We are experts in all aspects of reserving, including providing independent review and challenge of reserves, M&A advice and Lloyd’s Statements of Actuarial Opinion. We can help you quantify reserve uncertainty for Solvency II purposes, and build and review processes and models, including for valuation of liabilities under Solvency II.
A large UK domestic insurer came to us wanting our help in modelling some obscure and highly specialised latent claims liabilities to assist with their provision-setting in their audited accounts. This was a ground-breaking area of work, with no precedent for how the challenge was to be completed.
We performed an extensive literature review of the scientific and demographic information available and developed a modelling framework that helped us to prepare reserve estimates in a manner that could be readily understood by our client. Our straightforward approach to communicating uncertainties and innovative model design provided our client with insights of genuine value.
We can help you design, build, parameterise and implement your internal capital model for Solvency II or other purposes. We can provide independent validation for all or part of your internal model, and we can help you to deliver effective training to your board on the operation and use of the model.
Our client, a small Lloyd’s managing agency within an international re/insurance group was struggling to get business engagement with the output of their newly-built capital model. They asked us to guide them in designing a capital allocation framework that could support discussions surrounding underwriter targets and performance assessment.
We reviewed this insurer’s existing capital allocation models and identified a number of improvements that enabled them to be more usable. This involved helping them to make compromises over technical purity so that they could get buy-in to the results to support future business-planning discussions with underwriters and senior management. We then assisted our client in implementing these recommendations in practice.
External validation – cutting through complexity
We carried out a comprehensive independent review for a large Lloyd’s managing agency writing a broad mix of property and casualty direct and reinsurance business. Features of our approach were:
- Top-down and bottom-up testing – considering whether the overall result was correct as well as identifying detailed areas for future enhancements
- Consideration of both quantitative and qualitative aspects – while the focus was on the numeric output of the model, we were able to provide valuable insights to the board on model governance and use through benchmarking them against our wider client experience.
- Value-added approach through: Targeting detailed testing to key risk areas; peer review of secondary risks.
- Scope and coverage testing: Identifying where model design and coverage fell short of requirements.
We provided our client with a series of reports suitable for provision to regulators as part of the firms’ internal model approval activity.
We can build and review your pricing models and frameworks, including integrating them with your other actuarial systems and processes. Our intimate knowledge of most lines of business, coupled with our wider independent research can help you keep abreast of good practice tools and techniques.
Our work assists firms address the following:
- Establishing right framework to use for pricing this class of business
- Building underwriter buy-in to pricing models
- Tracking pricing performance against technical rating
- Determining a reasonable approach to setting and validating model parameters
- Allocating capital in an effective manner to support pricing
- Linking pricing models to business planning, reserving and capital modelling processes
Enterprise Risk Management
We are experts in risk modelling, understanding the qualitative and quantitative processes that feed ERM frameworks and the way to design output management information to achieve effective board decision-making. We understand how to make the most out of the interaction between risk and actuarial functions and help our clients to design optimal structures.
Enterprise Risk Management services across the classic 3 lines of defence model
First line services Our skill set enables us to pull data successfully from across reserving, pricing and capital and risk functions to ensure a consistent approach:
- Establishing risk frameworks around each underwriting team
- Build or review your underwriting models and support the actuarial function in preparing its opinion on the underwriting policy
Second line services We know how to design and build internal capital models and link them to risk appetites and tolerances, including stress and scenario testing:
- Design and build of internal capital models, including selection of appropriate software platforms
- Support design of and review an organisation’s risk appetite and its translation into risk tolerances along with supporting management information
- Independently validate internal model processes and parameters
Third line services We support and co-source internal audit reviews of risk, capital and actuarial activities with a firm
- Internal audit-led internal model validation
- Deep-dive testing of actuarial and risk modelling processes and controls
- Review of actuarial function governance and standards compliance
- Actuarial function design: Under Solvency 2, the Actuarial Function becomes a key contributor to enterprise risk management with an annual report required to be produced. We can assist with considerations of the optimal structure for the actuarial function and the production of the annual report which can reach beyond the traditional areas of actuarial involvement
- Support or project management of business planning process
- Board training: We have designed engaging board training courses through coaches, briefing papers and workshops. Our focus is on helping board members to understand how they apply the knowledge
Mergers and Acquisitions
We provide buy-side and sell-side advisory services and post-acquisition assistance working alongside your in-house team or other external advisors. Our scale enhances your confidence that our advice is conflict free, while our approach and experience means we focus on key drivers of value.
We provided support to a major insurance company where its owners were looking to sell. Having helped prepare reserve adequacy presentations to prospective investors, we were invited to join the senior management team during their pitch meetings. As due diligence progressed we were actively involved in providing answers to the many and varied questions that arose.
At the exclusivity stage, we then worked with the in-house team to perform reverse due-diligence exercise on the shortlisted buyer. Our ability to scale up our senior team was an important differentiator of what we offer to firms in these situations. Our work was critical in highlighting red-flags and supporting the inclusion of key terms in the sale and purchase agreement.
Once the sale was completed, we subsequently assisted with planning and implementing the early integration process to ensure a smooth hand-over to the buy-side actuarial team.
Software and Systems
Having the right software is critical to enable optimal output from the actuarial function. We spend time researching products and help our clients make informed choices.
We help clients design efficient systems and build appropriate model and end-to-end process solutions.
Capital modelling software –tender process for capital modelling software and economic scenario generators
We helped our client, a large Lloyds managing agency, carry out a tender process to help them select two critical software components:
- Core capital calculation software; and
- Economic scenario generator.
This work involved us preparing the functional and non-functional (ie IT-related) requirements of the desired product and then assisting with the review of the submissions, including attending vendor presentations. We reviewed all of the major vendor products, along with a small number of competitor product providers. Key to the success of this exercise was our experience running an actuarial software team, and therefore being able to translate generic IT-related business requirements into meaningful specifications for actuarial software.
Education and Training
We can help you design your actuarial function to address the emerging requirements, support it including through independent assurance surrounding its operation and deliver effective board and senior management training. We can provide expert peer review of Solvency II actuarial opinions relating to technical provides, and underwriting and reinsurance policies.
Our client, a large Lloyd’s managing agency / plc asked us to design and lead the initial delivery of a board training programme on Solvency II. This involved four distinct phases:
Design an overarching programme, mapping out not just the information that senior individuals needed to know, but what they were supposed to do with the knowledge.
- Drafting a series of bite-sized briefing papers.
- Preparing and delivering effective half-day group training sessions (including developing engaging group exercises and tests).
- Carrying out one-to-one coaching to enable board members to raise and explore sensitive knowledge gaps in a safe environment.
We received very positive feedback on the engaging sessions we ran and how our approach had helped the board to move beyond knowledge overload to genuine skill development.