Igloo. Financial modelling software for managing risk

Transcription

1 Igloo Financial modelling software for managing risk

2 Property and casualty (P&C) insurers and reinsurers are facing growing market and regulatory pressures to improve enterprise risk management. Igloo is a financial modelling software platform that can help you meet these demands quickly and effectively, promoting a wider understanding of risk management within your organisation.

3 Igloo The Igloo financial modelling suite is specifically designed to enhance understanding of risk within businesses, from simple applications to a corporate level top-down view of a financial enterprise Igloo is already the P&C insurance industry s market-leading modelling platform, noted for its transparency and scalability. It is used by a variety of organisations, including insurers, reinsurers, financial institutions and regulators. Igloo users can quickly start to see how decisions might impact on the risk and performance of their business, and use model outputs to promote a wider understanding of risk within the business. Igloo s building block approach and its library and pre-built modules make it flexible and easy to use. In addition, we offer clients guidance throughout the whole of the implementation process, from the initial design and build of a model right through to the running of education programmes on model output and wider enterprise risk management. The five editions of Igloo are designed to meet varying organisational and budget requirements. Igloo Compact Edition (ICE) is the entry level product for companies seeking to establish a modelling foothold. Igloo Extreme offers the user full customisation of the models while Igloo Enterprise additionally provides users with a distributed and data-governed solution. Igloo Express is designed for users who wish to use the model but do not need to have access to the underlying model detail itself. The Audit edition allows third party reviewers to conduct independent audits of Igloo models. In addition, Igloo Standard Formula is a specific Solvency II add-on or standalone solution that fully addresses the scope of the standard formula for calculating the Solvency Capital Requirement (SCR) within a robust governance platform. Igloo users can quickly see how decisions might impact the risk and performance of their business, and use model outputs to promote a wider understanding of risk within the business. Igloo 3

4 Advantages of Igloo All editions of Igloo are built on a common set of features that help take account of the uncertainties of the real world in business decisions and forecasting Client-centricity A rapid model development environment based on a range of reusable pre-built library modules and/or Igloo s building block approach to model components. Transparency within Igloo, the user can see every formula and investigate intermediate results. The Igloo Data Flow diagram and Tree View enable you to keep track of the origin and usage of all variables, and to drill down to any level of detail. Flexibility to update and amend specifi c model elements. Speed and performance a number of our clients have benefi tted from huge time savings when models have been embedded in the business for regular use. Future-proofi ng the fl exibility and scalability of Igloo means that models can grow with your company. Embedding Igloo supports the embedding of models in organisations by enabling sensitivity runs and by giving non-actuarial personnel the ability to run models and access the results. Governance Igloo includes data and versioning controls for those companies working on enterprise level systems. Proven modelling platform Compliance many of our clients have used models developed in Igloo to calculate regulatory capital requirements. Ease of integration Igloo can accept output from third party models, for example, natural catastrophe models and economic scenario generators. Igloo is trusted and is being used by national regulators. Reporting The ability to build custom reports and graphs that show results at any level of detail throughout the model. Pre-built library modules incorporate detailed and fl exible reporting facilities. Enables export of results to a variety of other spreadsheet and database packages. Technical efficiency Model nesting complex model structures can be simplifi ed by nesting models within sub-models. Distributed updates of standard components and modules. Does not require knowledge of programming languages. Connects to enterprise databases. Supports globalisation requirements. Deployment options include on premise installations and delivery from the cloud. Igloo includes data and versioning controls for those companies working on enterprise level systems. 4 towerswatson.com

5 Our clients are using Igloo to tackle a wide variety of business problems: Assessing overall risk profile (for example, profit distribution). Calculating regulatory and economic capital requirements. Setting business plans and strategy. Setting performance targets (for example, via allocation of capital). Assessing reinsurance requirements and pricing. Determining asset strategies. Pricing business at portfolio or individual contract level. Determining suitable capital structures. Optimising portfolios. Figure 01. Screenshot showing the Gumbel dependency with model inputs Figure 02. Simulate future balance sheets and income statements Igloo 5

