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Integration of actuarialfunctions

Southeastern Actuaries ConferenceCharlotte NC

Presentation

16 November 2017

PwC | Integration of actuarial functions

Overview

1

Integration of actuarial functions

Trends in centralization and decentralization 2

How to make meaningful changes while covering off BAU 6

Alignment with Finance, Risk and IT – Why is everyone talking about it? 9


An integrated operating model focuses on people,process and technology

2

Characteristics

• Lower total cost of finance

• Well-defined roles andresponsibilities

• Standardized processes• Common platforms and

tools• Rationalized controls,

often leveragingautomation

• Conformed datadefinitions

• Utilization of sharedservice and alternativesourcing models

• Automated, “forward-looking” analytics

Characteristics

• Higher total cost• Overlapping roles

& responsibilities• Fragmented processes

with multiple hand-offs• Disparate systems and

applications• Multiple sources of data

for reportingand analysis

• Higher numberof controls

• Typically more manualprocesses Fragmented StandardizedEffectiveness

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Technology &Data

Optimization

Org

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Process Standardization & Servicing Strategy

People

Technology& Data

Process

s,

TargetOperating

Model

Trends in centralization and decentralization


Centralized vs. decentralized actuarial functions

3

No single ‘leading practice’ actuarial organizational structure exists. When making a decision between a centralized anddecentralized organizational structure recognize the need to balance a focus on consistency, control and efficiencyagainst the desire for flexibility and business insights.

In ForceManagement

Region 1(Regions 2,3…)or BU 1- CFO

Pricing Actuaries

Valuation

ActuarialModeling

ALM

ExperienceStudies

Group ActuarialControls

Emerging IssuesValuation

Chief Actuary

ReinsuranceExperienceStudies

ALMModelingActuaries

Centralized actuarial function Decentralized actuarial function

Pros

• More efficient and consistent alignment of technology and datasupporting valuation and modeling.

• Enhanced control over standard methodologies andpolicies/procedures.

• Actuaries can focus more on analysis work than on production.

• In cases when LOBs and/or legal entities are aligned, having thisstructure makes it easier to develop actuarial talent. Actuarial staffwithin each region will accumulate product and legal entity expertise.

• Alignment with the business may allow for more in-depth businessinsights to be factored into analysis.

Cons

• Needs of regional business units may not be balanced properly toprovide for the needs of BU leaders (e.g., people to run models forfinancial plan).

• Separating valuation models from BU actuaries may cause staff toview learning opportunities as limited.

• Key dependencies on individuals can result when many tasksare spread among limited staff. This exposes enterprise tosuccession risks.

• Can result in increased expenses as legacy systems and other lessefficient technology must be maintained across multiple sites.

• Potential redundancy of tasks between Corporate and BU.

Centralized

Decentralized

Indicates area for decentralized/central structure

Key



Centralized vs. decentralized actuarial functions

4

Certain actuarial organizational components exist that can function as part of a leading practice centralized actuarialorganization or a leading practice decentralized actuarial organization.

In ForceManagement

Region 1(Regions 2,3…)or BU 1- CFO

Pricing Actuaries

Valuation

ActuarialModeling

ALM

ExperienceStudies

Group ActuarialControls

Emerging IssuesValuation

Chief Actuary

ReinsuranceExperienceStudies

ALMModelingActuaries

Centralized actuarial function Decentralized actuarial function

Valuation

• Staff benefits from increased training and normalized processes.

• Workload balancing potential (peak periods, vacations).

• Data can be accessed more efficiently.

• May be better able to respond when multiple, legacy systems createfragmented work streams.

• Staff may benefit from having the chance to rotate between pricingand valuation roles when they are co-located.

• BU leaders may be reluctant to relinquish staff to a centralized team ifthere are concerns about being able to respond to requests (e.g., howcan I do experience studies for pricing if I give up my team?).

ActuarialModelling &ALM

• Possibility to create a “center of excellence” model architecture.

• Workload balancing potential (peak periods, vacations).

• Often able to attract high performing staff as they are attracted toworking with fellow experts.

• In-depth training can be tough to do, but well trained staff can makethis work as small teams can be cohesive.

• The expense of moving staff to a central location may create inertia tomaintaining a decentralized model.

ExperienceStudies

• Staff can benefit from exposure to doing experience studies acrossmore lines of business (i.e., more LOBs located in one place).

• Legacy admin systems may cause work to be fragmented. Co-locatingexperience studies can provide more sets of hands for complex work.

• Repetition provides deeper expertise; however, it can also lead toboredom if staff are not challenged.

Centralized

Decentralized

Indicates area for decentralized/central structure

Key

1

1 2

2

3

4

3 4

1

2

3

4



Centralized Teams

Decentralized Teams

How to improve team performance under both models

5

Making a transition between models requires planning, leader engagement and a strong bias for action to overcome inertia.

