Innovation and quality the keys to pushing data's boundaries

Companies: FactSet

People: Pat Reilly

Today's technology environment is changing at lightning speed. At the centre of this revolution is information. Data can be stored and analysed in the cloud, or processed through artificial intelligence (AI) or machine learning solutions. Even the kind of data that insurance firms are working with is changing, with the emergence of alternative data (alt data).

However, some insurance organizations can feel "blinded by science". Many ask themselves, how would they best be able to engage with these new technologies and data types in a way that not only supports their business goals, but could deliver competitive advantage?

As well, insurers may worry about selecting the right partner when it comes to these rapidly evolving approaches. FinTech may sound sexy but not all technology companies have established track records within financial services. Nor do they all have the robust compliance resources in place to support insurers' needs around managing the vendor risk created by such relationships. 

This article explores how FactSet enables insurers to benefit from these new technological approaches, supporting their quest for enhanced returns, more efficient financial management and improved regulatory compliance.

Moving to the Cloud

The cloud is a great example of a technology that is being adopted quickly by insurance firms – and for good reasons. FactSet enables insurers to reduce their overall levels of operational risk – across underwriting, investment management, asset-liability management and regulatory reporting — by hosting their data and analytics in the cloud. This frees firms up from building and maintaining their own expensive tech stack to support these heavy computing processes. Having these services in the cloud also means that employees can access them remotely, even if they are on a business trip.

FactSet collects its own security master data, so firms do not have to source this data from a third party. Combined with client data, sophisticated analytics are then performed in the hosted environment. Firms use FactSet for a wide range of use cases, including:

  • Security and portfolio analytics – Durations, key rates or partial durations, yields, spreads, book calculations, and asset-level cash flows are just some of the tools available. Many clients use FactSet to model their entire private placement or commercial mortgage books. Others model OTC derivatives pricing or portfolios. Duration matching, cash flow matching, and funding level estimates are all natural extensions of this process.

Figure 1. Source: FactSet, Credit Analysis

  • Asset-Liability Management – The cash flow testing application is a cloud-based calculation engine that can digest thousands of scenarios from scenario generators and output security level cash flow and horizon risk analytics utilizing FactSet's distributed calculation technology.  Established liability systems partner with FactSet to provide insurance companies with turnkey solutions around cash flow projections and risk analysis.
  • Underwriting and credit analysis – Fundamental data, estimates, and research management solutions combined with unique content such as proprietary geographic revenue exposures, supply chain relationships, shipping data, debt capital structure information, and screening capabilities round out the tool kit.
  • Regulatory Capital Reporting – Solvency II, NAIC tests, and other regulatory capital models are available. The Solvency II solution captures 97% of the Tripartite Template, and SCR scores are automated. For NAIC or principles-based regulatory capital modelling, FactSet has all of the underlying components, including security masters, ratings data, and RBC calculation methodology. Rating agency surveys are performed by FactSet with a click of a button, freeing up valuable time at year end. 

Another key benefit is that FactSet monitors the results of analytic processes to assess the quality of the output by identifying exceptional daily deltas and outliers. Subject matter experts will then seek to proactively resolve these issues – and produce an audit trail around those activities as evidence for regulators.

Communicating the story that analytical data tells can be challenging. FactSet enables teams to explain the output to senior management and the board – or to an individual investor – through a range of reporting offerings that are easy to use and incorporate personalized visualization.

Learning from alternative data

Alt data is perhaps the newest, sexiest of these three trends. It's short for alternative data, and it's beginning to revolutionise the way investors think about risk in their portfolios.

Back in 2011, a massive 8.9 earthquake hit Japan, taking out a considerable amount of infrastructure and industrial buildings. Suddenly, organisations around the world realised just how much of their supply chain was linked to Japan – from semiconductors to steel. Concentration risk was brought into sharp focus for both companies and investors.

Today, investors and insurers are beginning to use alternative data to better understand where concentration risks due to geography or supply chain factors may sit within their portfolios.

Figure 2. Source: FactSet, Geographic Revenue Exposures

These risks are not always obvious – they can be hidden until this type of analysis is performed. For example, a company may be domiciled in a relatively stable country but have suppliers and customers in emerging and frontier markets in geopolitical hotspots around the world. Revenues may be much more tightly linked to these volatile markets than to the company's home market. From both an underwriting and an investment perspective, this is a significant difference in understanding the risk-reward trade off.

Figure 3. Source: FactSet, Sector Revenue Exposures

FactSet harvests data about markets, customers and suppliers from a wide range of sources. Firms can then use the solution to create a map of their entire portfolio's geographic risk exposure. Alt data can also be used to better understand environmental, social and governance (ESG) investing issues and exposures within a portfolio. FactSet recently introduced shipping data for the US, which can be integrated into supply chain analysis and other analytics to identify previously hidden or unknown relationships. Sentiment data seeks to layer on the current "feel" of specific issuers, separating the fundamentals from today's current events.

Figure 4. Source: FactSet, Supply Chain Risk

Engaging with AI and machine learning

Automation is shifting up a gear, with AI and machine learning moving into the day-to-day operations of financial services firms. FactSet has an award-winning, multi-asset execution management system (EMS) that transforms the way financial institutions analyse, communicate, and execute investment ideas. Insurance companies with daily hedging programs can rely on FactSet to automate all the relevant calculations and trigger automated trading algorithms in the Futures market. Embedded in the middle of the client's trading ecosystem, the solution helps automate simpler trades, freeing traders to focus their time and resources on complex trades.

Another way to transform and accelerate your processes is with FactSet Digital Solutions, an intelligent, cloud-based platform that integrates and normalises investment product information, market data, portfolios and proprietary content, with core systems to power institutional and retail web portals, mobile and tablet solutions, as well as powerful APIs with real-time data.

An insurance company's retail side can rely on FactSet's Digital Solutions to streamline their client facing applications for Annuity, Pension, and Traditional Life Insurance products. Through FactSet, insurance companies can revitalize their client facing capabilities by integrating insurance product information with market and economic data that can be targeted to new, savvy savers.

The solution brings together and analyses billions of data points from thousands of global sources each day. That raw data is transformed into actionable information that is then made available to advisors and self-directed investors through decision-support tools and analytics, robo-algorithms, charts and displays, and advisory tools.

Embracing new technology

In short, insurance organizations can benefit from the cloud, AI and machine learning, as well as alt data today. FactSet has made the use of these approaches a reality for financial services firms around the globe by enabling them to bring together third party, in-house and FactSet proprietary data to perform a wide range of powerful analysis in ways never before possible.

Whether an insurance organisation is undertaking portfolio analytics, asset-liability management, regulatory or statutory reporting, FactSet's wide range of solutions can reduce the time, effort and cost involved – leaving more scope for adding true value to the firm.

Innovation – done well – is at the heart of FactSet's approach to empowering its clients with solutions that enable them to streamline the investment management and ALM process, incorporate unique datasets into fundamental analysis, and comply with regulatory requirements quickly and easily.

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About FactSet

FactSet (NYSE:FDS | NASDAQ:FDS) delivers superior analytics, service, content, and technology to help more than 88,000 users globally to see and seize opportunity sooner. Committed to giving investment professionals and firms the edge to outperform, with fresh perspectives, informed insights, and the industry-leading support of dedicated specialists FactSet is proud to be recognized with multiple awards for their analytical and data-driven solutions. To learn more about the solutions FactSet has available, visit