6 Igloo editions Using a common building block approach, the five editions of Igloo are tailored to meet evolving budget, scale and processing requirements with an easy upgrade path. Igloo Compact Edition (ICE) The perceived cost and complexity of integrated risk models has historically proved a barrier to entry for many smaller entities. While addressing these issues, ICE offers the user a wide range of modelling options as well as a huge saving in time and run speed compared with the most common alternatives spreadsheet-based models. Specific benefits Incorporates a spreadsheet-style interface for model inputs and reports. Offers standard library modules. Enables you to very quickly establish modelling solutions for your business, with the assurance that you can seamlessly upgrade to other editions of Igloo if and when you wish. Reduces the risk of inadvertent errors inherent in using spreadsheet models. Provides a range of components that can be tailored to your company s unique needs. Includes parameterisation components for insurance risk. Igloo Extreme The Extreme edition, as well as offering the standard modelling libraries, enables you to create flexible and sophisticated models that reflect the uniqueness of your business. Specific benefits All of the benefits of the Compact Edition and: You are not limited to pre-defined libraries and have complete flexibility to create your own. Includes full model parameterisation. Enables optimisation of business strategies for example, reinsurance purchase. Allows creation of flexible user interfaces to models. Can be scaled up, or provide a migration path, to a fully distributed model (Enterprise edition). Igloo Enterprise The Enterprise edition offers fast processing speeds, ease of embedding, governance and non-technical user access to model runs and results for companies with a sophisticated model to those that want to run a smaller model many times with different sets of assumptions. The data control component provides a robust environment for running Igloo models using an enterprise-grade database for storage of data. Critically for Solvency II and other regulatory environments, this ensures demonstration of the repeatability of results and a full audit trail. Interaction with the system takes place through a web browser which, while providing full data security, enables non-igloo users to execute models. Specific benefits All of the benefits of the other two editions plus: Enterprise is a distributed, networked solution. Can be linked to an intranet interface. Supports a stronger governance framework through in-built controls for versioning, audit trails and security. Maximises model throughput. Uses a centrally managed modelling architecture for control and scheduling of model runs. Igloo Express The Express edition helps to support the vital embedding of models within the business by making them accessible cost-effectively to non-technical users through a simplified interface. This shell product gives decision makers the ability to vary key model inputs and see the resulting outcomes in a number of reporting formats. Specific benefits Supports evolving global regulatory standards for senior management understanding of high-level model output. Encourages use and embedding of modelling capabilities. Model users that do not need to interact with detailed, technical aspects of models only pay for the capabilities they need. 6 towerswatson.com

7 Igloo Audit The Audit edition is designed for organisations that need to validate Igloo models and carry out peer reviews. Specific benefits Enables establishment and verification of audit trails. Allows investigation and validation of assumptions used in models. Permits fulfilment of regulatory requirements for third party validation of internal models. Standard library modules To help clients develop models quickly, Igloo comes with a range of built-in library modules: Economic scenario generation Claim modelling including parameterisation Reinsurance contract modelling and pricing Reserving, including ranges Business planning Financial reporting Capital setting and allocation Igloo Standard Formula Europe Internal Models Library Igloo U.S. Modelling Application Figure 03. Igloo provides a seamless modelling upgrade path Model validation Igloo Compact Edition Igloo Extreme Igloo Enterprise Igloo Express Igloo Audit Igloo 7

8 What Igloo delivers Igloo provides a strong technical foundation for your financial models Any number of business variables can be modelled together with any required dependencies between them. Igloo has a strong statistical basis and includes a wide range of statistical distributions, a choice of dependency structures between key risk factors and graphics capabilities to visually identify features of your data. Components are developed using spreadsheettype formulae, and can be linked together at the click of a mouse. Models can be updated in seconds by replacing one module with another. Igloo in practice And because all Igloo applications are scalable, the software can ease your journey from the simple to the more sophisticated models. Management and technical support Building an accurate and effective model for use in your business is a complex process. Our consultants provide insight and training on enterprise risk management (ERM) and as much support as you need through the whole model implementation process from initial scoping and planning of the work right through to the embedding and use phases. We provide hands-on additional resource for scoping, building and peer reviewing models and insight into issues such as data specification, parameterisation and regulatory requirements. Igloo is licensed by insurance companies and, increasingly, by other types of financial institutions around the world. It helps them meet a range of business and compliance objectives Igloo has a strong statistical basis and includes a wide range of statistical distributions, a choice of dependency structures between key risk factors and graphic capabilities to visually identify features of your data. Figure 04. Screenshot showing the graphing functionality Much of the discussion about capital models in recent years has focused on compliance issues. Whilst important, for many of our clients this is only half the story. In many cases, Igloo is the platform which can support a more risk-conscious business culture, encompassing capital, assets, liabilities and operations. It also provides the technical analysis to support strategic planning and management. s broader actuarial and advisory services are an important part of the package of services offered to Igloo clients, helping not only to build, maintain and improve the financial model, but to support work to embed the cultural changes that true ERM involves. 8 towerswatson.com

