Faced with major market developments, such as the far-reaching requirements of Solvency II, insurers must undergo a process that can be summarised as change: adapt and evolve. Step one is to understand the new requirements and make changes to meet the new demands and deadlines. Step two is a matter of taking those changes, often achieved with considerable effort and cost, and making them part of business-as-usual operations – for example, by automating the collection, cleaning and sign-off of data for analysis and reporting.
“Step three is the evolutionary phase where you take the framework that you have built to achieve compliance and efficiency and add features to it that will bring business value. This could be metrics and analysis on business performance or dissemination mechanisms to get that information to a wider audience,” says John Winter, director, product management, for the risk practice in SunGard’s insurance business.
SunGard (now FIS) provides a suite of tools in its Prophet data management platform and actuarial modelling software to help insurers through the three steps of the process. “Without a shadow of doubt, insurers will go through a lot of workarounds, spreadsheet developments and other tactics to get the numbers out the first time. We have tools to help them take what might be a patched-up environment for day-one compliance and convert it into a framework that is advanced, resilient, scalable and production-ready,” Winter says.
This is not about setting all models and processes in concrete, however. While the framework should deliver efficiency with oversight and control, it must also embed flexibility. “We know from long involvement with our actuarial system that models are not static. Firms will always make changes and improvements in their models in response to the evolution of the risks they face and, when they do that, the whole business-as-usual framework needs to be able to change to reflect these changes,” Winter says.
Over the past year, SunGard has incorporated its Process Controller workflow engine into its data management platform and also linked it to its Prophet Professional and Prophet Enterprise actuarial systems. In addition, it has introduced the Insurance Data Repository, which includes a mechanism for mapping actuarial data into more human readable forms for senior management analysis, and the Prophet Business Intelligence analytical tool.
But while the company offers a full end-to-end platform for data management and actuarial modelling, it recognises that many insurers may already have built some of the components or have established third-party products in-house, and therefore SunGard offers the Prophet components as individual modules. “For example, our Insurance Data Repository is built around an industry standard widely used by business intelligence tools and is designed for easy integration. Our platform is open and allows connectivity with other technologies,” says James Webb, vice-president of solution marketing for SunGard’s insurance business, who is based in the UK.
SunGard has also made a number of enhancements to the modelling capabilities of Prophet to help insurers meet current challenges. Its new Nested Structures module enables actuaries to invoke one model from within another for tasks such as projecting stochastic or risk-based capital balance sheets. The module enables an outer model to modify information that an inner model uses for its calculations and can react to the results that the inner model returns. “This was something that was asked for by clients. The important thing about it and other advanced techniques we are introducing to the system is that it is giving firms more accuracy in their modelling as they look beyond the one-year horizon that Solvency II defines for its solvency capital requirement,” says Winter.
Approaches such as nested modelling are computationally intensive and SunGard has been working on ways of managing the demand. Prophet Enterprise can distribute the calculations of nested structures over high performance computing grids, and Prophet’s Asset Liability Strategy library is able to make use of proxies for asset and liability portfolios that make valuations much faster. SunGard has also been looking at the problem from the other side – making more computational capacity available, particularly through the use of cloud computing. “We released a managed cloud service for Prophet earlier this year,” Winter says. The use of cloud raises issues of data confidentiality and security, but SunGard’s data management platform can apply checks on data to be transferred to the cloud to address these issues.
SunGard recently extended Prophet’s reach beyond the life sector by adding support for general insurance, with tailored reserving and capital modelling libraries that use Prophet’s calculation engine to model a wide range of general insurance products, including the ability to import results from specialists models, such as those for catastrophe risk.
Statistics for Prophet deployments are impressive. The system now has more than 9,500 users at over 780 sites in 66 countries, including 40 new insurer and consultancy customers signed up between January and August this year, around a quarter of these for Prophet Enterprise. Established users include Zurich Insurance Group, whose choice of SunGard’s managed hosted service enabled the firm to get Prophet Enterprise up and running as a production system across multiple locations quickly, with minimal disruption to the business. Generali Deutschland says its adoption of the Prophet Data Management Platform has helped the company improve service continuity and quality of quarter- and year-end calculations at the departmental level, and enabled shorter reporting cycles for holistic risk management at the centralised group level.
Without a shadow of doubt, insurers will go through a lot of workarounds, spreadsheet developments and other tactics to get the numbers out the first time