Algorithmics, the world's leading provider of risk solutions, announced today that Pacific Life, a prominent US-based provider of life insurance, annuity and investment products, has selected its market risk and economic capital solutions.
Pacific Life will use Algorithmics' market risk system, Algo Risk, for managing the market risk of its asset portfolio and will use Algorithmics' portfolio replication and optimization capabilities to calculate enterprise-wide economic capital across its asset and liability portfolios.
Jane Hsu, Vice President, Pacific Life, said: "We chose Algorithmics because we wanted a world class risk analytics system together with the ground breaking innovation of portfolio replication. Our objective is to allocate our capital as efficiently as possible across our business and to reduce the time it takes us to report enterprise-wide economic capital figures. Having this technology will also put us at an advantage when Solvency II is adopted in the US."
Curt Burmeister, Vice President of Risk Solutions at Algorithmics, added: "We are proud that Pacific Life has chosen to work with Algorithmics and use our technology and methodology to meet its risk objectives. Pacific Life is at the forefront in its adoption of the innovative portfolio replication approach to measure and manage the risk profile of its assets and liabilities. Until recently, portfolio replication has only been pioneered by European insurers to meet their economic capital requirements, with an eye towards future Solvency II compliance."
The methodology of portfolio replication enables insurers to create a proxy portfolio of standard capital market products to replicate the scenario-dependent payoffs generated by the company's existing liability projection systems. Portfolio replication enables insurers to calculate their economic and regulatory capital numbers - on a market-consistent basis - faster, more transparently and accurately across the enterprise than existing methods. Under Solvency II, with the regulator's approval, the replicating portfolios can also be used as part of an internal model.