With work underway to ensure readiness for Solvency II when it comes into force in 2014, many companies are still struggling with IMAP – the internal model approval process; data and modelling validation being of particular concern to the FSA as highlighted in their February 2011 review.
Companies looking for knowledgeable and competent partners will come to us. Whether it is data strategy, data validation, or the application and development of solutions and documentation, DataConsulting has a proven track record of helping businesses achieve in this space. Assistance in validating and testing your internal models will be of interest to some. Where the models exist as spreadsheets we can document the myriad of inputs, processes and outputs that exist within its many workbooks and worksheets.
In the FSA’s thematic review published in February 2011, the FSA stated that:
“Data management appeared to be one area where firms still have comparatively more to do to achieve the likely Solvency II requirements. Also, firms interviewed did not have a documented validation policy that clearly explained all the processes used to validate their internal model. We will be looking at these areas in more detail at a firm-by-firm level during the pre-application phase of IMAP.”
And in highlighting where Insurers require additional work, the FSA said of Data Management:
“Data framework: Better prepared firms had started to support their data framework by a comprehensive data policy covering data quality and data updates, approved by senior management.”
“Data warehouse: Many firms had invested in or are planning to invest in a centralised ‘data warehouse’ as a way of addressing the various data-management requirements of Solvency II. However, data warehouses are not a solution to the problem of combining data from disparate source systems, unless the data can be used in the destination systems in a meaningful way.”
“Data dictionary: Firms had started to create data dictionaries, which was seen as a good approach to understanding and classifying data. However, few firms could evidence the effectiveness of existing procedures to ensure the timely maintenance and consistent use of the data dictionary across the firm.”
“Data quality: Few firms provided sufficient evidence to show that data used in their internal model was accurate, complete and appropriate.”
“IT systems: In many firms, spreadsheets provide a key area of risk because they are typically not owned by IT, but by other business or control areas. They may not therefore be subject to the same IT general controls as firms’ formal IT systems (i.e. change controls, disaster recovery planning, security etc).”
When it came to validation there were additional criticisms:
“Schematic: Validation covers many areas of an internal model. We found it useful when firms showed us a schematic showing all the inputs (such as data, assumptions and methods) and outputs (quantitative and qualitative) from their internal model and then overlaid where validation took place.”
“Criteria: Few firms had set out criteria to validate whether or not the data/methods/assumptions/outputs are reasonable. It was usually left for the reviewer to exercise their own judgement. This is seen as poor practice.”
“Validation policy: Few firms had a stated validation policy. As a result most validation appears ad hoc and disparate.”
So if you need help or advice with any aspects of your Solvency II; data or model preparedness, then drop us a line.