Enterprise Risk Management Technology Guide 2023/24

Ortec Finance: Solutions to navigate a changing climate

Are climate and ESG risks still the top concerns for insurers in today’s volatile environment?

Hens SteehouwerAbsolutely! When we speak to our clients they are among their top-of-mind topics. The consequences of the war in Ukraine and high inflation receive lot of attention currently from insurers as well. But these issues of security, energy-transition and food are interlinked with the climate and sustainability challenge.

Ortec Finance has a suite of climate-related solutions to support insurers in this area. For example, our leading climate scenario solution, Climate MAPS, quantifies investment portfolio exposures to transition, physical and market-related climate risks.

Based on a collaboration with our partner Cambridge Econometrics, our scenarios can incorporate climate risks and opportunities associated with different global warming pathways. Our Climate ALIGN solution monitors portfolio alignment with net-zero emissions by 2050.

Based on our brand-new partnership with ESG Book, formerly Arabesque S-Ray, we will later this year launch an on-demand Implied Temperature Rise (ITR) analytics platform for our alignment solution, which will be powered by ESG Book’s market-leading climate data. The platform will allow insurers to access ITR scores across multiple asset classes including public equities, credit, and private markets.

Can Ortec Finance help insurers with inflation risk?

Based on our comprehensive ALM modelling platform, and the unique frequency domain approach of our Economic Scenario Generator, we can help insurers with an integrated, consistent and accurate assessment of the potential short- and long-term impacts of inflation risk on assets and liabilities, for different product lines, entities, as well as at group level.

These same tools can optimise the risk and return profile of the investment portfolio against insurers’ return objectives and solvency risk limits in an efficient and effective way. This can be used to make a portfolio more resilient to inflation risk by rotating more into inflation hedging assets.

How do you expect risk modelling to change over the next five years?

Besides the further integration of climate and ESG, I expect to see an increasing importance and growing adaptation by insurers of what can be called “dynamic ALM”, compared to traditional more short-term static interpretations of ALM. Traditionally, a lot of effort goes into assessing the current balance sheet and corresponding short-term capital requirements. These are very important of course. But another question is how to get insights on the potential future developments of the balance sheet under a wide range of scenarios.

Several insurance companies around the world are now picking up on the benefits of this approach. The required technology available is modular, flexible for integration into insurance technology infrastructures, and we have the experience of implementing it with clients. However, it does not yet have the widespread use in insurance, as it does in the pensions industry.

The driving force behind this change is that insurers must continue to provide decent returns to stakeholders in a world of continued consolidation and increasing competition, despite the recent increases in interest rates, and low yielding insurance investment portfolios.

I also expect to see an increasing application of artificial intelligence (AI) techniques to support risk management and investment decision making. A first driver of this change is of course the increasing volume of available data. Another, less well-known, driver is the continued advances in combining the dynamic ALM models powered by stochastic scenario engines, with that of AI technology to optimise dynamic investment strategies.

How are your insurance clients’ stress and scenario tests evolving?

In an increasingly uncertain world, we see a growing need and application of scenario-based stress testing and sensitivity analysis by insurers in their risk models. Constructing deterministic scenarios, or alternative expectations for stochastic models can be quite challenging nowadays. 

For example, the dimensions in terms of risk drivers and time-periods can be large. In times of stress, fast ad hoc scenario development is required, as was the case after the outbreak of the pandemic. And, of course, the scenarios should come with intuitive narratives that help communications with management and regulators.

We have developed a novel approach to construct alternative scenarios for stress testing and sensitivity analysis. In this approach, alternative scenarios are constructed as “rules-based deviations” from the baseline assumptions of a stochastic scenario model, followed by manual refinement. This approach is already being successfully applied by some insurers to support their Orsa process.

Has Ortec Finance made any improvements to its technology solutions in the past year?

Apart from the ongoing expansion of economies and asset classes covered in our Economic Scenario Generator, and the advances in the climate and ESG solutions, I would also highlight:

Least Squares Monte Carlo: Based on the unique combination of our frequency domain based Real-World Economic Scenario Generator, and our parsimonious (with few parameters) Risk-Neutral Economic Scenario Generator, we have implemented a new approach for the generation of so-called ‘nested scenario simulations’.

We apply these nested simulations for highly efficient and accurate Least Squares Monte Carlo (LSMC) valuations of insurance contracts in a multi-year stochastic simulation setting.

