User:SoftwareActuary/Actuarial Software

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Actuarial Software

Actuaries use a combination of spreadsheets, databases and specialist software packages to perform their work. The Microsoft Excel spreadsheet is used by nearly 100% of actuaries ^[1] and is effectively the core common tool used for a variety of actuarial tasks. However, for more complex tasks specialist software packages are often preferred to Microsoft Excel, for example when performing cash-flow projection calculations on thousands of individual insurance policies in turn. This article considers the variety of specialist software packages available to actuaries who work in the main actuarial areas of Life & Health, General Insurance, Pensions and Investments.

Life & Health Actuarial Software

Life & Health actuaries mostly use specialist actuarial software packages for either pricing purposes or valuation/reserving purposes. The main modelling difference between pricing and valuation is that pricing uses an assumed simplified distribution of future policyholders, whereas valuation/reserving may use the known actual in-force insurance policies and value each policy in turn. The actuarial assumptions will differ in that valuation/reserving assumptions may be different, typically more prudent, to realistic best estimate assumptions used in pricing.

A single policy in valuation, or equivalently a 'model point' in pricing (e.g. a male, age 50, non-smoker) can typically be modelled adequately in Microsoft Excel to produce a cash-flow projection. However, when thousands of policies or multiple model points are required to be modelled, then using a spreadsheet becomes more difficult, as either an impractical number of spreadsheets would need to be created or Visual Basic for Applications (VBA) code would need to be used in order to collect input, generate and store the cashflow-projection results. Specialist actuarial software is created to solve this modelling challenge.

The specialist actuarial software packages can be characterised as having either a transparent or black-box structure. The transparent structure require users to develop the software code for their actuarial formulas and the code is then viewable and amendable. The black-box structure provides complete ready made actuarial formulas although such code will typically not be viewable or amendable. In both cases the software will required the user to input the actuarial assumptions, sometimes in a user friendly screen or sometimes by importing an externally created file. Amongst the actuarial community there are a range of views about which is the optimal approach.

The user developed transparent approach has an advantage of being most flexible and auditable, however it is critised for being expensive to develop as each insurance company performs it own custom development and the final models are not subject to testing by the external actuarial community. User developed models create operational risks which organisations need to manage ^[2]. The black-box structure has an advantage of being fully developed by professional actuarial software developers, is straightforward to implement, and the underlying actuarial formulas are effectively being tested by the external actuarial community on an ongoing basis. The disadvantages are that the underlying actuarial formulas are typically not viewable and that any non-typical functionality will need to be produced by the software provider on request. The following table indicates the type of structure of some of the specialist actuarial software packages.


Name	Provider	Type
MoSes	Tillinghast	user developed transparent
Prophet	SunGard	user developed transparent
MG Alfa	Milliman	user developed transparent
VIPitech	Algorithmics_Inc.	user developed transparent
Mo.net	OAC	user developed transparent
Axis	GGY	black-box
Orbit	Module Finance	black-box

General Insurance Actuarial Software

to be completed

Pensions Actuarial Software

to be completed

Investments Actuarial Software

to be completed

References

External links

[1] "Actuaries excel: but what about their software?" Pryor, Evans, Foley, Garner, Hilary, Skinner, Shapland, Staff, Tanser.

[2] "Managing the operational risks of user-developed software" Pryor.

[1]

[2]