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(2) (6)
references are included below. Additional notes on completion of the relevant columns are included at the foot of (1) Do What further (3) (5) When do you (7) (9) (10)
you understand work/help is Do you (4) Action envisage you Who will be (8) Level of Current status
this document. the requirement required to reach currently meet Where are you required to will be able to responsible for Estimated time resource on
sufficiently at an this short on this address any meet this actions on this required to needed to requirement R
this stage understanding requirement requirement shortfall/ gap requirement requirement address gap address gap / A /G
Governance Section
General governance requirements (pages 5-6)
Existing
l Governance standards
Risk management standards (risk governance) - structure for governance that supports risk management by providing clearly defined
l
accountabilities, expectations and reporting requirements for all parties
l Operational processes minimum standards:
¢ key business and operational processes must be properly documented
¢ directors and staff should understand all the operational and business processes relevant to their role
l Risk management standards - effective risk policy, subject to regular review
NEW
l Regular internal review of the system of governance
l Written policies for:
¢ internal control
¢ internal audit
¢ outsourcing
l Policies for risk management, internal control, internal audit and outsourcing reviewed at least annually
l Processes for the identification and management of emerging risk issues
l Governance standards
New
l N/A (no significant changes to Lloyd’s requirements and processes anticipated at this stage)
¢
consideration should be given to all risks that the business faces, including those that fall outside the SCR calculation (this applies whether
the standard formula or an internal model is used)
¢ the ORSA should form an integral part of the business strategy and be taken into account on an ongoing basis in strategic decisions
l Set out the methods used to determine overall solvency needs, including:
¢ assessment at different confidence levels eg as required for SCR, economic capital
¢ longer term considerations – ie assessment beyond the 12 month time horizon used for regulatory capital
l Be updated annually as a minimum:
¢ agents will also need to revisit the ORSA in line with their own needs/material changes in the business
¢ frequency of reassessment will be key in demonstrating use
¢ agents will be required to inform Lloyd’s of the results of any reassessment of the ORSA
Existing
l Operational processes minimum standards - outsourced activities should be properly monitored and controlled
New
l Where functions are outsourced, agents will remain fully responsible for discharging all of their duties under the draft Directive
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page (2) (6)
references are included below. Additional notes on completion of the relevant columns are included at the foot of (1) Do What further (3) (5) When do you (7) (9) (10)
you understand work/help is Do you (4) Action envisage you Who will be (8) Level of Current status
this document. the requirement required to reach currently meet Where are you required to will be able to responsible for Estimated time resource on
sufficiently at an this short on this address any meet this actions on this required to needed to requirement R
this stage understanding requirement requirement shortfall/ gap requirement requirement address gap address gap / A /G
Technical Section
Supervisory Reporting & Public Disclosure (pages 17-18)
Existing
l Requirement to submit information to Lloyd’s for annual regulatory return to the FSA
l Provide syndicate annual reports to Lloyd’s and the FSA
l Report financial and solvency position to Lloyd’s on a quarterly basis
New
l Final requirements will not be clarified until Level 2 but it is envisaged that a new set of regulatory reporting forms will be developed
¢
the requirement for an amended ICA where the risk profile of the syndicate has changed materially or a new SBF is submitted during the year
New
l Demonstrate use of the model in the business
l Process for review of the internal model
l Board and senior management understanding and constructive challenge
l Consider the impact on the SCR where the model is re-run to reflect changes in the business
l Changes to the risk management framework, including the modelling process:
¢ formal approval by Board/senior management
¢ appropriate adjustments to be made when the risk profile changes
l Clear link and consistency between the capital element of the internal model and other elements
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page (2) (6)
references are included below. Additional notes on completion of the relevant columns are included at the foot of (1) Do What further (3) (5) When do you (7) (9) (10)
you understand work/help is Do you (4) Action envisage you Who will be (8) Level of Current status
this document. the requirement required to reach currently meet Where are you required to will be able to responsible for Estimated time resource on
sufficiently at an this short on this address any meet this actions on this required to needed to requirement R
this stage understanding requirement requirement shortfall/ gap requirement requirement address gap address gap / A /G
l
The model should allow output into constituent risk groups and be capable of showing the result by risk group both pre and post diversification
l The drivers of risk in each risk group should be identified and described
l The model should allow sensitivity testing of the main parameters as requested
l Prescribed sensitivity tests are required as part of ICA pro-forma
New
l Model should be flexible enough to allow for outputs other than the 1:200 level result
l Output must address Solvency II risk categorisations for comparison with standard formula SCR
l
Sufficient data over and above a syndicate’s own data should be considered and additional stress tests performed on uncertain assumptions
l
Board should have overall responsibility for validation - management information on validation should be presented to the board and challenged
by it
l Validation of the model should be carried out at least annually (appropriate frequency should be assessed by materiality)
l
