collection of asset data under solvency ii
TRANSCRIPT
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Asset Data
Collection &
Solvency II 13/14 September 2012
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Agenda
Introduction – Linda Zuberi
The background – Stuart Simpson
The details – Debbie Sallas
Table discussions
Wrap up
2
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How involved are you in the collation of
asset information sent in to Lloyd’s?
A. I was not aware that our syndicate
asset data is submitted to Lloyd’s
B. I know that data is submitted but I
am not involved
C. I am partially involved in the
process
D. I do it all
3
13 September Results:
14 September Results:
0%
A
9%
B
66%
C
25%
D
0%
A
10%
B
69%
C
21%
D
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4
What is the extent of your understanding of the
requirements of the Quarterly Asset Data (QAD)
return required in 2013?
A. What’s a QAD return?
B. I have a broad understanding but do
not know the specifics
C. I have a detailed understanding.
13 September Results:
14 September Results:
2%
A
68%
B
30%
C
5%
A
71%
B
24%
C
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The background
Stuart Simpson, Treasurer
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© Lloyd’s 6
Investment assets at Lloyd’s have
continued to grow in recent years…
0
5
10
15
20
25
30
35
40
45
50
55
2006 2007 2008 2009 2010 2011
Premium Trust Funds Funds at Lloyd's Central assets
Source: Lloyd’s pro forma financial statements
£bn
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© Lloyd’s 7
…although investment dispositions have
changed little and remain conservative
0
5
10
15
20
25
30
35
40
45
50
55
Chain of Security By Asset Class
PTF
FAL
Central Assets
LOCs
Cash
Corp
Bonds (Investment
Grade)
•Includes government agencies and supranationals
** Includes hedge funds, alternative and other assets
Source: Lloyd’s Treasury & Investment Management, as at 31 December 2011
£bn
Government
Bonds*
Equities
Hedge
Funds** Corporate
Bonds
(sub-
investment
grade)
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© Lloyd’s 8
We have been asking you for a lot of data
about your asset dispositions…
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
QMA
Standard
Formula QIS5
LIM Asset
Data
LIM Asset
Data
LIM Asset
Data
QMA QMA QMA
QMA QMA QMA QMA
Recent syndicate asset data collections
Counterparty
Exposure (Ad-hoc)
Today
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© Lloyd’s 9
…as we make the transition to a more
stable process under Solvency II …
Expected future collections
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
QAD QAD
QAD
“Dry Run” QAD QAD QAD
QMA QMA
QMA QMA
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© Lloyd’s 10
…although we will still need detailed
information to meet SII requirements…
Syndicate QAD asset returns are designed to meet all future asset data
requirements:
Pillar 1
- Data required by the Lloyd’s Internal Model (LIM)
- Data to support standard model calculations
Pillar II
- Analysis for review by the Lloyd’s Financial Risk Committee (FRC)
Pillar III
- EIOPA defined regulatory reporting to the FSA (PRA/FCA)
Ad hoc analysis and reporting to all stakeholders
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© Lloyd’s 11
…even though we will minimise the data we
need from you by collating it ourselves
Lloyd’s
Asset
Database
(LAD)
Synd A
Synd B
Synd C
Synd…
Member A
Member B
Member C
Member…
Central
assets
Pillar I
(LIM)
Pillar II
(FRC)
Pillar III
(FSA)
Ad hoc
analysis
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© Lloyd’s 12
Previously, we could describe Lloyd’s asset
dispositions at a high level…
AAA
32%A
28%
AA
31%
Below A
9%
LLOYD'S MARKET INVESTED ASSETS
Cash & LOCs
27% Alternate
assets
2%
Equities
3%
Government *
33%
Corporate
bonds
35%
CORPORATE BONDS
Note: * Includes supranationals and Government agencies
Source: Lloyd’s pro forma financial statements, 31 December 2011
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© Lloyd’s 13
…today, we have better information…
Total Market Assets by Country of Origin
United States 42%
United Kingdom 23%
Canada 8%
Australia 6%
Netherlands 4%
Japan 4%
Germany 3%
France 2%
Switzerland 1%
Other 7%
Regional Government /
Agencies 13%
Financial 53%
Basic Materials 1%
Industrial 6%
Communications 3%
Consumer 15%
Technology 2%
Utilities 3%
Energy 4%
Total Market Corporate Bonds by Sector
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© Lloyd’s 14
Asset data collection requirements under
Solvency II are unavoidably onerous, but…
…the data we collect from you, and its format, will be standard and
consistent
…we are working to make the process as ‘painless’ as possible for
managing agents
We need you to tell us what else we can do to help
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the details
Debbie Sallas, Manager, Investment Analysis & Operations
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© Lloyd’s 16
Agenda
The Current Process: LIM Asset Data Collection
Meeting Solvency II requirements: Pillars I and II
The Future Process: Quarterly Asset Data Collection (QAD)
The mission for a single submission: Pillars I, II and III
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© Lloyd’s 17
The current process Lloyd’s Internal Model (LIM)
Asset Data Collection
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© Lloyd’s 18
The current collection covers two of the three
Solvency II pillars…
Pillar 1
- Data required by the Lloyd’s Internal Model (LIM)
- Data to support standard model calculations
Pillar II
