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FSC GIMAP PAQC template

By George Bryant,2014-12-17 19:16
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FSC GIMAP PAQC template

    Solvency 2 Gibraltar Internal Model

    Approval Process (GIMAP)

    Pre-application qualifying criteria

    assessment template

Firm name

    Date of completion

    Firm contact details

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Contents

    1. Solvency 2 implementation plan ................................................................................................. 6 2. Plans to iteratively develop your internal model .......................................................................... 7 3. Documentation of the model....................................................................................................... 8 4 Completion of QIS5 .................................................................................................................. 10 5 Sign-off .................................................................................................................................... 11

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Introduction

    This document is intended solely and exclusively for use in our pre-application process, which forms part of our plans for the implementation of the Solvency 2 Directive (“The

    Directive”). The directive requirements on firms are expected to take effect from the end of 2012.

This document should be read in conjunction with „Final CEIOPS level 3 guidance on

    Solvency 2 - Pre-application process for internal models‟ (CEIOPS-DOC-76/10) issued in

    March 2010.

    CEIOPS have proposed that criteria for resource allocation be used to ensure that the resources of supervisory authorities are used as efficiently and effectively as possible. The

    pre-application qualifying criteria set out in this paper are based on and consistent with the Criteria for Resource Allocation introduced by CEIOPS in Level 3 guidance on Solvency 2:

    Pre-application process for internal models (CEIOPS-DOC-76/10).

    The overall requirement for firms starting the pre-application process is that they are making good progress towards implementation of Solvency 2. Firms will need to demonstrate their progress by providing evidence that they have:

    ; an approved Solvency 2 implementation plan;

    ; plans to iteratively develop the internal model;

    ; an index and summary of the draft documentation of the model; and

    ; completed QIS5.

    As a firm that has indicated it would like to start the pre-application, you are asked to complete this template. You should answer the questions based on your current preparation for starting the pre-application phase of the internal model approval process.

     1The template should be completed with respect to all financial undertakings that will be

    covered by the internal model and which the FSC will have to consider as part of the approval process. In the case of insurance groups where the FSC is not the EEA lead regulator this would include all UK financial undertakings that are planned to be captured within the scope of the group internal model or for which an individual solo application will be submitted.

    To avoid the need for excessive follow-up meetings, we have designed this document to be reasonably self-contained. We have no expectation as to the length of the completed document, but we expect firms to have given proper consideration to each question.

    We reserve the right to review documentation and other sources referred to in your answers.

Next steps

    Please send your signed and completed pre-application qualifying criteria assessment template (the assessment template) to your FSC contact person at least one month before

    your intended start date for the pre-application.

     1 A financial undertaking as defined in Article 13 (25) of the Directive includes insurance, or reinsurance undertakings, insurance holding companies, special purpose vehicle assuming risks from insurance or reinsurance undertakings, mixed financial holding companies, investment firms, and credit institution. For the purposes of this document the term financial undertaking should also be presumed to include mixed-activity insurance holding companies as defined in Article 212 (1)g of the Directive.

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    We will review the submission and notify firms of our decision within one month of receipt. If it is not possible to make a decision and notify the firm within the indicated timeframe, then we will write to the firm and give a precise date by which they will receive a response.

The decision will typically take one of the following three forms:

The firm may start pre-application on the scheduled date.

     The firm may start pre-application on the scheduled date, subject to completion of

     further work before that date.

     The firm may start pre-application at a later specified date than the original

     scheduled date, subject to re-submission and re-assessment of the pre-application

     qualifying criteria template after additional work has been completed.

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Reference material

     2In addition to the Directive, firms may also find the following documents useful, as they provide further detailed guidance relevant to the application for approval of an internal model.

Paper Issued Description

    Final CEIOPS Nov 09 Sets out the systems of governance to be maintained by all advice for level 2 firms, whether they have an approved internal model or not. The implementation paper also goes into detail about the various functions within the measures on insurer, such as the risk management function, the actuarial Solvency 2 function and the internal audit function.

    System of

    governance

    (CEIOPS-DOC-

    29/09)

    Final CEIOPS Nov 09 General provisions for the internal model approval process, advice for level 2 including some specificities related to partial internal models.

    implementation There are also details on how the approval process would work measures on for groups. It considers the same stages as the approval process

    Solvency 2 for solo entities, i.e. pre-application, application, assessment, The procedure to decision. This paper lists some further items that would be be followed for the required for a group model, especially with regard to the scope of approval of an the model.

    internal model

    including the

    addendum on

    group specificities

    (CEIOPS-DOC-

    28/09)

    Final CEIOPS Nov 09 Sets out the requirements for Articles 120 to 126, specifically the:

    advice for level 2 use test; statistical quality standards, including data; calibration;

    implementation profit and loss attribution; validation; documentation; and external

    measures on models and data. In addition, the paper also considers the Solvency 2 governance of internal models. These governance requirements

    Tests and supplement the general systems of governance considered in standards for what was CP33.

