Insurers have room to improve their ALM: InsuranceERM interview with Hens Steehouwer

In his recent interview with InsuranceERM – the UK-based online resource for Enterprise Risk Management – Ortec Finance Head of Research, Hens Steehouwer, discussed insurance technology trends, the biggest concerns for insurance companies, and of course the continuous innovation of ALM models.

When it comes to identifying and addressing some of the biggest challenges faced by insurance companies, Hens Steehouwer said: “We are seeing more and more requests from insurance clients for climate solutions, and I think insurers are catching up with the pensions industry in that space. Another concern for insurers is how to provide decent returns to stakeholders in the future given (a) continued consolidation and increasing market transparency that depresses insurance product margins; and (b) the low interest rate environment, which is likely to continue for quite a while.”

He continues: “One way to deal with this challenge is for insurers to see how they can improve the risk-return profile of their investment strategy.”

On the subject of insurance technology trends, Hens commented: “One trend is the increasing volumes of available data and artificial intelligence that are becoming available, and how one can make sense of that data and to increase business efficiency and success. A second trend is the growth of cloud-native software development, which is very important. This is an approach to software development built on the benefits of cloud computing in which software is split up into smaller manageable units that work together. This allows for fast deployment of high-impact improvements.”

What is dynamic ALM?

Hens emphasized the importance of innovation and capital modeling: “In general, we see quite a lot of room for improvement in the field of ALM modelling for insurers. Traditionally, a lot of effort goes into assessing the current balance sheet and corresponding short-term capital requirements. These are very important of course.

But another question is how to get insights into the potential future developments of the balance sheet under a wide range of scenarios, and how this is impacted by both the insurance product, as well as the investment strategy. One could call this “dynamic ALM” compared with traditional more short-term static interpretations of ALM.

Within stochastic scenario modelling, the level of detail for modelling credit risk is rising. We have been increasing and improving that area quite significantly too, such as how companies’ ratings can change over time.”

Read the full interview in InsuranceERM’s Technology Guide.

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. Ortec Finance products GLASS and Economic Scenario Generator are listed in InsuranceERM’s Enterprise Risk Management Technology Guide.