9 Figure 05. Screenshot showing the full screen in split screen mode Igloo suite main features ICE Igloo Extreme Igloo Enterprise Igloo Audit Igloo Express Standard library modules Transparency of results and calculations Ability to run all Igloo models Control over all model variables Ability to integrate with office applications Connectivity to enterprise and desktop databases Distributed updates of standard components and modules Support of international character sets Suitable for desktop or shared server installations Supports use of dashboards Supports creation of dashboards Create own libraries Full optimisation capability Linking of multiple projects Distributed application Browser controllable System monitoring and administration tool Extended configuration options Model run scheduler Igloo 9

10 Solvency II and ERM Igloo Standard Formula The calculation of the Standard Formula SCR remains a core task in the Solvency II process. Igloo Standard Formula has been developed to work alongside other Igloo models or as a standalone solution in order to simplify the process. It fully addresses the scope of the standard formula while directly addressing essential parameterisation and governance issues. The trend for greater risk-based regulation is gaining momentum around the world Igloo provides an end-to-end solution for meeting the requirements of Solvency II and other geographic jurisdictions that are adopting similar regulatory regimes, as well as improving risk-based decision making in general. It also provides a stronger foundation for relationships with ratings agencies. Igloo is the state-of-the-art application to help you work effectively and effi ciently and future-proof the models used in your compliance function and the business at large. Specifi cally for Solvency II, it can be used to build and embed internal models to meet both the SCR and ORSA requirements. For calculation of the SCR and, importantly, governance of the data used within it, Igloo Standard Formula provides a tailor-made solution (see feature box). While Igloo permits your actuarial and compliance teams to analyse issues to precise levels of detail, the user-friendly reports and graphs functionality also gives all your management team easy access to key performance and risk indicators. Igloo Express is designed specifi cally with the operational needs and compliance responsibilities of senior non-technical managers and other decision makers in mind. ERM approach Many editions of Igloo, including ICE, allow models to be built that can be uniquely tailored to your business, whether this is done by or by you in-house. Igloo also supports the development of the business processes and controls around the model that are key to the successful execution of a Solvency II project. For example, it has a full audit facility to enable a user to show that a formula and set of numbers have been checked. Igloo can also interface via ODBC link with the full information architecture of a company including enterprise level databases. More advanced risk management of this nature is increasingly a concern for ratings agencies. With Igloo, the internal model you use to make more risk-informed business decisions will help you to demonstrate to rating agencies that you are staying at the cutting edge of risk quantifi cation. Approximately 60% of the non-life UK market (by premium income) use Igloo. 10 towerswatson.com

11 In cases where clients have developed Igloo models independent of consultancy support, we can of course offer an independent peer review and audit services ourselves. Igloo 11

12 Implementing models s broad mix of actuarial, project management and software-related expertise delivers a range of optional added-value services for the implementation and development of your models Training Most Igloo clients want their in-house actuaries and compliance teams to be able to do the majority of modelling work and analysis themselves once the model is built. Therefore, training is an important part of model implementation assignments, not only covering use of the software, but wider issues associated with enterprise risk management and techniques that will enable clients to get the most business benefit from the model. As clients develop their use of models, we offer options for further software and technical training. Solvency II Use Test. In addition, the tools are supplemented by comprehensive Solvency II Level 1, 2 and 3 documentation as well as Board-level and operational training sessions. IT infrastructure support We can advise you and work with your in-house IT teams to ensure that your desktop and servers are configured to optimise the use of Igloo. Help desk All Igloo clients have access to specialist support via telephone and our online software support portal: User forum Igloo clients can share ideas and learning experiences at our user forums that are held in countries with significant numbers of licence holders. Model design Our modelling specialists can take a lead or supporting role in the initial design of the model. Many clients continue to work with us over the years to add to their modelling capability as part of a structured programme or on an ad-hoc basis. Bespoke model libraries While all editions come with standard library modules, we can tailor any of these to your specific requirements or create new ones to meet your needs. Extreme and Enterprise edition users have the capability to create new libraries themselves, and can support successful outcomes for these projects. Economic scenario generation s Economic Scenario Generator model runs on all Igloo platforms. Over $3 trillion of assets are run under advisory worldwide through the asset modelling framework by financial services firms including insurers, pension funds and banks. Quarterly Star ESG calibrations for over 15 economies are used for capital modelling, business planning, ALM and asset optimisation. The Star ESG code is completely transparent and the Star ESG provides unparalleled control for users to calibrate the models supporting the 12 towerswatson.com