Goodness of fit of probability distributions should be tested where statistical techniques are used, including both the choice of distribution and the
parameters
l Actual vs expected analysis should be part of the validation process (expected to be at a class of business level)
l Validation should consider not only emerging claims experience but ‘all new data’ including:
¢ non-claims experience that could affect the profit and capital position
¢ new external quantitative information
¢ qualitative information, both internal and external
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page (2) (6)
references are included below. Additional notes on completion of the relevant columns are included at the foot of (1) Do What further (3) (5) When do you (7) (9) (10)
you understand work/help is Do you (4) Action envisage you Who will be (8) Level of Current status
this document. the requirement required to reach currently meet Where are you required to will be able to responsible for Estimated time resource on
sufficiently at an this short on this address any meet this actions on this required to needed to requirement R
this stage understanding requirement requirement shortfall/ gap requirement requirement address gap address gap / A /G
l Validation should check that all risks in the risk register are modelled and if not modelled there should be written justification
l
Assessment of accuracy, completeness and appropriateness of data should form part of the validation process. Data quality and model sensitivity
should drive design of calibration
l Documentation should be adequate enough to allow independent verification of the validation process
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page (2) (6)
references are included below. Additional notes on completion of the relevant columns are included at the foot of (1) Do What further (3) (5) When do you (7) (9) (10)
you understand work/help is Do you (4) Action envisage you Who will be (8) Level of Current status
this document. the requirement required to reach currently meet Where are you required to will be able to responsible for Estimated time resource on
sufficiently at an this short on this address any meet this actions on this required to needed to requirement R
this stage understanding requirement requirement shortfall/ gap requirement requirement address gap address gap / A /G
l
Why the methodology chosen is appropriate to the syndicate’s business, taking account of its risk profile, risk appetite, track record with respect
to risk experience and exposure and the key principles upon which the ICA is based
l The approach adopted towards the quantification of risk and the rationale for this approach
l The stress and scenario tests used and why they are appropriate for the business
l The sensitivity of key assumptions
l The overall ICA figure split by major risk category, before and after diversification
l The allocation of capital across risk groups and the rationale and method used to derive the figures for each
l All Lloyd’s minimum ICA standards must be addressed
New
l Cover the operational details of the internal model as well as the design
l Address articles 118-122 and 124
l Be detailed and complete enough to allow a skilled and knowledgeable professional to replicate the model
l Detail the theory underlying the internal model and be relevant to complexity of model
l Highlight any areas where model is deemed not to perform effectively (model weaknesses) and detail how these are addressed
l Outline the policy for changing the model
l
All changes should be documented on an ongoing basis (model to be revisited regularly and updated as necessary in line with risk profile of
business)
l
External loss databases, such as ORIC (operational risk consortium) for operational risk, to supplement own data when assessing 1:200 losses
New
l Any reliance on external supplier to be documented together with role of product(s) and extent to which they are used
l Able to demonstrate thorough understanding of use and limitations of any vendor software/products used
l
Document process undertaken to ensure external data/model chosen is appropriate to risk profile and should include sufficient sensitivity and
scenario testing to validate use
l Clear strategy for regular review of any external models/data sources used
Notes
1 Agents should detail whether they currently feel they have a sufficient understanding of the requirement and what it is trying to achieve, bearing in mind that further guidance and detail will be provided going forward as the Level 2 implementing measures are developed. Agents should
also consider the extent to which the understanding of the requirement is shared across the organisation.
2 Details should be provided as to what additional work the agent feels needs to be completed by them in order for the appropriate people at the agency to reach an adequate level of understanding of the requirement. Agents should also include here anything that Lloyd’s could do or
provide to assist in reaching this understanding.
3 Agents should state whether they currently meet both the new and existing requirements.
4 Where the agent has identified a shortfall in meeting any of the expected requirements, they should provide detail as to where the gap arises.
5 For each identified gap, detail should be provided as to what actions are planned in order for the agent to address this gap and meet the requirement as it is currently envisaged.
6 For those requirements not currently met, agents should state the approximate date by which they expect to become compliant (in particular whether they expect to have addressed any gaps in time for the dry running process).
7 Agents should state the name and job title of those individuals responsible for completing each specific action identified.
8 An indication of the time required to address this gap (e.g. in person months) should be provided.
9 Agents should estimate here the amount and level of resource necessary to become compliant with the requirements where these are not currently met. In particular, agents should highlight areas where they expect that additional resource will be required and what form this additional
resource will take.
10 Agents should select a status of red, amber or green to reflect the size and nature of the gap identified, and the level of risk associated with not complying with the requirement by the time of Solvency II implementation.