Speaker Name & Country :

Topic:

Michael Freeman Japan

Devanshu Agarwal India

Industrialisation and automation of

actuarial processes
How to improve efficiency and reduce operational risk

Agenda
Contents
Introduction
Operational risks and consequences
Sources of operational risks in actuarial processes
How to mitigate operational risk and improve efficiency
Practical case study
Q&A

Industrialisation

What does it mean?

Industrialisation is the process
where manual labor is often
replaced by mechanized mass
production, and craftsmen are
replaced by assembly lines.
Ever drove a

?
3

How does Industrialisation apply

to Insurers and Actuaries
Insurance company executives
rely heavily on financial
reporting to steer business
decisions.
Information is king, but its
costly to produce.
By creating a modern
information assembly line,
insurers can get information
faster, and CFOs are better
equipped to make the right
decisions.
4

What are the operational risks

Internal Processes

Systems

Failure
Inadequacy

People
Employees
Regulators
Clients

IT Infrastructure

Operational
Risk

External Events
Legal Environment
Regulatory Changes

Operational risks are highly skewed and dominated

by high-severity, low frequency events
5

.and consequences
JP Morgan Chases London
Whale Incident ($6 billion)
Mouchels Pension Fund
Fiasco (4.3 million)
Barclays Employee Hides
Cells Instead of Deleting
Them
London Olympics Oversells
Swimming Event by 10,000
Tickets

Survey of major Life Insurance

Companies of India
How important is operational risk management for your company?
Crucial

Insignificant

Important

Very
Important

Insignificant

Important

Very Important

Crucial
Source: Internal WTW survey

Survey of major Life Insurance

Companies of India
Categories from the perspective of operational risk management

Source: Internal WTW survey

What are the sources of operational

risks in actuarial processes?
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

Source: Actuaries excel: but what about their software?

Louise Pryor, Richard Evans, Brian Foley, Michael Garner, Neil
Hilary, Justin Skinner, Mark Shapland, Kathryn Staff, James Tanser

Sources of operational risks in

actuarial processes
Spreadsheets

10

Sources of operational risks in

actuarial processes
Models

Feedback

Communication

Real World

Scope and
Purpose

Design
Interpretation

Coding

Parameterisation

11

Mitigation of operational risk

and improving efficiency
Transformation in actuarial risk modelling and processes
Industry current state

Industry future state

Information produced infrequently and in arrears

Real-time or near real-time processes

Triggered / operated manually, using desktop and

poorly governed solutions

Automated, controlled Enterprise software

Poor auditability and repeatability of processes

Full automatic auditability and repeatability

Fixed grids and first cloud options

Fully elastic compute resources

Software and hardware licenced from vendors on

a static basis

Software and infrastructure available as service

Large and costly actuarial teams managing

models and run processes

Significant reduction >> 75% reduction in

associated cost and effort

Future State: Automated, lower cost, more agile, lower risk

Playing your part in

business success
What do you need your business
to be?

How should your risk & actuarial

function be helping you?

Whats stopping them?

Competitive

Providing accurate numbers

Unreliable processes

Capital efficient

On a timely basis

Slow

Compliant

Using robust processes

Highly manual and inefficient

Stable (growing) earning

Cost effectively

Inflexible

Agile

Adapting to business changes

focus on regulatory compliance, rather

than added value

Drivers for change

Ability to meet aggressive reporting timelines
Audit requirements of any upcoming legislations
Need to understand, monitor and manage risk on a
continuous basis
Cost of running large reporting teams
Inconsistencies within the organisation between
reporting metrics and processes
Fungibility of hardware and software systems across
the organisation
Operational risk

Increasing demands

Competing pressures

14

Sweating the assets

doesnt always deliver

Its not all about speed

Process

Error-Free

Human
Error

Software
Error

Audit Standards

Regulatory
(supervisor /
external)

Review and
Approvals

Governance

Repeatable

end-to-end
workflow

16

Case study - Benefits of

systemisation and automation
Background:
End State
Fundamental change

FTE saving

Outsourced actuarial services for a UK

firm since October 2014.
Initially, heavy focus on development
models and processes ready for SII
Reporting.
Now our attention has turned to the
industrialisation of these actuarial
processes, with the aims of
removing manual work
reducing the working day
timetable
delivering a higher quality service.
Conventional process quickly plateau
and a fundamental big bang change is
required.

Process improvements

Current State
Elapsed time gain

17

Case study - Benefits of

systemisation and automation
Solvency II Production Schedule

Assumption
production

Old approach

Base intrinsic
model runs

Old approach

Base stochastic
model runs

Old approach

Base AoC model

runs

Old approach

Base results
review

Old approach

Base report
production

Old approach

SCR non-maket
model runs

Old approach

SCR maket
model runs

Old approach

SCR explanitory
model runs

Old approach

SCR results
review

Old approach

SCR report
production

Old approach

Total

WTW SFL

WTW SFL

WTW SFL

WTW SFL

WTW SFL

WTW SFL

WTW SFL

WTW SFL

WTW SFL

WTW SFL

WTW SFL
Old approach
WTW SFL
2

10

12

14

16

18

20

22

24

26

28

30

Time Required (days)

Key

Produced automatically

One person working

Two or more people working

32

18

Case study - Benefits of

systemisation and automation
15Q4
(Man days effort)

16Q1
(Man days effort)

Delta
(16Q1 15Q4)

9.0

4.6

(4.4)

49%

Base Reporting

14.6

(5.6)

40%

SCR Production

7.6

0.5

(7.1)

99%

SCR Reporting

16.4

9.8

(6.6)

40%

Production Task
Manual Adjustments

Percentage
improvement

A significant reduction in the working day timetable, with 32 working days

reducing to 10, representing a 69% improvement.
A 50% reduction in the resource required to perform a quarterly valuation.
Reduction in re-work due to removing the inevitable errors caused as a result of
manual process.
Optimising use of actuarial resource; all time is spent on reviewing and
interpreting the results and no time is wasted on model run set up or updating
spreadsheets.
Cloud Computing produced a 50% reduction in run time and 9 times at peak run
times due to increased number of cores.

19

Valuation in a day
Is it possible?

As a test of what weve achieved we aimed to

perform a valuation in a day
From the raw data files to the production of the final
Solvency II SCR reports took 7 hours
This completely automatic process covered:

Full production of all data files

Production of stochastic and intrinsic ESG files
Full AoC base runs for the complete business (20 stochastic runs and 50 deterministic runs)
Population of base deliverable, supplementary reporting deliverable and AoC reporting
deliverable
Full run of asset data process
Full SCR runs for the complete business (around 30 stochastic runs covering market and nonmarket including automatic calculation of worst shock for some non-market stress and 40
deterministic runs)
Production of market and non-market reports and reinsurance recoverable report
Emails along every step of the process informing the team members of the progress

This proves it is entirely possible to run a complex full valuation

process in a day. For the next valuation the hope is that all time can be
spent on reviewing/questioning/commenting and nothing else.
20