Following the economic crisis of 2008-09, and its ramifi cations for
investors in all industries, the issue of transparency for insurers with regard to their investments came to the forefront, says Charles Dupplin, chief executive offi cer at Hiscox Bermuda.
“During the crisis, we obviously wanted to know that we didn’t have any
toxic investments,” he says. “For us, one of the most surprising things was how diffi cult it was
to access data at a very detailed level of exactly what we had in our investment portfolio. Since then, there have been great strides in terms of people being able to provide very detailed information. This has come on and we are now in a much better position than we were back then.”
This need for transparency has become yet more important in the
run-up to the implementation of the new Solvency II regime, with insurers requiring more data with which to calculate risk.
“Clients are now using ‘asset reference data’, to enable them to carry
out their asset risk modelling,” says Biggs. “This means they require huge amounts of very granular data. Some custodian banks are equipped to provide this and some banks less so, but the data is the key.
“We have one client for whom we are satisfying all of their Solvency II “While our clients have indicated that they still require the fundamental
global custody activities we have always provided, they now also need four signifi cant enhancements on top of that,” she says.
“All of these revolve around data, rather than the traditional
administration of the underlying assets, and these requests for data fall into a few different categories. Firstly, there is the Solvency II data drive, which is extremely important.
“Then there is the issue of transparency, where clients want to know
more about the investments we administer on their behalf. For example, they don’t just want to know that their assets are held in a unit trust, they want to know about everything held within the unit trust. This involves drilling down to the lowest levels of data. We call this ‘peek thru’.
“There is then the issue of what we call institutional governance, which
really gets to the heart of some of the data and transparency issues. Because our arrangements with clients are often quite complex—in that we might hold all of their assets, or just part of them, or even that those assets are split up into different vehicles with different people administering them—they now require us to become a kind of data aggregator or book of record for them.”
Not only are clients requesting access to their own data, they also want
to know more about how their assets compare with the wider market, says Mick Murphy, managing director of UK asset management and insurance at BNY Mellon.
“In addition to core custody functions such as safekeeping, insurers will
be looking for transparency, risk management solutions and performance solutions, but they also want to understand how their assets are performing against other industry participants,” he says.
requirements and then also overlaying that with some really high-end risk solutions and risk analytics. This is probably one of the most sophisticated risk services we have ever provided to a client and is what will lead the market in future years.”
Murphy agrees. “We are seeing an increased need to collect data, to
scrutinise that data and to present that data back to the insurer in both a timely and well-formatted way. That is key to some of the challenges that Solvency II presents,” he says.
As with many other industries, the speed at which insurers and reinsurers
can move vast amounts of money around the world is also increasing and this is refl ected in the custody services they use, says Dupplin.
“Because we are now in a position where we might need to move
substantial amounts of securities very quickly, it is a different game. The speed with which we tend to be required to provide cash or collateral has increased,” he says.
This need is also something custodians are keen to address, according to Biggs. “Our clients want to know how we can provide services and solutions
for their investment portfolios that enhance performance, reduce risk, maximise control and aid distribution” she says.
“This means that we are under pressure to develop new and innovative
services, such as tax-transparent cross-border pooling. Naturally, clients have assets all over the world and so want to know how they can make their assets work more effi ciently.”
It seems that as the demands of insurers and reinsurers change,
some global custodians are well placed to meet their ever-developing demands.
September 2011 | INTELLIGENT INSURER | 31
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