Ultimate Risk Solutions: Internal Capital Modeling with Integrated Platform

Vlad Uhmylenko, Managing Director, Ultimate Risk SolutionsVlad Uhmylenko, Managing Director
The determination of risk is the key aspect for any business to prosper and simultaneously avoid meeting undesirable events like financial losses. As insurance companies are in the business of risk-taking, risk quantification is the basic necessity for them. Moreover, in addition to the risks they insure, these companies face a myriad of other sources of volatility and uncertainty, such as operational, credit, market, and other business risks. To make sure that, despite all these risks, the policyholders’ claims get fully paid, insurers hold capital.

Headquartered in New York, Ultimate Risk Solutions (URS) helps insurance companies in understanding their entire universe of risks and in structuring risk-management solutions, so that the insurer’s financial objectives are met and the policyholder interests are observed. “Capital is the key aspect of insurers’ financial strength. So they should have the ability to quantify the impact of risk on their capital, and the capital’s ability to absorb the risk,” says Vlad Uhmylenko, Managing Director, Ultimate Risk Solutions.

To deal with the uncertain world of complex and interrelated risks, insurance companies are increasingly embracing Enterprise Risk Management. Modern regulatory regimes, as well as rating agencies, encourage that development. The expectation is that insurers manage the risks in the context of their capital adequacy. To facilitate integrated management of risk and capital, Ultimate Risk Solutions delivers Risk ExplorerTM, a dynamic financial analysis platform. It could be thought of as a dynamic business plan, as it would evolve under hundreds of thousands of scenarios, including those in which insurance, economic, asset, and other risks threaten the firm’s solvency.

The platform also helps the customers to efficiently mitigate the insured risks by means of reinsurance. “The customer must have the ability to model the costs and benefits of their reinsurance programs,” says Uhmylenko.

In addition to Risk Explorer, the solution provider also delivers a set of supporting risk-analysis tools. For example, UltiFit is a sophisticated and easy-to-use tool which helps in quantifying the risks by searching the suitable distribution parameters quickly.

Capital is the key aspect of insurers’ financial strength. So they should have the ability to quantify the impact of risk on their capital, and the capital’s ability to absorb the risk

The company also offers software for probabilistic assessment of future development in loss reserves, i.e., the outstanding liabilities to policyholders. To help model macroeconomic uncertainties, it provides stochastically simulated economic scenarios. All software in URS’s tool suite is fully integrated, i.e., each piece “speaks” to the others. Moreover, it can “communicate” with other Windows-based software. For example, Excel spreadsheets can be used to control model inputs and outputs.

URS’s customers appreciate the software’s efficient design and speed, as computer simulations can be quite time- and resource-consuming. URS has also gained immense traction with its cloud computing feature for even faster outcomes. For instance, a reinsurer needed a set of tools to support pricing decisions. “The client implemented our platform and created a sophisticated marginal-capital-consumption pricing framework within the platform. But the calculations could take hours,” says Uhmylenko. URS advised the client to incorporate the cloud computing feature. “With the platform on-board, the re-insurer is now able to price and place quotes on the same day,” says Uhmylenko. The quick turnaround in underwriting decisions is a clear competitive advantage for the client.

The software continues to evolve to stay ahead of the regulatory changes and industry best practices. For example, the company’s developers are currently working on enhancements to its stress-testing and sensitivity-analysis tools. “Our clients should be able to see what drives the result, to what the result is the most sensitive,” says Uhmylenko. The Managing Director sheds light on the factors affecting future development and concludes, “As the understanding of best practices in insurance decision-making evolves, and as the regulations and the expectations of rating agencies change with time—the software has to go in step with all those changes.”