collection of asset data under solvency ii

Asset Data

Collection &

Solvency II 13/14 September 2012

Agenda

Introduction – Linda Zuberi

The background – Stuart Simpson

The details – Debbie Sallas

Table discussions

Wrap up

2

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:


0%

A

9%

B

66%

C

25%

D

0%

A

10%

B

69%

C

21%

D

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.



2%

A

68%

B

30%

C

5%

A

71%

B

24%

C

The background

Stuart Simpson, Treasurer

© 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

© 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)

© 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

© 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

© 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

© 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

© 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

© 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

© 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

the details

Debbie Sallas, Manager, Investment Analysis & Operations

© 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

© Lloyd’s 17

The current process Lloyd’s Internal Model (LIM)

Asset Data Collection

© Lloyd’s 18

The current collection covers two of the three

Solvency II pillars…

Pillar 1



Pillar II


Pillar III



© 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

© 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

© 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

© Lloyd’s 22

Risk

Materiality

…we ask that you consider both risk and

materiality when deciding how to report

© Lloyd’s

No Look

Through

Security Level

Look Through

23

Risk

Materiality



© Lloyd’s

No Look

Through ?

? Security Level

Look Through

24

Risk

Materiality



© 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

© 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

© 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

© Lloyd’s 29

The QAD will provide us with all of the asset data

required for Solvency II…

Pillar 1



Pillar II


Pillar III



© 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

30

© 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

© 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)

32

EIOPA requires multiple tiers of asset

reporting Primary Tier Secondary Tier

© 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…

33

© 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

34

© 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

35

36

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?

37

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



16%

A

70%

B

14%

C

0%

D

30%

A

57%

B

11%

C

2%

D

38

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



82%

A

11%

B

2%

C

2%

D

2%

E

82%

A

5%

B

2%

C

9%

D

2%

E

39

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



14%

A

82%

B

5%

C

0%

D

43%

A

54%

B

2%

C

0%

D

40

Contact Details

Stuart Simpson, Treasurer

Email: [email protected]

Linda Zuberi, Senior Investment Manager


Debbie Sallas, Manager, Investment Analysis & Operations


collection of asset data under solvency ii

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