The asset management industry needs to work more closely with insurance companies over Solvency II requirements, according to a report from the European Fund and Asset Management Association (EFAMA) and KPMG.
Solvency II – which overhauls the capital and risk management regulatory framework for European insurers – should not be viewed as an ‘insurance-only issue’ as data provided to insurers from third parties, including asset managers, will also be held to the same strict quality standards, highlights the report.
The report, commissioned by EFAMA to highlight the key impacts the Directive’s data management and delivery requirements will have on the asset management industry, draws on feedback from a working group of industry executives led by KPMG and Aviva Investors.
Key challenges facing asset managers include:
- Data management: Under Solvency II, asset managers will need to be able to demonstrate that their data management processes are at least equivalent to their insurance clients’. The required level of granularity in data reporting is heavy and the need to provide data for each asset on a security-by-security basis will present a major challenge for insurers, particularly where they hold large, diverse investment pools across multiple service providers.
- Data delivery: Asset managers will be required to supply insurers with complete data reports on a monthly basis. The trend, already visible in the market, is for Solvency II asset data to be requested for delivery by the third business day of each month. Meeting these tight timelines will have a considerable impact on the operating models of asset managers and their third party administrators, as the information currently available at this date may not meet the rigorous granularity and quality standards demanded under Solvency II.
- Look-through data: Insurers must be able to ‘look through’ fund of fund and other investment structures to identify the ultimate asset. This will require a dramatic increase in data exchanges between asset managers within a given asset hierarchy and will demand an increased level of disclosure between asset managers.
According to Peter De Proft, Director General of EFAMA, the implementation of the Solvency II Directive will open the way for a new relationship between insurers and asset managers.
"One of EFAMA’s primary goals is to put investors at the heart of its strategy and with insurance companies accounting for 42% of total assets under management (latest EDAMA figures) for institutional investors, asset managers can considerably boost their significance, attractiveness and credibility by working closely with insurance businesses on this Directive. As the buy-side players of the financial industry, we hope to strengthen long-term trust among our customers in the insurance business and encourage policymakers to support the development of long-term investment.”
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