Welcome to the third edition of Risk Perspectives, a Moody’s Analytics publication created for risk professionals with the goal of delivering essential insight to the global financial markets. For this edition, we focus on the current challenges and opportunities in the insurance sector. After years of discussions, the Solvency II regulatory framework will finally become effective in the European Union on January 1st, 2016. However, the new risk-based regulation will not be restricted to Europe and will influence risk management practices in the insurance industry on a global scale.
According to a Moody’s Analytics Solvency II survey, only 25% of firms are currently ready to comply with Solvency II and 65% are developing their solutions to become compliant. This indicates that while some firms are seizing the opportunity to step beyond compliance to achieve competitive advantages, other firms still have a lot more work to do. That is why we aim to offer a wide range of views on the numerous risk management issues facing the insurance industry in 2014 and beyond and provide best practices that will help insurers address and overcome these challenges.
Risk Perspectives offers actionable information to assist risk professionals with their day-to-day and strategic efforts to comply with new regulatory guidelines, master data management and infrastructure problems, and create value for their organizations through better and more effective risk management.
In the section Rethinking Insurance Risk, we provide an outlook on the global insurance industry in 2014 and discuss how insurers can leverage the regulatory exercises to improve their businesses. For instance, in the article “Using Analytical Data to Support the Decision-Making Process,” Brian Heale explains the value of analytical data and how an insurer can get the most out of it.
In Regulatory Spotlight, we look at the emerging insurance industry regulations from a global point of view in the article “Regulatory Radar for Insurance” by María C. Cañamero and Sandy Sharp, and take a closer look at the new mandatory reporting in “Taking a Holistic Approach to Pillar III Reporting” by Karim Ben Ayed.
The Approaches to Implementation section provides best practices on how to implement an insurance solution, such as Economic Scenario Generators (ESGs) or an effective enterprise risk management framework, and evaluate the benefits and challenges of adopting an internal model.
Finally, in the Principles and Practices section, we describe effective best practices for applying risk management to an insurance organization. These range from the design of arbitrage-free scenarios for Solvency II to achieving efficient asset allocation by leveraging a Least-Squares Monte Carlo simulation.
Once again, we hope our perspectives on overcoming the challenges the insurance industry is facing will help you attain a better understanding of how to approach and thrive in a world of ongoing regulatory, business, and industry demands. I encourage you to take part in this discussion and help us shape the future issues of Risk Perspectives by sharing your feedback and comments on the articles presented in this issue.
Dr. Christian Thun
Senior Director, Strategic Business Development