Buy-side Awards 2016
At one time, insurers looked to vendors mostly for help with their models – the component that valued assets and liabilities and calculated economic and regulatory capital. As business has become more complex, competitive and regulated, the process on either side of model execution has become more challenging. Now insurers want their vendors to help with handling the information that goes in and comes out of models as well.
This was the goal of Royal London when, in 2014, it embarked on a transformation programme to replace all previous actuarial systems with a single platform. "We went with Milliman primarily because they were the one provider at the time that had a true end-to-end offering for the full actuarial modelling process," says Mike Williams, senior modelling actuary at Royal London, who is based in Wilmslow, England.
Milliman has been building components around its core MG-Alfa actuarial modelling system for the past few years to create a broad-based platform it calls Integrate. Running on Microsoft's Azure cloud, Integrate's software-as-a-service offering includes tools for managing the input of data as well as moving it through complex modelling flows. It also includes business intelligence analytics and reporting tools for the output, and governance and collaboration tools for tracking and managing changes to the overall process.
"Initially, we expected clients to prepare the data for use by our system, and we sent the results back to clients' on-premises data warehouse for them to manage the storage, analysis and reporting themselves," says Pat Renzi, principal, life technology solutions at Milliman, who is based in New York. "Our new Integrate Data Management (IDM) component allows clients to bring source data directly from administration, general ledger, investment and other systems in raw form, use our tools to transform it into the right format and feed it directly into the models and calculations."
Royal London's Williams says: "The new data management component allows Integrate to grab the raw extract liability and asset data from your administration systems, suck it up into the cloud, produce the required model points in the cloud, and then push those through the modelling process automatically."
The new data management component allows Integrate to grab the raw extract liability and asset data from your administration systems, suck it up into the cloud, produce the required model points in the cloud, and then push those through the modelling process automatically
Mike Williams, Royal London
At the output end of the process, Milliman provides the tools to capture the results data and organise it for analysis. Milliman built IDM using Microsoft's Azure Data Factory and Azure HDInsight, which in turn are based on Hadoop, a programming framework for managing extremely large data sets in a distributed processing environment. Hadoop includes a scripting language called Pig, and Royal London has been using this to help automate parts of the modelling process.
"IDM allows you to automate the flow of data through the Integrate platform. If one modelling element requires data from a previous one, you can script code using Pig so there is an automatic flow of data between the two components. It's powerful and has the potential to be even more powerful," says Williams.
Milliman has added new reporting and analysis tools to Integrate, built with a new version of Microsoft's business intelligence software – Power BI Embedded. This enables developers to take the Power BI capabilities and incorporate them into a cloud platform rather than having to use a separate application. Milliman was one of the first software companies to implement Power BI Embedded, thereby adding the ability for Integrate users to visualise and evaluate their modelling output in the cloud environment instead of having to download the output to an on-premises application.
One of the challenges of running a complex actuarial modelling process is keeping track of all the enhancements and changes to the system over time. To bring structure and control to the change process, Milliman has added a governance and collaboration component to Integrate. Actuaries can use this to define, schedule and track the process of creating a new release of a model. "As they move from specifying requirements through to building and testing, actuaries have a complete log of the governance around those changes," Renzi says. Milliman uses the component itself as it manages all change for its standard code and clients can use it for themselves if they choose to customise the system.
Milliman has also recently extended the capital management capabilities of Integrate. Initially, the platform only supported a stress and correlation approach for Solvency II internal models, as this was the requirement of Phoenix, the first Integrate client. However, Royal London, a more recent client, is planning to use a full risk distribution approach with curve fitting for determining capital needs, so Milliman has added support for this, which is available to all clients.
"We are using a least squares Monte Carlo approach to fit the curves automatically. There are no manual processes – this eliminates expert judgement, manual work and the associated operational risk, and you get the results faster. Users have control over the parameters with regard to how many coefficients they want, and other factors. But once they are comfortable with all parametrisation, then it is all automated," says Renzi.