Integrating GEMS Economic Scenario Generation and Prophet Actuarial Modelling.
For meaningful projections, life insurance companies must model the future behaviour of both their liabilities and their assets, as well as the increasingly complex interactions between them. An important part of this modelling process is a set of consistent, realistic economic scenarios, depicting future market behaviour.
Actuarial modelling software allows actuaries to project the cash flows generated by policies and claims into the future – and show the combined long-term impact on your liabilities. But investment returns are a crucial component of an insurer’s profitability, and life insurers traditionally rely on them to fund their operations and claim payments. So, they also need to know how the twists and turns of the financial markets will affect the assets they’ve invested in. If there’s another crash, for example, or equities in a certain sector drop significantly in value, will their business still be safe?
To answer such questions, you need an economic scenario generator (ESG) solution, which will provide possible scenarios for a range of economies predicting the impact on assets many decades from now. The best ESG solutions supplement their model predictions with calibrations based on expert judgement about market behaviour and the correlation of different market factors to ensure the predictions are consistent and plausible.
Not only can these calibrated scenarios be used in the modelling of future asset behaviour for valuation and reporting purposes, but they are also a vital part of the creation of proxy functions to provide a quick simulation of an actuarial model, often used for quick “what-if” calculations where time pressures don’t allow for the full model to be run again.
FIS’ and Conning’s award-winning solutions for actuarial modelling and ESG already work well together. Now the two firms are joining forces to develop tighter levels of integration, to enable higher performance and more sophisticated modelling approaches.
Combining FIS’ Prophet solution for projecting assets and liabilities with Conning’s GEMS Economic Scenario Generator and expert calibration services will provide a best-of-breed solution for risk modelling, both in the near and long term.
For joint clients of their complementary solutions, FIS and Conning are already working closely together to maximise the benefits from both platforms in a range of different deployment configurations. In so doing, they aim to create an optimal combination of actuarial modelling software and ESG capabilities for insurers.