Moody's Analytics Insights

 Merton Model Schematic

A Cost of Capital Approach to Estimating Credit Risk Premia

This research paper discusses the credit risk premium adjustment required for constructing discount rates specified by the IFRS 17 accounting rules. Calculating the credit risk premium is a key requirement in the ‘top down' yield curve method. It may also be a useful input in computing (or benchmarking) the illiquidity premium for ‘bottom up' discount rate construction.

November 2018
Nick Jessop

Image of possible yield curve and equity evolution

Fast Projection of Reserve and Capital Requirements with Proxy Functions

An emerging business requirement for North American insurers is the ability to project forward stochastic reserve and capital requirements under various planning scenarios to a specific future date. In this paper we consider applying proxy functions to this task, using function fitting techniques described in our previous research paper Fitting Proxy Functions for Conditional Tail Expectation: Comparison of Methods.

October 2018
Aubrey Clayton,  Dr. Steven Morrison

Businessmen and woman standing together by railing conversing

Insight, IFRS 17, and Innovative Technologies - Drivers of Change in the Insurance Industry

Performance optimization through business insight, dealing with IFRS 17 in a post-Solvency II world, and the challenges associated with stress testing for insurance firms in the US. These were the focus areas for Moody's Analytics at this year's Moody's Insurance Summits in London and New York.

July 2018

Solvency Projections

Navigating uncertainty through enhanced business insight

In this paper Brian Robinson discusses the challenges and way forward for a common projection capability which supports simplified processes, and delivers consistent business insight across functions, and the entire business.

May 2018
Brian Robinson

Proxy and Validation vs. yield curve change risk factor

Fitting Proxy Functions for Conditional Tail Expectation: Comparison of Methods

This paper details alternative methods for fitting proxy functions to CTE, employing quantile regression in combination with OLS among other techniques. We compare methods according to quality of fit for an example portfolio of variable annuities.

March 2018
Aubrey Clayton,  Dr. Steven Morrison

Abstract lines on architecture

Dynamic Model-Building: A Proposed Variable Selection Algorithm

In this article, we propose an innovative algorithm that is well suited to building dynamic models for credit and market risk metrics, consistent with regulatory requirements around stress testing, forecasting, and IFRS 9.

January 2018

Solvency Ratio under various asset allocations, in scenario where credit spreads rise

Solvency In Sight - New Tools for Understanding the Impact of Investment Decisions on Capital

In this paper, we have considered the use of proxy models as a way of overcoming some of the operational and computational challenges associated with measuring future solvency under different market conditions and ALM assumptions.

October 2017

Concept of Growth created from three glasses with increasing  levels of water.

The Effect of Ride-Sharing on the Auto Industry

In this article, we consider some possible long-term ramifications of ride-sharing for the broader auto indust

July 2017

Figre 10: Diversification benefit (aggregate compared to sum of individual capital requirements)

Proxy Methods for Run-off CTE Capital Projection: A Life Insurance Case Study

In this paper, we show a practical application to forecasting capital requirements for real portfolios of participating whole life and annuity business, carried out in a joint research project between Moody's Analytics and New York Life Insurance Company.

October 2016
Dr. Steven Morrison , Aubrey Clayton

Abstract interior architecture design reflecting sunlight.

Quantitative Research Webinar Series: Multi-Period Credit Risk and Capital Planning with Proxy Functions

Financial institutions are seeking ways to gain a better understanding of their credit portfolios' risk dynamics, allowing them to foresee and to prepare for potential increases in capital requirements resulting from economic shocks.

October 2016
Aubrey Clayton, Xuan Liang

chart: an example satellite model of sovereign CDS spreads

Stressed Scenarios and Linkages to Market Risk Instruments

This paper demonstrates a two-step methodology for forecasting and stress-testing market risk instruments with explicit links to stressed macro scenarios.

January 2016

illuminated charts and graphs

Multi-Period Stochastic Scenario Generation

This article describes how to build consistent projections for standard credit risk metrics and mark-to-market parameters simultaneously within a single, unified environment: stochastic dynamic macro models.

June 2015
Dr. Gustavo Ordóñez-Sanz