msci risk management analytics and simcorp … msci –built to support your investment process 4...

© 2017 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

MSCI RISK MANAGEMENT ANALYTICS AND SIMCORP DIMENSION: AN OPERATIONALLY EFFICENT SOLUTION FOR INSURERS

AGENDA

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▪ An overview of MSCI

▪ Mission Statement

▪ Investment Differentiation

▪ Risk Management & Regulation

▪ Optionality and operational efficiency

▪ Technical Integration into Simcorp Dimension


AN OVERVIEW OF MSCI

Company overview and MSCI analytics

MSCI – BUILT TO SUPPORT YOUR INVESTMENT PROCESS

41As of Sep 30, 2016; defined as each share class of an exchange traded fund, as identified by a separate Bloomberg ticker. Only primary listings, and not cross-listings, are counted; 2As of Jun 30, 2016, as reported on Sep 30, 2016 by eVestment, Morningstar and Bloomberg; 3As of Jun 30, 2016, as reported on Sep 30, 2016 by eVestment, Morningstar and Bloomberg. 4By coverage and/or staff based on public information produced by Sustainalytics, EIRIS, Trucost, as of Aug 2015; 5Based on P&I AUM data as of Dec 2014 and MSCI clients as of Jun 2015; 6Source: MSCI ESG Research as of Jun 2015

For more than 40 years, MSCI has helped the world’s leading institutional investors build and manage better portfolios

YEARS IN BUSINESS40+ GLOBAL LOCATIONS33 EMPLOYEES2,600+ ACTIVE CLIENTS7,500

INDEXES ANALYTICS ESG RESEARCH REAL ESTATE

850+ ETFs are based on MSCI indexes, more than any other index provider1

Over USD 10 Trillion in assets are benchmarked to MSCI Indexes2

94% of US pension fund assets invested in global equities are benchmarked to MSCI3

180,000 Indexes calculated daily; 10,000 in real time

“Best Sell-Side Market Risk”“Best Buy-Side Risk Management”

MSCI Global Risk and Performance Engine runs up to 1 Trillion calcs/day

Broad and Deep Asset Coverage: 17+ Million client positions, 2 Million time series, 52 Global FI Markets, 1,300+ issuer curves

World’s largest provider of Environmental, Social and Governance (ESG) data and research4

47 of top 50 global asset managers5 900+ clients including 125 asset owners

220+ dedicated full time staff globally to ESG business, including 150+ ESG research analysts6

Global leader in Real Estate performance analysis and risk services

In over 30 markets worldwide

Analysis tools that can be applied to all types of Real Estate

WE ARE EXPERTS HELPING EXPERTS

• We are experts in portfolio and risk management analytics, with decades of experience helping investors solve their most challenging problems.

• Our research and data are considered to be best in class.

• Our powerful computational and reporting engine can handle portfolios of any size, across all asset classes.

• Because we are independent, helping our clients succeed is our only priority.

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6

Sources: MSCI as of Dec 2015 and *P&I ; **Preqin; and *** The Banker, all

1200+ Risk Management Analytics Clients

Asset Owners and Consultants 200 +

Asset Management 300 +

Banks & Others 350 +

Hedge Funds 200 +

Insurance 20+

Wealth Management 35 +

87OF THE TOP 100 GLOBAL ASSET OWNERS*

97OF THE TOP 100 GLOBAL ASSET MANAGERS*

69OF THE TOP 100 GLOBAL HEDGE FUNDS*

86OF THE TOP 100 GLOBAL BANKS*

MANY OF THE WORLD’S LARGEST INVESTORS RELY ON MSCI

WE HAVE OFFICES EVERYWHERE OUR CLIENTS ARE –IN FINANCIAL CENTERS AROUND THE WORLD

AMERICAS

BostonChicago

MonterreyNew York

PhiladelphiaSan Francisco

Santiago Sao PauloToronto

EMEA APAC

BeijingHong Kong

ManilaMumbai

SeoulShanghaiSingapore

SydneyTokyo

BudapestCape Town

DubaiFrankfurtLondon

ParisMilan

Stockholm

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YOUR INVESTMENT

PROCESS

Portfolio management

tools

Riskmanagement

tools

Research, methodologies

and data

Customized reporting and data

management services

WE BELIEVE IN OPTIONALITY

• We enable you to “mix and match” best-of-breed content and services to fit your unique needs.

