Risk Modelling in Insurance: A comprehensive solution for life insurance companies
Trevor Howes of GGY told us how the company is delivering comprehensive capabilities to meet the complex needs of life insurance businesses.
Life insurance businesses are operating in an environment of rapidly changing risks and economic parameters, with several key trends driving them towards more complex, resource-intensive measurement techniques. “The 2008 meltdown and rapid, volatile swings in stock markets and interest rates have hit insurance companies, and over the past 10-20 years their products have evolved quickly to compete for market share and save on costs,” says Trevor Howes, vice president and actuary at GGY. “At the same time, regulators are taking sophisticated approaches in order to address new risks. For example, regulators in the US – GGY’s biggest market of growth – are now looking at a principles based approach. Life insurers are having to move away from the formulaic approach to policy liability calculation that has served them for many years, and use more stochastic approaches. Instead of doing one calculation of a model they’re having to do perhaps a thousand.”
That principles-based approach is only going to become more pervasive, says Howes. “It’s being used in many places as a risk measurement technique – not just because the regulators require it, but because if you want to understand your risks and your pricing, you need to know the distribution and the cost of volatility.”
In addition, insurers face a need to review their assumptions constantly in relation to their latest experience. “Many regulations now require life insurers to reset their assumptions on a regular basis,” says Howes. “That means the assumptions have to apply down to a more detailed level of business, distinguishing between areas of policies, risk classes, places where policies are sold and small contractual differences. To achieve that, actuaries have to do a lot more work resetting those assumptions and changing their models, which have also become more granular. Whereas in the past companies might have taken averages and shortcuts to model on a segment of business, now they’re more likely to want to do many of these calculations at the policy level.”
As life insurers face increasing demand for consistent, consolidated models, many are looking at how they can transform their actuarial systems. “Organizations in the US are realizing that they need to embark on actuarial transformation projects to reform their systems and make them more able to produce their results quickly,” says Howes. “They can’t waste so much time running numbers and getting their results ready once the books close off, so they need an automated close and the ability to test and stress test their models and get more information out of them.” Established in 1989 and acquired by Moody’s Analytics in 2016, GGY developed its AXIS high-performance actuarial software to meet the complex needs of life insurance businesses. “We developed the capability to do holistic financial modelling on both assets and liabilities, fully integrating all the risks, and to use that same software for multiple purposes to make actuaries more efficient,” says Howes. “That has become increasingly important as new risk and reporting paradigms emerge around the world.
“Axis provides a fully holistic solution that can handle complex nests of stochastic financial projections using a multi-strategy approach to the distribution of tasks. Our GridLink distribution and pathway managing software enables intelligent changes in distribution patterns to take advantage of free resources and we have developed a capability to help customers spin up resources in the cloud, so we can automatically configure as many cores as the business needs within minutes.”
Those capabilities are enhanced by GGY’s supportive service model. “Our solution differs in several ways to the way the market has traditionally been served,” says Howes. “We take away most of the need for companies to write their own code because we have made our software configurable without writing much code, and we provide full training and support.”
Howes notes a growing interest in the cloud as insurers recognize some of the potential advantages it holds. “The increasing demand for computation ability really crystallises at reporting dates, and cloud resources enable insurance businesses to handle that,” he says. “One trend we’re seeing is that insurers are bursting through to the cloud, and there is more willingness to consider starting from the cloud when we’re implementing our solution. One of our clients is fully embarked on a Microsoft Azure implementation where they’re moving all of their various operating units onto cloud-based resources. That’s a very flexible arrangement that allows them to expand as needed for a given workload, to share throughout the company and be much more flexible and responsive.”
Find out more by downloading Microsoft’s Perspectives on Insurance Risk Modelling
