AMLIN A COLLABORATIVE APPROACH TO PREMIUM AND CLAIM IBNR

AMLIN: A COLLABORATIVE APPROACH TO PREMIUM AND CLAIM IBNR PLANNING By Marco Liberati and Sean Mayers, SDG consulting UK At Amlin, SDG UK is applying its experience in the insurance industry to deploy an ad-hoc Performance Management System. Most critical to this initiative has been the development of Planning and Forecasting of Premiums and Claims IBNR (Incurred But Not Reported) which provides the Ultimate position of a Class of risk for each Year of account and Currency. This is facilitated with a managed process flow aligning the platform with business processes, KPI’s and organizational structure placing critical business tools in the hands of Key Users. Risk and exposure forecasts can subsequently be built for each division aiding strategic and tactical decision making, producing a risk map. Reserve needs are therefore generated efficiently satisfying compliance requirements. Industry Insurance SDG Practice Business Performance Governance THE BACKGROUND Insurance Provider Amlin works in an uncertain environment, constantly exposed to the risk of major events that can compromise cash balances and statistical trends readability. The need for more accurate and timely analysis and reporting is paramount for success in the Insurance business more than many other industries. The ability to predict the potential impacts of events on business performance has lead Amlin to formulate appropriate strategic plans and implement a more effective performance management framework proactively understanding and responding to risk. This framework must thus have an adaptable complexity reflecting the diversity and dynamic nature of the business coupled with ease of system development and integration. Amlin Plc is a London Stock Exchange listed specialist insurance and reinsurance underwriting group providing a global client base with risk management solutions. Amlin specialise in providing insurance cover to commercial enterprises, leading a significant proportion of the business they underwrite in aviation, marine and international property and casualty. Amlin is a buyer and seller of reinsurance through Lloyd's Syndicate 2001 and Amlin Bermuda, also providing reinsurance to other insurers across the world being the largest of the Lloyd’s Syndicates. In 2007 Amlin made a record pre-tax profit of £445 million and, after tax, this was equivalent to a return on equity of 37.8% with group net assets increasing by 12.1% in 2007 to £1,052.2 million. A.M. Best ranks Amlin as A+ Superior in addition to the Standard and Poor’s Syndicate 2001 rating of Stable. Implementations of analytical solutions within insurance have not always proved successful due to the challenges associated with the industry, namely adaptability and complexity. Sourcing and delivering through emerging technology that meets and grows with the business needs also compounds these issues. 1 Like most other organizations there has been a divergence of various core business strategies with Amlin separately having an IT strategy, a data-storage strategy, insurance methodologies and an improving data warehouse strategy, but each business units function somewhat in a different way, in order to achieve the same results. Business divisions are 100% dependent upon IT staff for information from other systems like RESQ (Risk Modeller) and transactional data base systems. The planning process and the reporting generation is based on distributed uncontrolled spreadsheets. Critical activities like the Grouping of specific transaction in “Custom groups” was a manual process based on multiple technologies, with high risk of mistakes and process interruptions. The current planned information is generated and reported on at an aggregated level, resulting in a limited scope of analysis. Currently there are no substantial security measures in place thus making the process of data updating unsafe. Most of all, there is not a clear shared knowledge of the main KPIs, due to the excessive independence of each division from a central common vision. THE REQUIREMENT The main goal of the Amlin UDC project is to enable the planning of Premium and Claims Ultimates at each quarter-end. The system should allow for the input of Ultimate Premiums and Claims, Premium Reinstatements and Future Major Losses with provision of generating Variance Analysis, and Triangles Reporting for strategic analysis and performance control. Within these requirements there must be Single Version of Truth from the integration of different knowledge silos which will then enable the business to share information with different divisions and business units providing a single, accurate, corporate view of key information. The UDC application build is based on the following key specifications. • Quarterly Ultimates Planning Model (UDC): The forecasting quarterly process should be managed for each Class or Custom Group through a structured workflow with independent phases for both Gross and RI data. • Data Capture (Sourcing) from Heterogeneous Sources: The system should allow data to be captured from the Amlin data warehouse. • Planning Workflow Management and Monitoring: Each planning phase will have an owner. Corresponding Ultimates numbers will need to be validated before the workflow will go to the next phase. At each change of phase, a version of the planning measures will be created providing an Audit Trail. • Double Process (Gross/RI): Separate sign-off processes are to be kept in place for each division, broken-down by Reserving Class, Gross and Reinsurance. The Gross and Net sign-off should be independent of each other. • Multiple User Data Entry Schedules (Ultimates): The system should allow for underwriters, managers and analysts to capture and store within the Board database and the attached data warehouse Ultimate Premiums and Claims. • Corporate Essential Reporting: The UDC system is to generate Variance Analysis Reporting and Triangles for strategic analysis and performance control. • Custom Grouping of Claim Transactions: the statistical meaning of trend analysis is affected for many Classes of Risk by “Special Events” or catastrophes such as hurricanes Katrina and Ike. The new planning platform should give users the power to create “custom” groups of claims transactions. Both planning and reporting will be then available for these Groups, separately from their classes. Critical measures and KPI’s as well as trend analysis will be differentiable between custom groups and the underlying business risk linked to a specific Class. • Interaction With Other Systems (DWH, RESQ): The UDC application is to be able to integrate with different systems such as Amlin Data Warehouse, GAAP, CORDA, RESQ. • Apportionment at Policy Level: The Finance team will be equipped with a powerful apportionment engine that will allow high levels of control on the drivers used in the apportionment process. The objective is to bring in the Ultimates at the Policy/Lloyds Risk Code level to allow more flexibility in the analysis of variance providing powerful drill-down Need for the UDc system to allow the input of Ultimate Premiums and Claims, Premium Reinstatements and Future Major Losses with provision of generating Variance Analysis, and Triangles Reporting for strategic analysis and performance control. 