Life2017 conference reviewJune 2017, London

The presentation slides and related reading materials referred to in this booklet can be found at: www.willistowerswatson.com/life2017

View how the day unfolded on Twitter: #WTWLife2017

Life2017 conference reviewJune 2017, London

ContentsOverview ................................................................................................................................................................... 1

Session summaries .................................................................................................................................... 2

Solvency II – One year on: one step forward; two steps back ............................................................................... 2

New world M&A .................................................................................................................................4

With-profits transformation: improving stakeholder outcomes through simplification ...................................................................................6

IFRS 17 – why actuaries need to care ...................................................................8

Transforming actuarial processes ............................................................................10

Old Mutual: a risk perspective on separating a group ..............................................................................................................12

Insurance 2022 – a bold vision ..................................................................................... 14

More from the day .................................................................................................................................... 16

On Wednesday 21 and Thursday 22 June, more than 90 of the UK’s leading Life Insurance practitioners joined us at the QEII Centre for Life2017. In this, our fifth annual Life Conference, we had much to discuss and share with clients, reflecting on what has been a topsy-turvy 12 months of political and economic events.

From the impact of a Brexit vote to a snap election that has reignited debates not only about the terms of Brexit, but about political and economic priorities more generally, including some that affect our industry very directly, such as how the UK deals with an ageing population and the funding of care for future older generations. Fresh perspectives on the issues involved are valuable and we were delighted to welcome the well-known economic commentator Roger Bootle as our keynote speaker to share his views.

At the same time, there have continued to be major developments in insurance regulation and accounting. We now know most of the requirements of IFRS 17 and a firm implementation date of 1 January 2021. With companies still in the process of bedding in Solvency II reporting and procedures, we looked at the implications and potential options for managing the workload effectively.

A couple of constants, though, in the last year have been becalmed interest rates and the steady march of technological innovation.

And we spent time looking at the continuing effects on things like product and growth strategies in sessions on with-profits and M&A. And the Insurance 2022 session brought everything together with a three- to five-year view.

We have created this booklet with summaries of the various sessions we ran at the conference along with details of related reading materials that we hope will be of interest and will help inspire you, as insurers, to tackle challenges you are facing now and in the future.

Marcus Bowser UK Life Sales and Practice Leader, Willis Towers Watson

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Life2017

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With the bedding-in of Solvency II still very much work-in-progress at most companies, Kamran Foroughi, and Autonomous founder and analyst, Andrew Crean, addressed the growing call from investors for more clarity and consistency in the numbers produced by insurers.

Following the publication of a joint report which has received extensive press coverage including from the Financial Times, “Solvency II – One year on: One step forward; two steps back”, based on the analysis of the reporting statements of 31 European insurers, they argued that the insurance sector is at risk of being further marginalised by investors as performance reporting becomes more complicated. In particular, they highlighted how Solvency II falls significantly short as a profit performance and cash generation metric that can replace embedded value (EV), at a time when the publication of useful EV data in Europe is diminishing and IFRS figures are some way off being available. They suggested that a clear explanation of the ‘investor story’ in cash terms, with a more coherent link between IFRS, EV and Solvency II is essential to sustaining the sector rating.

Solvency II – One year on: one step forward; two steps backAndrew Crean, Autonomous and Kamran Foroughi

Key takeaways

�� The insurance industry should address the shortcomings of Solvency II before a crisis occurs.

�� Insurers should offer transparency in order to secure investor confidence in insurance. For example, in 2008/09 lack of transparency on cash and capital contributed to the sector’s implied cost of equity hitting 20%.

�� There is no requirement under Solvency II to produce an in-period movement analysis or sensitivities, as a result, investors do not have a clear picture of free capital generation.

�� Insurers should take into account that Solvency II has forced apart the accounting and solvency reporting, making it harder to understand the dividend paying biting constraint.

�� We have proposed specific insurance sector templates that are designed to address the above issues disclosing, inter alia, a movement in Solvency II free surplus, Solvency II sensitivities, and an explanation of whether Solvency II or IFRS is the biting constraint when it comes to cash remittances and dividend paying capacity.

