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The claims reserve can be the single most important item on the balance sheet of general (non-life) insurance companies and the uncertainty of this item can have serious consequences for assessing solvency, setting capital requirements, company valuation and making sure firms can meet the claims of policyholders. Professors Richard Verrall and Jens Perch Nielsen at City University London developed new methods and insights into claims reserving to enable practitioners to understand how to use powerful statistical methodology in conjunction with their existing ad hoc approaches. Their research has been incorporated into the curriculum for professional actuaries in the UK and the US; has informed the debate among practitioners and regulators about the best way to estimate the claims reserve; has influenced the accounting treatment of the claims reserve liability; has changed the way the claims reserve is calculated in a major global non-life insurance company; has been commercially adopted into a new generation of reserving software by a major software company; and has assisted insurance companies striving to meet the regulatory requirements of Solvency II, the new EU Directive that sets the amount of capital insurance companies must hold to reduce the risk of insolvency.
Research by Oxford econometricians provided the basis for innovative new methods for predicting periods of potential financial stress and providing protection for investors against extreme events. During periods of financial stress, equity funds tend to sharply lose value while volatility tends to increase. Adding some long volatility exposure to a standard equity portfolio can significantly improve the tail behaviour of a portfolio. However, it is expensive to continually hold volatility contracts due to the volatility risk premium. Researchers at Man Group have applied the Oxford research to create new strategies to protect against tail risk and these are incorporated in their Tail Protect fund launched in October 2009.
The Northern Doctors Urgent Care Group, a not-for-profit organisation that delivers out-of-hours urgent medical services for the NHS, achieved significant efficiency savings and improvements in-patient care as a result of adopting statistical assessment and forecasting processes, developed by Durham University. These improved processes also featured in the Group's successful competitive bids for two new contracts worth £9.2M per year. In addition, the Durham methodology was adapted to assess the results of a Government programme to encourage cycling in six UK towns, producing data on cycle use that helped to influence subsequent allocations of about £700M for sustainable transport projects.
In response to the deficiencies in bank risk management revealed following the 2008 financial crisis, one of the mandated requirements under the Basel III regulatory framework is for banks to backtest the internal models they use to price their assets and to calculate how much capital they require should a counterparty default. Qiwei Yao worked with the Quantitative Analyst — Exposure team at Barclays Bank, which is responsible for constructing the Barclays Counterpart Credit Risk (CCR) backtesting methodology. They made use of several statistical methods from Yao's research to construct the newly developed backtesting methodology which is now in operation at Barclays Bank. This puts the CCR assessment and management at Barclays in line with the Basel III regulatory capital framework.
A series of econometric methods and software, designed by a team of econometricians at Oxford, have been adopted as standard by a large range of governmental bodies, international agencies and businesses. The econometric methods are designed to model and forecast high-dimensional, evolving economic processes facing multiple structural shifts, while the econometric software (PcGive) implements the resulting best-practice procedures. The application of these methods have resulted in more appropriate empirical models, improved robust forecasts, and, consequently, better decision making by these bodies.
Building on innovative statistical models developed at Oxford, initially conducted by Dr Clive Payne and Prof David Firth, Dr Stephen Fisher's research facilitates quick generation of predictions for the share of seats won by each party from exit poll data. As a consequence, Fisher has provided the BBC with prediction and analysis of election results from 1997 to the present.
At the 2010 General Election, the forecast was jointly commissioned by the BBC, ITV, and Sky News. This forecast reached a television audience of 17.7 million on the BBC alone. Exit poll forecasts are of benefit to television companies and journalists in providing accurate reporting on elections and in developing programmes that interest the public and help to inform them of voting patterns. This public information and engagement is beneficial to electoral politics more broadly.
An innovative method enabling firms to improve the accuracy of their demand forecasting has resulted from research analysing data from 70,000 company sales forecasts. It was concluded that, although judgmental adjustments to statistical forecasts were common, they often wasted management time, reduced accuracy and introduced bias. University of Bath led research, which determined how computer-based systems could support more effective forecasting adjustments, has informed the design of a new commercial product, ForecastQT™. This product is now being marketed globally. Early applications of the product suggest estimated savings of 2% of total revenue for one multinational company and $200m for another. The research has also influenced the development of software and services for clients at SAS, the world's largest privately owned software company.
Our research team has developed new approaches to classifying demand series as `intermittent' and `lumpy', and devised new variants of the standard Croston's method for intermittent demand forecasting, which improve forecast accuracy and stock performance. These approaches have impacted the forecasting software of Syncron and Manugistics, through the team's consultancy advice and knowledge transfer. Subsequently, this impact has extended to Syncron International and JDA Software, which took over Manugistics. These companies' forecasting software packages have a combined client base turnover of over £200 billion per annum, and their clients benefit from substantial inventory savings from the new approaches adopted.
Many operations in daily life, from manufacturing to running a hospital, need to optimise the return on use of resources where volume and value are conditions. Scheduling theory tackles some of the hardest practical optimisation problems, not known to be solvable in reasonable computation time. Strusevich and Kellerer have been able to reformulate practical scheduling challenges as `knapsack problems' - dealing with volume and value constraints - and then design approximation algorithms which can be applied back to the original challenge. The work has attracted EPSRC funding, stimulated a new field of research which is developing fast, been widely published, led to presentations at international conferences including the 2009 Computers and Industrial Engineering conference attended by industry practitioners and is impacting on Combinatorial Optimisation research.