• We will help you fit our solutions seamlessly into your own investment process.

• We act as an extension of your team.

• You can count on the quality of our research, methodologies and data.

• Our customized reporting and data management services can improve your operational efficiency..

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MSCI SUPPORTS YOUR INVESTMENT PROCESS AND MEET EVER-CHANGING REGULATORY REQUIREMENTS

MSCI provides best-in-class models and tools with which to build and manage better portfolios:

• interactive portfolio management platform

• multi-asset class models

• proprietary research

InvestmentDifferentia-

tion

MSCI solutions provide a unified and consistent view of risk and return and can be integrated seamlessly into any investment workflow:

• market and credit risk

• risk reporting

• stress testing

Risk Manage-

ment

MSCI’s analytics helps investors to address ever-changing regulatory requirements accurately and efficiently:

• designing and implementing customized regulatory reporting solutions

Regulatory Compliance

MSCI’s highly experienced team can serve as an extension of your middle and back office operations:

• data collection and management

• system implementation

• internal and regulatory reporting

Operation Efficiency

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WHY MSCI?

MSCI RESEARCH-DRIVEN INNOVATION

HIGH QUALITYDATA

DEEP RISK EXPERTISE

SCALEABLE TECHNOLOGY

GLOBAL CLIENT BASE

INDEPENDENT RESEARCH

CLIENT-FOCUSEDSERVICE


INVESTMENT DIFFERENTIATION

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AN INTEGRATED VIEW OF RISK AND RETURN

VAR models (to measure risk on any asset)

All Country All Asset BenchmarkingGlobal Risk Engine

Real Estate

Benchmarks (to measure opportunity set)

Equities Fixed Income

Private Assets

EquitiesFixed Income

Structured Products

Factor Indexes (to manage outcomes)

Reference Benchmarks(to reflect long term beliefs and liabilities)

Integrated Factor models (to understand risk and correlations)

Long Term Risk models (to understand long term risk)

RISK RETURN

MSCI Analytics provide a consistent view of ex ante risk and ex post return attribution across assets.

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BIM – THE BARRA INTEGRATED MODEL

• Truly multi-asset-class, complete consistency of portfolio analysis for international, market-specific and multi-asset-class portfolios

• Increased explanatory power from recognizing the importance of purely local factors

• More effective hedging strategiesdue to the model‘s ability to capture global and local influences

• Decomposes volatility intoits fundamental sourcesfrom all asset classes

• Measures interactionsbetween assets, portfolios, managers, strategies, funds, asset classes etc.

FACTOR ANALYTICS IN THE INVESTMENT PROCESS

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• Broad Coverage of Asset Classes

• Millions of assets natively covered• Public, private, liquid, illiquid

• Manage Various Investment Styles

• Passive, active, enhanced mandates• ALM/Liability-driven• Coverage of thousands of Indexes

• Informed Asset Allocation

• SAA/TAA and risk budgeting• Manager/fund selection• Advisory for wealth management

• Support Strategy and Research

• What-if analysis/Pre-trade compliance• ESG data and scores• Economic exposures

• Constraint-Based Optimization

• Efficient-frontier construction• Minimisation of tracking error• Investment policy limits

Equity | Fixed Income | Derivatives | Hedge Funds | CurrenciesMutual Funds | Real Estate | Private Equity | Commodities

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MSCI PERFORMANCE ANALYTICS SOLUTIONS

