Ultimate Risk Solutions (URS)

Over the last ten years, Ultimate Risk Solutions (URS) has become a world leading provider of Dynamic Financial Analysis (DFA) software for the insurance industry. URS also provides other modeling software tools with broader appeal to analysts in various industries.

For a long time, the main instrument used for the estimation of future financial results of an insurance company and also for the analysis of the consequences of different management strategies has been "what-if" scenario analysis. The essence of that method is in prediction of future results of the company based on pre-selected deterministic scenarios. Conclusions derived from such analyses are meaningful only for such pre-selected scenarios.

Because even a relatively small insurance company may write dozens of lines of insurance, the number of possible scenarios is too large for their meaningful analysis. The risks related to each scenario may be estimated, but such estimates would be very rough. There is a loss of information during each stage of analysis which often leads to mistakes in strategic planning and the impossibility of realistic estimate of the company results.

Dynamic Financial Analysis (DFA) takes intuitive static scenario analysis to a new stochastic level. It enables the evaluation of a large number of scenarios and, more importantly, obtaining realistic quantitative estimates of the probabilities of various outcomes.

Ultimate Risk Solutions is the only specialised software developer in the world for which DFA software technology is the core business. The company website, www.ultirisk.com, provides information regarding the functionality of the DFA systems as well as a full list of software solutions offered by the company.

Let us briefly describe the benefits of Ultimate Risk Solutions' products to the insurance company:

• Complete modelling of insurance and investment portfolios of the company including premiums, losses, reserves, profit, surplus and cash flows, which enables the analysis of the degree of danger of various risks, such as:
  • Insurance risk related to excessive loss potential from the insurance activities of the company.
  • Reserve risk related to possible underestimation of unpaid liabilities from the losses incurred in the past.
  • Market risk related to the loss of the market value of assets and also to the losses related to currency exchange rates. Such losses are possible because of the global and local economic processes that may lead to undesirable fluctuations in macroeconomic indicators.
  • Credit risk related to the possible defaults or temporary financial impairment of the reinsurers.
• One of the important applications of DFA is the ability to evaluate various strategies related to reinsurance protection, both in making key decisions about the structure of reinsurance programmes and in determining own retention levels. DFA is also a valuable analytical instrument needed during negotiation with the reinsurer regarding the price of the reinsurance contract.
• DFA models allow estimation of capital needed for solvency of the company and allocation of such capital to lines of insurance.
• With the help of DFA, various management strategies can be tested in terms of their conformity with long term objectives of the company.
• DFA instruments have both internal and external consumers:
  • Within the company, the results of the analysis are of interest to top management, department of ceded reinsurance, financial analysts, actuaries and capital management experts.
  • Among external consumers, separate attention should be given to the international rating agencies, such as A.M. Best, Standard & Poor's and Fitch, which, during the last few years, have been actively emphasizing the necessity of integration of stochastic modelling into everyday activity of an insurance company.
  • The results of the DFA analysis are also useful to the shareholders and investors of the company.

Despite the relative youth of Dynamic Financial Analysis, it is actively developing in the international and Russian insurance markets and, most likely, will soon become a standard instrument for evaluation of financial stability and future potential of insurance companies.

The main DFA product of Ultimate Risk Solutions, Risk Explorer™, is successfully used by leaders of the insurance industry such as Munich Re (used in Germany, USA and worldwide), Groupama (France), Willis (used in UK, USA and worldwide), Gen Re (USA, UK, Germany), Liberty International (USA), Odyssey Re (USA, UK), Everest Re (USA), Transsib Re (Russia), Asia Capital Re (Singapore), Instituto Nacional de Seguros (Costa Rica) and many other insurance and reinsurance companies and reinsurance brokers in different parts of the world.

A unique product of the company is URS Real World™ which models the behavior of macroeconomic processes, both globally and locally in different economies. The model produces a large number of future scenarios for macroeconomic indicators such as:

1. GDP growth rate,
2. Inflation rate,
3. Interest rates,
4. Currency exchange rates,
5. Stock market indexes,
6. Unemployment rate, and many others.

www.ultirisk.com

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