HSBC Insurance works with IBM to solve Solvency II

HSBC Insurance in the UK is using IBM Global Services to support its European Solvency II compliance initiative.

Solvency II is the European Union regulatory directive requiring insurance firms to implement economic risk management standards by 31 December 2012.

"Preparation for Solvency II is critical for our business and demands specialist expertise," said Stephen Coombes, chief finance officer at HSBC Insurance UK.

According to John Smith, insurance business solutions partner at IBM Global Business Services UK, insurance firms face a major challenge dealing with the data management requirements of Solvency II in their administration and policy management systems, which use a combination of customised systems and packages that may be up to 20 years old.

"We are helping HSBC to achieve to improve data definitions and data governance by utilising their existing infrastructure and along with IBM technologies, services and software," he said.

On top of this level of complexity, insurance firms use a calculation engine to provide deterministic calculation of value and profit. This provides a multi-year view of risk, based on criteria like mortality rate and pension rates, over a 50-year window, generating a huge amount of data that requires analysis.

"In the past it would take three months to perform the analysis and review. In the new world, under Solvency II, organisations will need to conduct scenarios on a monthly basis," said Smith.

This involves running anything from 50,000 to 500,000 tests against the calculation engine, which produces a huge amount of data.

IBM is supporting HSBC to create a data management and analytics model to ensure compliance with Solvency II requirements and deliver risk management capabilities. The project will provide a store for HSBC's risk and solvency modelling data and will permit HSBC to demonstrate quality, availability and traceability of all key regulatory data and associated reporting, IBM said.

The new database will support HSBC's Solvency II requirements by producing fact-based insight and secure evidence of risk and solvency related decisions, based on IBM business analytics software. IBM said the software will enable users to view modelled results data, adapt and enrich reports to meet their needs and distribute them as required. It will include full audit trail, approval/rejection and controlled manual adjustments.