Solvency II
The Solvency II proposal has brought many new challenges to financial organizations, often reaching far beyond just the obvious new calculation requirements.
Capital Calculations
The results from iWorks Prophet models have been used by many European insurers to perform their QIS (Quantitative Impact Study) submissions. iWorks Prophet naturally handles the process of cash-flow projections under different stresses which is essential to the calculation of Technical Provisions and ultimately for solvency capital calculation when applying a stressed approach.
More sophisticated clients have models that cover the entire calculation process. These include calculating the impact of management decisions that are used in subsequent scenarios, automated running of multiple scenarios and the final calculation of the cost of capital requirements based on the correlation of the results from those scenarios. iWorks Prophet is well placed to allow for these types of calculations allowing models to be easily modified to cater for individual customer requirements.
Embedded
iWorks Prophet builds optimised programs from libraries of reusable code, sharing definitions between common calculations. This empowers companies to use the same code across multiple departments for different reporting processes, for example a pricing team designing products to use the same codes as the reporting teams.
Documentation
Solvency II demands high levels of documentation – covering both the end to end process but also at a more detailed level covering important calculations and assumptions within models. The “Use Test” is a key requirement of the proposed regulation which places requirements on the users of models to understand the output of models and easily explain model results to key decision makers. Both the iWorks Prophet system and the supplied libraries are highly documented, giving detailed explanations of how each component works. The documentation of complex Asset Liability Management (ALM) models is potentially a daunting and time consuming task - the recently released update to the Asset Liability Strategy Library has specific features focusing on improving usability and documentation within the ALM platform.
Within Prophet, documentation can be held in-line within variables, across blocks of code inside a variable, or attached to components such as individual variables, products or structures (models). This allows users to augment the existing definitions with their own specific documentation in the best places to aid overall understanding. Recently the ability to document code blocks within extended formulas was added to iWorks Prophet Professional – giving users the ability to add relevant documentation which is tagged to specific areas of code in their models – particularly useful when making amendments to the standard Asset Liability Strategy library and avoiding the need to keep separate documentation up to date outside the model.
Control and Audit
Solvency II implies the need for robust processes around all aspects of the reporting cycle, from data input through to risk assessment and on to reporting and decision making – increased focus will be placed within organisations on the need to manage risk exposures and solvency capital levels to ensure regulatory and business requirements are met.
In the desktop environment, iWorks Prophet Professional includes strong audit features providing information on changes made and calculations performed it also includes flexible user permissions.
iWorks Prophet Enterprise is a sophisticated enterprise level production control framework with detailed roles-based permissions, version control and multi user capabilities, this is coupled with a sophisticated scheduling of runs and built in grid capabilities and additional support for Microsoft HPC’s job scheduler.