James Illingworth is Group Chief Risk Officer at Amlin. When he isn’t busy measuring and managing risk, the father of three leads an active lifestyle with interests including sport and going to the theatre. As one of the few CROs within the Lloyd’s market, he has an all-encompassing role in preparing for the EU’s new regulatory framework for insurers, the Solvency II Directive. Clearly the big challenge at present is preparing for Solvency II Directive, which is due to come into force in 2012. How is this progressing?
We’re about 70% there in terms of really understanding the requirements for Solvency II, partly because there are quite a lot of details that are still coming out. There’s still some uncertainty as to what the final Solvency II-compliant insurer will look like. Also it is important to understand that much depends on a company’s approach to Solvency II, rather than what is set out in detailed rules and regulations.
Lloyd’s, with the assistance of the LMA, has asked Managing Agents to conduct QIS4 [Quantitative Impact Study 4] and a gap analysis of their own preparedness. Across the market as a whole there is probably a more consistent approach and response to Solvency II than there would be for an insurance company sitting as an independent player outside the Lloyd’s market.
The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has just released a series of consultation papers relating to the implementation of Solvency II. How have these been received?
The consultation papers have been extensive and cover a lot of detail. Sometimes there’s the potential for them to cut across each other but generally the guidance in them is in line with the expectations of the Solvency II programme. There have been no great shocks in the CEIOPS papers to date.
For many insurers, 2012 must still seem like a long way away. How much preparation should companies be undertaking now in anticipation of the new regime?
They absolutely should be preparing now. We regard it as a long work programme. We’ve had external assistance in terms of consulting and have also developed our internal programme management expertise to help us deliver some of the changes we need to take on board. It’s not something that can be done in a matter of months – it’s definitely a two-year programme.
Our aim is to be in a position this time next year to enter the Financial Services Authority’s dry run for model approval – other people may be waiting until later. But it’s hard to imagine that the FSA will approve everybody without some preliminary review even if they’re ready for the 2012 deadline – it simply can’t be done all at once.
As Chief Risk Officer (CRO) of one of Lloyd’s larger insurers how do you see your role in terms of tackling Solvency II?
Our CFO is sponsoring the whole programme but I and several members of our risk team are involved in a number of workstreams. Our aim is to make a virtue out of the Solvency II necessity as there are a number of very useful benefits from adopting parts of the regime – particularly within Pillar II (the Supervisory Review which assesses whether insurers have good control of risk processes linked to adequate capital).
So we’ve used it as an impetus to drive through some of the changes in a specific regulatory environment that we would have liked to do anyway in the longer term. For instance, we’ve had an internal model for many years that’s been growing in terms of its use within the business and this gives us strong motivation to drive that further forward.
It is important that the larger Lloyd’s agents with the larger operating syndicates embrace and adopt a strong programme of work to meet the Solvency II requirements. If the big agents achieve this then there is a strong chance that Lloyd’s as a whole will be able to meet model approval.
The role of chief risk officer is a relatively new one. Would you expect to see more CROs in future in both Lloyd’s and the wider insurance industry?
I certainly think that a risk function is going to be an increasing part of the landscape of both small and large insurers. The regulatory environment in Solvency II and also from other leading regulators insists upon a strong linkage between the governance and assessment of risk, the company’s strategy, and its capital requirements. A CRO helps in facilitating this linkage. Risk assessment and economic modelling will increasingly help inform decisions on many strategic issues such as reinsurance purchase, investment strategy, business mix and acquisitions.
