Chief modeling officers provide value in a new actuarial modeling world

Understanding the business versus the operational skills and activities related to modeling holds the key to the new actuarial operating model. When these differences are recognized and each function is empowered to focus on what it does best, the resulting sum of the two parallel functions is greater than the original comingled model. Milliman consultant Van Beach provides more perspective in The Actuary article “Undeniable Synergy: A case for the chief modeling officer.”

Reviewing SFCRs for life insurers in Ireland

The Solvency and Financial Condition Reports (SFCRs) for year-end 2018 represent the third set of annual SFCRs published by European insurers. In this briefing note, Milliman’s Daniel McAleese and Sinéad Clarke analyse the SFCRs of ten Irish life insurers (direct writers) selected based on Own Funds as of 31 December 2018.

Milliman once again recognized by Captive Review as Actuarial Firm of the Year

For the fourth time in the last six years, including in 2018, Milliman was named actuarial firm of the year at the 2019 U.S. Captive Review Awards, held recently in Burlington, VT. These awards recognize and reward providers of captive insurance products and services, who have outperformed their competitors and demonstrated the highest levels of excellence over the past 12 months.

“I was honored to once again be able to accept this award on behalf of Milliman. I am fortunate to work with an amazing team of consultants and thought leaders that continue to provide exceptional service to the captive industry,” said consultant Mike Meehan, who has been named to the Captive Review Power 50 list in 2016, 2017, and 2018.

Milliman consultant Mike Meehan with Captive Review’s Mansi Khatwani.

Solvency II Delegated Regulations 2018 Interim Review

The amendments to the Solvency II Delegated Regulations resulting from the 2018 interim review have now been published in the Official Journal of the European Union. The majority of changes entered into force on 8 July 2019 with some specific changes not entering into force until 1 January 2020. In this briefing note, Milliman’s Ellen Matthews and Patrick Meghen summarise some of the main changes arising from these amendments.

Exploring EIOPA’s thematic review on big data analytics in insurance

In May 2019, the European Insurance and Occupational Pensions Authority (EIOPA) published its thematic review on the benefits and risks arising from the use of Big Data Analytics (BDA) in health and motor insurance. This briefing note by Milliman’s Matthew McIlvanna, Eamonn Phelan, and Eoin O Baoighill summarises EIOPA’s report. The note explores the types of big data and predictive analytics tools currently being used in the motor and health insurance industry and some of the challenges insurers have faced. While EIOPA’s report focuses solely on motor and health insurance, the findings of their review have much broader relevance to other types of insurance.

Milliman launches new index to measure the risk of default for government-backed mortgages

Milliman today is launching the first-ever Milliman Mortgage Default Index (MMDI), a quarterly publication that shows the latest monthly estimate of the lifetime default risk of U.S.-backed mortgages. The goal of the MMDI is to provide a benchmark to understand trends in U.S. mortgage risk.

After the subprime mortgage crisis of 2008, the financial services industry instituted various risk mitigation efforts to help guard against a similar rise in mortgage credit risk and its associated effects on the global economy. As part of this effort, Milliman is launching the MMDI, a lifetime default rate estimate calculated at the loan level for a portfolio of single-family mortgages delivered to Freddie Mac, Fannie Mae, and Ginnie Mae. The MMDI rate is an index benchmarking the probability that mortgages in a given portfolio will become 180 days delinquent or worse over the lifetime of the loan, with historical data dating back to 2014.

As of March 31, 2019, the MMDI for government-sponsored enterprise (GSE) acquisitions (purchased and refinanced loans backed by Freddie Mac and Fannie Mae) increased to an estimated average default rate of 2.19%, up from 1.83% the year prior. For Ginnie Mae loans, the Q1 2019 MMDI rate stands at 8.77%, up from 7.09% the year prior.

For comparison, the actual to-date default rate of GSE mortgages originated in 2007 (shortly before the financial crisis) was 13.8%, according to Freddie Mac data. The actual to-date default rate for Federal Housing Administration (FHA) loans (which are the majority of Ginnie Mae loans) originated in 2007 was approximately 26.5%, according to FHA’s Single Family Loan Performance Trends report as of February 2019. While this data is not directly comparable, these numbers provide an equivalent comparison of the magnitude of defaults during the crisis relative to the current expected mortgage default risk for new originations in 2019.

Default risk is driven by various factors including the risk of a borrower taking on too much debt, underwriting risk such as certain mortgage features, and economic risk such as a recession, which can put pressure on home prices. In the first quarter of 2019, we’ve seen default risk creep up for both GSE and Ginnie loans as a result of an increase in borrower debt-to-income ratios, credit score drift, and the anticipated increased risk of an economic downturn.

For more information on the MMDI and to view detailed, granular data, click here.