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Actuarial Software Implementation From Planning to Success

Actuarial Society of Greater New York

November 18, 2013

Trevor Howes, FCIA, FSA, MAAA

VP & Actuary, GGY AXIS

Agenda

• Introduction

• Scope of project

• Systems implementation planning

• IT considerations

• A useful resource: PBA Implementation Guide

Challenges Impacting Actuarial Software

.Economic

Enviroment

Rapidly changing & new risks

ActuarialModels

External StakeholdersInsurance Industry

HR costs

TechnologyInnovation

Scarce capital; risk aversion

Low interest rates

Rapid changes

Multi-corechips

Ratings agencies

Demand for higher dividends or ROC

New products and pricing

PBA

Regulators C3P2,3

MAR

SEC/FASB

SOX FASB 133, 157, SOP 03-1, etc.

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Volatile markets

ORSA

IASB/IAIS convergence

???

???

IT support

Actuarial support

Handle conflicting priorities in model design

Increase model realism• More detail, granularity• Asset/liability interaction• Holistic, integrated models• Reduce/control shortcuts

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Increase model flexibility• Multiple applications• Production/ad hoc use• Constant evolution as

needs, technology change

Improve model control• Reduce model risk• Assure run-time reliability• Support auditability and

transparency standards

Reduce model expense• Reduce maintenance and

validation effort• Use technology efficiently• Optional model efficiency

techniques

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Pricing & Product Development

Valuation, CFT & Compliance

Projections, ALM & Business Planning

Capital, Earnings & Experience Analysis

The Push for a Single Multi-function System

Types of Actuarial System Implementations

Many possible variations…• New system vs. conversion/upgrade to existing system• Narrow Scope (single product & purpose) vs. Large Scope

(multiple purpose, multiple lines of business) • Source of system: user vs. vendor written• Approach to system maintenance: open vs. closed code ?

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o Fully open

o Partially open

o Fully closed

User has access to and maintains all source code

Portions of code locked; some user programming

Only vendor maintains source code

Why are Systems Implementations Challenging?

• Increasing complexity and precision of models• Desire to improve capabilities, provide more analysis,

improve consistency, move to convergent systems• Large diverse inforce product portfolios issued over past

decades and by various entities • Need to develop, test, implement new system while

continuing to maintain existing systems and processes

• Systems implementations are major, resource intensive projects with potentially significant risks …but may be essential to transform the actuarial function and to cope with emerging demands more efficiently

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What are the Key Success Factors?

1. Expert knowledge of the company’s systems, data and processes

2. Expert knowledge of the company’s products

3. Expert knowledge of new software including best practices for model development

4. Appropriate planning and project management

5. Appropriate time and resources to work on the project

6. Commitment from senior levels of the organization

1. Create a realistic vision of the intended final solution

2. Effectively manage the transition process

Actuarial Models vs. Enterprise Applications

(Actuarial modeling engine)

Source Stored Results

Actuarial Models vs. Enterprise Applications

(Enterprise Systems and Databases)

(Actuarial modeling engine)

Source Stored Results

Actuarial Models vs. Enterprise Applications

(Enterprise Systems and Databases)

(Actuarial modeling engine)

Software: Operating system / Network software / Grid Manager / Database Managers

Hardware: Desktop/Laptop/Servers/Storage Devices

(IT Infrastructure)

The System Solution is more than the System

PBA Solutions will be much more than software

“The challenges in a PBA world will be solved through collaboration and people exercising wisdom and judgment to make actuarial and business decisions in the face of ambiguity.” - SOA PBA Implementation Guide, pg 120.

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Create Vision of System Solution

• Vision of future system solution is not a stand-alone application, but part of enterprise level system• Need to understand and plan for all related elements not just

actuarial modeling functionality

• Data input; data output; validation; audit; governance• System solution includes the people; consider not just

actuarial roles of model maintenance/model use, but others roles such as management and IT support

• Need to plan for staff transition and training during project• Documentation must be created and maintained as model is

developed, not added after

Planning in a New and Uncertain Environment

• Systems implementations involve changes in scope, capabilities, process; not just change from one software product/solution to another

• Different software systems will require different approaches to system structure, processing steps, data flow, report generation, auditing support, etc.• Not a drop in replacement of previous software

• Need to learn new software’s capabilities, strengths first • Then look for opportunities to improve processes, and

address broader objectives and goals

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Retain Flexibility in Model and Plan

• Expect ongoing changes in environment, vision and plan• as project continues and • after completion

• Future models will need to evolve and adapt as regulatory and accounting standards, management needs continue to change change

• Build a flexible model framework that can be adapted after implementation phase completed

• Careful consideration of model governance issues• Maybe separate initial project to design governance policy?

• Expect to revisit the plan itself as it progresses

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Planning in a New and Uncertain Environment

• Initial planning should be• Kept at reasonably high level • Intended for preliminary assessment of resources and

organization, identification of potential risks and bottlenecks• Plan project in phases, including pilot study (prototype) that

implements and tests full end-to-end process; • Need for changes in model structure may become evident and

more easily implemented while model still small • Communicate realistic expectations up front and repeatedly

through project• Also plan for inevitable changes in the project team

• Training may be a continuous requirement• Documentation as work continues is critical

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Involve IT in Project Planning

• Need to involve IT in planning as early as possible• New modeling demands require more processing power for

ongoing testing and implementation of assumption changes as well as for production runs

• IT is often viewed as an adversary instead of a teammate• Planning, sourcing, installing appropriate hardware takes time• Actuarial models are not similar to typical insurance systems• New software may be quite different than previous system• Involve and trust the vendor for advice on specific hardware

specifications that will provide value for dollars spent• Consider option to use private or public cloud instead of

company hosting either temporarily or permanently• IT may assist in model governance planning

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PBA Implementation Guide - Roadmaps

A Road Map conveys planning information identifying “what,” “how much,” “who,” “when,” and “how.” A Road Map is:

• A multiyear integrated set of projects or initiatives and prioritizations

• An articulation of the right steps and resources

• A top-down high-level estimate of projected work efforts, duration timelines, and all-in costs

• A prioritization framework to evaluate alternatives and their cost-benefits and to translate implementation requirements into tangible steps

• A platform to provide focus and to facilitate ongoing analysis of priorities, timelines, and investments

A Road Map’s initial purpose may be in securing management’s approval and a PBA budget.

(Extracted from PBA Implementation Guide, pg. 10)

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PBA Implementation Guide - Roadmaps

The Road Map Guide … has the following sections:

Introduction

1 Assumption Setting

2 Inputs

3 Model Platforms (Throughputs)

4 Outputs

5 Technology and Systems

6 Actuarial Organization

7 Potential Road Map Initiatives

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(PBA Implementation Guide, pg. 96)

PBA Implementation Guide – Case Study Roadmaps

• 6 illustrative Case Study Road Maps (templates)• Implicit considerations included:

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• recognition of priorities• ease of implementation• current framework and gaps• importance• costs • realized benefits• work effort• resource availability• skill set gaps• conflicts

• bottlenecks• dependencies • discontinuous work efforts

and business or project continuities

• execution risks• coordination with other

company projects• balancing PBA work efforts

with day-to-day activities.

(PBA Implementation Guide, pg. 26)

Sample Case Study Roadmap

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Sample Road Map Initiatives

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Reference:

• PBA Implementation Guide - a 2013 Research report sponsored by Society of Actuaries, prepared by:

Tim Cardinal, FSA, CERA, MAAA

Steve Stockman, ASA, MAAA

• For the full report, go to:http://www.soa.org/Files/Research/Projects/research-2013-pba-implementation-guide.pdf

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