Actuarial Software Implementation From Planning to Success

1. 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

2. Agenda • Introduction • Scope of project • Systems implementation planning • IT considerations • A useful resource: PBA Implementation Guide

3. Challenges Impacting Actuarial Software Rapidly changing & new risks Multi-core chips Economic Enviroment . Rapid changes Scarce capital; risk aversion Technology Innovation Volatile markets IT support Low interest rates PBA HR costs Actuarial Models Regulators C3P2,3 Actuarial support MAR ORSA External Stakeholders ??? Insurance Industry ??? IASB/IAIS convergence Demand for higher dividends or ROC SEC/FASB • New products and pricing Ratings agencies SOX FASB 133, 157, SOP 03-1, etc.

4. Handle conflicting priorities in model design Increase model realism • More detail, granularity • Asset/liability interaction • Holistic, integrated models • Reduce/control shortcuts • Increase model flexibility • Multiple applications • Production/ad hoc use • Constant evolution as needs, technology change • Reduce model expense • Reduce maintenance and validation effort • Use technology efficiently • Optional model efficiency techniques • Improve model control • Reduce model risk • Assure run-time reliability • Support auditability and transparency standards

5. The Push for a Single Multi-function System Pricing & Product Development Valuation, CFT & Compliance Capital, Earnings & Experience Analysis Projections, ALM & Business Planning

6. 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 ? User has access to and maintains all source code Portions of code locked; some user programming Only vendor maintains source code • Fully open • Partially open • Fully closed

7. 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

8. What are the Key Success Factors? • Expert knowledge of the company’s systems, data and processes • Expert knowledge of the company’s products • Expert knowledge of new software including best practices for model development • Appropriate planning and project management • Appropriate time and resources to work on the project • Commitment from senior levels of the organization Create a realistic vision of the intended final solution Effectively manage the transition process

9. Actuarial Models vs. Enterprise Applications (Actuarial modeling engine)

10. Actuarial Models vs. Enterprise Applications (Enterprise Systems and Databases) Source Stored Results (Actuarial modeling engine)

11. Actuarial Models vs. Enterprise Applications (Enterprise Systems and Databases) Source Stored Results (Actuarial modeling engine) (IT Infrastructure) Software: Operating system / Network software / Grid Manager / Database Managers Hardware: Desktop/Laptop/Servers/Storage Devices

12. The System Solution is more than the System

13. 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.

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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)

20. 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 (PBA Implementation Guide, pg. 96)

21. PBA Implementation Guide – Case Study Roadmaps • 6 illustrative Case Study Road Maps (templates) • Implicit considerations included: • 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)

22. Sample Case Study Roadmap

23. Sample Road Map Initiatives

24. 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