UK based InsuranceERM.com – the online resource for Enterprise Risk Management – published an interview with Frido Rolloos and Hens Steehouwer about the value of financial models, how insurance capital and risk modelling will change post-Covid-19 and how Ortec Finance as technology provider can help insurers address climate risk.
On How has Ortec Finance helped its clients during the Covid-19 pandemic?, Hens Steehouwer said: “In times of crisis, we traditionally take extra care by staying in touch with our customers to best assist them. As an example of our client-centric approach, we have started hosting a quarterly scenario webinar series to update clients on the latest insights from our scenario models as the pandemic evolves.”
He continues: “We have taken extra care in monitoring the performance of our scenario models and incorporating information about the pandemic. For example, our research has shown that the events of the first quarter of 2020 materialised in the worst 1% of the probability distributions projected at the start of the year. This has given us comfort that our scenarios are able to capture extreme and unexpected events such as the Covid-19 pandemic. For remainder of the year, the realisations have moved back nicely into the centre of the distributions. Furthermore, as early as Q1 last year, we began developing a special set of Covid-19 stress scenarios with our partner Cambridge Econometrics to help our clients test the robustness of their portfolios. During Q1 and Q2 in 2020, these stress scenarios were used by several clients and included, for instance, in their ORSA.”
Frido Rolloos said on How will Post-Covid-19 insurance capital and risk modelling change?: “It seems likely we will remain in a low-yield environment for quite some time, while at the same time shareholders and policyholders will continue to demand returns. The resulting search for yield will push insurers further into considering credit and alternative assets as part of their investment portfolios. However, with the increased yield in the credit market also comes increased rating migration and default risk.
These will have to be integrated into capital and risk modelling in a realistic way, and hence our technological focus on stochastic rating transition matrices.
We also expect a need from the industry for more frequent analyses of realistic balance sheet projections backed by robust economic and climate scenarios that are up to date with the latest available information. Just carrying out analyses of balance sheet evolution through different scenarios, however, will be insufficient. Organisations will also have to be able to act quickly to different projected outcomes.
This can only be done of course if the ALM process and platform is modular and flexible enough that it can be embedded across the different functions of an insurance company such as investments, risk, and actuarial, and thereby enable the different functions to work on a consistent and shared set of information.”
For an abstract of the interview, including more on how Ortec Finance helps insurers address climate risk, see here.
The full interview will be published in print in InsuranceERM’s spring edition in March.
About Insurance ERM: InsuranceERM.com is an online service that has established itself as an indispensable source of information on all aspects of risk and capital management in the insurance industry. Among others, it publishes its Enterprise Risk Management Technology Guide in which Ortec Finance is listed with its products GLASS and Economic Scenario Generator.