Life and pensions ALM system of the year – Conning


Insurance firms and the pension sector in general were well capitalised to withstand the economic shocks throughout last year’s pandemic response. But their strategic investments, like the rest of the industry, needed swift updates. Investment teams had to scramble to update models to respond to volatility amid lockdowns.

The scenario helps explain why Conning’s FIRM Portfolio Analyzer, built for risk analysis in the insurance and pension industry, raised its profile. The firm’s selection as best submission in the life and pensions ALM system of the year category is a reflection of its unique analytical strengths and sophisticated modelling products that use stochastic analysis. 

Conning’s Investment Optimizer software, for example, uses such stochastic methods to generate a distribution of results from a wide variety of scenarios, informing decisions regarding investment risk and strategic asset allocation. It is one of the strengths of the product that drew praise from judges in this category. 

A lot of vendors offer stochastic modelling features, particularly on the liability side, explains Mark Saunders, head of product management and risk solutions for Conning. The differentiator with the FIRM product is its ability to model and analyse both assets and liabilities. Within a specific analysis, the product can generate thousands of scenarios that incorporate dynamic investment decisions, and then optimise over this distribution to generate a strategic asset allocation. That’s one of its strengths. 

Mark Saunders_Conning
Mark Saunders, Conning

For example, one client, a large pension institution in the European Union, needed to create custom analytics and present conclusions to their board within a 12-week period. In the first phase of the project, Conning worked on skills training and knowledge transfer to understand the toolsets. The second phase entailed deploying Conning’s FIRM Market Index functionality to model additional asset classes, including local real estate, private equity, infrastructure and collateralised loan obligations. The functionality incorporates price and income components to enable a better view of cashflow analysis. The FIRM scenario generator enables clients to achieve targets for risk-free yields, for example, and examine other potential yields in credit markets, especially as inflation increases.

The final phase was to create a realistic model of the stochastic behaviour of the pension liabilities. The group was able to express risks found within new and existing businesses, as well as between funds.

Other customers leverage their analysis results with the firm’s GEMS Economic Scenario Generator. The FIRM Portfolio Analzyer is regarded as a very competitive tool for active investments and developments. 

Conning’s achievement also reflects where the industry regulation is moving, post pandemic. Many firms use the products to stay ahead of best practices in investment strategies, and the stochastic methods can do so effectively. “That’s very rare and one of our strengths,” adds Saunders.  

Industry observers expect to see regulation moving towards getting companies to use stochastic models to estimate their risk.

The best practice is to use stochastic models. Clients
use the tool to help them calculate risk and make good investment decisions. But the platform also enables a range of probabilities that are now adding value.

Should regulators decide to update rule-making that impacts the sector, the FIRM line of products and its clients know they are already ahead of the curve. 

The judges said:

  • “Response to pandemic by Risk Solutions team deserves praise at a time when alternative assets are becoming more material to balance sheets.”
  • FIRM® Portfolio Analzyer is a stochastic simulation tool not a full-blown Life and pensions ALM system. Should be regarded as a very competitive sub-component. Very active investment and developments the last 12 months like new Global Jump Process.”
  • “Good new product, developing and innovation.”
  • “Heavy focus on modelling in this entry. Like the focus on the impact of low rates and diversification among funds. Good case study.”

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