Solvency II: Not Simply Data Disclosure

Solvency II is one of the most significant regulatory changes ever to be implemented throughout the European insurance industry. The purpose of this complex regulation is not merely to go through the motions of governing and disclosing solvency-related data, but to encompass micro- and macro-levels of insight. With Solvency II, insurers can better understand their own risks and regulators can better understand the risks of the market as a whole.

However, the quality of these insights are only as good as the quality of the data, as has been emphasized by multiple regulatory bodies in the past month. The Prudential Regulation Authority (PRA) highlighted this fact at the Solvency II Asset Data Industry Update on 2 July 2015: ‘[The] quality of data is very important. ‘EIOPA also emphasized this point a few days previous in their Final Report issued on 30 June 2015:

‘The process of validating data is as important as the data itself.’

The process of validating Solvency II-level data requires multiple steps to ensure the data is complete and accurate. But many insurers are finding that relying on manual processes to fulfill these two objectives monopolizes resources and promotes human-caused errors.

The Pitfalls of Manual Data Entry and Reconciliation

Most solutions—whether in-house, installed, or outsourced—are still based on the manual entry of cash, position, and transaction data from custody banks into spreadsheets or investment accounting systems. Manual data entry is prone to human input errors, which can easily propagate downstream into financial statements and reports.

In addition, most insurers only process data monthly, and often skip the critical task of data validation. Because up-to-date data isn’t in the system, by the middle of the month it’s impossible to get a truly accurate portfolio status. Allowing your data to pile up throughout the month means you have to process it all at once, which increases the chances for data entry errors. This might have been manageable in the past, but the detailed data requirements of Solvency II make it an unsustainable and risky approach.

The Hazards of Incomplete Security Master Data

To seamlessly and accurately meet the challenges of Solvency II, insurers should employ an automated data validation process that provides complete and accurate data while allowing existing resources to be applied elsewhere.

For Solvency II, the data validation process starts with the aggregation of complete security master and accounting data. Insurers typically rely on independent data sources to enrich the data they receive. Yet using only one or two data sources severely limits your ability to generate complete and accurate security master data.

Relying on a limited number of independent data providers means inaccurate or incomplete data can end up not only in your security master file, but in your Solvency II reports, investment book of record, and financial statements as well.

Get Comprehensive, Accurate Data with Clearwater

Clearwater’s data validation and reconciliation solution ensures your data includes everything you need for core accounting and reporting tasks.

Clearwater automatically aggregates your investment data, transforming a traditionally manual and cumbersome process into one that is effortless. Each day, Clearwater performs an initial arithmetic check on custody data. Using data characteristics from third-party data sources, Clearwater then independently reconstructs the portfolio composition and reconciles cash, position, and transaction information back to the custody bank. Fully reconciled, accurate data is at your fingertips each and every day. Errors are reduced and your investment accounting teams are freed up to work on other vital tasks.

If you are looking to improve your Solvency II process by gaining access to accurate and validated data in the templates you need, when you need it, then you should schedule a demo with Clearwater or contact us.