Session summaries:

Related materials

Solvency II – One year on: One step forward; two steps back presentation slides

Solvency II – One year on: One step forward; two steps back April 2017 report

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Andrew Crean

Andrew Crean has been analysing UK and European insurers since 1982. Prior to founding Autonomous in 2009, Andrew was the Head of European Insurance Equity Research at Citigroup. He held this post for five years, leading a team of five analysts. Before joining Citigroup in 2000, Andrew worked as an insurance analyst in Schroder Securities, as a partner in GVGI (a start-up institutional stockbroker) in the 1990s, and at Laing & Cruickshank and Capel-Cure Myers in the 1980s. Andrew holds a BA in Modern History from the University of Oxford.

Kamran Foroughi

Kamran Foroughi has been with Willis Towers Watson for almost 20 years and a Director since 2011. He previously led the company’s Insurance Global Financial & Regulatory Group and currently leads the UK life equivalent.

He led the submission to the UK Parliament Treasury Committee Solvency II/Brexit inquiry last November.

Throughout his career, Kamran has worked extensively with the global insurance industry, including many firms, regulators, and industry and professional bodies. He chairs the Institute and Faculty of Actuaries’ cross-practice Financial Reporting Group and has published a number of award-winning papers on insurance reporting and financial management.

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In their session on “New world M&A”, Steve Taylor-Gooby and James Wu discussed how Solvency II and low interest rates have made capital optimisation a key deal driver, particularly for closed funds and increasingly in continental European countries where products with high guarantees have been common.

Consistent with that trend, they explained that sellers of portfolios need to support buyers’ demands for a more comprehensive analysis of a range of potential capital implications arising from a deal, including factors such as diversification benefits and the likely reaction of regulators. Anecdotal evidence from the market, they said, showed that the ‘Direct Approach’ showing the market value of assets and liabilities separately is not suitable for sellers’ reports. Potential buyers instead want to be able to understand the available free cash flow after retaining required capital, allowing for natural hedges across the businesses.

New world M&A Steve Taylor-Gooby and James Wu

Key takeaways

�� A key consideration for the insurance industry is that understanding capital implications is essential for successful M&A.

�� A clear understanding of capital release, gain or loss in diversification, and the impact of new asset and reinsurance strategies is required in assessing any transaction.

�� The question for insurers is how much can you know in advance?

�� The session demonstrated, through the use of a case study, that a collaborative approach between buyer and seller is becoming more common and also delivers the best results.

Related materials

New world M&A presentation slides

Insurance M&A success tracker

New horizons: how diverse growth strategies can advance digitalisation in the insurance industry

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Steve Taylor-Gooby

Steve is a Managing Director at Willis Towers Watson with over 25 years’ experience in the insurance industry, both as a consultant with Willis Towers Watson and as a partner at the Resolution Group. During his career as a consultant, Steve has led many major projects in the mergers and acquisitions field including demutualisations and IPOs, company reconstructions, risk management and corporate strategy. Steve has extensive international experience, having worked in Asia, Europe, North America and South Africa, and is a Fellow of the Institute and Faculty of Actuaries.

James Wu

James joined Willis Towers Watson in 2005 and has over 11 years’ experience in the Asia Pacific and European life insurance industries. Most recently, James has been helping European clients with a number of capital model implementations, including the deployment of Solvency II internal models prior to model approval and further development of models for risk and capital management. James is a Fellow of the Institute of Actuaries of Australia.

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In their session, Brian Murray of Royal London and Trevor Fannin homed in on the with-profits market and the increasingly compelling case for simplification in light of the contracting market, low interest rates, the changing nature of contracts, and the associated governance and management costs. And while simplification has, they believe, become a strategic imperative for smaller funds that typically struggle to provide value to customers, the supporting arguments for simplification now extend to all funds.

They outlined the various routes to simplification, with some examples from Royal London and others, illustrating that it isn’t just for the company’s benefit. The aim of a good simplification exercise, they said, was to find the ‘sweet spot’ that meets policyholders’ needs for more money and certainty out of their policy, regulators’ concerns about solvency and fair treatment of customers, and shareholders’ requirements for better returns and reduced complexity.

