General Insurance Spring Conference 2024: Adjusting volatility for volume – how to turn up the noise for smaller books

Fri 03 May 2024 -
13:30 - 14:30

Capital modelling often requires modelling using volatility assumptions that are not derived consistently with the modelled exposure.

For example:

  • reserve risk coefficients of variation may be derived based on data as at the previous year-end, but are to be applied to the projected reserves at the next year-end
  • sensitivity testing or multi-year projections often involve changes in exposure, which all else being equal would imply some change to volatility

The goal of this talk is to outline some simple rules that capital modellers can use to adjust volatility parameters for changes in volumes in a quantitative, mechanical manner, rather than relying on expert judgment. It covers:

  • a brief outline of the problem and the limitations it implies
  • the analysis performed to investigate a solution, based on publicly available market data, results from recent surveys of market participants, and other sources of information
  • analysis of the results and proposed algorithms or formulae for relating volatility with volume

There is some technical content, but the aim is to present the issues in an accessible way that does not require any prior capital modelling expertise.

Featured Speakers

Neil is a Principal at LCP, where he works primarily on capital modelling and validation, advising insurance companies across the personal lines, commercial lines and Lloyd's spaces. Prior to joining LCP, he held a range of roles within the insurance industry, covering all aspects of the capital modelling process, including parameterisation, modelling and validation.

Neil’s recent experience includes providing assurance on validation quality, and advising clients on model changes, improvements to validation processes, and model use. He has frequently presented on capital and validation topics at actuarial conferences, and is a member of the IFoA’s General Insurance Capital Research Group.

Adam is an Associate Consultant at LCP, with experience across capital, validation, reserving and risk management. He recently supported LCP’s “Risk Function of the Future” thought leadership report, which involved interviewing CROs across the market to understand how the risk landscape may evolve, and how risk teams need to evolve in turn. Prior to joining LCP, he worked at Probitas 1492 as a Capital Modelling Analyst.

Jade is an Analyst at LCP. Her experience covers internal model validation, reserving, and reinsurance modelling. She also supports LCP’s Analytics modelling, including helping develop software to assess reserve risk, and analyse trends in reserve deteriorations. She is also co-Chair of the London Market Student Group.

Pricing and booking information

Members Book for free
Non-members £45