II environment. Overall, insurance businesses and their service providers face a profound data challenge.
“Our report highlights that many insurers lack the processes and systems needed to produce and maintain the degree of information required and therefore need to consider outsourcing the collection and governance of asset data, as it’s an area that has not traditionally been their focus. The careful evaluation and selection of the right partners are priorities for insurers as they begin to make their final preparations for the directive,” continued Westwell.
For a copy of State Street Vision Paper entitled “Solvency II: Tackling the Asset Data Challenge”, visit www.statestreet.com/vision