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An introduction to the design and functionalities of Moody's AXIS

Written by Jayadevan Vijayan, Senior Consultant, reviewed by Frans Kuys, Principal Consultant.

 

Introduction

 

Actuarial modelling plays a crucial role in supporting decision-making in insurance and reinsurance companies. These models perform key functions such as pricing, reserving, capital projections management and asset-liability modelling (“ALM”).

Moody’s AXIS (“AXIS”) is a commonly used actuarial modelling software in the insurance industry that can be used for multiple actuarial functions such as pricing, reserving, ALM, hedging, capital calculations and financial modelling. The object-orientated approach creates an environment, not only for model development but also for model risk management. By utilising the Enterprise Link features, AXIS can provide support in implementing a company’s model governance and control policies. The separation of the design, test and production environments, ability to define user roles and having effective version control are possible using Enterprise Link features.

This article provides an introduction to the design of the software and the functionalities that can be used in a valuation or reserving environment. We begin by explaining the process of establishing a reserving model in AXIS, guiding you through various steps including data handling, validation and adjustment, assumption input, and the generation of cashflow projections. We also touch briefly on the control and governance features of Enterprise Link.

The article aims to provide an overview of the software without delving deep into the technical aspects. We provide valuable tips throughout the article that can be easily implemented.

 

1. Setting up a Production Environment

 

Seriatim - Valuation Data Processing

The extraction of valuation data is the first step in the valuation process, whether it is for meeting regulatory requirements or reporting profits. The valuation data could either be stored in a data management repository such as SQL or may be available in various formats like Microsoft Access databases, CSV files or notepad files. In AXIS there are objects known as "Files" that create a link between the AXIS system and the extracted data. By using these Files users can examine and assess the source data within the system and serve as the building blocks for loading “Datalink Tables” in AXIS. Datalink Tables are essential elements of valuation projects within the AXIS framework, as they can be used to validate the input data, add new fields, and map raw data. The following diagram provides a visual representation of this concept:

 

Integrating Valuation Data in AXIS

Transforming Data

AXIS provides users with tools to execute various tasks within the valuation process. “Batches” are objects which can execute several tasks, including transforming raw data.

These objects facilitate the conversion of data into Datalink Tables. The data validation and modification can be done within Datalink Tables or through Batches. These Batches, along with Datalink Tables, help users to shape the raw data into the required format for the valuation process.

The Batches can also be used to export data from the Datalink Tables into "Cells." Cells are the most detailed objects within AXIS, allowing users to specify product attributes, assumptions, and processing particulars for the policies. The following diagram provides a visual representation of the relationship between these objects.

 

Transforming Raw Data Using Batches

Assumptions and Product Features

Users can populate assumptions and product features, either directly in cells or indirectly through batches. This allows for the automation of assumptions and methodology setting in a valuation project. AXIS also allows for the importing of Assumption tables directly into the cells, which reduces the coding required within the AXIS framework.

Tip 1: By making use of the base cell reference to generate new cells, you have more control over the assumptions, and it requires less coding and mapping. Protected cells with embedded assumptions and product features can be set up and used as a template to generate new cells. This reduces the need to map assumptions into cells through batches or coding.

 

Generating Results

After configuring the cells with assumptions, product features, and valuation data, users can initiate runs to produce results. These runs can be performed at a cell level, policy, sub fund (grouping of cells) or fund level. AXIS allows users to generate various reports, and users can export calendar year projections of cashflow elements like death benefits, premiums, expenses, and reserves to an external database for additional analysis and validation. The following image provides an example of the results exported to a Microsoft Access Database.

 

Calendar Year Results Extract

 

Illustration of results exported into Microsoft Access. Components of cashflows such as Premium, Death benefits and expenses along with reserves could be exported.

This section provided an introduction to a simple configuration for a reserving model. AXIS provides pre-built components and established systems that users can utilise, thus reducing the need to manually code each individual step in the process.

 

2. Controls and Governance

 

In this section, we give a brief overview of the model risk management features within AXIS. Defining a sound validation process and establishing strong internal controls and governance are key to ensuring comprehensive model risk management. We also introduce the features within the AXIS models and Enterprise Link framework that can be used to enhance control and governance in a production environment.

Documentation

Thorough model documentation enhances transparency and provides clarity. The AXIS notepads offer a means for users to describe the purpose of various objects. AXIS includes features that simplify the understanding of the relationships between different objects. For instance, you can utilise functions like "find text in Datalink" and "where used within AXIS" to discover the connections between objects.

Tip 2: By making use of the navigational panel, you can see the hierarchy of objects, providing a holistic picture of the model. Furthermore, external documentation can be incorporated into the AXIS model through AXIS objects such as "Document," which is compatible with Microsoft applications.

 

Enterprise Link Features

The Enterprise Link introduces key features that can improve overall governance.

Users can establish separate environments for development, testing, and production purposes, improving governance. The version control functionality permits multiple users to make modifications to a dataset, with the system capable of recording these changes and implementing version control. “System jobs” within Enterprise Link enables the initiation and execution of jobs and helps in the automation of production runs without the user having to open datasets. In addition to the above, new features are introduced in AXIS through version updates, such as the use of super datasets, clustering and neural networks.

 

3. Conclusion

 

The primary goal of this article was to introduce the structure and fundamental functionalities of AXIS when used in a production setting. In addition to these functionalities, we have also introduced various governance features that give users control over their production environment. AXIS provides flexibility to its users through its object-oriented features, all while minimising the risk of model errors. These governance and control features allow users to effectively manage their models within a model risk framework.

 

How can Finalyse support you?

 

Finalyse has extensive experience and expertise in actuarial modelling for insurers and can support your AXIS needs. Our team of talented insurance professionals can support you in various areas:

  • Model Development: Finalyse specialises in designing and implementing tailored actuarial models using Regular Life, Annuity, Universal Life, and Asset modules.
  • Model Migration: Finalyse assists insurers in AXIS model migration, providing support in model construction, testing and development of the project roadmap.
  • Process Automation: Finalyse can automate your actuarial models through batch processing and Datalink integration, optimising performance and reducing reporting timelines.
  • Enhance Controls & Governance: Finalyse can support you to achieve better control over valuation models using Enterprise Link for a Production environment and developing thorough model documentation for enhanced transparency and easier audits.
  • Comprehensive Model Assessment: Finalyse can evaluate model risks, controls, and governance for regulatory compliance, implementing advanced oversight systems via Enterprise Link.
  • Benchmark Model: Finalyse can support clients in model validation, conducting parallel tests to detect model errors and operational risks.

 

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