The world of risk management for insurers is about to get riskier. It is not just the current uncertain economic climate that will make managing the investments of European insurance firms more difficult. New European legislation, known as Solvency II, comes into effect in under a year’s time, which will place a strict regulatory framework over the investments and capital holdings of insurance firms. Insurers failing to meet specified capital holdings, or whose investments are deemed at risk, will face the threat of a sliding scale of involvement in their affairs from regulators. Today SunGard APT, the risk management division of SunGard’s multinational software business, announced that it can help insurers manage the risks posed by Solvency II.

SunGard APT claims that it has never been more important for insurers to be able to carry out robust risk management analysis and to transparently report their findings. Its bespoke Solvency II solution for European insurers can help them meet the demands of the forthcoming regulatory framework and manage their investment risks more effectively.

Under the regulatory framework of the Solvency II Directive there will be two ways for insurers to prove they are meeting the capital investment requirements. The first is to use a standard formula, devised by the regulator, to calculate their capital holdings. Most firms, however, will prefer to avoid this restrictive approach and opt for the second which is to have their own calculation model approved by the regulator. SunGard APT’s Solvency II solution can help firms to manage, analyse and report transparently on their investments which will give them greater capital flexibility and a competitive advantage over insurers who are using the standard model.

The SunGard Apt Solvency II solution gives insurers a consistent modelling approach across asset management and economic capital calculation. It allows firms to integrate front office risk management and regulatory economic capital calculation.

The software also offers:

• The ability to simply access enterprise-wide insight through a risk dashboard.

• Truly robust risk data that will account for phenomena such as fat-tails.

• Economic scenario generation capabilities that can be used for assessing insurance liabilities, such as actuarial Dynamic Financial Analysis (DFA) models.

• ‘What-if’ analysis for the assignment of capital to different managers, asset classes or entities.

In addition to its risk management analysis and capital calculation capabilities the software has also been developed to meet the demands of specific aspects of the forthcoming legislation. It provides a proof of the ‘use test’ which is needed to gain approval for using an internal model. It also allows the calculation of risk from security level data rather than index proxies which is necessary for passing the internal model approval process.

Via EPR Network
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