Life Insurance
Solutions for Life Insurers
Life insurers are in the business of taking on risks. Recent market uncertainty and the global trend towards market consistent valuation and risk-based capital has meant that firms require more sophisticated valuation and capital models. A significant factor in this trend has been the changes in regulation such as Solvency II in Europe.
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Regulation is not the only driver. Increasingly, management want to have a better understanding of their risk exposure, including the impact of diversification benefits, across products/risks to support more effective decision-making.
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The impact of risk-based capital on risk and actuarial functions has meant that the assets and liabilities within the balance sheet need to be re-valued under a variety of different scenarios. In particular, the use of Monte Carlo techniques has created new challenges for insurers.
So whether your challenge is to understand the value of guarantees embedded within your products, model risk-based capital using stochastic techniques or investigate the impact of business decisions such as dynamic market-risk hedging programmes, Barrie & Hibbert can help.
Scenarios for valuation, projection and capital
Many insurers have been using market-consistent economic scenarios for valuation purposes over a number of years and are familiar with the scenario concept. For capital calculations different types of scenarios are required, for example, 1 year value-at-risk scenarios. As a result, many insurers need the capability to produce both market-consistent scenarios for valuation and thousands, if not millions of 1 year value-at-risk scenarios as part of their capital modelling process.
Barrie & Hibbert’s ESG Solutions provide a framework for producing market-consistent scenarios, 1 year value-at-risk scenarios, and multi-year real-world projections.
Liability proxy modelling
Monte Carlo techniques have meant that most insurers’ existing cash-flow liability models are too slow to be re-valued thousands of times under different scenarios. This has led to the development of techniques such as Least Squares Monte Carlo (LSMC) and curve-fitting to replicate the cash-flow liability models. The downside is that these techniques can require additional skilled resource, be manually intensive and as a result be prone to human errors.
Barrie & Hibbert’s Liability Proxy Generator combines these fitting techniques with automated processes to improve efficiency and reduce error for insurers.
