Innovation in the Bermuda market: Asset Cashflow Reinvestment Optimization (ACRO) model solution

For many considering the scenario-based approach (SBA) for determining best estimate liability (BEL) and the shock-based approach for the interest rate and liquidity risk, the required calculations are time-consuming and complex.

Recently, there has been an increase in regulatory and internal pressures, with growing concern around fluctuating or reduced solvency ratios as a result of volatile financial markets and changes in guidance.

The ACRO model solution was developed specifically to help. ACRO combines the convenience of a no-code, validated model with foolproof configurability that reflects your unique portfolio and investment strategies. It can also help you better understand your capital needs and asset and liability profile.

Key benefits include:

• Calculate BEL under the SBA and the standard approach.
• Assess whether initial assets can cover future liabilities.
• Identify asset and liability cash-flow mismatches.
• Quickly test different reinvestment strategies.
• Ensure consistency between SBA BEL and Bermuda Solvency Capital Requirement (BSCR) asset liability management modeling.

Efficiency

Due to the complicated calculations necessary for SBA compliance, it is paramount that any model solution performs efficiently. The ACRO SBA model solution is completely optimized and dedicated for SBA. It possesses parallel processing capabilities and C++ integration to perform complex tasks quickly, such as calculating BEL and the interest rate and liquidity risk component of BSCR in minutes.

Model governance

When it comes to critical decision making involving BEL, the reliability of the calculation is crucial. The ACRO SBA model solution follows a strict model governance protocol to ensure every step is accurate and precise. The model’s sophisticated source code operates in a secure locked-down environment.

ACRO is regularly updated to reflect upcoming regulatory mandates and user-requested functionalities. The development team follows a scrutinous procedure when implementing these updates, including model validation protocol and independent review, ensuring the conceptual and technical soundness of the model.

Out-of-the-box experience

Operating an unfamiliar model can introduce technological challenges. With that in mind, ACRO was designed to be intuitive. ACRO runs in a cloud-based environment, so no software installation is required. Minimal technological training is necessary, allowing users to focus on the results.

In addition, ACRO’s user-friendly interface allows inputs and assumptions to be easily tailored to reflect the user’s specific investment views and portfolios. ACRO’s standardized output includes detailed projections, graphs and run logs, providing users with all relevant and necessary information to better aid analyses.

Always up to date

As regulations and requirements evolve the ACRO SBA model solution is continually refined to meet and exceed regulatory standards. WTW’s team of Bermuda market experts work hand in hand with the ACRO team members as they implement changes, all of which are made to ensure the underlying methodology is always up to date and in line with the regulatory guidelines and actuarial best practices.

The diligent updates and improvements to the ACRO SBA model solution reflect the commitment of the development team to deliver the best solution for the model’s users.