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General insurers are required to have a capital reserve to cover outstanding liabilities, i.e. liabilities that have been incurred but not settled, or perhaps not even reported. Under the new Solvency II regulation, adopted by the EU Council in 2009, general insurers now face complex new capital requirements. These new regulations must be fully implemented by 2016. The development of new statistical methods led by Dr Bent Nielsen and his co-researchers, in collaboration with the general insurer RSA, extends traditional forecasting methods, and provides tools by which insurers are able to meet these new statutory requirements.
Research by Cathcart, McNeil (both Maxwell Institute) and Morrison (Barrie & Hibbert) during the period 2008-2012 has developed a methodology based on least squares Monte Carlo to value complex insurance liabilities and manage their risks. This methodology has been adopted by Barrie & Hibbert (B&H, part of Moody's Analytics) and has enabled the company to develop an internationally leading proposition for valuing insurance products. This has generated £2.5M in revenue since 2011, through implementation in 5 new products and use in 12 new consulting projects.
Our research has been applied directly by Aviva plc. to develop improved products in the general insurance market (e.g. household and car) and in the more specialised area of enhanced pension annuities. As a result, Aviva has become more competitive in these markets and customers are enjoying better value for money. In the case of enhanced annuities, the benefits are in the form of higher pension income for those accurately identified as facing shortened life expectancies. Aviva is the largest insurance company in the UK and the sixth largest in the world.
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.
Graduated period life tables for men and women, based on the mortality experience of the population of England and Wales, have been published by the Office for National Statistics (ONS) using data from the 2001 Census. These tables are the sixteenth in a series known as the English Life Tables which are associated with decennial population censuses, beginning with the Census of 1841. Errors in crude census data owing to the small numbers of deaths involved, particularly in childhood and at very advanced ages, can be reduced by a statistical process of smoothing. A smoothing methodology developed at Cass Business School, City University London has been used in the latest ONS Decennial Life Tables. The tables show the increasing longevity of the population of England and Wales over a long period. The impact of this research is broad as life tables are used extensively in pensions planning, demography, insurance, economics and medicine. Life tables using this statistical smoothing methodology have also been prepared for Scotland, Northern Ireland, the Republic of Ireland and Canada.