Buy-Side Technology Awards: Best Buy-Side Risk Initiative Over the Last 12 Months─IBM Risk Analytics

The Solvency II Directive is a European Union (EU) initiative developed to ensure the adequate capitalization of EU-based insurance companies. It requires insurance firms to adopt a risk-based approach to determining solvency capital requirements. From a market risk perspective, the standard approach requires separate capital charges to be calculated for various risk types─interest rate, equity, property, currency, liquidity, concentration risk, and spread risk─while an integrated market risk framework is necessary for the internal approach. As a result, buy-side firms managing insurance fund capital are facing increased risk disclosure and reporting requirements in addition to demands for incorporating risk and capital considerations into the portfolio management process.

IBM Risk Analytics has integrated these new Solvency II functions with its existing Algo Risk Service on Cloud portfolio construction and risk management platform, extending the platform's appeal and applicability to more than just hedge funds and traditional asset managers for which it was initially launched back in 2005. This initiative is especially significant for those buy-side organizations either already managing insurance capital or looking to win mandates from insurance firms, by offering the required functionality to calculate Solvency II standard formula market risk exposures, a non-negotiable requirement for UK and European-based insurance firms.

The Algo Risk Service on Cloud platform now calculates the Solvency II standard formula capital charge for market risk, including capital charges for all market risk sub-modules; it includes "what-if" functionality, allowing portfolio managers to assess the effect of changes in portfolio composition on market risk capital charges and portfolios' risk-return profiles; and it supports instrument-level risk Solvency II standard formula calculations.