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Implementing Solvency II The Asset side of the business Presented by Philippe Denis January 27th, 2011 The closer, the better Agenda BNP Paribas – a brief introduction Expected capabilities for Solvency II Summary 2 BNP Paribas Group: Introduction BNP Paribas Group 2nd bank in the Euro zone1 5th largest global custodian (in AUC) 3rd most valuable international banking brand in Europe, 6th worldwide2 Among the world’s strongest banks3 One of the lowest CDS spreads in the industry Ranks 9th among the world’s safest banks4 Present in 85 countries worldwide 205, 000 employees 1 2 3 4 Retail Banking Investment Solutions Asset Management Securities Services Corporate & Investment Banking ‘Global 2000 Forbes, 2009’ Brand finance February 2010 According to Standard & Poor’s, Moody’s and Fitch Global Finance world’s safest banks 2009 Access to multiple channels in a full service bank 3 BNP Paribas Securities Services: 4 Agenda BNP Paribas – a brief introduction Expected capabilities Summary 5 S-II “Middle Office” Decision & Implementation Five capabilities relating to Asset Management: Solvency II Processes Insurance Company Mutual Society Decision Capability 4 Analytical Services Capability 3 Enrichment & Standardisation Capability 5 Asset Management Capability 2 Capability 1 Aggregation Financial Engineering Data & Information 6 A view of BNP Paribas in context: Solvency II Measurement Insurance Risk Office Actuarial Perspectives Finance Office Strategy Decision and Implementation Indicators Asset Allocation Committee Solvency II Governance office Decision Analytical Services Capability 4 ALM / LDI Mandate Structured Product Overlay Asset Mgt Inflation Swap Other strategy Other Derivative Capability 3 Enrichment & Standardisation Capability 2 Aggregation Capability 5 Capability 5 Data & Information BNP Paribas Investment Partners BNP Paribas Corporate Investment Bank Capability 1 BNP Paribas Securities Services Your Asset Management Platform In House Pooled Fund 1 Pooled Fund 2 AM4 AM5 Segregated 7 A Solvency II “Middle Office” Capability 1 Data & Information Project managing collection Portfolio list Properties held Derivatives Collective scheme values Hedge Funds Market associated data Evidence of governance Multiple fund managers Multiple outsource providers Look through of fund of fund Consolidated view of assets A dynamic view of assets Basis for clean data for all types of analysis Not restricted to Solvency II For example stock-level attribution Capability 3 Enrichment & Standardisation Additional S-II information Make consistent for analysis Map to standard dictionary A dynamic view of assets Can show evidence of handling multiple Fund Managers and their respective outsource partners Has evidence of data governance in their processes Ability to look through your underlying investments Can evidence the Solvency II universe catalogue Has capability of “attribution” as this typically drives the requirement for consistency and standardisation Provider Characteristics Expected Benefits Capability 2 Aggregation 8 Provision of Analytical Services for Pillar I & Pillar II Capability 4a Pillar 1: Scenario Testing Market Interest rate Equity Spread Currency Concentration Illiquidity Capability 4c Pillar II: Market & Credit Risk Counterparty Risk Market risk reporting: Asset classes Manager Volatility Value at risk Risk v Contribution A “DNA” view of assets Independent view of risk versus known events Has capability to manage the data middle office Understanding of assets to provide a complete Market SCR calculation Can handle “multi-manager” and “multi-outsource” providers in the above model Remain focussed on your business products risks: Health Risk Life Insurance Risk P&C Insurance Risk Skills in place for risk (& performance measurement) Flexible reporting, decision support, web delivered Integrates with any downstream Asset Management capability to support a particular risk resolution Provider Characteristics Anticipated Benefits Market risk Back & Stress testing Counterparty failure Market shock Market Up and Down Attribution Versus performance Capability 4b Pillar I: SCR Calculation 9 Example of Capability 4: Asset Allocation, Stress Testing, Risk: Stress DOWN Measuring the risk perspectives…. Asset allocation / Breakdown compliant with Solvency II Equity 12% Global 6% GBP EUR USD 4% 1% 1% Others 4% Listed and not listed equity Equity UCITS Funds Equity Hedge Funds Participations Real Estate Fixed Income Government Bond (OECD & EEA) GBP EUR USD Corporate Bond 2% 1% 1% 2% 5% 80% 40% 35% 2% 3% 40% AAA AA A 1% 8% 18% GBP USD 15% 4% BBB B or lower Unrated Cash & cash equivalent 12% 1% 