Hens Steehouwer, Chief Innovation Officer at Ortec Finance, discusses what technological advances mean for investment strategies and operations.
Andrew Putwain: Can you tell us about Ortec Finance?
Hens Steehouwer: Ortec Finance is modelling firm whose roots can be traced back to the world-renowned Econometric Institute of Erasmus University, Rotterdam over three decades ago. Since then, we’ve grown into a leading provider of investment decision technology for both institutional and private investors. The technology solutions we provide support investors in making their strategic investment decisions, monitoring the risks and suitability of these strategies over time, measuring the performance of these strategies, and attributing it to risk sources and decisions.
Andrew: Ortec is known for scenario modelling, especially around climate scenarios. Can you talk to us about what this means and what it offers to insurers?
Hens: Climate scenario modelling is one of our areas of innovation. The reason that we started building our own in-house climate expertise – as far back as 2017 – is that climate change is an important and complex risk factor that has an impact on every step of the investment decision process. Integrating climate change into this decision process is challenging because climate change is a different type of risk than traditional economic and investment risks.
In the case of climate change, we have little empirical evidence to base forward looking analyses on, and the uncertainty about what could happen and what the economic and investment impact could be is so significant.
Climate change is exposed to what is called fundamental or radical uncertainty, which means that this uncertainty cannot be ‘resolved’ with the probabilistic approaches that investors are used to using.
"These scenarios translate assumptions about transition risk, physical risk, and financial market responses into potential impacts per asset class."
In situations of such uncertainty and complexity, classical scenario analysis, which is based on deterministic, narrative-based, climate scenarios has proven to be a powerful approach to explore potential future events and the impacts in a structured way, and they also support decision making and preparing for the future. This approach has been advocated by the Intergovernmental Panel on Climate Change (IPCC) since 2000.
To support this type of climate scenario analysis in terms of impact on investment portfolios and investor goals, we produce our in-house climate scenarios, ClimateMAPS, which is currently in its tenth edition. These scenarios, developed with our partner Cambridge Econometrics, translate assumptions about transition risk, physical risk, and financial market responses into potential impacts per asset class, region, and sector.
ClimateMAPS is designed to be deterministic, narrative-based, scenarios, which can be used on a stand-alone basis but, based on our latest research and innovations, also in a consistent combination with stochastic scenarios and portfolio and balance sheet simulation models to support investment decision-making.
This interview is the latest in our ongoing partnership with Insurance Investor. See the next interviews and here and here.
Article Link: https://www.insuranceinvestor.com/articles/ai-reinforcement-learning-and-modern-technological-solutions-for-investment-strategies/
Contact