- Analysis for review by the Lloyd’s Financial Risk Committee (FRC)
Pillar III
- EIOPA defined regulatory reporting to the FSA (PRA/FCA)
Ad hoc analysis and reporting to all stakeholders
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© Lloyd’s 19
…we will be collecting this data from you
again, as at 30 September, on 2 November
There are three key areas where we have encountered issues in previous
collection processes:
Listing of cash exposures by counterparty
Investment funds: ‘look through’ approaches
Derivatives used for hedging
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© Lloyd’s 20
The LIM needs to model Lloyd’s significant cash
credit exposures at counterparty level
¹ Includes supranationals and Government agencies
Source: Lloyd’s pro forma financial statements, 31 December 2011
Lloyd's Market Assets
Assets classified as “Cash and Deposits”
must be listed with the bank counterparty
We have provided a list of the most
commonly used banks in the template
The LIM target is to have information for
80% of cash assets by counterparty
So we need to ‘look through’ to
underlying exposures of money-market
investment funds
This will allow the LIM to properly capture
concentrations of cash credit risk at
Lloyd’s
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© Lloyd’s 21
Your choices when reporting ‘investment fund’
exposures are important…
Solvency II offers three choices when you report investment fund
exposures:
Security level look through: list each underlying investment
Mandate level look through: using the fund prospectus to estimate
underlying exposures
No look through: the fund will be classified as “Other”, which
assumes a high level of risk
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© Lloyd’s 22
Risk
Materiality
…we ask that you consider both risk and
materiality when deciding how to report
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© Lloyd’s
No Look
Through
Security Level
Look Through
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Risk
Materiality
…we ask that you consider both risk and
materiality when deciding how to report
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© Lloyd’s
No Look
Through ?
? Security Level
Look Through
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Risk
Materiality
…we ask that you consider both risk and
materiality when deciding how to report
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© Lloyd’s 25
A practical approach to granularity takes us
to 135,000 rows of data
Lloyd’s SCR
Summary bucketed data
Applying buckets for each syndicate
Data as collected
Full look through by entity
Granularity
1
254
30,000
135,000
>8,500,000
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© Lloyd’s 26
Correct reporting of derivatives allows us to
properly capture the impact of hedging
Most derivative use in syndicates is for the purpose of hedging
foreign exchange or interest rate exposures
Where we have full information we can incorporate the impact of
such hedging for LIM modelling purposes
The LIM does not model complex derivative structures
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© Lloyd’s 27
There are some minor changes to the data
collection template for September 2012
Where possible, the template has been simplified and the number of
fields reduced
All security level assets are captured in a single form
Asset classifications are limited to the underlying asset categories as
specified by EIOPA
New integrated validation to assist with accurate template population
Additional information relating to derivatives is requested
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© Lloyd’s 28
From May 2013 the collection process will change Quarterly Asset Data (QAD)
Collection
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© Lloyd’s 29
The QAD will provide us with all of the asset data
required for Solvency II…
Pillar 1
- Data required by the Lloyd’s Internal Model (LIM)
- Data to support standard model calculations
Pillar II
- Analysis for review by the Lloyd’s Financial Risk Committee (FRC)
Pillar III
- EIOPA defined regulatory reporting to the FSA (PRA/FCA)
Ad hoc analysis and reporting to all stakeholders
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© Lloyd’s
Issuer sector
Still undecided by EIOPA, however NACE codes are still the most
likely option
Acquisition cost
Complementary Identification Codes (CIC)
EIOPA developed classification; categorising all assets by country
of origin and asset type
After much lobbying, Bloomberg are developing their systems to
provide (and maintain) this as a new field
…this will include some new information, to
meet Pillar III requirements
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© Lloyd’s
CIC codes; another new requirement, but
not complicated in practice
31
Complementary Identification Code (CIC) table
1 2 3 4 5 6 7 8 9 A B C D E F
Government
bonds
Corporate bonds Equity Investment
funds
Structured notes Collateralised
securities
Cash and
deposits
Mortgages and
loans
Property Futures Call Options Put Options Swaps Forwards Credit
derivatives
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Centra l
Government
bonds
Common bonds Common equity Equity funds Equity ri sk Equity ri sk Cash
Uncol latera l i ze
d loans made
Property (office
and
commercia l )
Equity and
index futures
Equity and
index options
Equity and
index options
Interest rate
swaps
Forward
interest rate
agreement
Credit default
swap
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Supra-national
bonds
Convertible
bonds
Equity of rea l
estate related
corporation
