Last month, FINCAD team members travelled to Stockholm, Sweden to participate in a Marcus Evans event focused on asset allocation under Solvency II. Speakers at the conference explored many of the struggles insurance firms are encountering as they work to comply with the risk-based solvency requirements, and reviewed strategies they are using to better manage assets under the Directive.
I had the opportunity to present on how best-of-breed enterprise valuation and risk solutions can help insurers successfully confront their most pressing challenges around Solvency II. These include needs to optimize regulatory capital, improve risk calculations and asset hedging strategies, and achieve intra-day risk management of complex life liability portfolios. To demonstrate this, I explored a case study of one of our clients, a European life insurer, who overcame Solvency II analytical challenges to achieve improved risk management, a better ALM strategy and enhanced balance sheet management.
In preparation for meeting Solvency II requirements, our client, Phoenix Group, sought a scalable analytics platform that could also help them optimize their balance sheet usage. The insurer required a solution that would enable robust, yet flexible modeling in order to manage investment risk on its £7 billion annuity book. Ultimately, the firm selected FINCAD’s F3 Excel Edition , as the solution was able to help them bridge the gap between actuarial and asset manager models, as well as provide expanded risk management capabilities for things like major risk measures and on-demand scenario analysis.
As a result of implementing F3, Phoenix Group has improved decision-making with more timely risk monitoring, and has gained the ability to easily create and manage bespoke ALM models for multiple asset classes. “Frequent scenario analyses helps us make more accurate, timely and thus more effective investment decisions. As a consequence, we have been able to reduce market risks and improve the firm’s balance sheet,” said Prasun Mathur, Deputy Head Director of Investment Risk and ALM Strategy at the Phoenix Group.
For those unfamiliar with F3, it is a flexible enterprise valuation and risk analytics solution that helps leading global organizations enhance investment returns, better manage risk, reduce costs and agilely comply with regulations. To achieve unparalleled accuracy and speed in arriving at risk calculations, F3 uses our patented analytic risk technique known as Universal Algorithm Differentiation (UAD). This technique has been tested and proven to be hundreds if not thousands of times faster at calculating risk than traditional finite difference methods such as “bumping.”
For more information on how Phoenix Group leveraged FINCAD to attain compliance with Solvency II, and optimize investment decision-making, read our case study.