Increasing transparency and efficiency due to Solvency II requirements and internal demand for better risk management
When the German insurer ALTE LEIPZIGER – HALLESCHE started looking for a new software system to support their investment process, future-proof risk management functionalities were seen as a must to ensure a sustainable business. Two primary trends caused this focus:
- The ever-growing pressure from European and local authorities to comply with legal regulations, including Solvency II.
- Internal requirements for risk management continues to grow due to increasing investments in new instruments besides the standard fixed income products.
After a rigorous selection process, SimCorp Dimension was chosen as the system which would be able to meet these requirements and replace the existing in-house developed Excel-based risk solution.
One system, front-to-back
As part of a phase II implementation, ALTE LEIPZIGER – HALLESCHE extended their SimCorp Dimension platform with the risk management module. This allowed the company to leverage a one-system solution, avoiding integration costs to a 3rd party and eliminating the resources for reconciliation and the associated operational risk.
Taking advantage of existing set-ups and market data, and benefiting from a set of standard risk reports, the implementation of risk functionalities was performed within only 20 working days.
Data management – a top priority
One of the biggest challenges of an in-house built risk solution is the management of time series. Data collection, cleanup and validation processes were considered as key success parameters. The effort undertaken in this area did not only answer the risk project concerns, but also insured the continuous assessment and improvements of consistency across all calculation routines maintained in SimCorp Dimension.
Today, ALTE LEIPZIGER – HALLESCHE supports a universe of approximately 500 risk factors, composed of equities, funds, interest rates and FX. Daily, automated import routines of time series are performed from a single source: Bloomberg. Data quality control has been configured in a dedicated SimCorp Dimension menu which allows analysis and management of all time series in a single grid view.
Confident with data quality, ALTE LEIPZIGER – HALLESCHE started daily estimation of different covariance matrices based on 250 or 400 observations, depending on the methodology selected (‘Exponential Weighted Moving Average’ or ‘Equally Weighted’ returns) and on the required time horizon.
Transparency and flexibility
Within SimCorp Dimension’s risk solution, ALTE LEIPZIGER – HALLESCHE produces one day Parametric VaR at 95% and 99% confidence levels on a daily basis. Incremental VaR and risk factor decomposition analyzes provide new insights in terms of position and factor contribution. The possibility to easily break down the portfolio into sub-portfolios is well used and provides all the necessary reports for the company to understand the portfolio’s risk exposure. All key ratios are reported at instrument-type level, with an additional breakdown to security level. The transparency of the solution also significantly contributes to the understanding of the figures and their trends.
Significant productivity gains
As a result of implementing SimCorp Dimension’s risk solution, ALTE LEIPZIGER – HALLESCHE has significantly reduced the operational risk inherent in an Excel spreadsheet-based solution. Also, a number of cumbersome data transfer and reconciliation procedures have been discontinued. By eliminating such routines, risk controllers are now able to concentrate on true value-added tasks. This lead to productivity gains in the department equivalent to the work of almost two additional full-time employees – in other words, 30% of the current risk staff!
Well-prepared for the future
ALTE LEIPZIGER – HALLESCHE has demonstrated its long term planning skills and ambition to stay competitive. A modular solution allowed the company to select only the required functionalities and to minimize initial implementation costs, while keeping the opportunity open for future scale-up. At the moment, ALTE LEIPZIGER – HALLESCHE is using Parametric VaR calculations for risk monitoring and management reporting. As the company introduces more sophisticated instruments to its portfolio, more appropriate risk models (based on full re-pricing), such as Historical or Monte Carlo VaR, will follow. All in all, ALTE LEIPZIGER – HALLESCHE has taken an important step towards compliance with Solvency II and can easily scale up its risk functionalities in the future.
Name: ALTE LEIPZIGER – HALLESCHE
AUM: EUR 25 billion