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Management Strategies

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Standard Life’s Traditional Prudence Drives Adoption of Aon Benfield’s State-of-the-Art Annuity Risk Management Solution

A customized version of Aon Benfield’s PathWise variable annuity risk management solution enabled the creation of Standard Life Canada’s new hedging platform.

In support of its traditional focus on prudent risk management, Standard Life Assurance Company of Canada (a subsidiary of Standard Life, Edinburgh, Scotland) has adopted Aon Benfield’s PathWise variable annuity risk management solution. Customized to support Standard Life’s segregated funds product, PathWise has enabled the carrier to implement a new hedging platform, including daily autonomous performance attribution reporting.

Rather than as a means to push the competitive envelope, the adoption of the PathWise solution was aimed at perpetuating Standard Life’s “prudent approach to business,” according to Martin Ettles, senior actuary, finance risk management, Standard Life.

“We always had an awareness of the potential of the volatility characterized by the 2008 financial crisis, and we were always stress testing our financial risk and exposure,” elaborates Ettles. “However, the global crisis highlighted the need for timely, accurate metrics for risk management.”

Ettles relates that Aon Benfield implemented a highly customized version of PathWise tailored to Standard Life’s products. “Our actuarial team worked very closely with Aon Benfield to make sure our specs were implemented appropriately and accurately, and we are very comfortable that the system is a very good match for Standard Life products,” he comments.

The vendor describes PathWise as an integrated high-performance computing solution based on advanced parallel computing technologies, such as NVIDIA Tesla GPU (Graphics Processing Unit) hardware, and a purpose-built variable annuity and interactive grid computing middleware that significantly accelerates simulation-based risk management in support of critical decision-making.

“We had ready access to risk information on a regular basis before PathWise, but now the information is refreshed frequently and we’re able to make more timely decisions,” says Ettles. “Many calculations that we would have done in hours or days are now done every few minutes — our information is up-to-date on a real-time basis and we’re not taking decisions on information that is stale.”

The Aon Benfield solution includes PathWise SRT (Seriatim Real-Time Tool), featuring a real-time risk dashboard receiving live data feeds and analytics and displaying or plotting all of the real-time risk measures of a hedging program. The dashboard displays synchronized asset and seriatim policyholder liability values and risk measures together and recommended rebalancing trades and execution strategies, according to the vendor. The dashboard captures real-time derivatives trades from third-party asset administration and accounting systems and also autonomously monitors risk limits, allowing clients to minimize any hedge program slippage.

The solution also includes PathWise Analytical Studio, which the vendor describes as a fully integrated IDE that interacts with all the liability models, scenario generators, inforce data and assumptions. Analysts using the feature can easily run what-if analysis, stochastic-on-stochastic simulations plot and analyze results, versus manually wrestling with different systems and scores of input and output files, Aon Benfield says.

PathWise Modeling Studio, another feature of the solution, allows users to easily create their own liability cash flow models using a GUI and then deploy the models to a grid to harness the power of PathWise and GPUs, the company also claims. “The main metric of improvement is the speed of information, but there is also a significant benefit in having all of this functionality in one place,” Ettles notes.

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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