Ways to configure teams

Traditional

• Pick a date and push the teams together

Non-traditional

• Center of Excellence – single team that drivesmethodologies and governance across a givenprocess

• Shared Service Center – multi-function teams

Transitioning to a new model

• Change management – the case for change

• Coordination with business unit teams

• Careful selection of leaders – 100 day plans

• Problem solving

• Training – keeping your options open

• Thinking longer term

Getting the most from your teams

• Activity analysis to identify bottlenecks,opportunities

• Staying uncomfortable with pain points

• Leveraging what other teams are learning

• Cross-training and balancing workload across BU

• Rationalizing controls and maintaining focus on“no regrets” processes

Transitioning to a new model

• Change management – the case for change

• Coordination with the corporate teams

• Careful selection of leaders – 100 day plans

• Problem solving

• Training – keeping your options open

• Thinking longer term



Operating model changes while keeping your day job

6

Comedian Mad Chad Taylor – yes, he tells jokes whilejuggling chainsaws!

Reality check: some activities need change butaren’t candidates for actuarial modernization…

What can leaders and teams do when resources arelimited and needs are great?

• Time studies, activity analysis

• Identification of pain points

• Process improvement – employing the rigor of systemsdevelopment lifecycle:

• Structured solutioning – LEAN, Six Sigma, TQM, etc.

• No matter how small the team or how challenged theprocess… gap current processes against best practice –pursue better practice with a ruthless attention toefficiency

Requirements Design Develop Test Deploy

How to make meaningful changes while covering off BAU


Governance is your friend – believe it!

7

Whether it is fully formed or evolving, governanceshould be consulted and followed in order to…

• Executing what matters most,

• Understanding and optimizing handoffs,

• Identifying required reviews, and

• Ensuring proper signoffs are completed

In short, leverage existing governance to help you do the workonce and do it right!

When gaps exist in governance, close them as a key step inprocess improvement. It will be worth the effort in the longrun!



Enabling strong governance and its relationship toactuarial work

8

• Tone from the top

• Roles and responsibilities

• Change Management

• Training and skills

• Incentives and rewards

• Organizational alignment

• Data czar

• Model steward

• Analytics steward

• Modeling standard

• Model acceptance

• Assumptions review

• Balance sheet sign offs

• SoX/MAR controlsintegration

• Tiered sign offs

• Service Level Agreements

• Vendor management

People Process Technology

• Target architecture

• Automated controls

• Data conformance

• Business intelligence tools

• Leverage automation

• Separating productionfrom sandbox

• Lock out functionality

• Monitoring dashboards



Strategic and operational alignment is the wave of thefuture

9

Alignment with Finance, Risk and IT – Why is everyone talking about it?

Finance, Actuarial and Risk organizations are aligning their operating models inorder to respond to disruptive technologies, increased stakeholder demands and ahost of regulatory and accounting changes.

Finance, Actuarial and Riskmust evolve from…..

Data & transactionprocessing

•Minimal involvement

•Problem finding

•Post-hoc critique

•Confrontational

•Technical compliance withexternal rules

•Data collection

•Organizational hierarchy driven

•Technology constrained

•Manually intensive & cumbersome

•Policy view

•Redundant

•Risk and scenario based analysis

•Strategic/market issues

•Problem solving

•Embedded

•Accountability

•Cost/benefit sensitive

•Relevant to business

•Information rich

•Integrated

•Automated & streamlined

•Customer view

•Predictive

Decision support….Requires role transformation

Business controlRequires new processes

ReportingRequires new process & thinking

Data & transaction processingRequires better and faster

integration

…..To

Leadingorganizationshave 40%more FTEs inbusiness insightroles thanmedianperformers

88% oforganizationsare working toenforce orexecute theircorporate leveldata strategyacross finance


Participation in IT projects creates a virtuous cycledelivering enablers that transform key processes

10

Alignment with Finance, Risk and IT – Why is everyone talking about it?

Outer circle – Actuarial contributions to IT projectsInner circle – Key components of IT projects

When larger projects are funded, technologyenablers need to be delivered by IT.

• In order for IT projects to deliver on theirpotential, Actuarial needs to be a full partnerin these projects.

o Early engagement in developing businessrequirements is the best way to drive thechange you need

o In force feeds, requirements for self-service data, data quality remediation,reports and analytics all need to be welldocumented and thoroughly tested

o Legacy processes should be promptlyretired and SLAs put in place

• These projects can be at risk of under-delivering if IT and Actuarial are notworking together and are not wellcoordinated across the SDLC

© 2017 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Eachmember firm is a separate legal entity. Please see www.pwc.com/structure for further details. This proposal is protected under the copyright laws of the UnitedStates and other countries. This proposal contains information that is proprietary and confidential to PricewaterhouseCoopers LLP, and shall not be disclosedoutside the recipient's company or duplicated, used or disclosed, in whole or in part, by the recipient for any purpose other than to evaluate this proposal. Anyother use or disclosure, in whole or in part, of this information without the express written permission of PricewaterhouseCoopers LLP is prohibited.

Thank you!

My contact information:

Gregory M. Smith, FSA, MAAAPwC |Director, Actuarial ServicesMobile: 860-604-0846Email: [email protected]

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