Product data management specialist MoneyMate is helping fund managers comply with "look-though" requirements of a new European legislation designed to cushion insurance firms from market risk.

A module of its Fund ProductMaster platform allows a fund manager servicing an insurance company to provide information on its positions to insurers on a T+1 basis -- the day after they are traded. While the legislation, known as Solvency II, does not mandate that deadline, the stringent timelines set for some reports to be submitted to regulators makes that meeting that timetable mandatory. Asset managers oversee pension plans and investment funds of insurance companies.

Solvency II takes effect on January 1, 2014 but as of January 1, 2013 insurance companies must run rehearsals on their internal risk models with their home regulator.

Regulators are concerned about the potential for insurance firms to suffer the same fate as Lehman Brothers -- go bankrupt because they are overleveraged and undercapitalized. Therefore, they want to force insurers to hold capital in proportion to the investment risks they are undertaking.  Under the so-called look through approach, the third pillar or element of Solvency II, insurance firms must assess the market risk in their investment funds and calculate the regulatory capital they must set aside so they have enough to make payments to policyholders during a market downslide. The asset manager used by the insurance company needs to report back to the insurer all of the securities in which it holds investment positions. If any of these securities are in themselves a form of a pooled investment, such as mutual fund, hedge fund or managed account then the asset manager must also provide all of the holding positions on securities held by these collective funds.

"As new mandates are coming to market, insurance firms are asking in request for proposals assurance that asset managers will disclose this information, explains Ronan Brennan, chief technology officer for MoneyMate in Dublin. “If they are not able to disclose in a timely manner and provide full look-through, the insurance company will be forced to put up 49 percent of the value of the investment as regulatory capital."

The catch for asset managers: disclosing the positions in their portfolios risks exposing their investment strategies. The benefit to asset managers in using the MoneyMate Solvency II service, says Brennan, is that they can transmit the granular detail from their portfolio management system on a T+1 basis while protecting their investment strategy.

Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)

Keith Burman, Senior Managing Director State Street in Luxembourg

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