Performance Analytics

Attribution models✓ Attribution effects explain (active) returns✓ Our attribution models are consistent with

your investment processes

Reporting formats✓ Formatted excel reports, CSV, XML, PDF✓ Vizualisation dashboards

Enables insightful reporting✓ Portfolio Managers to review decision

making: understand which bets really paid off and why

✓ Manager validation and selection: verify managers are delivering as expected

✓ Investment board (CIO and CRO), manager and client reporting: check if strategies should be updated, check if the asset/manager mix is appropriate


RISK MANAGEMENT

RISKMANAGER USE CASES

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On-demand Risk Management

• Understand portfolio exposures

• Compute sensitivitiesto market factors and what-if analysis

• Aggregate/drill-down into the different riskmeasures from total fund to individual asset levels

• Measure counterparty, Liquidity and issuer-specific risk

Automated Reporting

• Produce ad-hoc analysis or automate production of large batch reporting sequences

• Prepare reports to address management needs and clients or regulatory requirements

Sophisticated Stress Testing

• Historical: full revaluation on stressed risk factors with historical correlations taken into account

• Generalized: by Risk Type or Model Parameters (eg shift all I-Rates by 100bps or stress indiv. nodes)

• User-Defined: flexible enough to create “bespoke” shocks or scenarios

VaR Methodology

• Parametric: assumes lognormal price distributions for all instruments

• Monte Carlo: vol. and correlations calculated directly from underlying time-series market data ; full valuation

• Historical: no assumption on distribution required; full valuation

A scalable framework, utilizing pricing models, analytics, and market-observable and derived risk factors for enterprise-wide risk management. Common Uses are:

RISKMANAGER STANDARD METHODOLOGY

underlyingPNPV *stock

futurePNPV *futurecommodity

fxPrfPV impliedunderlyingriskfree ,,,optionstock

)(*** )( FRNcorporate fxerNPV trr issuerriskfree

LIBOR

FXEquity

Interest Rate CommoditySpread

“Vega”

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✓ Detailed Pricing Models✓ Market-Observable Factors✓ Full transparency in input data used✓ Risk Analytics (Parametric and Simulation Based)✓ Flexibility in Risk Settings

EXAMPLESRISK MEASURE TYPE

MARKET EXPOSURE

EXPOSURE SENSITIVITIES

STRESS TESTING

STATISTICAL MEASURES

Long/Short/Net/Gross Exposures

PV, Notional, Delta Adj Not, Underlying Not

Greeks: Delta, Gamma, Vega, Rho, Theta

Duration, Spread Duration, Convexity, OAS

Historical, User-Defined (simple and

predictive), Macro Scenarios

Beta, Volatility, Tracking Error, VaR, Relative

VaR, Expected Shortfall, Correlations

GENERAL FINANCIAL METRICSYield, OAS, Accrued Interest, Break-Even

Inflation, Time to Maturity, Calibrated

Parameters (vols)

EXTENSIVE COVERAGE OF RISK MEASURES

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EXTENSIVE LIBRARY OF PRE-DEFINED STRESS SCENARIOS

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• Lehman Crisis (9/8/08-10/27/08)

• Tech Wreck (4/7/00-4/14/00)

• Gulf War 2 (3/1/03-3/21/03)

• Bond Rally (5/1/03-6/13/03)

• Bond Sell-off (6/14/03-7/31/03)

• Equity Rally (10/10/02-11/27/02)

• Equity Sell-off (8/23/02-10/09/02)

• Credit Spreads +1bp

• Credit Spreads -1bp

• Parallel +65bp

• Parallel -65bp

• Volatility +10%

• Volatility -10%

• Asian Crisis (1997)

• Black Monday (1987)

• Black Week (2008)

• Fall 2008• Gulf War (1990)

• Mexican Crisis (1995)

• Rate Rise (1994)

• Russian Deval (1998)

• Sep 11th

• WaMu Collapse (2008)

