Financial Modelling for Atrium Underwriters at Lloyd’s of London
Atrium is a managing agent participating on and managing a syndicate in the Lloyd’s insurance market. With an underwriting capacity of more than £400 million its specialities include Accident & Health, Aviation, Marine Property, War and Terrorism. Continued growth and operating at scale has brought challenges in managing increasing complexity and risk. BI applications help managers do this effectively and efficiently and so improve profit performance.
The requirements within insurance are generally at the extreme end of complexity and detail and so an important part of the challenge is to make solutions clear, easy to manage, quick and reliable to execute. The vision was for an application that would model the finances of the insurance business, including transparency and reliability in the process.
In the past, Excel, in the hands of highly skilled users, had provided a means of coping albeit with compromises and recognized dangers. However Excel wouldn’t meet the new demands placed on it by management which required a truer representation of the highly dimensional business and its complex logic.
The robustness of the information is also critical. Many of the reports were for regulators who used the information to assess the performance of the business and its management. The applications had to be rigorously developed and based on a solid data foundation with data going back more than a decade.
Financial reporting has to meet generally accepted accounting principles (GAAP) but also European insurance firms are increasingly impacted by Solvency II. The solution therefore had to provide a common core logic from which to service both requirements.
Delivering the Vision
The application developed provided financial forecasts of the P/L, balance sheet and cash flow which supported various reports both internal and external. The forecasts were built on the latest actuals and various forecast assumptions such as actuarial ultimates, loss ratios and patterns. Reforecasts flow automatically once a revised set of actuals is loaded into the system but an archiving process allows past forecasts to be kept. This allows the new reforecasts to be compared to previous forecasts.
The highly dimensional model allows analysis against the core dimensions of Year of Account, Class of Business and Currency. Exchange Rate Sets allow conversion of local currency at different future exchange rates and side-by-side comparison against each other. Calculations produce the Pure Underwriting Year, Prior Underwriting Year and Calendar Year bases with results against either a calendar time or a development period.
The application handled many complex calculations, for example, distributions to the syndicate investors as well as profit commissions and bonuses, and regulatory trust fund balances. Expenses, some of which are held as deferred acquisition costs, are allocated to Classes of Business and Years of Account using earning patterns and written premium.
The application was delivered using TM1 which has an in-memory multi-dimensional modelling tool much used in the Insurance industry. Whilst all the calculations are performed server side in a controlled manner, the end user can still pull data easily into Excel or other user interfaces to add to but not change the central logic.
Want to know more?
If you would like to know more about what can be achieved with Business Intelligence & Analytics and would like to discuss your options with an independent specialist, please get in touch with Evelyn Heyes in the UK (email@example.com) or Trevor Jones in the US (firstname.lastname@example.org).