Life Conference 2011
Gower Wisdom, Steven Zietsman
War games: Using
interactive workshops
to communicate
Solvency II
capabilities
© 2010 The Actuarial Profession  www.actuaries.org.uk
Agenda
• Context
• Lessons learnt
• Mini “war game”
Note all figures used in the presentation are purely illustrative
Context
• Most Solvency II projects started out as finance, risk and
actuarial exercises
• These programmes are now moving to a much broader
audience
• Actuaries invested significant time in models
• Business simulations help staff understand what
Solvency II is all about
– Foster quick learning
– Encouraging management to use the information
available
– Active experience rather than passive listening
Simulate insurance company economics in a
post Solvency II world
• Discuss and make business
decisions in the
post-Solvency II world
• Immersive environment based
on:
– Scenarios
– Management information
– …actuarial model
Scenarios
Decisions?
Simulation
engine
Management
information
The scenario creates immersive environment
BAU conditions
Round 1
Downturn
Round 2
Round 4
D
D
MI
Analyst report
questioning strategy
and low growth vs.
peer group
Above expected
growth:
Mini crash:
Equity markets
growing at +5% p.a.
Equity markets at
+5% over last Q
Dip in Equity
markets -20% over
last Q
3-month risk free
rate at y%
3-month risk free
rate at 5%
3-month risk free
rate at y%
MI
Steep recovery
generating some
market opp’s
iFSA
visit
iFSA letter
Moderate growth
environment:
D
MI
-20%
Investor
presentation
Round 5
D
MI
Equity markets
Key economic
parameters
Recovery
Round 3
D
MI
Significant market
rebound:
Equity markets 20% again
Equity markets +5%
3-month risk free
rate at y%, credit
spreads are
widening, funding
dried up
MI
MI received
Economic
environment
-20%
Markets plummet
further:
Internal
forecasts
Interest rates back
to normal
D
Management decision
Participants
Analyst
community
Regulation
The information reflects post-Solvency II
reporting outputs…
Group level MI over time
BU level information at time 1
4,000
APE
6,000
5,000
New
business
sales
UL w/ guar
4,000
2,500
UL
3,000
2,000
1,500
1,000
1,000
500
0
0
t-3
t-2
t-1
current
t+1
t+2
BU 1
t+3
New business margin (ie. VNB/PVNBP)
BU 3
10%
10%
5%
5%
0%
0%
t-3
t-2
t-1
current
t+1
t+2
BU 1
t+3
BU 2
BU 3
Group
-5%
-5%
Return on Allocated Capital by BU
Return on Allocated Capital
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
t-3
t-2
t-1
current
t+1
t+2
BU 1
t+3
Solvency ratio
Solvency
BU 2
NBM by BU (ie. VNB/PVNBP)
15%
15%
Capital
efficiency
Annuities
Term
3,000
2,000
New
business
margin
APE by BU
3,500
BU 2
BU 3
Group
Solvency ratio by BU
350%
300%
250%
200%
150%
100%
50%
0%
350%
300%
250%
200%
150%
100%
50%
0%
t-3
t-2
t-1
Economic solvency ratio
Group level MI
current
t+1
t+2
Regulatory solvency
t+3
BU 1
BU 2
Economic solvency ratio
BU 3
Regulatory solvency
BU level MI
Group
…Including risk and performance metrics
Solvency evolution
60,000
50,000
40,000
350%
70,000
300%
60,000
250%
50,000
200%
30,000
EC by risk type
40,000
30,000
150%
20,000
20,000
100%
10,000
t+1
SCRt+2
(@99.5%) t+3
Own funds
Regulatory solvency
Risk appetite position
ty
IR
ui
EC limits by risk type
ECaR
150%
Type
Equity
Credit spread
IR
Mortality
Longevity
Lapse
Expense
Op Risk
100%
50%
0%
Op losses
ea
d
M
or
ta
L o l i ty
ng
ev
ity
La
ps
e
Ex
pe
ns
e
O
p
R
St
i
an s k
da
D
lo
iv
er
ne
si
fic
D
at
iv
io
er
n
si
fie
d
EC
O
w
n
fu
nd
s
t-2(@99.93%)
t-1
current
EC
MCR
Economic solvency ratio
1 in 10 regulatory solvency ratio
ts
pr
t-3
0
di
0%
Eq
0
re
50%
C
10,000
EaR
Limit
% utilised
23,000
87%
7,000
77%
6,700
88%
800
17%
50
3%
26,500
59%
1,500
26%
2,100
71%
EC limits by BU
Utilisation
BU
BU 1
BU 2
BU 3
CFaR
Limit
35,000
15,000
3,000
% utilised
63%
55%
62%
Example application – Management education
to help understand
Positioning the business through crisis
BAU conditions
Round 1
Round 2
MI
Equity
markets
Recovery
Downturn
Round 3
MI
Round 4
MI
MI
Steep recovery
generating some
market opps
-20%
Analyst report
questioning strategy and
low growth vs. peer
group
Round 5
MI
Regulator
visit
-20%
Positive feedback from business
Simulation elements
Scenarios
(e.g. navigating
through a
crisis)
What the experience does
 Encourage familiarity and
use MI in decision making
 Place in different scenarios
where decision is
required
Management
information
(e.g.
dashboards,
financials)
Simulation
engine
(e.g. what-if
analysis,
sensitivities)
through…
Applications
 Investigate
solvency and
economics
 Education
 Explore the impact
of crisis events
 Immersive environment
 Active experience
 Interactive analysis of
situation and of potential
decisions
 Increases wider
buy-in
 Test business
processes
Lessons learnt from operating “war games”
• Have sufficient people able to run the simulator
• The right equipment (i.e. speedy hardware) is essential
to actively engage the participants
• Allow sufficient time during the session for discussion
• Have a wide group of individuals taking part from across
the organisation
• Education should not stop with the simulator – follow up
with ongoing communication
Lets explore the impact of a few options on a
sample company
Questions or comments?
Expressions of individual views by
members of The Actuarial Profession
and its staff are encouraged.
The views expressed in this presentation
are those of the presenter.
© 2010 The Actuarial Profession  www.actuaries.org.uk
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