With-profits transformation: improving stakeholder outcomes through simplificationBrian Murray, Royal London and Trevor Fannin

Key takeaways

�� Issues associated with with-profits such as the contracting market, the changing nature of contracts, and the governance and costs, provide good reasons for insurers to think about simplifying funds.

�� Simplification is a strategic imperative and is in all stakeholders’ interests, allowing synergies across projects as well as avoiding potential conflicts by aligning the stakeholders’ interests.

�� Potential policyholder and commercial benefits are significant.

�� All with-profits funds should consider taking action given the list of options available to them to simplify the ongoing management of their with-profits business.

Related materials

With-profits transformation presentation slides

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Brian Murray

Brian Murray is the With Profits Actuary for all 10 of Royal London’s with-profits funds.

Brian was instrumental in developing and implementing Royal London’s innovative ProfitShare approach. This allows unit-linked policyholders to participate in the company’s profits, and gain membership of the mutual, without having to invest in more traditional forms of with-profits. In his 17 years at Royal London, Brian has advised the company on the actuarial and fairness aspects of a number of acquisitions. This includes most recently the acquisition by Royal London of the long-term business of the Co-operative Insurance Society.

Trevor Fannin

Trevor is a Director at Willis Towers Watson and the Leader of the with-profits product group. In this role, Trevor is responsible for driving the development of Willis Towers Watson’s with-profits intellectual capital and taking innovative solutions to insurers.

He has been the pioneer of our With-Profits Actuaries Club, which meets on a regular basis to discuss topical issues, and he authors the annual survey of with-profits funds. Trevor has over 15 years of experience working in this field and is a regular speaker on with-profits topics at industry events. He also carries out chief actuary and with-profits actuary roles, which means he is routinely involved in the operational management of with-profits funds and how that impacts on the strategic development of those organisations.

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The Life2017 conference took place about a month after the International Accounting Standards Board published most of the requirements of IFRS 17 with an implementation date of 1 January 2021.

The succession of delays over recent years may have pushed it further back in the queue of issues to address, but the likelihood, according to Matthew Ford and Neil Chapman in their overview of its implications, is that it will involve a major effort possibly similar to that for Solvency II. The cost could be significant, with one leading company CFO having recently estimated a total industry bill of £1-2 billion.

Due to the need for comparatives, companies that report on a calendar-year basis will have to be able to produce IFRS 17 for 2020. That, together with other IFRS changes taking place and some significant differences in valuation approaches to Solvency II, including the constituents of recognised revenue, the grouping of contracts, applying IFRS 17 retrospectively, and the need to calculate a granular ‘contractual service margin’, will put actuarial teams centre stage in the implementation.

IFRS 17 – why actuaries need to care Matthew Ford and Neil Chapman

Related materials

IFRS 17 – Why actuaries need to care presentation slides

IASB issues IFRS 17 Insurance Contracts, starting the countdown to 2021

Key takeaways

�� Due to the complex nature of execution, particularly on software and reporting processes, implementing IFRS 17 requires a holistic approach.

�� A good solution will need to address the people issues, tools, processes and technical decisions.

�� IFRS 17 is principles based. As a result, actuaries need to understand and explain the consequences of different approaches.

�� Careful assessment and scenario testing of the different IFRS 17 options and policy decisions is needed to reduce the risk of future regret. This is because these decisions will have a material impact on the opening level of shareholder equity, emergence of future profits and implementation complexity, and once taken, these decisions will be very difficult to change. To get this right, actuaries have a key role to play in understanding, then helping to drive and influence the debate.

�� IFRS 17 requires new actuarial models that deal with CSM and risk adjustments, calculations and analysis. Applying IFRS 17 retrospectively is likely to involve significant effort and care to get it right.

�� There will be further significant pressure on reporting processes, requiring new systems and changes to processes and teams.

�� Actuaries should bear in mind that the timescales are short – engagement and sponsorship are required now. They have a key role in helping the business to understand and address the investor relations and commercial implications early.

�� For all of the above reasons, actuaries need to care about IFRS 17 now.

