Seeking the massive computing power needed to hedge a portion of its book of annuity business, Hartford Life, a subsidiary of The Hartford Financial Services Group (Hartford; $18.7 billion in 2003 revenues), has implemented a grid computing solution based on the University of Wisconsin's (Madison, Wis.) Condor open source software. Hartford Life's SVP and CIO Vittorio Severino notes that the move was a matter of necessity. "It was the necessity to hedge the book," owing in turn to a tight reinsurance market that is driving the need for an alternative risk management strategy, he says.
The challenge was to support the risk generated by clients opting for income protection benefit riders on popular annuity products. Evaluating that risk requires stochastic modeling and Monte Carlo simulation that generate the possible scenarios and the corresponding risk management strategies that will enable the carrier to fulfill its obligations. "My 11 years of experience with capital markets told me that the request for CPU horsepower increases geometrically once a company gets into this game." Severino relates.
Hartford Life began looking at grid within a few months of the business problem manifesting itself about a year-and-a-half ago, according to Severino. "Because we have one of the largest books of variable annuity business, we're going to have a very complex calculation, probably more so than anybody else," he explains. Planning began in the first quarter of 2004 and testing began in late spring. The Condor-based solution went live Sept. 1.
The solution is currently running only on servers, but Hartford Life plans to tie in hundreds of PCs located across the enterprise. "We're developing device-independent software that will mean the system won't care if you're running Linux, Windows or something else on the desktop," Severino relates. "We will be able to deploy it on virtually any hardware or operating system."
Hartford Life has already saved millions of dollars in hardware and software purchases and stands to save much more as its computing needs increase. But Severino insists that the value goes beyond basic economics.
The grid solution "is actually more robust," he says. "The value is, No. 1, it just creates capacity; No. 2, it's a more stable environment; and then, No. 3, we enjoy the obvious cost savings."
Given the success enjoyed in the hedging initiative, Hartford Life's actuarial department is eyeing grid for further uses. Severino expresses pride in both the company's present implementation of grid and the rationale behind it. "A lot of insurers are starting to think about grid, but we've been able to put it into production," he comments. "And while some have used it solely for cost saving, we're using it in response to a central business need."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio