Under the latest risk-based reporting regulations, companies are required to perform multiple interacting projections to meet their regulatory requirements. These could be the various stresses under Solvency II, the stochastic and deterministic elements of US principles-based reporting, or hedging for models of guaranteed-benefit contracts.
Well-designed models will maximise the reuse of code and product definitions to minimise the operational risks both in reporting and in updating their models. The Nested Structures feature brings this modular development paradigm to allow users to extend and improve their complex models. This is particularly important for Interest Sensitive and Variable Annuity calculations where stochastic and decision-based calculations are frequently performed within other stochastic calculations.
The Nested Structures feature in Prophet further allows the integration of your existing projection and regulatory models. This allows companies to project their balance sheets under those complex regulations, capturing the various stress scenarios resulting in the accurate modelling of the costs of capital, desirable for doing FLAOR/ORSA calculations. This includes modelling the evolving impact of Solvency II and IFRS for Insurance Contracts as well as all regional variations of those.
Alternatively, companies can introduce simplified proxy models and aggregations into their business projections, giving faster access to a calibrated approximate view of their company’s future. This is particularly important for financial risks that can be compute intensive to simulate on a full projection model.