Thu 01 Oct 2026 - Credit transition risk impacts life insurance companies as a major risk on assets, as well as liability valuation (through the matching adjustment or illiquidity premium).
Solvency UK/II internal models require detailed modelling of transition risk, as do some IFRS 17 default risk models. More widely, securitisations and other structured instruments require detailed copula modelling of transition risk.
Copula modelling of transition risk has largely focused on the Vasicek model, which uses the Gaussian Copula. Many UK and EU insurance companies use this to model their credit transition risk.
The Gaussian Copula, “The formula that killed Wall Street”, has material limitations, in particular not being able to adequately capture the tail dependence of extreme events. The T-Copula does allow for tail dependence and is an improved way of modelling extreme events for transition risk.
The Extreme Events Working Party presents transition risk models incorporating the T-Copula to adequately capture tail dependency. This includes methods for calibration and use for stress and scenario modelling. These models can be used to improve Solvency UK / II and IFRS 17 modelling of credit transition risk.
Florin has extensive UK life insurance experience and a strong understanding of Solvency UK, with a focus on long-term business, investment strategy, and how assets and liabilities are managed.
He has led major pieces of work at Milliman and held senior roles at Just Group and PIC, including supporting large pension buy-in/buy-out transactions, assessing complex assets, improving credit risk approaches, and overseeing financial reporting.
He also publishes and presents regularly, including current research on complex assets in the life and annuities market.
Parit leads the Long Term Investment Strategy team within the Life Investment Office, the team responsible for ~£150bn of assets under management. This includes setting the strategic asset allocation for multi-asset and annuity funds, including the £65bn PruFund range of funds, as well as providing advice on ALM strategy, capital markets modelling, and business planning for M&G plc.
He is a member of various Boards and Investment Committees within M&G, and has over 20 years of experience within the M&G Group of companies, primarily in investment strategy.
His previous responsibilities include calculating the regulatory capital requirements for Prudential UK & Europe and creating Prudential’s in-house Economic Scenario Generator (GeneSIS). Parit is a Fellow of the Institute and Faculty of Actuaries and a CFA charter holder.
Stuart is co-head of Insurance Portfolio Strategy in the Strategic Capital Group at PGIM, where he is a Managing Director.
Stuart has worked on asset liability modelling and portfolio solution construction for pension plans, insurers and sovereign institutions at various asset management firms, and has authored a number of research papers, including as a member of the Extreme Events working party.
He is also a Fellow of the Institute and Faculty of Actuaries.
James Sharpe is a consulting actuary and statistician with more than 25 years’ experience working with and advising insurance companies across the UK and Europe.
James works primarily in credit risk modelling and the matching adjustment for Solvency II and IFRS 17.
James is the chair of the Extreme Events Working Party and has produced several leading industry papers and presentations.
Andrew D. Smith is an Assistant Professor at University College Dublin and the course director for their Actuarial Science program. Andrew's research focuses on statistical measurement of financial risks.
As a member of the Irish Mathematical Trust, Andrew prepares many young mathematicians for international competitions and has captained Ireland's team at the International Mathematical Olympiad.
Andrew is an Honorary Fellow of the Society of Actuaries in Ireland and of the UK Institute and Faculty of Actuaries.
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