Prophet Modeling (3): Something About Documentation

I was a bit surprised when Ms. Z called me. She asked me for a favor if I could provide a brief explanation on how actuarial modeling is done, especially related to Prophet – because she needed to review of the actuarial modeling processes.

“OK, I can only share with you whatever I did in the past. But you need to check with Actuarial Department for the latest practice they have.” I am no longer with Actuarial Department, hence I couldn’t say on behalf Actuarial Department – furthermore, there is a new leader for the Modeling Team. What I could do was only sharing my past experience when I did my reserve workspace and simplified asset share workspace.

I met Ms. Z the next day, together with her colleague (Oops, I didn’t ask what her colleague’s name is…). I explained how Prophet works in a very brief way, so that they could have some ideas how Prophet helps actuarial people doing the job. “Then what were the documentations you had when you setup the actuarial model in Prophet?”

Yes, it was really a good question. I was trained by my previous Appointed Actuary to have a proper documentation in most of the works I have done – my AA told me: “You will not be forever here and other colleagues who take over your work in the future will not know what you think now”. So what are the documentations I had when I developed those workspaces?

1. Approach papers – this document states the methodology I would like to adopt when I setup my Prophet model. In this document, I listed the assumptions (not the projection assumptions we use to project cash flows) and formulas used to calculate a certain value. For example, I prepared a document explaining how the model calculated the statutory reserves for a mortgage plan.
   
   This approach paper could be “product specific paper” (like reserve paper) or “general paper” (for the calculations which the formula didn’t vary by product, such as asset share calculation).
    
2. Spreadsheet – Based on the methodology I stated in the approach paper, I also prepared a spreadsheet model so that I could use to counter check with the results generated by Prophet – for a single model point record. I found out this was very useful in helping me to detect the errors/mistakes which I didn’t realize when I checked the coding (I have to admit that checking spreadsheet was easier than checking coding). Of course, this spreadsheet was setup using recursive method like Prophet.
    
3. Reconciliation – Before I setup the Prophet models, the valuation work was done by an actuarial consultant. When I did my reserve workspace, I managed to reconcile the results generated from Prophet to the model the consultant used, and the major differences were explainable (e.g. the consultant used annual projections and the interpolations; Prophet used monthly projections). The comparisons were documented properly – so that we understood the impacts of changing model.

This reconciliation is particularly important if we discover any errors in an actuarial model, so that we can understand the impacts of correcting the errors, the implications to the financial statements (if any) and also learned a lesson (and not to repeat the same error in the future)!

Of course, there were some other documents I have prepared for the users and the developers, such as training manuals and user manuals. I agree that doing documentation is a painful experience but you will find out that the documents will help you a lot in the future – especially dealing with the auditors. It’s very true, trust me.