Debt funds Interest rate
ri sk
Interest rate
ri sk
Transferable
depos i ts (cash
equiva lents )
Loans made
col latera l i zed
with securi ties
Property
(res identia l )
Interest rate
futures
Bond options Bond options Currency swaps Forward
exchange rate
agreement
Credit spread
option
3 3 3 3 3 3 3 3 3 3 3 3 3
Regional
government
bonds
Commercia l
paper
Equity rights Money market
funds
Currency ri sk Currency ri sk Other depos i ts
short term
(less than one
year)
Property (for
own use)
Currency
futures
Currency
options
Currency
options
Interest rate
and currency
swaps
Credit spread
swap
4 4 4 4 4 4 4 4 4 4 4 4
Municipa l
government
bonds
Money market
instruments
Preferred
equity
Asset
a l location
funds
Credit ri sk Credit ri sk Other depos i ts
with term
longer than
one year
Mortgages Property (under
construction)
Warrants Warrants Tota l return
swap
5 5 5 5 5 5 5 5 5 5 5 5
Treasury bonds Hybrid bonds Real estate
funds
Real estate
ri sk
Real estate
ri sk
Depos i ts to
cedants
Other
col latera l i zed
loans made
Plant and
equipment (for
own use)
Commodity
futures
Commodity
options
Commodity
options
Securi ty swaps
6 6 6 6 6 6 6
Covered bond Common
covered bonds
Alternative
funds
Commodity ri sk Commodity ri sk Swaptions Swaptions
7 7 7 7 7 7 7 7 7
Covered bonds
subject to
speci fic law
Private equity
funds
Catastrophe
and Weather
ri sk
Catastrophe
and Weather
ri sk
Catastrophe
and Weather
ri sk
Catastrophe
and Weather
ri sk
Catastrophe
and Weather
ri sk
Catastrophe
and Weather
ri sk
Catastrophe
and Weather
ri sk
8 8 8 8 8 8 8 8 8
Subordinated
bonds
Infrastructure
funds
Morta l i ty ri sk Morta l i ty ri sk Morta l i ty ri sk Morta l i ty ri sk Morta l i ty ri sk Morta l i ty ri sk Morta l i ty ri sk
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
Other Other Other Other Other Other Other Other Other Other Other Other Other Other Other
ISO 3166-1-alpha-2 country code or XL (for not listed) or XT (for not exchange tradable)
Third
pos i tionCategory
Fourth
pos i tion
Sub-category
or main risk
Firs t 2
pos i tionsAsset listed in
T 2.75 02/28/2018 GOVT
CIC = US11
BlackRock GBP Liquidity Fund
CIC = GB43
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© Lloyd’s
Syndicate Assets
Individually held assets
Structured Products
Derivatives
Investment fund
(CIC ##4#)
Security level look through
Mandate level look through
No look through (Other)
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EIOPA requires multiple tiers of asset
reporting Primary Tier Secondary Tier
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© Lloyd’s
BlackRock
Goldman Sachs
RBS
Schroders
State Street
UBS
Western Asset Management
LTIM have engaged with some asset managers
about likely requirements of Lloyd’s clients…
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© Lloyd’s
Lloyd’s has sought agreement from the FSA for centrally managed
funds to be treated as investment funds
Reduced reporting requirements
Data for the LTIM managed overseas trust funds, ASL and
commingled PTF funds will be provided to participants
LTIM will also be providing data for
centrally managed funds for the QAD
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© Lloyd’s
There will be one more collection using the current template, in
November
From 2013 you will need to provide QAD submissions to Lloyd’s via
the Core Market Returns system
We have been working to make this process as easy as we can…
... but we need to know what else we can do to help?
In summary
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Group Table Discussion Questions
What level of look through do you apply to your investment funds for
internal model purposes?
What have been the main drivers (materiality/risk etc) in determining the
level of look through applied to your investment funds?
Who/how will you apply CIC codes to your investments?
Do you foresee any problems with the additional data requirements, if so
which ones and why?
How involved is your Investment Manager in providing investment data?
What can we do to help facilitate the process of collecting asset data?
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How useful have you found today’s
session?
A. Very useful and I have learnt
something
B. Useful and we will use the slides for
reference
C. Useful, but greater technical
guidance would have been
beneficial
D. Not very useful
13 September Results:
14 September Results:
16%
A
70%
B
14%
C
0%
D
30%
A
57%
B
11%
C
2%
D
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How have you found the format of today’s
workshop?
A. I liked having a discussion session
and the balance was good
B. The discussion session should
have been shorter
C. The discussion session should
have been longer
D. Would prefer a presentation only
with no discussion
E. Other
13 September Results:
14 September Results:
82%
A
11%
B
2%
C
2%
D
2%
E
82%
A
5%
B
2%
C
9%
D
2%
E
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Would it be helpful for us to run a similar
workshop with your investment managers?
A. Yes, the same workshop would be
helpful
B. Yes, but the content should be
adapted to be more suitable for an
Investment Manager audience
C. No
D. No view
13 September Results:
14 September Results:
14%
A
82%
B
5%
C
0%
D
43%
A
54%
B
2%
C
0%
D
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Contact Details
Stuart Simpson, Treasurer
Email: [email protected]
Linda Zuberi, Senior Investment Manager
Email: [email protected]
Debbie Sallas, Manager, Investment Analysis & Operations
Email: [email protected]
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