Life insurers, reinsurers and pension funds are being driven by regulations, rating agencies and shareholders to shift from traditional scenario-based modelling to develop a stochastic view of their key risks. Rather than looking at individual scenarios, this approach means companies can take into account the frequency and duration of events that could trigger claims – plus explore their variations to allow for uncertainties in the results.
In response, Aon Benfield has developed ReMetrica for Life, Health & Pensions to provide a fully stochastic framework that empowers insurers and their actuaries to answer these challenges, including:
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optimising capital requirements
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conducting stress testing with deterministic shocks and/or stochastic variables
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improving Solvency II infrastructure
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effectively evaluating many reinsurance structures in one simulation
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modelling within their risk appetite
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efficiently modelling new business deterministically or stochastically to determine future strategy
Notably, the platform is geared to meeting the specific requirements of the following lines of business, stochastically or deterministically:
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Life insurance: Any Life product such as term assurance, endowments and whole of life can be modelled, as well as extreme events including pandemics or a mass lapse shock that is correlated to an economic variable.
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Health: The platform incorporates multi-state modelling, making it easy to replicate and model existing or new business with visual graphics.
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Pensions/annuities: Pension liabilities are analysed in a stochastic setting and benefit from a framework that allows a very granular level of modelling of people both pre and post retirement. ReMetrica also incorporates longevity risk via stochastic longevity models (Lee Carter and Cairns, Blake and Dowd) and swap reinsurance structures.
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Long term liabilities of general insurers (non-life): The new component set will allow users more accurate modelling of any long term liabilities, such as motor periodic payment orders and workers’ compensation.
Irfan Akhtar, head of development for ReMetrica for Life, Health & Pensions, added:
“Aon Benfield has undertaken extensive development over the last four years to bring the best of ReMetrica’s stochastic modelling to its life, health and pensions clients. Unlike most of its peers, the platform has been built as a stochastic tool from inception, rather than simply adding to a deterministic model, and also uses a ground-breaking approach to modelling multi-states.”
The multi-state model concept underpins modelling for long term business within ReMetrica and means that actuaries can now map the journey of policyholders throughout their lives. Traditionally this has been used for health and disability modelling but now ReMetrica can apply this to all lines of business including assurance and annuities.
ReMetrica now provides a combined modelling solution for composite insurers to identify correlations between the different lines of business. This gives a more accurate picture of the diversification benefits and can assess the impact of a catastrophe event across an insurer’s complete portfolio in just one simulation.
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