Proxy Modelling

Proxy models are typically used when calculations need to be performed significantly faster than is otherwise possible, for example by several orders of magnitude. In these cases, simpler models offer the speed gain at the cost of an acceptable level of approximation on the result. Different techniques apply within different countries, based on the reporting requirements and characteristics of the products.

Within the iWorks Prophet suite of applications, a number of tools are available for performing proxy type modelling. These include:

Flex Modelling

The Asset Liability Strategy library offers a flexing approach to modelling the liabilities. In this case the cash-flows from a detailed deterministic model are passed into the ALM model, and based on the known behaviours of the company, the cash-flows are adjusted to allow for changes in economic conditions or similar.

Replicating Portfolios

The iWorks Prophet Replicating Portfolio module helps find portfolios of assets that match the cash-flows from a set of liabilities. There are many uses for replicating portfolios in insurance, such as: proxy models which can be run much faster, performance attribution, linking to other asset systems and assistance in formulating hedging strategies. The asset and liability cash-flows used can either be created within iWorks Prophet or from external sources. The module is very flexible allowing multiple constraints including non-linear and custom constraints. As the module is integrated into iWorks Prophet, it offers the same benefits to the end user in terms of flexibility, auditability and controls. Integration with Excel provides reporting and analysis dashboards.