    Internal Model

    Approval

    (CEIOPS-DOC-

    48/09)

    Final CEIOPS Nov 09 Considers the supervisory reporting and public disclosure to be advice for level 2 taken into account for all firms. Of importance will be the sections implementation setting out what the specific requirements are for firms with measures on approved internal models to disclose publicly in the Solvency and Solvency 2 Financial Condition Report, and to report in the Report to Supervisory Supervisors

    reporting and

    disclosure

    (CEIOPS-DOC-

    50/09)

    Final CEIOPS Nov 09 Considers:

    advice for level 2 - definition of group for the purpose of assessing group solvency;

    implementation - third countries and group solvency;

    measures on - calculation methods; and

    Solvency 2 - eligible elements of own funds.

    Group solvency

     2 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:335:0001:0155:EN:PDF

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assessment

    (CEIOPS-DOC-

    52/09)

    Final CEIOPS Jan 10 Provides details on:

    advice for level 2 - the scope of partial internal models;

    implementation - specific provisions for the approval of partial internal models;,

    measures on - the concept of major business unit; and

    Solvency 2 - integration of the standard formula with the modelled Partial internal components.

    models Throughout the paper CEIOPS has taken account of the

    (CEIOPS-DOC-proportionality principle described in Article 29 of the level 1 Text.

    61/10)

Final CEIOPS level Mar 10 Considers:

    3 guidance on - guidance on the pre-application process;

    Solvency 2 - - legal background to pre/post implementation of Solvency 2

    Pre-application - criteria for resource allocation (CRA); and

    process for - review of information and the decision making process.

    internal models

    (CEIOPS-DOC-

    76/10)

    Please refer to http://www.ceiops.eu for more details on the above and other relevant papers.

    1. Solvency 2 implementation plan

The principal aims for requesting an implementation plan are to ensure that your firm:

    ; has considered the requirements of the directive and potential future implementing

    measures against your current practices;

    ; has considered and achieved sign off on the activity, timelines and resources

    required to deliver Solvency 2;

    ; is in a position to engage with us about your internal model; and

    ; can complete your internal model in line with the Solvency 2 timeframe.

1.1 What project documentation (e.g. project brief, project initiation document) exists for your

    Solvency 2 Project/Programme and who has provided internal sign-off on this?

1.2 Please provide us with details of your Solvency 2 project/programme, including activity

    that specifically relates to the design, build and implementation of your internal model

    as set out below:

    a) Your project plans (pdf copy of Gantt chart or equivalent) including your key

    milestones.

    b) Critical path analysis.

    c) Key deliverables, including dates for delivery.

    d) Key dependencies and assumptions.

    e) Key risks and issues to the plan and mitigating actions in place.

    f) Estimates of the resource requirements.

    g) Approved Solvency 2 budget by the Board.

    1.3 Please give details of any aspects where you believe further planning is required. Please advise why this planning has not yet taken place and when you expect to undertake this.

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1.4 Please provide us with the details of the governance around your Solvency 2

    project/programme, including activity that specifically relates to the design, build and implementation of your internal model as set out below:

    a) Your project/programme structure.

    b) Key committees and details of membership and roles and responsibilities.

    c) Steering groups and details of membership and roles and responsibilities.

    d) Other key project personnel.

    e) Levels of engagement and sign-off from senior management/the Board.

    f) Levels of engagement with the ultimate parent / EEA parent and other EEA insurance

    supervisors.

    This should include details of your decision making process and frequency of reporting against your plan and the level of monitoring/challenge.

    1.5 Please provide details of how your Solvency 2 programme, including activity that specifically relates to the design, build and implementation of your internal model is flexible enough to absorb and cope with change.

1.6 Please provide us with your contingency plans for calculation of the Solvency Capital

    Requirement (SCR) and possible capital planning implications if your internal model is not

    approved in full in accordance with Articles 101 and 112-127 of the directive.

    2. Plans to iteratively develop your internal model

    Firms will be expected to provide details of plans to iteratively develop their internal model.

2.1 Risk management and use test

Please provide details of how you will develop your system of governance, in particular your

    risk management system, to make sure that risks are adequately identified, measured,

    monitored, managed and reported and that the internal model will be widely used in your risk

    management and decision-making processes, including your economic and solvency capital

    assessment and allocation processes. (See Articles 112(5) and 120 of the Framework Directive.)

2.2 Data management

Please provide details of how you will develop your data management and data governance

    in order to demonstrate that data is complete, accurate and appropriate. (See Article 121(3).)

2.3 Model validation

    Please provide details of how you will develop your validation processes in order to monitor the performance of your internal model, ensure that weaknesses are identified, and that the

    performance of the internal model and the status of efforts to improve previously identified

    weaknesses are communicated to the board. (See Article 44(5) and Article 124.)

