Barrie & Hibbert

Recent times have clearly represented a challenging period for the global economy and the financial services sector in particular. The insurance sector has not been immune from such malaise. In particular the volatile financial market environment has exposed the limitations of some companies’ strategies for managing the market risk exposures created by the provision of significant long-term guarantees in VA products.

Economic Scenario Modelling for Variable Annuity Hedging

Based on Barrie & Hibbert’s world-leading core insurance ESG product, and extended to meet the specialist demands of complex VA hedging applications, B&H Hedge represents a global best-of-breed software service solution for hedging groups that wish to maintain leading-edge internal modelling capabilities.

B&H Hedge is an ESG modelling and calibration software service for use in fast, accurate calculation of VA hedging greeks.

B&H Hedge also provides a real-world modelling capability that can be used in hedging strategy projection (including use of stochastic-on-stochastic).

Calibration is the process of choosing a set of parameters to ensure a model produces the desired results and it is a core component of Barrie & Hibbert’s services.

We provide regular calibration updates for all our standard models to ensure that they continue to reflect the latest market conditions. These updates include Market Consistent (MC) calibrations, for fair value calculations, and Real World (RW) calibrations, designed to produce realistic asset distributions over a range of time horizons, asset classes and economies.

We currently provide Market Consistent calibrations for around fifteen economies and Real World calibrations for more than twenty, with new economies being added regularly.

In addition to this standard service, Barrie & Hibbert assists its clients by providing bespoke calibration services:

• in new economies
• with varying economic assumptions
• to alternative asset classes
• at non-standard dates.

Barrie & Hibbert also provides a suite of calibration tools alongside expert consultancy and research for clients who perform these tasks in-house.

For any consulting assignment, Barrie & Hibbert's analysts begin by building a thorough understanding of the dynamics of a problem.

We then agree with our client the appropriate methods of analysis. Often this will mean using models, either to analyse the problem further or to provide a way for the client to monitor and control the issues over time.

Asset and Liability Management consulting work is directed towards helping clients use state of the art techniques to answer a range of questions around insurance, banking or pension liabilities and asset portfolios.

Our analysis measures and helps manage risk, assess adequate prudential capital and estimate the economic cost of financial options and guarantees.

In all our work, our goal is to bring each consultancy assignment to the point where we can transfer knowledge to our clients allowing them to undertake their own projects, supported by our expertise.

The Defined Benefit Pension ALM (DBALM)  has been designed to measure and monitor the risks inherent within defined benefit pension funds and operates in conjunction with Barrie & Hibbert's Economic Scenario Generator, which is widely used in the insurance and pensions industries.

The Barrie & Hibbert DBALM is the first step towards sound pension fund risk management.

The Barrie & Hibbert iESG Modelling Suite is a leading-edge suite of stochastic asset modelling tools within a flexible framework, allowing insurers to undertake a wide range of risk management activities. Designed for both life and general insurance companies, the iESG gives actuaries, risk managers and finance managers a common integrated framework for developing economic scenarios.

The iESG allows users to define the stochastic asset models for their respective business needs, covering a wide range of economies and then calibrate their models with either in-house or Barrie & Hibbert's standard calibrations

Defined benefit pension funds have faced significant challenges over the last decade due to factors such as volatile equity returns, low bond yields, the exposure to alternative asset classes and pensioner longevity improving faster than expected.

This has lead to the introduction of more sophisticated techniques for managing the risks inherent within a pension fund and a growing trend towards market-based measures of economic valuation.

The demands of stakeholders such as sponsors, trustees and members have resulted in a more active approach to managing their respective interests within pension funds.

Without a robust measurement of risk and potential reward, it is difficult to assess the merits of a fund’s current strategy and any prospective risk management strategy, especially as the potential investment solutions available to pension funds are numerous and complex.

The PensionsLite from Barrie & Hibbert gives our clients access to a comprehensive modelling framework that will help them measure and manage the risks facing their pension funds.

Our solution is a sophisticated asset-liability model that takes a holistic approach to analysing the risks underlying pension funds.

Barrie & Hibbert's Product Risk Dashboard is a regularly updated risk analysis to support the continuous monitoring of retail investment products and their underlying assets in line with specified customer risk profiles and objectives. This is crucial if you are to meet your obligations to continuously review products under regulatory regimes such as TCF, meet the needs and expectations of your clients, and ensure your marketing material is fair and not misleading.

In an environment of lower investment returns and significant market volatility, retail product providers and advisors are increasingly competing on the strength of their investment governance proposition, rather than pure investment performance.

