Conning: Award-winning specialists in climate risk
Mark Saunders, a director in Conning's Risk Solutions group, explains how the vendor helps insurers address climate risk. He also explains the value of stochastic analysis
What would you describe as the major technology trends impacting insurers now?
Cloud technology is an obvious one. A couple of years ago, companies had concerns about security, stability and privacy with the cloud. Now, we often see software-as-a-service (SaaS) as a must-have in terms of demand. One of the drivers is that clients want information sooner and management wants analysis in a timely manner — cloud helps to deliver that.
Aside from cloud technology, in the US it seems that stress testing is becoming more popular. Management teams particularly like stress testing because it allows the business to be evaluated against tangible risks. Going forward, we expect to see further use of stress tests and the standardisation of models.
How do you see insurance risk and capital management changing?
I am interested to see how the EU’s review of Solvency II plays out, even though it may have slightly less impact in the UK now that we have left the EU. One of the things the European Insurance and Occupational Pensions Authority has examined in the review is interest rate risk, particularly for negative interest rates. At some point, the regulation is going to have to be updated to allow for negative rates falling further.
Broadly speaking, I think there will be a shift in insurers’ asset allocation towards more diversified portfolios. That is where Conning comes in, as the best way to analyse potential changes in investment portfolios is through stochastic analysis, where you will see the impact in a couple thousand different scenarios.
What new products and solutions can we expect from Conning?
One of the areas where we are strong is our strategic allocation tool, and we are incorporating capital management within that. For every asset allocation and stochastic path, we will have the ability to calculate the solvency capital under the Solvency II standard formula. This allows clients to better review how they manage that capital.
On the risk side, a lot of risk analysis uses stochastic models, and we are working on a SaaS version of our economic scenario generator. This stems from the fact that Conning was selected by the National Association of Insurance Commissioners to provide economic scenarios for the US life industry, and we are to deliver these scenarios via the cloud.
We are using this development to speed up our existing work, and we are building out a SaaS product not just to meet this US case, but also for markets outside the US. The tool will be faster and its interface will be more intuitive and user friendly. The new SaaS tool should be launched in the first half of 2022.
In the US, we are seeing a lot of demand for our economic scenario generator software. In Asia, there is more of a demand for detailed enterprise risk models and asset allocation tools. In the UK and Europe, we are seeing more demand for our strategic allocation tool from asset managers associated with insurers.
Is Conning planning to release more climate risk products for insurers?
Climate risk is taken seriously by Conning, both in terms of product development and internally. We are a signatory to the UN Principles for Responsible Investment.
One of the reasons we have won climate risk awards recently is because we are one of the few vendors to offer a tool rather than a consulting service. Currently, we are seeing a lot of interest in our Conning Climate Risk Analyzer™ tool from institutional investors who are still at the stage of researching different options. However, I think it will be 2022 or 2023 before people are really going to have to report on climate risk in earnest.
We’ve also had clients ask us to model environmental, social and governance factors into scenarios, and so Conning has added a range of these indices into its GEMS® Economic Scenario Generator software, which of course includes climate risk. The indices plug into clients’ existing risk modelling. They can also be plugged into Conning’s Climate Risk Analyzer solution to allow insurers to view their portfolios from a climate risk perspective.
