The familiar twin challenge of regulatory pressures and difficult markets impacts the management of assets as much as other areas of insurers’ operations. The new rules of Solvency II, the European Market Infrastructure Regulation (Emir) and other regulations have onerous data requirements. And as insurers look for better returns they are turning to alternative assets, such as loans and transport financing, that are considerably more complex to handle. As a result, insurers are expecting much more from their securities services providers. Societe Generale Securities Services (SGSS) has stepped up to the plate, with both a dedicated Solvency II solution and a wider set of specialist services to help firms meet their current challenges.
With offices in 28 locations worldwide and around 4,000 employees, SGSS’s range of securities services include clearing, custody and trustee, retail custody, liquidity management, fund administration and asset servicing, fund distribution and global issuer services.
One of the elements of Solvency II’s drive to increase the transparency of insurers’ risks is the requirement for full look-through to detail of funds that firms might invest in. “Solvency II has brought a lot of clarity to the asset side in terms of insurance companies knowing what they are actually exposed to rather than just making assumptions,” says Sarj Panesar, global head of business development at SGSS, who is based in London. As a result, firms are reviewing their investments and often adjusting their portfolios. Therefore, one of the key qualities a securities services provider must demonstrate today is agility. “As a services provider you have to be nimble because insurers want to change asset allocation promptly, with accuracy and confidence,” Panesar says.
Flexibility is another critical characteristic. “You also have to be flexible, because regulation these days is not set in stone. Solvency I barely changed over the years, whereas we know Solvency II and Emir will change over time. So insurers need a service provider that will monitor their evolution and be proactive in response to the changes,” Panesar says. SGSS has built its architecture with flexibility in mind, and has also been hiring experts from both the insurance and asset management industries to ensure it has a deep understanding of the requirements of its clients.
SGSS’s dedicated Solvency II solution, which already has a number of clients, is a comprehensive and modular service, which includes look-through reporting for funds and structured products, market risk SCR calculations, risk indicators for financial assets and associated reporting. A particular challenge that SGSS is helping clients with is providing the full granularity of detail demanded by Solvency II and other regulatory reporting templates.
“Traditional valuation or net asset value reports have up to 10 columns of data, including identifier, name of asset and local market value. The Solvency II template, meanwhile, requires 140 or so columns. We take the raw NAV, normalise it, upload it into our accounting platform and enrich it with information, such as the required complementary identification code of the European Insurance and Occupational Pensions Authority and the agency rating, as well as calculate the specified durations and other elements,” says Panesar.
It is these kinds of capabilities that are winning SGSS new clients. In February this year, Caisse Centrale de Réassurance (CCR), the French state reinsurance company, hired SGSS to provide fund look-through reporting, data enrichment, market risk solvency capital requirement calculations and financial risk-monitoring reports. A major UK insurer hired SGSS to provide look-through and data enrichment on 100 external funds, citing SGSS’s ability to handle the legal aspects of dealing with the asset manager’s data, as well as its overall data management and control expertise as being particularly beneficial.
Solvency I barely changed over the years, whereas we know Solvency II and Emir will change over time