Solvency II Practical challenges of the framework that really matter DHO 2016

Challenge 1) Pillar 1 readiness EIOPA “Need for high quality disclosures” and potential role of the External Auditor Data Quality: incomplete framework and data issues Models: incomplete modelling (e.g. ref. options and guarantees embedded in contracts) or lack of model stability (e.g. impact from different calibration of negative interest rates) – especially in Life Assumptions: weak assumption setting process and back testing Full recognition of obligations (contract boundaries) and identification of Homogeneous Risk Groups – both Life and Non-Life Usage of existing methods/estimates which includes prudence - especially in Non-Life Gaps in the classification and fungibility analysis of Own Funds Documentation: incomplete process and model documentation IT controls: often not mature due to widespread usage of excel and manual activities Resources: lack of time/expertise to analyses results (e.g. ref movement analyses) Group vs Local Company: limits in local ownership and suitability assessment of Group tools and services Common gaps Market Value Balance Sheet and Own Funds Focus on Technical Provisions as part of MVBS Standard Formula Solvency Capital Requirement Scope Governance and processes Own funds NAV Data Risk Margin MV MV Methodology Assets Synergies with other finance processes Best estimate Liabilities Models Assumptions Actuarial models and actuarial estimates are key elements to guarantee “high quality”

Challenge 2) Operational set-up and abilities High workload, Complex interactions Need to accelerate Youth problems… & 2016 2017 2018 2019 Nov Dec Jan-Dec Interactions and cooperation: lack of an integrated list of priorities, and of an embedded way of working across functions (Risk, Actuarial, Tax, Finance…) Actuarial Function: weak processes and still defining on how to deal with multiple roles: Product pricing, TP calculation, TP coordination and validation, AF report…) IT systems: incomplete joining up of multiple sources of information, a lot of manual work still required as well as “ad hoc” fixes (mostly in excel) Data: poor automation in collection, review and reconciliation of significant amounts of data Internal education: still rare widespread communication and understanding of framework and results Spare capacity: very limited ability to accommodate overlapping duties and accelerate activities (or run extra, business relevant analysis) Common gaps Individual QRTs Annual Submission + 20 wks* (by 20.05) Submission + 18 wks* Submission + 16 wks* Submission + 26 wks* (by 01.07) Submission + 24 wks* Submission + 22 wks* Q3 Submission + 8 wks* Quarter Submission + 7 wks* Submission + 6 wks* Submission+ 5 wks* Submission + 13 wks* Submission + 12 wks* Submission + 11 wks* SFCR SFCR SFCR Narrative RSR* RSR RSR* Submission + 20 wks* Submission + 18 wks* Submission 16 wks* SFCR SFCR SFCR Llight automation solution as well as co-sourcing / outsourcing solutions pursued RSR* RSR RSR* Submission + 26 wks* Submission + 24 wks* Submission + 22 wks*

Challenge 3) Business shifts FINANCIAL ENVIRONMENT SOLVENCY II CUSTOMER CENTRICITY Solvency II shifts risk awareness and influence business steering Definition of KPIs and limits to risk taking not just for RMs, but part Investor story Risk Building relevance for the customer Product design Solvency II friendly Value for customers (products and offering) Products ? BUSINESS MODEL Capital optimizations such: capital structure change, reinsurance and diversification opportunities Advanced analytics for customers behavior for value driven commercial actions claims fraud risk pattern detection IT and automation Optimizations Search for yield - more sophisticated risk taking and risk hedging SAA/ALM and trade offs between credit/liquidity and return of the assets Investments Remuneration and incentives «value» driven Increase touchpoints, decrease costs and integrate platforms Distribution and Digital