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Pacific Life to Use Agorithmics for Risk, Capital Management

Algorithmics portfolio replication capabilities will help Pacific Life speed the creation of economic capital figures and support more precise and efficient allocation of capital, in line with anticipated Solvency II requirements.

Pacific Life has selected Algorithmics solutions for market risk and economic capital management. The Newport Beach, Calif.-based life insurer will use Algorithmics' Algo Risk market risk system to manage the market risk of its asset portfolio and will use the vendor's portfolio replication and optimization capabilities to calculate enterprise-wide economic capital across its asset and liability portfolios.

"We chose Algorithmics because we wanted a world class risk analytics system together with the ground breaking innovation of portfolio replication," comments Jane Hsu, vice president, Pacific Life. "Our objective is to allocate our capital as efficiently as possible across our business and to reduce the time it takes us to report enterprise-wide economic capital figures. Having this technology will also put us at an advantage when Solvency II is adopted in the US."

The methodology of portfolio replication enables insurers to create a proxy portfolio of standard capital market products to replicate the scenario-dependent payoffs generated by the company's existing liability projection systems, according to an Algorithmics source. Portfolio replication enables insurers to calculate their economic and regulatory capital numbers - on a market-consistent basis - faster, more transparently and accurately across the enterprise than existing methods. Under Solvency II, with the regulator's approval, the replicating portfolios can also be used as part of an internal model.

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

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