Milliman announced today that it has released the latest version of its Arius® solutions, a family of state-of-the-art reserve analysis systems for property and casualty insurers. This update provides significant enhancements to the systems’ analytical, reporting, and data management tools.
This release provides expanded cash flow analysis and reporting to help actuaries and insurance analysts more easily address IFRS 17, Solvency II, and other management requirements. It also provides enhanced interpolation and extrapolation capabilities so that actuaries can take full advantage of valuable historical and industry data.
In addition, the new release of Arius Enterprise® – Milliman’s reserving solution designed specifically for larger insurers and self-insureds – now takes advantage of Microsoft’s Azure Data Explorer (ADX) for high-performance processing of very large datasets. ADX is a new Azure-based database technology that provides significant performance improvements over traditional technologies for the vast amounts of data available to insurers. With ADX, Arius can execute complex data queries up to 30 times faster than traditional database solutions, aggregating large volumes of claims data – even billions of records – without incurring performance costs.
Our clients are continually finding additional ways that Arius can improve the efficiency and reliability of their overall reserving process. These latest enhancements in analysis, reporting, and data handling will allow actuaries to analyze their results in more detail and provide richer reporting and more informed management decision-making.
Solvency II unit matching is no longer just a theoretical concept, but rather a common strategy used by UK insurers with material blocks of unit-linked business to help improve liquidity and balance sheet stability, and better manage market risks. This paper by Milliman’s Emma Hutchinson, Fred Vosvenieks, and Paul Fulcher highlights lessons learned from implementations in the UK market and the practical challenges to implementation in other countries.
In May, the Prudential Regulation Authority (PRA) published Supervisory Statement (SS) 1/20 on its latest expectations of the application of the Solvency II (SII) Prudent Person Principle (PPP) rules to insurers’ investment strategy, risk management and governance.
The SII PPP requires insurers to conduct investment activities in an appropriate manner, and to only invest in asset risks which they can properly identify, measure, monitor, control and report, and which are in the best interest of policyholders. The importance of this has been highlighted by the increased trend towards investment in less liquid and more complex assets as well as recent economic volatility.
This paper by Milliman’s Paul Fulcher and Sihong Zhu summarises the key PPP expectations from the updated text in the SS and their potential implications for insurers.
In recent Consultation Papers, the European Insurance and Occupational Pensions Authority (EIOPA) proposed an alternative calibration of the Standard Formula mortality and longevity stresses. In this paper, Milliman’s Alexandre Boumezoued proposes two alternative and complementary views to the EIOPA’s final technical set of advice on the mortality and longevity shock calibration: a prospective approach in the spirit of one-year calculations and a retrospective analysis based on historical data from corrected mortality tables.
The European Insurance and Occupational Pensions Authority (EIOPA) has published its information request on its proposed changes to Solvency II. This provides some insight into EIOPA’s thinking following the consultation on its proposed changes to Solvency II (summarised in Milliman briefing notes here).
Interestingly, despite not proposing changes to the risk margin in its consultation papers, EIOPA is including a possible change to the risk margin in the impact assessment. The technical specification for the impact assessment sets out a scenario where the projected Solvency Capital Requirements (SCRs) used in the calculation of the risk margin are multiplied by a factor of 0.975 (“the lambda factor”) compounded by the number of years between the valuation date and the projected date. This adjustment to projected SCRs is subject to a minimum of 50% (which bites at projection year 28). This tapering approach is mentioned in a paper by a working party of the Institute and Faculty of Actuaries that reviewed the risk margin and was included in a submission to EIOPA from the Association of British Insurers.
In relation to extrapolation, an alternative extrapolation method is proposed which affects the Euro yield curve at 31 December 2019 as shown in the graph below. This is one of the five options proposed in the EIOPA consultation paper.
As can be seen, the impact is to reduce the Euro curve after the Last Liquid Point (LLP), but not as materially as some of the other EIOPA proposals that were included in the consultation which involved increasing the LLP. Non-Euro yield curves will also be affected but less materially, as the LLP is later. By comparison the UK yield curve actually increases at later durations using this approach.
Unsurprisingly, interest rate shocks are proposed which increase the impact of the interest rate down shock for the Euro yield curve. The graph below shows the interest rate shocks that would apply as at 31 December 2019 using the current approach and those proposed in the impact assessment (both based on the alternative base Euro yield curve proposed above).
As can be seen, the proposed interest down
shock would increase the impact of this shock (while the impact of the interest
up shock would reduce).
Several other changes are being assessed, including:
- Reflecting realistic new
business assumptions in best estimate expenses
- Correlation factor between
interest rate risk and spread risk
- Volatility adjustment
- Dynamic volatility adjustment
in standard formula (and internal models)
- A floor on the interest rate
- Long-term equity requirements
- Recognition of risk mitigation
- Non-life Minimum Capital
- Contract boundaries
Supervisors have notified companies that are required to participate in the impact assessment. Submissions are due 31 March 2020. EIOPA’s final opinion on the 2020 review of Solvency II is due in June.
Expert judgment plays a key role in the process by which firms determine technical provisions, their solvency capital requirements and the financial resources they have available to meet these requirements. In this paper, Milliman’s Eamonn Phelan looks at the central role that can be played by an Expert Judgment Register.