• G8 Equity 1M Worst

• Greek Crisis

• China Hard Lending

• Fed Rate Hike

• Brexit

HISTORICAL PREDICTIVE(SCENARIO)

RISK TYPE MODEL PARAMETER

PREDICTIVE(SENSITIVITY)

• DAX +1%

• FTSE100 +1%

• JPM EMBI +1%

• Hang Seng +1%

• MSCI ACWI +1%

• Peak +

• Peak –

• Twist +

• Twist –

• USD Flattener

• USD Steepener

• Implied Volatility

• Recovery Rate

• Amortization Rate

• Implied Risky Curve

• CDO Compound Corr

• CDO Base Corr

• Issuer OAS

• Idiosyncratic OAS

• Hazard Rate

• ADCO

• SABR Model

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MSCI DATA CONTENT SERVICES

Mission

• Produce and deliver the highest quality data, both raw and derived, to clients, applications, and research

Highlights

• Daily delivery to world’s largest global managers to support production processes

• Extensive quality assurance

• Automation

• Over 1,200 multi-asset class clients use MSCI data systems

• Over 400 data only clients

Large, dedicated staff

• Team of 125+ people dedicated to Data for Analytics

Support

• Global operations

• 24/5 client service & support

• 24/7 operational support

DCS

Content

Process

Intra-Day, Daily,

Weekly, Monthly

Model Desk

Data Help

Workflows

Automation

Common Data

Market, Reference, and Bench-

marks

Quality

Service

Coverage Timeliness

Scalability

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REGULATORY REPORTING

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REPORTING

Managed Services Web-Services/Application

Regulatory

Client/External

Manager/Investment Team

Risk Oversight/Limits Monitoring

Board Level

Peer Analytics

Ad-hoc Custom Reports

What-If Analysis

Simulation

Stress Test

Correlation

Cash Flow

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SOLVENCY II FRAMEWORK

Pillar 1

• Minimum capital requirements

• Solvency Capital Requirements

Pillar 2

• Risk Management & Governance

• Own Risk and Solvency Assessment (ORSA)

• Supervisory Review

Pillar 3

• Public Disclosure –annual solvency and financial condition report (SFCR)

• Information provided for supervisory purposes (RTS)

Solvency II

• MSCI’s solution calculates Solvency CapitalRatios (SCR) ratios for the Market Riskpillar using the Standardized Approach onposition level.

• Includes the following set of standardregulatory reports:o SCR Dashboard (pdf)o SCR Diagnostics (Excel)o Tripartite report (Beta)

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MARKET COMPONENT FOR SCR STANDARD FORMULA

SCR

Default Risk

Module

Life Risk Module

Market Risk

Module

Intangibles Risk Module

Health Risk

Module

Non-Life Risk

Module

Market Risk Module

Interest Rate

Equity

Property

Currency

Concentration

Spread

• MSCI provides as an offering tocalculate the Market Risk portfolio ofthe Capial Requirement, adding allthe different components

• The total SCR (Solvency CapitalRequirement) is calculated as sum of theSCR for each sub module


MSCI RISKMETRICS & SIMCORP DIMENSION

Integration of Best of Breed Risk Solution

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MSCI ANALYTICS

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THE MSCI RISKMETRICS / SCD INTERFACE SOLUTIONEFFICIENT OPERATIONAL INTEGRATION

MSCI Integration solution

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Facts

• Fully integrated model :SimCorp Dimension as position and

Risk Analytics database

• Granular ‘theoretical price’ based risk model

Strong features

• Best of breed risk modelling by a market leader

• No market data responsibility

• Interface solution mitigate operational tasks and risks

• Consistent groupings for consolidated SCD reporting

• Audit proof mapping functionality for exceptions

• Strong instrument coverage – incl. Derivatives

• Audit proof messages and logs

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• Security descriptive data

• Mappings (alternative coverage)

