The COVID-19 pandemic has brought credit risks that are unprecedented in size, are fast-changing, and have vastly different manifestations across industries. The uncertainty of impact is driven by epidemiological progression and sociological response, balanced by fiscal and monetary stimulus.
In this session, we explore analytics and data that life insurance companies can use to assess the current state of credit portfolios, considering loss, downgrade risk, RBC as well as that consider severity and length of this unprecedented economic slowdown across industries, while also accounting for government reaction and targeted fiscal policies.
This session will highlight:
• The state of credit markets and implications for credit losses, OTTI and RBC
• Preparing for the future - assessing portfolio and cross-industry dynamics along epidemiologic and economic paths
• Assessing the cross-industry impact of targeted fiscal policies (e.g., airline bailout, payments to individuals) and scenarios that explore real-time disruptions such as oil price shocks or COVID-19 impacts
• Presentation Slides
• Paper: Navigating Credit Beyond COVID-19
• Paper: COVID-19 and Beyond: The New Norm of Credit Analytics and Data
We introduce a granular, obligor-level, scenario-based model for rating transition matrices. It recognizes differences in the statistical properties of ratings and forward-looking PDs, deviating from approaches assuming a one-to-one relationship between segment rating and PD or that decouple dynamics of ratings and PDs.
As the world grapples with the tragic loss of human lives, and as scientists work toward understanding how to flatten the curve of COVID-19 spread, economists are struggling to measure its potentially profound impact on economic activity as markets attempt to find their footing.
Well-established models that evaluate the current credit environment are not working given COVID-19. Internal ratings cannot update at frequencies required to react well. This paper addresses these challenges, presenting applications users can incorporate into Internal Rating Assessment and Projected Ratings and Loss.
As institutions attempt to use established, well-developed models to evaluate the current environment, it is clear these models are not working adequately. This paper introduces new tools that bring together epidemiological, economic, and market data to navigate credit portfolios through COVID-19 and beyond.
COVID-19 created additional complexities for institutions navigating CECL accounting standard. This paper provides a natural quantitative approach for incorporating concentration in the allowance process and portfolio management.
The initial intent of the CECL guidelines was to make loan-loss allowances more reactive to the credit environment. By setting aside greater allowances, organizations would be better prepared for a default.
While bankers are increasingly managing risks related to changes in policy and technology (also known as transition risk), physical risks are not necessarily an obvious set of primary factors for banks’ commercial credit portfolio managers originating credit with maturities of three to seven years.
The Role of Banks in Illiquid Credit Markets, and the Disruption and Evolution of Credit Portfolio Management
The combination of new entrants, new technologies and (unintended) consequences of regulatory and accounting rules are driving banks to collect more data and to develop sophisticated tools when designing ever-more robust credit portfolio strategies.
RAROC and RORAC solutions that account for allowance and forward-looking IFRS 9 / CECL measures in return and risk.