By: James J. Jockle, Chief Marketing Officer, Numerix
Insurance companies are taking a hard look at their portfolios – de-risking guarantees that have proved unsustainable, and creating new products that offer the types of guarantees and retirement solutions today’s consumers are looking for. While challenges in the Variable Annuity market have put a dark cloud over many firms that had offered this product, today insurers are looking to another cloud to help them advance their businesses and expand their market share. So what has fundamentally changed post-2008, and how are insurance companies reacting?
First and foremost are innovations in product design and product types that are being offered. One example of this are Fixed Index Annuities (FIA). Fundamentally, the modelling approach to many of these products has shifted to ensure the product is being hedged appropriately and will perform as expected by investors. Companies are projecting their hedging strategies forward, utilizing Stochastic-on-Stochastic projections to determine how those hedges will perform through time.
While a clearly defined hedging strategy can help to relieve capital pressures, this type of simulation can also introduce considerable compute challenges. When we think about large blocks of annuities; it’s millions of policies against millions of paths, against Nested Stochastic issues. This introduces a big data and a big compute problem.
While the benefits of the Cloud are well understood, (infinite scalability, lower total cost of ownership, just to name the most popular two), the real value is getting to the right answer faster, enabling better business decisions. In the world of complex modelling for complex problems, the competitive advantage is in the ability to get the most precise answer possible – running approximations, or sampling on small portfolios is no longer an answer. The days of ‘good enough’ are ‘no good’.
To help our client’s manage portfolio complexity and big compute, we have partnered with Microsoft, and Microsoft Azure to provide them a turnkey solution to getting to the Cloud. Together, we’re bringing the best-of-breed capital markets models along with the compute required to enable better business decisions.
Watch Video Blog>> Jim Jockle, Numerix CMO and Saul Stepner, Managing Director of Americas Sales discuss the complex challenges insurance companies are facing, and the innovative solutions they are successfully implementing in today’s market.