Colin Holmes, managing director at Moody's Analytics, explains how the solutions provider is helping insurers steer through 2021 and prepare for the future with its breadth of capabilities and expertise
What are the focus areas for Moody's Analytics in 2021?
Firstly, we have the ongoing challenges of Covid-19 and climate change, which are presenting challenges to the industry and a great deal of uncertainty to navigate.
With Moody's Analytics experience in scenario modelling and insurance analytics, we are working with a number of insurers who are beginning to test the financial impact of both physical and transition climate risks. We are also enabling our customers to monitor and manage their real-time financial position in a volatile environment.
Insurers also have significant change to deal with through accounting changes with IFRS 17 and IFRS 9. This continues to be a key focus for us as our customers prepare for parallel runs in 2022. In this area, we have some customers with whom we have been working for a few years, while other firms are at an earlier stage and only now selecting their vendor as they prepare for what is a significant change to business processes across actuarial, risk and accounting teams. With time now tight for firms to make their decisions, we can offer insurers help through our 'vendor maintained' approach, which builds our methodologies into our software, allowing insurers to benefit from the experience we've gained working with leading insurers. Combined with a SaaS model and our experience advising on implementation, Moody's Analytics can help firms make the change in time.
Beyond the specific accounting changes, we have customers who also see this as an opportunity to modernise actuarial systems, which is driving continued demand for our AXIS™ actuarial modelling software.
As we all know, IFRS 17 introduces computationally demanding new calculations that legacy systems can struggle to keep pace with, while our cloud capabilities allow actuarial teams to burst calculations to thousands of CPU cores to deal with these demands.
What is the impact of climate change on insurers?
Insurers and regulators are increasingly focused on understanding financial resiliency in the context of potential climate pathways, and the physical and transition risks that different scenarios entail.
This is a challenging area, requiring a combination of disciplines – from climate science and economic forecasting, through actuarial modelling and analysis. This plays to our strengths, with the breadth of capabilities we can offer, and we are delighted to be working with a number of insurers to help them develop scenario analyses, for example to support their own risk and solvency assessment. With regulators in many countries, including the US and Canada, reviewing practice, this is an area we expect to be very active over the coming years.
Moody's Analytics has invested heavily in ESG and climate capabilities, for example through our affiliates Four Twenty Seven and Vigeo Eiris, making us uniquely placed to help insurers address these challenges.
Insurance investment continues to be a key topic, how are you helping the industry in that area?
Tying back to the climate challenge, we are helping investors to make more informed investment decisions through our firm-level data, combining views on credit risk with ESG. Also supporting the front-office, we have added real-time, fixed-income attribution capabilities in our PFaroe™ solutions product suite, including the ability to analyse the impact of ESG factors on investment returns.
In North America, we are very active in helping insurers to manage credit portfolios. We are also advising on bond factors for Risk-Based Capital assessments in the US.
Last but not least, we have another new product in our RiskIntegrity™ Suite, scheduled for release later this year, which will support investment and ALM teams with a liability-aware asset strategy.
While the current situation remains challenging for us all in many ways, we are proud to be doing some great work with our customers and are excited about the future.