0% Asset Interest rate allocation risk Credit risk Cost in capital Equity 100% 12% 9.2 - 17.9 - Illiquidity risk Equity risk Property risk FX risk TOTAL 3.2 - 4.0 4.0 1.3 - 3.6 0.5 39.2 4.5 Global 6% 2.3 0.5 2.8 GBP EUR USD 4% 1% 1% 1.6 0.4 0.4 0.3 0.3 1.6 0.6 0.6 Others 4% 2.0 2.0 2% 1% 1% 1.0 0.5 0.5 1.0 0.5 0.5 2% 0.4 0.4 Listed and not listed equity Equity UCITS Funds Equity Hedge Funds Participations Real Estate Fixed Income Government Bond (OECD & EEA) GBP EUR USD Corporate Bond AAA AA A GBP USD BBB B or lower Unrated Cash & cash equivalent 5% - - - - 1.3 0.0 1.3 80% 9.2 17.9 3.2 - - 3.1 33.4 40% 4.6 1.6 1.3 7.4 35% 2% 3% 4.1 0.2 0.3 1.4 0.1 0.1 0.5 0.8 5.5 0.7 1.2 40% 4.6 17.9 1.6 1.8 26.0 1% 8% 18% 0.1 0.9 2.1 0.1 0.9 2.6 0.0 0.3 0.7 0.9 0.2 2.1 6.3 0.9 15% 4% 1.7 0.4 2.1 0.5 0.6 0.1 12% 1% 0% 1.4 0.1 0.0 3.7 1.7 9.0 0.5 0.0 0.0 3% 0.0 0.0 0.0 4.4 2.0 5.6 1.8 9.0 0.0 0.0 0.0 0.0 3% Stress UP 10 Event / Market Stress Testing Capability 4: Joining-up Assets to the liabilities Asset allocation / Breakdown compliant with Solvency II 12% Equity Asset side Global 6% GBP EUR USD 4% 1% 1% Others 4% Listed and not listed equity Equity UCITS Funds Equity Hedge Funds Participations Stress DOWN Real Estate Fixed Income Government Bond (OECD & EEA) Corporate Bond Interest rate risk Credit risk Illiquidity risk Equity risk Property risk FX risk TOTAL Liability side 0.0 2.5 1.5 4.0 1.3 0.0 2% 5% Stress UP 80% 40% 35% 2% 3% GBP EUR USD Cost in capital Mkt Down 2% 1% 1% AAA AA A 40% 1% 8% 18% 15% 4% GBP USD BBB B or lower Unrated Cash & cash equivalent 12% 1% 0% 3% 9.3 Cost in capital Mkt Up Interest rate risk Credit risk Illiquidity risk Equity risk Property risk FX risk TOTAL 1.2 2.5 1.5 4.0 1.3 0.0 10.5 Liability allocation Stress DOWN 0-2 years 15% 2-5 years 5% 5-10 years 40% 10-15 years 40% Stress UP 11 S-II “Middle Office” Decision & Implementation Extending beyond Market Risk: Solvency II Processes Insurance Company Mutual Society Decision Capability 4 Analytical Services Capability 3 Enrichment & Standardisation Capability 2 Aggregation Capability 1 Capability 4d… Support full SCR Analysis Health Life Non-Life Default Other Data & Information Provide for the full analysis life-cycle as a “toolset service provider” complementing your existing risk & actuarial capabilities 12 Agenda BNP Paribas – a brief introduction Expected capabilities Summary 13 Summary: E&Y and JP Morgan Asset Management continue E&Y – more on Capability 1 – 3 JP Morgan Asset Management – Capability 5 For consideration: Asset Manager service providers supporting your Solvency II challenges: Must have solid capability in performance, attribution and risk analysis Have the expected governance processes in place for detailed data Have the tools to step beyond just the “Market SCR” analysis Have Asset Management overlays / skills to implement Solvency II change 14 The information contained within this document (‘information’) is believed to be reliable but BNP Paribas Securities Services does not warrant its completeness or accuracy. Opinions and estimates contained herein constitute BNP Paribas Securities Services’ judgment and are subject to change without notice. BNP Paribas Securities Services and its subsidiaries shall not be liable for any errors, omissions or opinions contained within this document. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. For the avoidance of doubt, any information contained within this document will not form an agreement between parties. Additional information is available on request. BNP Paribas Securities Services is incorporated in France with limited liability and is authorised by the CECEI and supervised by the AMF. BNP Paribas Securities Services' London branch is subject to limited regulation by the Financial Services Authority for the conduct of its investment business in the United Kingdom and is a member of the London Stock Exchange. BNP Paribas Trust Corporation UK Limited and Investment Fund Services Limited are wholly owned subsidiaries of BNP Paribas Securities Services, incorporated in the UK and are authorised and regulated by the Financial Services Authority. Details on the extent of our regulation by the Financial Services Authority are available from us on request. The services described in this document, if offered in the U.S., are offered through BNP Paribas and its subsidiaries and its affiliates. Securities products are offered through BNP Paribas Securities Corp., a subsidiary of BNP Paribas, a broker-dealer registered with the Securities and Exchange Commission and a member of SIPC, the Financial Industry Regulatory Authority, New York Stock Exchange and other principal exchanges. The closer, the better