Enterprise Risk Management Technology Guide 2023

Ortec Finance: Helping you better manage complexities

What are the key risks and challenges currently facing your insurance clients?

Saiyan RajaThere are an increasing number of objectives and constraints to consider when designing an investment policy. In addition to the risk, return and liability (matching) profile, aspects like environmental, social and governance (ESG), liquidity and currency exposure are becoming more prominent in decision-making. 

This increased complexity, coupled with the macroeconomic instability fuelled by higher interest rates, has challenged optimal investment decisions. 

The result has been a steady wave of esoteric asset classes and strategies claiming to generate outperformance or better match cashflows. It is imperative to fully understand how these assets and strategies behave to ensure the downside is protected.  

What are the technology innovations that will shape the insurance market over the next decade? 

Artificial intelligence (AI) will play a big part in global development, and I think the insurance market is no different.

Automation is on the lips of many practitioners, particularly since the mainstream introduction of large language models like ChatGPT. There is a need to automate applications such as tedious manual processes, claims handling and processing.

In an ultra-competitive market, automation will serve as one of the key differentiators to long-term profitability. 

Within the investment risk management space, we are committed to AI as a solution to perform dynamic ALM/SAA exercises with multi-dimensional optimisations.

Can Ortec Finance’s technology solutions support insurers with climate risk?

We recognise climate risk to be a systemic risk that is not yet fully priced into the market.  When it does, climate change could have a profound impact on portfolio risk and returns. 

This impact will be both in the short term from transitioning to a low-carbon economy, and the longer term, through the effects of acute physical risks, and our models capture this well. 

As many of our clients tend to have a longer investment horizon, and the financial impact of climate change is uncertain, it is crucial we incorporate climate change’s effects into our scenario modelling. 

We can provide a unique perspective by illustrating the consequences of climate change from a top-down approach, allowing for nuances such as market pricing and sectoral differences, through our award-winning ClimateMAPS tool. 

This strategic top-down approach helps clients make their investments more resilient, while complementing their existing bottom-up analysis. We’re encouraged by the growing number of insurers questioning the realism of public reference scenarios and seeking more real-world alternatives such as ours. 

What technology innovations for insurers can we expect from Ortec Finance next year? 

Continuing the theme of navigating a more complex world, Ortec Finance has invested significantly in innovations. 

To further support clients, within Ortec Finance’s Real-World scenarios, we have recently expanded our Economy Customisation Layer, enabling users to adjust asset correlations in addition to risk and return characteristics.

Another recent development is the increased focus on more granular modelling and calibration of structured products, such as CMBS and CLOs, and allowing for the tailoring of cashflows for private assets, including prepayments. 

We’ve also made great strides in solving the optimisation conundrum through expanded functionality and promising research into scenario-based reinforcement learning. The use of machine learning techniques is a core objective in our aim to support clients’ complex problems.

In terms of capital frameworks, the GLASS insurance model will be updated with the latest US NAIC RBC framework  for life insurers. As with any other framework currently supported, including Solvency II, RBC2 Singapore, RBC Malaysia and Thailand, the framework will be fully integrated within balance sheet forecasting and optimisation. 

The 2024 release of our Climate MAPS scenarios brings significant improvements to an already market-leading product. The inclusion of a fifth scenario consistent with recent developments offers clients another realistic and plausible climate pathway to challenge their asset-liability modelling. 

The qualitative assessment of tipping points further reinforces our ambition to best inform financial decision-making for any climate scenario.

www.ortecfinance.com

 

Guide entries by Ortec Finance