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Matthew Ford

Matthew is a Director and Life Consulting Leader at Willis Towers Watson, with more than 20 years’ insurance industry experience, gained both in consulting and company roles. Matthew specialises in Solvency II, matching adjustment framework and portfolio management, capital management and optimisation, and ALM for annuities and with-profits business. In addition, Matthew is a senior member of the company’s GB/EMEA IFRS group. Matthew joined Willis Towers Watson in 2016 from Prudential, where he had worked for 11 years and held the role of Actuarial Director for the UK and Europe business. Prior to this, he had worked in a consulting role at one of the major audit firms.

Neil Chapman

Neil is a Director of Willis Towers Watson, having been with the company for over 10 years.

Prior to that he spent 20 years in a number of senior industry roles. He is a Chief Actuary for a unit-linked company and a senior member of the company’s GB/EMEA IFRS group. He has extensive Solvency II knowledge and experience, having led a wide range of engagements including governance structures, risk management frameworks, internal model design and validation, matching adjustment and transitional measures for technical provisions. His other areas of expertise include asset allocation, ALM, capital management, with-profits and bulk annuity business.

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In their session, Richard Waller and Mike Byrne focused on the process of actually producing the numbers and the advantages available from finance transformation.

Robotics and automation technology is advancing significantly and this is providing an opportunity for insurers to radically improve their actuarial processes and reduce the working day timetable, whilst at the same time introducing governance and control. The efficiency gains available can drive significant cost reduction as well as enable finance teams to better support the wider business. Richard shared his top tips for delivering on transformation projects based on a wealth of industry experience.

Mike then presented a case study where Willis Towers Watson worked with a large UK insurer to deliver significant process acceleration and efficiency gains through deploying our Unify workflow automation, governance and control solution. The project completed within 10 weeks and demonstrated that it is possible to ‘accelerate first’ through the use of robotics tools like Unify, rather than undertake long and costly improvement projects first.

With the working day timetable reducing up to 2019, and IFRS 17 on the horizon, insurers must realise the benefits of technology sooner rather than later.

Transforming actuarial processes Richard Waller and Mike Byrne

Key takeaways

For relatively little spend, insurers can deliver significant benefits in a matter of a few months when transforming actuarial processes. You can fire up the technology now to deliver a range of benefits such as:

�� Reduce your project delivery risk

�� Shorten the working day timetable right now

�� Facilitate a reduction in your cost base

�� Embed governance and control measures

�� Take your people on the journey

Related materials

Transforming actuarial processes presentation slides

Benefits of systemisation and automation of actuarial processes

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Richard Waller

Richard is the Client Relationship Manager for some of Willis Towers Watson’s major insurance company accounts, working cross-territory and cross-discipline where appropriate to ensure we provide a high-quality service to our major clients. Richard is also a member of our UK Life Management Team, making sure our consulting expertise and software solutions combine to meet our clients’ needs.

In recent years, process transformation has been a major driver of our work with clients. Richard has been involved in a number of process transformation projects, some of which have completed and some of which are still in progress. He is currently responsible for our involvement in a multi-adviser transformation project with a major UK life insurer. Richard is also a Fellow of the Institute and Faculty of Actuaries.

Mike Byrne

Mike is a Senior Consultant at Willis Towers Watson and specialises in actuarial outsourcing. Mike has led an outsourcing team for a medium-sized UK insurer for the last three years. In addition, he specialises in process improvement and has been involved in a wide variety of projects, from large-scale finance transformation projects to optimising particular aspects of the actuarial valuation process. Mike is also the Product Manager for DataValidator, Willis Towers Watson’s solution for the validation, cleansing and transformation of data within insurance companies.

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Natasha Naidoo of Old Mutual and secondee, Paul Simmons, contributed a risk perspective on Old Mutual’s ongoing managed separation of the group. Despite legal requirements limiting what they could tell delegates, they outlined the approach being taken following a strategic review that had concluded: there were limited tangible synergies between the businesses; the evolving regulatory environment in Europe and South Africa was adding cost, complexity and constraints; and the Group structure inhibited the efficient funding of growth plans for individual businesses.

Old Mutual: a risk perspective on separating a groupNatasha Naidoo, Old Mutual and Paul Simmons

Related materials

Old Mutual: a risk perspective on separating a group presentation slides

Key takeaways

�� The decision to undertake the managed separation strategy required a reassessment of the company’s risks.