The Product Risk Dashboard delivers quarterly updates to provide early warning of movement in the risk profile of a product or investment solution. The Product Risk Dashboard therefore supports a number of important client requirements and compliance obligations:

• Support the governance process by regularly reviewing the risk profile of products against stated objectives and customer risk profiles.
• Take informed decisions regarding continued suitability of your products given changes in market and economic conditions, as part of a robust product risk governance process.
• Support informed decisions as to whether and how to adjust products to reflect changes in market conditions.
• Objectively support the effective communication of product features to investment advisors and customers.
• Demonstrate adherence to regulatory guidelines and best practice.
• Available in pre-configured modules for Investment, DC Pension and Retirement products.

Product manufacturers and advisors need to ensure that product solutions are designed and sold according to well-defined investor risk profiles and objectives.

Barrie & Hibbert have developed a framework for evaluating the risks and benefits of retail investment products: Product Risk Map. Used as part of the product development process, this service allows product providers to specify any retail investment objective and customer risk profile and then:

• Test the efficiency and effectiveness of different product design options, allowing you to design the most appropriate product, given the product objective and risk level.
• Stress test the product design, including products with guarantees or path dependant investment rules.
• Compare new products against industry benchmarks and competitors, delivering independent analysis that can supports product promotion.
• In addition, we will produce outputs which address specific compliance or TCF-related issues, such as the probability that the product beats a specified benchmark, or test whether a guarantee has economic value to the customer.
• Our clients are using Product Risk Maps in a variety of development projects from testing the design of target dated funds to the creation of risk graded strategic asset allocation solutions.

An important risk management requirement for any Property & Casualty insurer is the ability to generate economic scenarios to better understand the risks in their assets and liabilities.

Barrie & Hibbert provides a comprehensive Economic Scenario Generator (ESG) solution for the global Property & Casualty sector. Our services include ESG software, asset modelling, calibration services and ongoing support and training. We provide both a supported software service and managed services for the sector.

Our P&C ESG is a robust stochastic, Monte Carlo simulation tool with the ability to project a broad range of economic risk drivers and asset types across multi economies, giving Property & Casualty companies the tools they need to properly assess and manage risks.

Supporting the construction of retirement income solutions

The Retirement Portfolio Planner (RPP) is an analysis and planning solution for the needs of the retirement income market. RPP is a unique engine specifically configured to support advisers and product manufacturers solve the complex issues that arise in financial planning for retirement.

Traditional advice tools are not always effective in capturing and communicating the levels of risk inherent in a retirement solution. Risks are often described in generic and relative terms, using measures of volatility, or terms such as ‘cautious’, ‘balanced’, etc. This type of information means very little to a customer more concerned with their long-term income level. In order to effectively communicate the risks in long-term retirement income products, and to demonstrate the value in products designed to mitigate these risks, providers and advisers need to develop more effective means of measuring and presenting risks consistently across a range of different retirement income products and strategies.

Retirees need to understand whether a particular product or combination of products will meet their retirement objectives, be that sustaining a required level of income or allowing them to leave residual capital to their dependants.

Given the complexities of the evolving retirement market, and the inherent path-dependent nature of most retirement products, there is an increasing consensus that more sophisticated stochastic modelling techniques are required to capture the various risk factors, and support effective communication of the risks and benefits of different products and strategies.

Recognizing this challenge, Barrie & Hibbert has developed the Retirement Portfolio Planner – an engine to support the measurement and communication of risk in retirement products

Barrie and Hibbert scenarios have been regularly used by most of the large global insurers over the last decade and are increasingly being used by pension funds and asset managers keen to understand and manage their market risks.

Our scenarios describe plausible paths of economic variables that are related in an economically coherent way and are generated by our award winning modelling framework, supported by our team of economists and financial modellers

The Service

We understand the need to know what is under the hood and so provide much more than a file of numbers. Our aim is to provide all you need to fully understand the scenario outputs and meet regulatory demands, including documentation describing:

• the full technical details of the models,
• the economic assumptions and how they are set,
• how the model was calibrated and
• validation that the results are reasonable.

In addition we have a team dedicated to answering your questions and explaining our models and methods. All clients have access to our client only economic and stochastic modelling research library and invitations to our global events and conferences.

B&H’s stochastic projection engine for financial planning applications

The WSG is Barrie & Hibbert's core stochastic projection engine for modellinginvestment products and cashflows, designed to enable solutions for the retail product manufacturing and advice market. The WSG is a comprehensive and flexible engine and will power any online toolset that requires stochastic analysis. It is currently used within client applications ranging from holistic financial planning services, DC pension planning portals, product comparisons, “what-if” toolsets, and direct to consumer wrap platforms. The economic data used within the WSG is created by Barrie & Hibbert's ESG, the market leading economic scenario generator.