InsuranceERM Annual Awards 2024 - Americas

Transform ALM and actuarial modelling with Milliman Integrate

Pat Renzi, Principal and chief executive of Milliman's Life Technology Solutions practice, explains why asset liability management (ALM) has become a critical issue for insurers, and how Milliman's Integrate tool offers them comprehensive support

How can Milliman's Integrate technology platform add value for re/insurers?

Our focus with Integrate over the past 10 years has been on financial reporting as regulations such as Principle-Based Reserving, Solvency II, IFRS 17, and LDTI required robust, governed and scalable models to deliver results efficiently and confidently.

Pat RenziWe built out the Integrate platform to deliver a fully automated and highly governed process. This covers ingestion and the transformation of policy and asset data from administrative systems, through to the execution of projections and depositing results in a data warehouse for review, before delivering the results to accounting systems for posting to the ledger.

While companies are getting tremendous value from Integrate for financial reporting, the logical next step is to leverage these robust models to help manage the business. We have been working with clients to build out new capabilities and processes to support their needs for balance sheet management, investment strategy analysis and optimisation, as well as other strategic decisions to provide the best value for policyholders and shareholders.

Why has ALM become so important for insurers recently?

ALM has been a particular area of focus due to inflation risk, rising interest rates, and regulatory requirements in jurisdictions like Bermuda. The largest impact is coming from the high interest rate environment depressing the market value of an insurer's portfolio at the exact time that surrender and lapse rates are increasing as policyholders chase higher yielding instruments.

This makes ALM strategies such as duration matching and hedging even more critical. To address these challenges, there has definitely been a trend towards more sophisticated assets and strategies.

Insurers are increasingly diversifying their portfolios to include more alternative assets, private credit, and structured securities, while also extending the duration of their fixed-income investments to better match their liabilities and enhance yield opportunities in the current, higher interest rate environment.

Integrate provides strong capabilities for the modelling of these assets and incorporating them into hedging strategies and ALM techniques.

How are insurers' ALM models likely to change over the next few years?

Our expectation is that insurers' ALM models and processes are likely to continue to evolve in response to the current economic and regulatory landscape, with a focus on ALM being a more integrated function within insurers.

This will require closer collaboration between investment, risk management and actuarial teams. The Integrate platform is perfectly positioned to provide this collaboration by providing a centralised data, modelling, and reporting platform. This centralisation allows information from investments, actuarial analyses, and risk assessments to be easily accessible to all teams.

One of the main areas of evolution we foresee is the use of advanced modelling techniques, where machine learning and artificial intelligence will likely play a larger role.

Additionally, due to the greater emphasis placed on scenario analysis and stress testing to understand the potential impact of various economic scenarios, including extreme events on their portfolios, insurers will need highly automated, accessible and scalable solutions.

Why should insurers choose the Milliman Integrate platform?

Integrate provides a solution that is both broad and deep, as evidenced by our selection as the actuarial modelling solution and the ALM solution of the year. Integrate provides the ability to accurately and completely model the risks inherent in the business, for both assets and liabilities. It covers a wide range of products and regulations with a high level of detail.

Integrate also provides the tools to manage the data pipelines from various sources to feed these complex calculations and provide a robust data warehouse for analysis to support regulatory and internal reporting, as well as "what-if" analyses to confidently manage the balance sheet. All of this is supported by innovative cloud technology for scalability that is highly governed and controlled.