Investment strategy considerations under Solvency II

The introduction of Solvency II has led many insurers to reevaluate a range of strategic questions. One such consideration for insurers is whether their existing investment strategies remain optimal, or even appropriate, under Solvency II.

Investment strategies can change for a variety of reasons. The change from Solvency I to Solvency II is a sufficient change in the regulatory environment to have material knock on implications for investment strategy. The key drivers of this are probably threefold:

1. Changes in the liability valuation basis under Solvency II have resulted in a change to the liability profile.
2. Relaxing of asset restrictions that were in place under Solvency I but are replaced by the Prudent Person Principle under Solvency II.
3. Capital requirements are now different under Solvency II.

In addition to these key drivers, there are many factors that can influence investment strategy. For example, market conditions have changed and risk appetite may have changed.

Milliman consultants Kevin Manning and Eamon Comerford carried out an analysis of the potential return for a range of assets compared with their Solvency II Standard Formula Solvency Capital Requirement. They explore how closely these capital requirements aligned with the risks underlying those assets. Kevin and Eamon also considered a number of alternative assets that may be interesting to insurers, as well as different risk mitigation options.

To read more about investment strategy under Solvency II, read the report “Investment strategy under Solvency II”.

EIOPA’s opinion on the impact of Brexit on the solvency position of (re)insurers

EIOPA has published an opinion paper focusing on the impact of Brexit on the solvency position of the EU (re)insurers. It focuses on the scenario where the UK leaves the EU and is classified as a third country. The paper lists a number of issues which could affect the solvency position of EU undertakings if this particular scenario occurs, and it calls on National Supervisory Authorities to ensure that undertakings under their supervision are prepared for this scenario. This briefing note by Ellen Matthews and Donal McGinley summarises the main points in the EIOPA paper.

Physicians Insurance teams with Milliman Datalytics-Defense to apply machine-learning to claims management strategies

Milliman today announced that Physicians Insurance A Mutual Company has selected Milliman Datalytics-Defense® as its advanced analytics legal management platform for processing defense cost invoices. Milliman Datalytics-Defense employs powerful data mining algorithms and machine learning to help insurers and self-insureds detect patterns in attorney billing practices, delivering a better understanding of both costs and defense strategies.

“At Physicians Insurance we seek out forward-thinking solutions that provide value to our members,” says John Domeika, Senior Vice President. “With Milliman Datalytics-Defense, we’ve gained an innovative claims handling process that will improve strategies and help us best steward our member resources.”

Milliman Datalytics-Defense is designed specifically for the insurance industry and has subject matter expertise built into the technology and reporting. The tool’s predictive analytic engine is fueled by a powerful and proprietary data-mining algorithm for greater accuracy and the ability to turn text into structured data.

“To manage and mitigate risk effectively today, it’s necessary to employ tools that take advantage of advanced analytics techniques like data mining and machine learning,” says Chad C. Karls, principal and consulting actuary with Milliman. “We look forward to working with Physicians Insurance to help reduce costs and increase transparency in the claims handling process.”

To learn more about Milliman Datalytics-Defense, click here.

A quantum leap in benchmarking P&C reserve ranges

Traditional development pattern benchmarks have provided some support in estimating fundamental liabilities, but even here, the process has long been a one-dimensional exercise, at least until now. A recently developed benchmarking tool, which includes percentiles at all stages of development, allows for the calibration of a benchmark that better resembles your portfolio. As such, this rigorously back-tested tool can provide actuaries an added level of confidence in the reasonableness of an entity’s reserve ranges. The next generation benchmarking tool, known as claim variability guidelines, is derived from extensive testing that involved all long-tail Schedule P lines of business and more than 30,000 data triangle sets. Milliman’s Mark Shapland provides perspective in this article.

Critical Point focuses on blockchain technology

In the latest episode of Critical Point, Milliman consultants Shea Parkes and Anders Larson provide an introductory look at blockchain. They discuss what the technology actually is and how it relates to cryptocurrency.

This podcast is the first in a series on blockchain. Other blockchain topics will include potential use cases in insurance.

To listen to Shea and Anders talk blockchain, please click here.