PwC: Clarifying challenges

Richard de Haan, actuarial leader, principal, PwC US, talks about its work in helping insurers overcome their key challenges — and particularly with the LDTI accounting standard.

How has PwC helped insurers with their main challenges in the last year?

The PwC Risk Modeling Services team is renowned in the marketplace for innovation and expertise related to financial and risk modeling. As Risk Modeling Services is part of the larger PwC ecosystem, we have the ability to pull in tax, technical accounting, transformation, cloud engineering, and digital assurance resources to support and enhance our actuarial services' offerings. A recent area where we have done just that and emerged as a market leader is related to implementation services for the FASB's Long Duration Targeted Improvements (LDTI) accounting standard.

PwC Risk Modeling Services has taken a proactive approach to developing solutions that help clients accelerate their LDTI implementation by significantly investing in tools and processes that can be leveraged for any client's situation and bespoke requirements. These tools and processes cover each major phase of LDTI implementation, including Phase 1 - Initial Impact Assessment; Phase 2- Implementation and Phase 3 - Transition.

What kinds of initiatives did you launch in 2021?

Richard de HaanOur LDTI initiatives started in 2018 and over the course of the last three years we have been first to market with a number of leading innovations. In 2021, we launched several new initiatives including:

  • PwC's LDTI Simplifier - a collection of tools, accelerators, and experiences which were developed on our numerous existing LDTI engagements, encompassing every aspect of a company's operations that LDTI impacts. We simplify the end to end change, helping clients achieve compliance, reducing operational disruption to current processes, and maximizing the efficiency of implementation.
  • Advanced Financial Analytics (AFA) - PwC's strategic solution to vision, accelerate and rapidly deliver enterprise finance, actuarial, investments and risk (FAIR) analytic capabilities (including LDTI source of earnings analysis, LDTI reporting acceleration suite, and NextGen Financial Planning & Analysis).

We also supported and sponsored numerous industry forums to encourage dialogues and educate firms on LDTI requirements and operational impacts. This included: running industry surveys to capture emerging technical policies, and capture firms' LDTI readiness, benchmarking emerging LDTI SAB 74 disclosures; hosting roundtable discussion for direct and reinsurance clients; and publishing papers on LDTI impacts on a range of topics including products, metrics, technologies and the deals markets.

The past few years have been quite volatile-- what can insurers' do to make their actuarial responses better in the face of such uncertainty?

In general, most actuarial functions performed well and despite the challenges from the pandemic, they were fairly resilient over the last two years. In retrospect, the volatility has actually heightened the awareness of the value that effective actuarial functions, with modern technologies, can deliver to help insurers make better, more timely and informed decisions. Examples include: how will Covid mortality scenarios impact my profitability and solvency?

How will changes in interest rates and inflation impact profit emergence and pricing, or how will new accounting/tax proposals impact overall profitability of the business? Those companies that had invested in their actuarial functions prior to the pandemic were more effective and efficient at addressing these questions.

For those that struggled, there are a number of tactics they can use going forward:

  • Focus on developing capabilities and tools that enable forward looking, real time, dynamic assessments, with a focus on integrating data and systems across finance, actuarial, investments and risk (FAIR) functions.
  • Look at their company's structures related to the following:
    • Cost reductions through automation, organizational designs, and outsourcing
    • Technologies that better support required capabilities
    • Risk and capital optimization strategies and deals
  • Prepare their teams for the skills they need to support the future of work and strategic objectives that their company is trying to achieve
  • Look at new talent pools (i.e. new geographies, non-traditional actuaries, and non-actuaries) and determine how to adopt blended actuarial/non-actuarial teams

Has the pandemic changed insurers' use of actuarial modelling?

Insurers are facing unprecedented changes from a combination of the pandemic, challenging economic environments, new regulatory pressures, changing consumer preferences, new technologies, and new market entrants. The need for actuarial modeling insights has never been greater. Executives are looking for actuarial teams to provide more forward looking, real time, dynamic analysis that can provide greater and actionable business insights.

Actuarial teams that can build the right capabilities and leverage new technologies are taking a leading position on informing the strategic direction of their companies, and becoming more relevant to the C-suite. Not only is this placing significant strain on the need for better modeling tools, but actuaries themselves are under pressure to modernize and upskill themselves to help meet these new expectations.

Combined with this is a change in how firms are defining their operating model and what actuarial skill sets they need in the future. Data science/analytics skills and being able to work in agile, multidisciplinary teams are becoming increasingly important.

We are also seeing a fundamental shift in preferences around working in virtual, hybrid and onsite teams. This is both a blessing and a curse. It is driving an increased war for talent across the industry while also opening up resource pools that may not have previously existed to firms based on geographic restrictions.