• Holding amounts

• Portfolio groupings and benchmarks

• Tags

• Execution

Holdings data imported into MSCI RiskMetrics

• Analytics values per groupingsOutput per holding and aggregation level

• Logs

• Messages and statuses per holding (Position Details)

Risk analytics import from MSCI RiskMetrics

Problems MSCI/SCD address

• Considerable efforts and risks• Cumbersome renewal process• Key human risk of in-house-built

interfaces• Synchronization of solutions• Absent or difficult audit trails

• Third party/no data warehouse with results

• Difficult to consolidate reports• No common analysis and

reporting platform• No overview and audit trail of

alerts & issues

Position feed

Risk analytics

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THE MSCI RISKMETRICS / SCD INTERFACE SOLUTIONEFFICIENT PROJECT MANAGEMENT

Dedicated project manager and implementation team Dedicated consultant and account manager

Project manager and/orLocal consultant (risk specialist)Hot-line to Domain, Development, and Test teams

Committed to quick response times for queries that

require both parties

MSCI

SimCorp

Client

This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCI Inc. or its subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Providers”) and is provided for informational purposes only. The Information may not be modified, reverse-engineered, reproduced or redisseminated in whole or in part without prior written permission from MSCI.

The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may not be used to create indexes, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services.

The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.

Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for death or personal injury to the extent that such injury results from the negligence or willful default of itself, its servants, agents or sub-contractors.

Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results.

The Information should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. All Information is impersonal and not tailored to the needs of any person, entity or group of persons.

None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy.

It is not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index. MSCI does not issue,sponsor, endorse, market, offer, review or otherwise express any opinion regarding any fund, ETF, derivative or other security, investment, financial product or trading strategy that is based on, linked to or seeks to provide an investment return related to the performance of any MSCI index (collectively, “Index Linked Investments”). MSCI makes no assurance that any Index Linked Investments will accurately track index performance or provide positive investment returns. MSCI Inc. is not an investment adviser or fiduciary and MSCI makes no representation regarding the advisability of investing in any Index Linked Investments.

Index returns do not represent the results of actual trading of investible assets/securities. MSCI maintains and calculates indexes, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may payto purchase the securities underlying the index or Index Linked Investments. The imposition of these fees and charges would cause the performance of an Index Linked Investment to be different than the MSCI index performance.

The Information may contain back tested data. Back-tested performance is not actual performance, but is hypothetical. There are frequently material differences between back tested performance results and actual results subsequently achieved by any investment strategy.

Constituents of MSCI equity indexes are listed companies, which are included in or excluded from the indexes according to the application of the relevant index methodologies. Accordingly, constituents in MSCI equity indexes may include MSCI Inc., clients of MSCI or suppliers to MSCI. Inclusion of a security within an MSCI index is not a recommendation by MSCI to buy, sell, or hold such security, nor is it considered to be investment advice.

Data and information produced by various affiliates of MSCI Inc., including MSCI ESG Research Inc. and Barra LLC, may be used in calculating certain MSCI indexes. More information can be found in the relevant index methodologies on www.msci.com.

MSCI receives compensation in connection with licensing its indexes to third parties. MSCI Inc.’s revenue includes fees based on assets in Index Linked Investments. Information can be found in MSCI Inc.’s company filings on the Investor Relations section of www.msci.com.

MSCI ESG Research Inc. is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. Except with respect to any applicable products or services from MSCI ESG Research, neither MSCI nor any of its products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and MSCI’s products or services are not intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Issuers mentioned or included in any MSCI ESG Research materials may include MSCI Inc., clients of MSCI or suppliers to MSCI, and may also purchase research or other products or services from MSCI ESG Research. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indexes or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body.

Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, IPD, FEA, InvestorForce, and other MSCI brands and product names are the trademarks, service marks, or registered trademarks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor’s. “Global Industry Classification Standard (GICS)” is a service mark of MSCI and Standard & Poor’s.

NOTICE AND DISCLAIMER

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msci risk management analytics and simcorp … msci –built to support your investment process 4...

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