2 capabilities. IBNR, planned at the Amlin reserving Class level, can be reported on by any dimension linked to the policy (example: Lloyds Risk Code). THE OBJECTIVES Following are the main objectives for the UDC application: 1. Allow the Planning of Premiums and Claims Ultimates at each quarter-end for both Gross and RI, in a controlled and monitored way through versioning, phases and validation processes. 2. Establish a tight integration of various data sources ensuring data-security and dataintegrity. 3. Allow users the independence of producing timely and ah-hoc reporting for quick and accurate analysis and , improve predictability 4. Allow the creation of Custom groupings for Claims. 5. Allow for the management and analysis of detail and aggregated data for planning, analysis and reporting requirements. THE SOLUTION The UDC solution delivered provides an integrated environment which enables data capture and planning of Premium and Claims Ultimates at each quarter end. It also allows for the input of Ultimate Premiums and Claims, Premium Reinstatements and Future Major Losses. Supporting strategic analysis and performance control, Variance Analysis Reporting and Triangles are produced. To facilitate this, the application has been apportioned into 4 constituent parts incorporating the following features: 1. Administration: Before the Planning stage, this area facilitates the setup of all backend processes. It incorporates all the processes required for periodic Data Loads (load Actuals on DWH, creating custom groups), Settings (time range, version and rate of exchange) and Workflow (new user accounts and permissions). 2. Planning: The forecasting quarterly process is managed for each class or custom group through a structured workflow which includes the planning of Ultimates, Currency split (for both Premium and Claims) with independent phases for both Gross and RI. There are three phases in the planning process Underwriters Draft, Managers Review and RITC Review. These phases are controlled by the respective owner(s) wherein a validation or rejection of the Class based on the Planning numbers input can be made. At the end of the following Managers Review stage and subsequent validation of classes, Finance can then commence apportionment of the validated classes. 3. Finance: Finance view the IBNR result and define the allocation method, the apportionment matrix and process with the allocation figures by Class. 4. Reporting: This area provides insight facilitating Variance Analysis, Monform Analysis, Triangles and Major Loss reporting. Reporting is produced at the Monform and Class level together with Division and Year. The UDC solution delivered provides an integrated environment which enables data capture and planning of Premium and Claims Ultimates at each quarter end. THE RESULTS SDG UK has delivered Business Intelligence knowledge and previous Insurance sector experience to Amlin which has resulted in the creation of a fully automated Planning and Forecasting tool exposing Amlin to 'best in practice' business methodologies. Ultimate Data Capture (UDC), based on the BOARD MIT toolkit and SQL Server 2005, has resulted in a fully integrated system which controls, supports and manages Planning, Forecasting and Reporting processes. The information that is produced is critical to strategic and tactical business decision-making in addition to governance and the integration of 3 overlapping business units such as Amlin Bermuda. Essential to Amlin’s viability within the sector, UDC provides Planning and metrics supporting Finance’s management of Capital, essential for positive regulatory assessments. This centralised Planning system has enabled Amlin to respond to softening market conditions, limiting its exposure. These critical business processes are now practiced in a consistent, structured and controlled manner through the UDC platform. This has enabled a centralized business process where underwriters, managers, analysts and finance are now able to create, update and collaborate with each other in a controlled and monitored manner. UDC has allowed the users to plan and analyse information at the lowest level of detail bringing with it the flexibility to plan at multiple levels such as with Monform or Reserving Classes, view the lowest detail at Policy level and aggregate up to other levels such as Lloyds Risk Codes. At Amlin, SDG, with its pedigree in Management Intelligence, has leveraged this complexity with a dedicated project team working with Amlin to design and development the platform providing implementation and full life-cycle software and system support. UDC will allow users the independence to create reports as they no longer need to depend on IT staff. The data can now be analysed and information can be updated weekly or daily instead of quarterly. This is all done with minimal effort, saving time and resources and ultimately providing an efficient and effective solution. Any planning process is constantly adapting itself to the business model. The Platform that SDG managed to build together with Amlin Key players is flexible enough to allow a day by day improvement cycle. A fully integrated system which controls, supports and manages Planning, Forecasting and Reporting processes. The information that is produced is critical to strategic and tactical business decision-making in addition to governance and the integration of overlapping business units. Milano Via Caduti di Marcinelle, 5 20134 Milano +39 02 215 5707 milano@sdgconsulting.net Roma Via Paolo Emilio, 7 00192 Roma +39 06 39031086 roma@sdgconsulting.net Verona Viale del Lavoro, 33 37135 Verona +39 045 923 0300 verona@sdgconsulting.net Barcelona Madrid Lisboa London Paris 4 Boston 5