13 Data control and governance As the sophistication and scale of your models grow, so the need for tracking change requests and ensuring that different users have appropriate access and usage levels also increases All editions of Igloo can integrate with version control systems. Along the Igloo migration path, the Enterprise edition provides in the Data Control Component (DCC) a robust permission-based data control and model execution environment. This ensures the integrity of the relationship between inputs and the models. Where necessary, it can be programmed to force adherence to data governance before a model is run, but also includes options for a secure, read-only environment and access via a secure web interface. Enterprise builds an audit trail of who, what, when, why and the parameters used. The web interface can also be used to review and sign off changes. Permissions security can be managed at database level to remove the ability for users to bypass the controls. Auditing and validating models The inherent transparency of the Igloo suite supports in-depth investigation and validation of models. Furthermore, the Audit edition is specifically designed for companies that carry out third-party reviews of Igloo models. The ability to validate models is a key component in the development and improvement process; more so now that internal models for regulatory capital purposes are increasingly subject to strict approval conditions. Importantly therefore, there are no black boxes within Igloo all model formulae and intermediate results can be interrogated. Igloo Express only allows access to model inputs and reports, not formulae, for when you wish to give users partial access to models. Igloo Audit Because Igloo models are often now tied in to wider financial reporting requirements, and because consultants are frequently involved in the detail of helping build and develop models, there is an increasingly prevalent review role for third party companies, and particularly large accounting and audit firms. Igloo Audit was developed to enable these companies to work with insurers to independently interrogate Igloo models. This enables all formulae, dependencies, parameters and data inputs to be isolated and checked. Peer reviews In cases where clients have developed Igloo models independent of consultancy support, we can of course offer peer review and audit services ourselves. Because we work with models every day and invest a lot of time in research and development, our consultants are well placed to advise on the efficiency of model design and what constitutes market best practice, as well as on the compliance aspects of models. Figure 06. An example Enterprise data control component screen Igloo 13

14 7 of the top 10 global general insurance companies use Igloo In Europe, 4 of the top 5 P&C insurers use Igloo In the UK, 4 of the top 5 P&C insurers use Igloo Over 50% of Lloyd s capacity uses Igloo including 3 of the top 4 managing agents

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16 Software Portfolio provides sophisticated risk, analytics and consulting solutions that help P&C and life insurers meet the rapidly evolving demands of today s market. We combine innovative actuarial thinking with software expertise to develop comprehensive solutions that measure value, manage risk and safeguard solvency. Pricing software Our range of software tools enables you to plan, manage and optimise your pricing process. Used independently, or alongside our consultancy services, these tools are powerful additions to your business. Classifier Emblem Financial modelling software Clients in more than 30 countries leading P&C and life insurance companies, multinationals, pension funds, mutual funds and asset managers know that enhanced risk and capital management has become a differentiator for success. That is why they have made our systems an integral part of their business. Reserving and other insurance software In addition to industry-leading software that helps companies to run the loss reserving process with speed, ease and fl exibility, we offer specialist analytical software for insurers and reinsurers. DataValidator Proxy Modeller Radar Base Radar Dashboard Igloo Igloo SF Replica ResQ Radar Live Radar Optimiser MoSes RiskAgility RiskAgility EC RiskReporter RiskAgility FM RiskAgility SF Unify vgrid Star ESG is represented in the UK by Limited. The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specifi c advice. To unsubscribe, eu.unsubscribe@towerswatson.com with the publication name as the subject and include your name, title and company address. About is a leading global professional services company that helps organisations improve performance through effective people, risk and fi nancial management. With 16,000 associates around the world, we offer consulting, technology and solutions in the areas of benefi ts, talent management, rewards, and risk and capital management. Learn more at towerswatson.com Copyright All rights reserved. TW-EU June towerswatson.com /towerswatson