Supporting the risk function by enhancing its analytical abilities is a core goal for modelling solutions, explains
Colin Holmes, managing director at Moody’s Analytics
What are your customers looking for in their risk and financial modelling solutions?
The common thread that we see globally is that the risk function continues to evolve from ‘risk control’ to ‘business partner,’ enabling firms to more effectively generate value through allocation and management of risk budgets.
In Europe, it is clear that the compliance element of Solvency II is largely in place, and our customers are looking for solutions that enable them to make effective decisions in a world where Solvency II capital is a key metric.
We are currently working on projects with a number of customers, across their risk, investment and finance departments, to enhance existing modelling to power the analytics that senior managers are looking for – typically by extending techniques that have been developed for regulatory calculations. Specific challenges we see include optimising investment strategy and capital allocation.
Outside of Europe, this trend is also clear, especially among the largest firms. Alongside this, there is a focus on recent or forthcoming prudential regulation in countries including South Africa, Canada, Japan, and South Korea, where we see firms looking at these challenges, alongside the obvious focus on IFRS 17.
We expect firms will continue investing in modelling technology, first to comply with regulation, and then building on that investment to meet business needs. With our experience supporting firms to prepare for existing regulations and standards, and with our capabilities across modelling, software, and analytics, we have much to offer firms, wherever they are on this journey.
What has been the focus for your product development over the last 12 months?
Insurers’ senior managers consistently tell us that they want the ability to answer “what if…?” questions relating to balance sheet and capital implications of decisions and external factors. Typically, firms can only answer these questions with manual effort, delays of days or weeks, and with ad-hoc calculations, which undermine confidence in results. Our new RiskIntegrity™ Insight software addresses this challenge, providing a controlled, robust solution that leverages existing modelling to generate business insight.
Another area of development for us is our portfolio modelling suite, which we have developed to meet the needs of investment and ALM teams in constructing and monitoring asset portfolios. We have recently made new releases, including SaaS-based portfolio analytics software, a portfolio module, and enhancements to our core modelling, which has helped us to win a number of new customers.
As you know, GGY joined Moody’s Analytics last year. We are continuing to enhance AXIS™, with demand continuing as North American firms tackle emerging and existing regulations and standards – for example, AG43, PBR and ORSA in the United States. In Canada, new capital requirements have already been announced and solvency modernisation is underway. In addition, the team are working closely with customers in preparation for IFRS 17.
What will the impact of IFRS 17 be for insurers?
IFRS 17 is going to have a significant impact that will extend far beyond the finance department. The nature of the calculations and disclosures will drive far closer alignment of actuarial and finance departments. As firms deal with the challenge not only of implementing the new financial reporting process, but also managing their business with a significant change in the way financial performance is measured. This will require integration of actuarial and accounting systems, creating data, process, modelling and governance challenges.
We are well placed to support insurers in meeting these demands, given the breadth and depth of our experience across actuarial modelling, software and economics. With our “vendor-maintained” approach to software, we are already enhancing our existing solutions, and developing the new capabilities required. For example, we are developing software to calculate the contractual service margin. Taken with our experience developing and delivering key content, such as ESG calibrations, this gives Moody’s Analytics a unique ability to support the industry to meet this challenge.
How is the integration of the GGY business into Moody’s Analytics progressing?
It is going very well. GGY’s strength in actuarial modelling complements our existing capabilities across software, analytics, quantitative and economic modelling. By bringing these capabilities together, we are offering comprehensive solutions that address the main industry challenges. RiskIntegrity Insight and IFRS 17 are good examples of this, with AXIS used to power calculations within the RiskIntegrity Insight solution we are offering.