Re-engineering the statutory valuation process and operational KPIs for a global reinsurer

Background

A leading global reinsurance company asked MBE to review their actuarial operations. We began by examining how they were performing across the six enablers we measure within our Actuarial Performance Management (APM) Framework.

The results showed that the client was underperforming within two of the APM enablers:

1. Processes and Methods;^[1] and
2. Performance Management.^[2]

The two major issues that were identified as part of the APM Assessment were that processes were not properly documented and operational performance was not actively monitored.

Challenge

The actuarial team faced significant challenges with process consistency and efficiency negatively impacting both the quality and timeliness of their deliverables.

It was evident that actuarial processes were failing the team and standard practices were not being adhered to which was having a direct negative impact on the quality of the actuarial information.

The management team set out their vision for robust processes to be developed that could be easily executed by any team member, regardless of experience, and for all team members to understand the end-to-end process and the way it is executed. The team had a longer-term ambition to move away from manual to automated processes.

The management team established three key objectives:

1. improve the accuracy of the numbers to reduce rework;
2. reduce the process lead time; and
3. implement process resilience.

The management team identified these long-term outcomes as important to their strategy:

• reduce operational risk;
• automation and exception handling;
• efficient control framework;
• reduce key-man dependencies; and
• reduce complexity.

In the first instance, the client asked MBE to explore ways in which to make enhancements to their processes by piloting recommendations and improvements to their quarterly statutory valuation process.

Approach

Identify the Current State Process

To gain a clear understanding of the current state of the client’s statutory valuation process we initially met with the management team to establish their concerns and motivation for improvement.

We then conducted a series of workshops with the valuation team to better understand the process from their viewpoint, including how it was being executed, the system and tools used, current workarounds and challenges.

What we uncovered:

• Multiple data preparation steps being used throughout the process;
• Inconsistent use of checks and controls;
• Lack of new data validation meant poor quality data was being pushed through the process;
• Different versions of mapping tables and look-up lists across systems and tools;
• Manual modelling taking a disproportionate amount of effort;
• Inadequate process documentation;
• Lack of standardisation and appropriate use of tools and systems;
• Rework and cost of outputs disproportionately high; and​
• Actuaries manually performing non-value-adding tasks such as data cleansing, data transformation, performing controls and running validations.

Stage One – Current State Workshop

The initial phase of the project involved facilitating exploratory brainstorming workshops. The purpose of these workshops was to gain a full understanding of the current process being used by the team. This open-style forum allowed us to identify where and why the reworks were happening during the process, where hand-offs were taking place, and which process steps led to bottlenecks.

Based on our discussions we made the following recommendations to the client:

• Standardise the workbooks used within the quarterly valuation process using EUC best practice principles, focusing on structure and formatting with an added emphasis on checks and controls.
  
• Centralise, standardise, streamline, and implement version management for lookup lists and mapping tables used within the quarterly valuation process. This was to improve error handling at the data preparation stage and ultimately reduce rework throughout the process.
  
• Implement Quality, Cost and Delivery (QCD) measures to benchmark current performance and to help quantify the benefits of future improvements implemented by the team.

Stage Two Workshop – The Future State Process

For this next stage of the project, we began reiterating the three key overarching objectives set by the management team – improve accuracy, reduce time spent on the process and embed resilience. By emphasising the commitment, the management team had made to delivering improvements, it established a positive and engaged approach with the team.

Next, we asked the team to consider the current state process and to work with us to identify why the process was failing. Together, we analysed lead time and hand-offs to identify where savings could be made in the process. We discussed the process steps that the team find complex and what could be done to simplify them.  As a result of this workshop, we identified 26 improvement opportunities. The benefits that would be realised from these improvements focused on increased efficiency and the quality of the actuarial processes.

Recommendations

Armed with the intelligence gathered from the future state workshop, our main recommendations focused on standardising/streamlining the tools used in the statutory valuation process, moving all treaties to one modelling platform and introducing process performance KPIs. To achieve this, we recommended that the client start to use:  

• ETL (Extract, Transform, Load) tool for data preparation;
• One modelling platform to simplify the end-to-end process;
• EUC best practices and standardisation;
• Operational KPIs to measure quality, cost and delivery;
• Visual Management to effectively manage process performance KPIs; and
• Skills matrix and training plan to identify gaps and monitor and develop skills.

Next Steps

To achieve their ultimate goal of an automated future state, we have recommended an evolutionary phased approach to iteratively shift team capacity, from running the process to improvement activities, as well as gradually increasing the time available for actuarial analysis.

The client has asked MBE to help them implement our recommendations using our Actuarial Performance Managment Framework (APM) for improving the statutory valuation process, and apply the same approach across all of their processes.

[1] The Processes and Methods enabler defines the techniques, procedures and standards required to produce and manage risk data and actuarial results accurately and consistently. 

[2] The Performance Management enabler defines the measures that monitor and control the appropriateness of actuarial models and the performance of processes with the help of key performance indicators (KPIs).

For a complimentary assessment of your organisation’s actuarial performance contact our team.