Towers Watson - RiskAgility

2012: not a time for standing still

John Rowland, Global Head of Life Capital Modelling at Towers Watson, outlines developments in Towers Watson's modelling software for life insurers. What developments have occurred this year?

We have made developments in each of our flagship software products over the past year - MoSes (core actuarial projection engine); RiskAgility MoSes (enterprise model governance framework); RiskAgility EC (enterprise economic capital aggregation tool) - and also released our new RiskAgility Standard Formula tool.

MoSes/RiskAgility MoSes

For the MoSes platform, we introduced MoSes Azure, which enables companies to run MoSes financial models in Microsoft Windows Azure Cloud Services. Insurers can now run their models against an on-demand, cloud-based grid, providing massive computing resources without the standing costs of in-house infrastructure.

We also released version updates - MoSes 6.6 and RiskAgility MoSes 3.2. MoSes 6.6 delivers the ability to manage report output definitions using output filter sets. This enhancement makes MoSes reporting easier and more flexible. RiskAgility MoSes 3.2 gives insurance companies the option to define additional validation criteria when enforcing model version control.

RiskAgility EC

RiskAgility EC was developed from the experience of our economic capital experts specifically with Solvency II internal models in mind. This year we released RiskAgility EC v2.1, and RiskAgility EC v2.2 is due in Q4. These two releases add significant flexibility to the core functionality by allowing general forms of risk and balance sheet structures to be reflected as opposed to assuming specific forms. For example RiskAgility EC v2.1 introduced functionality to permit balance sheet structures to be modelled using Least Squares Monte Carlo approaches - in addition to simple curve fitting - within RiskAgility EC.

A key advantage of RiskAgility EC is that it has been designed from the ground up. The internal model paradigm under Solvency II is a well-defined modelling problem and we have been able to build a fairly complete solution that requires parameterisation, not coding development at implementation. In our most recent implementation we were able to build the model and train the client team in three months, after which they were able to operate independently.

We are on target to reach double figures in client numbers with six UK clients and two in the US. We expect another UK sale imminently and we are in the evaluation phase with several firms across the world. We expect to finalise additional sales to clients in North America and to an Asian client in the current financial year.

Additionally one development this year has been the launch of Towers Watson FastTrack EC in North America. This consulting based offering uses RiskAgility EC to offer clients a first taste of economic capital modelling for their business - typically in just a few weeks. We can do this as we have streamlined the development of simple economic capital models using RiskAgility EC to the extent that it is almost fully automated. We expect this development to bring the benefits of understanding economic capital modelling to many more insurers during the next year.

How is Towers Watson serving companies using the standard formula?

Earlier this year Towers Watson launched standard formula applications for both the Igloo (P&C) and RiskAgility modelling frameworks. RiskAgility SF is targeted at firms wanting to calculate the standard formula in a controlled modelling environment. The solution is designed to be very affordable so that it is suitable for smaller firms - perhaps with just a single regulated legal entity - as well as larger insurance groups.

The software is designed to be consistent with latest Solvency II guidance and Towers Watson's actuarial practice is on hand to ensure that this remains the case. In particular as the Solvency II legislation is finalised, if the standard formula evolves further Towers Watson will release updates to the software so that our clients can be certain that they are working with a tool that is up-to-date.

We are close to finalising the first sale and have lots of interest across Europe and in the UK. We expect to make significant in-roads in the market over the next 12 months as smaller firms start implementing their solutions.

How are firms using their models?

Regulatory developments globally, not just in Europe, place great emphasis on management of risk through the various ORSA developments worldwide. We are seeing a lot of firms having built a first model looking at how they can manage the risks in their businesses. Our recent survey of UK life companies' internal model calibrations showed they feel they have most work to do in the area of validation and documentation.

What's crucial is that the software facilitates holistic risk management. Our modelling software is designed to enable both quick solvency monitoring and what-if analytics. Clients need solutions that are flexible to allow them to understand what happens to their risk profile if there are changes in the organisation or businesses are restructured.

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