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    3. Documentation of the model

The documentation standards detailed in Article 125 are as important as the other standards

    that need to be met to use an internal model to calculate the SCR.

    To start pre-application, the level of documentation is not expected to be perfect or complete, but your firm will need to demonstrate that you have made good progress in

    documenting your model and that you are addressing the documentation standards detailed

    in Article 125 of the directive.

3.1 Index of internal model documentation

Please provide an index of all your internal model documentation addressing the

    documentation standards detailed in Article 125 of the directive.

3.2 Model scope and architecture

    Please provide a summary of your draft internal model documentation that sets out the following:

    a) The scope of the internal model, including the legal entities, risk modules and/or

    business lines covered.

    b) Details of the model platform(s) to be used, as well as the main data sources, data

    flows and data warehouses.

    c) The modelling approach/techniques used for each key risk module, i.e. stochastic

    model, univariate stresses, combined stress, replicating formula/portfolio.

    d) An explanation of the aggregation methodologies used to combine the outputs for

    specific risk modules and/or business lines, as well as the proposed method for the

    inclusion of legal entities in the determination of group solvency, where applicable, (i.e.

    accounting consolidation method or deduction/aggregation method).

    e) Drawbacks and weaknesses of the model, including circumstances under which the

    internal model does not work effectively.

3.3 Documentation process

Please provide a brief overview of your internal model documentation process, including

    the following:

    a) The approach adopted towards the development and maintenance of documentation.

    b) How often the documentation is or will be updated/reviewed.

    c) The individual or team responsible for updating the documentation.

    d) An explanation of the controls for the continued monitoring of documentation (e.g.

    change control).

    e) How all major changes (as detailed in Article 115 of the directive) to your internal

    model will be documented.

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3.4 Compliance with Article 120 to 124 of the directive

To the extent not already covered in 2.1-2.3, please provide a brief description of how your

    current level of documentation demonstrates compliance or otherwise with:

    a) Article 120 Use test

    b) Article 121 Statistical quality standards

    c) Article 122 Calibration standards

    d) Article 123 Profit and loss attribution

    e) Article 124 Validation standards

3.5 External providers

    To the extent not already covered in 2.1-2.3 or 3.2, Please provide a brief overview of the parts of your model provided by a third party including the following:

    a) The parts of the model which are provided by an external provider.

    b) The parts of the model built with the assistance of a third party.

    c) Clear identification and explanation of the involvement of all third parties.

    d) Any challenges you face in meeting the documentation standards of the directive as a

    result of the use of any external model or data providers.

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4 Completion of QIS5

    Answers to the following questions will be used to support judgement about whether your firm

    has completed the fifth Quantitative Impact Study (QIS5) to an adequate standard for pre-

    application.

4.1 Submission of QIS5 to the FSC

    Have you completed the QIS5 spreadsheet for all entities and lines of business in your group detailed in the response to 3.2(a) as well as for the group as a whole, where applicable, and

    submitted it to the FSC? If yes, then please go to 4.2, otherwise complete 4.1a and b:

    a) If you have completed the QIS5 spreadsheet but have not yet submitted it to the FSC,

    please submit a completed QIS5 spreadsheet with this application.

    b) If you have completed the QIS5 spreadsheet but not included all entities detailed in the

    response to 3.2(a), then please indicate which entities are not included and the reason for

    the exclusion of those entities.

4.2 Please indicate where you have had difficulties in completing QIS5 (including relevant

    references to the QIS5 spreadsheet tab/cell) and what these problems were.

4.3 For each of the areas where you used approximations or proxies when completing QIS5,

    but that may not be permissible to be applied as simplifications in Solvency 2 (see CEIOPS'

    Advice for L2 Implementing Measures on SII: Simplified methods and techniques to calculate

    technical provisions (DOC-72/10) and CEIOPS' Advice for L2 Implementing Measures on SII: Simplified calculations in the standard formula (DOC-73/10)), please provide the FSC with

    your plans for moving away from these approaches for major lines of business or major risk

    drivers.

    4.4 If you have updated the inputs to your QIS5 spreadsheet since you previously submitted it to the FSC, then please explain the impact of these changes (for instance have you used

    inputs for a more recent valuation date)?

    4.5 Please provide brief comments on the results of your QIS5 submission covering the following:

    a) The effect of Solvency 2 on the regulatory capital requirements and regulatory

    balance sheet of entities and lines of business in your group (detailed in response to

    3.2(a)) with the exception of those entities highlighted in 4.1(b), as well as for the

    group as a whole, where applicable.

    As at valuation date

    ?m Solvency I QIS5

    Capital Requirement

    Available capital

    Surplus

    b) Aspects of the standard formula that do not reflect your risk profile and the reasons

    why.

    c) How the results from the standard formula compare to those from your current

    internal model. (please provide estimates)

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