�� Companies concerned by Recovery and Resolution Planning can draw on the lessons demonstrated by the Old Mutual Case. Insurers should:

�� Redefine key metrics, tools required to support these metrics, and consider how appetite will be affected

�� Ensure plans cover your people

�� Proactively and regularly engage with regulators

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Natasha Naidoo

Natasha is currently the Head of Financial Risk Oversight at Old Mutual plc. Prior to that she was an actuarial consultant at KPMG, working across a number of internal model validation and economic capital reviews.

Paul Simmons

Paul is a Senior Consultant with Willis Towers Watson, with over 13 years of experience across a range of projects, geographies and clients. Most recently, he has spent the past 18 months seconded as the Head of ORSA within Old Mutual’s Group head office, overseeing the entire spectrum of enterprise risk management across insurance, banking and asset management, during a time of unprecedented change.

During this time, he has continued providing actuarial function services, validation of internal model results, and has overseen the successful closure of Willis Towers Watson’s support to the Equitable Life Payment Scheme. More generally, he has recent exposure to capital management and optimisation for some of the UK’s largest and smallest insurers, securitisation, and of sell-side M&A experience through the IPO of the Dutch insurer Nationale-Nederlanden.

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The final presentation of the conference from Heloise Rossouw, Colin Forrest and Gary Williams, who encouraged delegates to look ahead five years to the impact that technology and customer preferences could have on the market.

The audience was challenged to consider demographic risks, such as that by 2020 around 40% of the UK population will be from Generation Y and, that by 2025, the same generation will make up 75% of the workforce. And leading on from that, how risks and the dependencies between them might be transformed and influenced by technology.

They were also asked to contemplate whether insurers’ responses so far have been to take small steps, creating incremental versions of themselves rather than addressing the challenges head on. And finally, the presentation raised the fundamental question of the future role of insurers in meeting customer preferences that are increasingly less focused on specific products and more on outcomes, such as financial security. How should insurers compete and attempt to position themselves to meet these aspirations and hold their own against a new breed of competitors?

Insurance 2022 – a bold vision Gary Williams, Heloise Rossouw and Colin Forrest

Key takeaways

�� Do insurers know what their customers’ needs and wants are and what their customers need help with?

�� Currently, there are few new entrants in the market and customer needs are clear and growing, and loyalty (or inertia) is high. However, in order for insurers to remain ahead of the game, they need to act now, be agile and flexible so they can embrace the changes and remain fit to compete in the market in 2022.

�� Our speakers encouraged our delegates to ask themselves key questions such as who do you want to be? A product provider or service provider? How do you want to differentiate yourself? What parts of the value chain do you want to participate in? How will you defend against and/or leverage Insurtec?

Related materials

Insurance 2022 – a bold vision presentation slides

The savings psyche of the UK

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Colin Forrest

Colin is the UK Life Practice Leader, Risk Consulting and Software for Willis Towers Watson, with responsibility for ensuring that the UK Life team has the people, skills and propositions to deliver relevant, client-focused solutions in the modern market. He has over 25 years’ experience in the life insurance sector, firstly as an industry practitioner and then as an actuarial consultant. Colin has a wide range of actuarial experience across the areas of risk, audit, pricing and reporting. Additionally, he has been one of the industry pioneers in the use of data analytics in the life sector, successfully delivering a variety of innovative and value-adding initiatives.

Heloise Rossouw

Heloise joined Willis Towers Watson in 2016 as a Senior Consultant within the Insurance Management Consultancy team. With over 13 years’ UK and international experience specialising in life actuarial work, Heloise has worked across a wide range of actuarial, risk and strategic roles, both within the industry and consulting. She most recently worked at Old Mutual, where she helped to develop the company’s Group strategy and business plan.

Gary Williams

Gary joined as the Global Business Management Lead within our Risk Consulting and Software practice last year, based in London. Gary previously worked for Zurich for over 20 years, first in their UK businesses, then in Zurich Global Life as Commercial Director within their Corporate Life & Pensions business (for example, Employee Benefits) and more recently as the Global Head of Propositions based in Switzerland. His experience covers strategy, market entry, distribution, propositions, in-force management, customer management and cost management.

Life2017More from the day

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