Risk management consultant of the year: Acies
Asia Risk Awards 2021
As demand for savings and annuity products increased significantly amid falling interest rates during the pandemic, Acies, a firm headquartered in India’s financial hub of Mumbai, acted swiftly in helping its insurance clients manage interest rate risk. It achieved this with an extensive suite of strategies, processes and technology.
Working with at least 15 of the biggest insurers in India, the nascent consulting firm has demonstrated its risk management capabilities, not only as a trustworthy partner, but also as an insurance sector standard-setter. Established in 2017, Acies has operations in India, Singapore, Malaysia, Mauritius and the US.
Indian regulators have typically taken a cautious view of the country’s derivatives markets, which has limited the availability of suitable derivatives products for insurers to offload interest rate risk upon writing non-participating contracts. Acies has managed to bridge that gap by collaborating with regulators and big international banks to design a specific forward rate agreement product that offsets interest rate risks for insurers.
“We worked with some large banks with an intention of coming up with an industry solution that would allow insurers to de-risk the interest rate guarantee they give to the end-users,” says Muzammil Patel, managing director at Acies.
The firm has also engaged with banking and insurance regulators to address concerns, modify product structures and enable a standardised roll-out to the industry to ensure responsible and sustainable growth of the forward rate agreement (FRA) product. Acies’ work has also brought about transparency and standardisation in FRA pricing and valuation.
“The regulators want a very high degree of operational controls, automation and education provided to the insurance companies because Indian insurers are not used to using derivatives. A large part of our job is educating the insurers and putting in place the entire exposure quantification models and risk models while automating them,” Patel says.
“The work has been fairly impactful to the insurance industry and its ability to provide more stable and specific pricing to customers, dramatically altering the landscape of the way non-par business was [previously] done in India,” he adds.
Non-participating products with guaranteed returns have become more attractive in India, increasing by 2.5 times, according to data as of June 2020. Insurers can, therefore, continue guaranteeing returns to policy-holders at between 4.5–5.0% per annum despite falling interest rates. The Reserve Bank of India has left its benchmark interest rate at 4% since its last rate-cut decision in May 2020.
Derivatives with an approximate $10 billion–12 billion notional value were written using FRAs. That amount is expected to rise to about $20 billion–22 billion by the end of this year, Acies says.
Acies is working with participating banks in underwriting the FRAs. “As banks are writing this volume of derivatives, you will end up having capital implications. It is important for the banks to run a fully-hedged operation to avoid any systemic risks,” Patel says.
For insurance clients, Acies provides end-to-end consulting services – including setting up risk management and accounting frameworks, and a derivatives system. The derivatives system considers transaction entries, daily mark-to-market updates, daily margining and, subsequently, ledger entries to be passed onto the accounting system. Finally, Acies’ solutions also help generate risk measures that must be submitted to regulators.
“We want to make sure the insurers are working on a fully-hedged basis; that they are accounting [for] derivatives correctly and they can prove to the regulators they have the requisite offsets and risk capital,” says Patel. “When that happens, it gives them more latitude to de-risk the entire spectrum.”
Clients appreciate the comprehensive knowledge embedded in Acies’ solutions. As a chief finance officer at a large life insurance company in India put it: “Acies is a pure blend of having technical expertise in the derivatives subject, a background of accounting earnings disclosures and building [that] into systems and controls. With those three characteristics, I was heavily dependent on Acies.”
Acies’ speedy service has also earned it a reputation: the implementation cycle of the interest risk hedging solutions is roughly eight weeks with pre-built, plug and play functions.
“Insurers don’t want to lose competitive advantage, so our solutions have to happen very rapidly. You have to be able to convince and prove that your strategy, governance systems and technology are both above board and [at] an industry-standard,” says Patel.
With success in India, the company is actively looking to replicate its approach to market solutions in Bangladesh, Indonesia, Malaysia and Sri Lanka, as well as some East African countries, where interest rates are reasonably elevated to utilise the FRA product.
IFRS 17 in sight
International Financial Reporting Standard (IFRS) 17, a new global accounting standard for insurance contracts, is set to impact the finance, actuarial and systems development areas, in addition to product design and distribution, development of revised incentives and broader remuneration policies, for example. It goes into effect on January 1, 2023.
Acies is looking to step in as a vital partner for insurers in this space.
“We see IFRS 17 as a business play, where it will change the way products are designed and the way revenue is fundamentally recognised. We will look to help companies to do balance sheet management and product structure rather than just the accounting and actuarial areas,” Patel says.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Awards
Environmental products house of the year: ENGIE
ENGIE is driving change in energy transition, with a strong focus on renewable energy and the liberalisation of power markets in Apac, which presents significant long-term growth opportunities. In recognition of its efforts, ENGIE GEMS has been named…
Natural gas/LNG house of the year: ENGIE
ENGIE continues to expand its services to better serve firms in Apac dealing with the challenges of energy risk management and supply
FRTB management solution of the year: Bloomberg
Amid the diverging timeframes and complex requirements of FRTB, Bloomberg offers a consistent, comprehensive and customisable solution for Apac banks preparing for implementation
Newcomer of the year: Topaz Technology
Jon Fox and former colleagues formed Topaz Technology in 2015. Having seen many different systems and, in some cases, written and built a few themselves, there was always something missing, leading them to build a system that unifies risk reporting and…
Technology vendor of the year: Murex
As a technology vendor, Murex places adaptability front and centre of everything it does, constantly enriching its MX.3 platform to ensure institutions can respond to new market opportunities as soon as they spot them
Currency derivatives house of the year: Deutsche Bank
Asia Risk Awards 2024
Interest rate derivatives house of the year: Standard Chartered Bank
Asia Risk Awards 2024
Derivatives house of the year, Taiwan: CTBC Bank
Asia Risk Awards 2024