RNA Analytics; Helping insurers to embrace change

Q&A with Javier Alvarez, Managing Director at RNA Analytics

First published by Insurance ERM, link to original article can be found here.

What are the key regulatory and strategic challenges currently facing insurers?

With less than six months to go for some carriers, there is still a degree of uncertainty about the requirements of IFRS 17 and how they should be implemented; as readers will know, some areas are quite open to interpretation. What we do know is there is an appetite among regulators for globally consistent, high-quality implementation of the standard and high-quality audits.

For some insurers, the deadline for LDTI is also looming. With an effective date for SEC filers of 1st January 2023, the window of opportunity is closing for life insurers in the US. Whilst the deadline for the two is the same, that’s where the similarity ends! There are some fundamental differences between the two.

And whilst these new accounting standards represent a considerable challenge, they must be approached as a driver for positive change, as previously siloed actuarial, finance and IT functions have a once-in-a-lifetime opportunity to harmonise via a common roadmap.

Increasingly demanding compliance requirements – particularly around customer data – have put actuarial software at the very heart of the sector’s regulatory response. At the same time, an explosion of information, increased connectivity and the use of agile cloud platforms is improving outcomes across the entire value chain – without the need to manage cumbersome and costly hardware.

As IFRS 17 becomes more familiar, and the disclosure preferences of companies becomes clearer, carriers will benefit from adopting and embedding a solution that aligns with their own unique systems architecture.

Whilst these pressing regulatory priorities are front of mind for insurers, they cannot blind them to other, longer-term risks. Among them are environmental, social and governance risk factors.

ESG risks introduce a high degree of uncertainty, and insurers will need to price for that uncertainty to ensure profitability and stable shareholder returns. Actuarial methods will need to evolve to adapt to these new risk realities, as actuaries begin treating climate change as a primary risk; support firms in creating new products based on new market needs; and curb underwriting risk. Taking an early and proactive stance on these factors will better position insurers for the long-term.

Meanwhile, inflation is on everybody’s mind, including insurers, which need to consider the risks it creates for insureds, supply chains and investments. In H1 2022, inflation far exceeded expectations from the end of 2021 alone, with projections doubling for many countries.

How is the stress and scenario testing by your insurance clients evolving?

Insurers face a considerable challenge in fully understanding the strategic implications of so many changes, and recognising the processes that need to be addressed – all whilst managing cost and complexity.

RNA Analytics is driven to help boards and investors gain better insights into the risks and their impacts on the business. We are using our unique skillsets to more accurately model and perform risk and investment calculations, using structured data analysis and bespoke software tools to model scenarios that guide profitable decision-making.

What is the future for risk modelling? Did Covid-19 have a big impact?

It is our understanding that re/insurers currently believe that, on average, the impact of Covid on future mortality improvements will affect life expectancy by less than 1%. According to the latest survey from the Institute and Faculty of Actuaries' Continuous Mortality Investigation (CMI), whilst we know how the pandemic has affected mortality rates during 2020 and 2021, the effect on future rates is less clear.

At an operational level, Covid-19 had a tangible impact on the way that teams work together, as companies made an overnight switch to homeworking, and later gradually established hybrid working approaches – emphasising the role of collaborative working in flexible, digital environments that have the necessary computational power for actuarial needs.

How can RNA Analytics help insurers achieve their goals?

Alongside improvements in analytical techniques and advanced data science capabilities, actuarial modelling solutions have shifted up a gear, towards the management and governance of bigger and more complex systems.; In addition to the ability to perform specific calculations, actuarial tools are constantly evolving to support actuaries in their role of helping the insurer remain competitive in a tough business environment.

Software vendors, including ourselves at RNA Analytics, are also adapting – to help actuaries seize these exciting opportunities. We aim to change the way in which risk and actuarial software is used across the business and look to provide a platform that can be utilised by all departments – from product development, pricing, financial and regulatory reporting, right through to the risk function.

Our experienced consultants provide impartial, expert and tailored advice to deliver more certainty against a backdrop of increasing complexity. Choosing the right partner at this pivotal time is a decision that requires careful consideration, to ensure the long-term viability of this increasingly important investment.

At RNA Analytics, we form long-term partnerships with our clients, ensuring they are in a position to embrace change today, and to continue to reap the rewards long into the future.