Moody's Analytics: technology to make decisions

Assessing the impact of decisions on capital and asset allocation are becoming essential for insurers in the post-Solvency environment, as Colin Holmes explains

Do you think insurers have embedded their Solvency II practices, or do you still see issues cropping up?

Colin Holmes, Moody's AnalyticsThe compliance element of Solvency II is largely in place – for the most part, insurers have the process and tools in place to complete their regulatory submissions.

What is also clear is that Solvency II – and similar regimes such as LICAT in Canada – has added complexity to managing the balance sheet. The ability to assess the impact of management actions, and external factors, on a range of financial metrics is key to insurers’ ability to take decisions that create value for their organisation.

So what we see is a demand for technology solutions that allow firms to assess the impact of their decisions, allowing management to make those decisions with confidence. For example, we have recently completed work with a large European life insurer to model the impact of strategic-asset allocation on their Solvency II balance sheet, helping them to assess investment decisions.

We are coming ever-closer to IFRS 17 implementation. Are you seeing more requests for software and what kinds of challenges are insurers facing?

It is no surprise that we are seeing a great deal of demand in this area. Clearly this is complex for insurers to implement: the standard requires new calculations, new tools, systems and data integration across actuarial and financial technology – as well as new business processes and governance that bring together actuarial and finance teams. 

This is reflected in what our customers are demanding from us – a combination of knowledge-partner, with expertise in the actuarial calculations, and enterprise software provider whose products will support an effective business process. Our IFRS 17 offering – which brings together our AXIS™ actuarial modelling software with RiskIntegrity™ IFRS 17 – is intended to do exactly that.

More broadly, this really fits with the way we see our role in the industry – we are a software provider, but one who aims to create long-lasting relationships where customers value our expertise. This makes us different to competitors, many of whom who focus on consulting, or have a more transactional software business.

Beyond implementing the pure financial reporting process, insurers will also need to understand the impact of IFRS 17 – in conjunction with IFRS 9 – and incorporate these metrics into decision-making. This is another area we are well placed to support customers with, with our recently launched RiskIntegrity™ Insight software.

Are insurers keeping pace with technology’?

Inevitably there is a lot of variability in the rate at which insurers are adopting new technologies, but we do see insurers embracing a range of technologies. 

In general, adoption of the cloud continues to grow as firms recognise the benefits – for example, using ‘bursting’ to access high compute capacity over a short period to quickly perform large model runs and manage costs. I am pleased to say we have a number of customers that have adopted our growing list of SaaS products.

In addition to the products I mentioned earlier, we have seen strong adoption of Portfolio Risk Analytics, a SaaS solution that helps wealth product providers meet key challenges around investment design and governance.

So are actuaries finally moving away from spreadsheets?

Spreadsheets will always have an important role to play – they allow anyone to perform analysis quickly and modern spreadsheets have a broad range of analytical capabilities, making them a powerful tool.

But we do still see spreadsheets being pushed beyond their capabilities. In many situations, control and governance around data and models are key, so that management can have confidence in results, and reproduce results, understanding exactly what is driving changes from one period to the next. Also, spreadsheets can become unwieldy and inflexible, making it hard to react to new requests from management.

To tackle these challenges, thoughtful solution design is key. For example, to create a robust framework for business projections within RiskIntegrity Insight, we have focused heavily on the design of a data structure that builds flexibility into the software, allowing firms to leverage existing models within a rigorously controlled environment.

This approach empowers the senior managers, giving them access to the results of the underlying models, in order to answer their business questions. As individuals, we are becoming increasingly accustomed to interacting with technology which ‘speaks our language’ – why shouldn’t we make the use of models just as intuitive and user-friendly as playing your favourite song?

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