Cloud Native software development: An approach to software development built on the benefits of cloud computing in which software is split up into smaller manageable units that work together. This allows for fast deployment of high-impact improvements which is important in a fast-changing world.

Guide entries by Ortec Finance

FactSet Data & Analytics Solutions

Touchstone

Pricing - Tyche Pricing System & Aon Pricing Platform

Reserving - Tyche Reserving System

Aptitude IFRS 17 Solution

Aquantec Ocean

Atidot AI & Analytics Platform - Atidot OPTIMAL

ANNalytica

BW KIDS 4 PRIIPS Tool

SIImplify

With Profits Payout Monitoring Dashboard

Demographic Experience Monitoring Tool

ATOME: Particles

ATOME: Matter

ADVISE® Enterprise Risk Modeler

Conning Allocation Optimizer™

Conning Climate Risk Analyzer™

FIRM® Portfolio Analyzer

GEMS® Economic Scenario Generator

XSG

Detech Optimizer

DEvent

Dynamo Analytics - Psicle

Incisive Essentials - Xcellerator

Integrate

Milliman Mind

ModelSign

Solvency II Compliance Assessment Tool

STAR Solutions NAVI

STAR Solutions VEGA

Milliman Mind–IFRS 17

Arius

Datalytics-Defense

Nodal Claims Triage

Milliman Economic Scenario Generator

Milliman AccuRate Fleet

Milliman Bungalow

Milliman PinPoint

Curv

Milliman Long–term care Advanced Risk Analytics™ (Milliman LARA™)

Milliman M-PIRe Valuation & Securitization Software

AXIS™ Actuarial System

Scenario Generation Solutions

Climate Pathways

RiskIntegrity™ Suite

Oasis Loss Modelling Framework

GLASS

Economic Scenario Generator

Phinsys Insurance Suite

CoMeta

ChemMeta

Matching Adjustment Analytics Tool

R³S Software Suite

Mo.net Model Development Studio

Mo.net Operational Modelling Centre

Mo.net Quotations Service

Mo.net Cloud Modelling Service

Mo.net Mobile Modeller

IFRS Assess Enterprise

SolvencyTool

SolveXia

Governance, Risk & Compliance System

DataValidator

ResQ Financial Reporter

Unify

Igloo

Radar

ResQ

zeb.control

evo-insight - New Actuarial Modelling and Analytical Platform from Zenith

Actuo SII Engine

IFRS17 Solution

Reserving solution

Solvency II solution

Pricing solution

CLARA Casualty Claim Platform (CLARA Triage, CLARA Treatment, CLARA Litigation, CLARA MSP Compliance, CLARA Optics)

Portfolio Manager

JBA Flood Modelling Technology

IFRS Assess and Risk Analyser

Numerix Insurance Suite

PATOne EDM

Quantee Platform

On-Demand CAT Modelling Services on the Oasis Platform

Graci

Riskonnect

FE Solvency II

Grace Connect GRC Suite

Monitaur

DeepCyc

ForeCyc

Metryc

Escali Financials and Escali Supervision

CALFITEC

Quotech Underwriters Workbench

FIS Insurance Risk Suite (formerly known as Prophet)

LCP InsurSight

SS&C Algorithmics for Insurance

True North Data Platform

Balance Sheet Management (BSM)

Economic Scenario Generation (ESG)

MavenBlue Enterprise Pricing Management (EPM)

Optalitix Models and Optalitix Quote

Montoux Actuarial Automation Platform

Iris Actuarial Platform

CyberCube Analytics - Portfolio Manager

R³S Model Packages

R³S Modeler

R³S Process Manager

R³S Development Manager

Decision Focus

Fathom's Product Stack

Capital - Tyche Capital Model & ReMetrica

Incisive Essentials - Concourse

VIPR INTARGA

VIPR Insights - Data Analytics

Zupervise

Protecht ERM

Slope Software

Camms GRC Software

Quantee next-generation insurance pricing platform powered by AI

Oversight360, a Sicsic Solution

RISKflo

End User Computing (EUC) and Model Risk Management Software with Inventory, Discovery and Monitoring Modules

XLAudit Spreadsheet Error Analysis and Data Integrity Software

ClimateMAPS

Financial Results Analyzer

Risk Explorer™

RiskAgility FM IFRS 17 Calculation Engine

Predictable Dynamics

Res-Solver™

RiskAgility Financial Modeller

Atlas

iReplicate Policyholder Compression

Asseco IFRS 17 Engine