Project staff and support

Fei Yu (Intern, Heriot-Watt University)
Nick Jessop (Company supervisor, Barrie & Hibbert)
Angus MacDonald (Academic mentor, Heriot-Watt University)
David Allwright (Technology Translator, Industrial Mathematics KTN)

This 3-month Internship project was carried out at Barrie & Hibbert in conjunction with the Heriot-Watt University. It is part of the KTN’s Industrial Mathematics Internships programme, co-funded by EPSRC.

Fei Yu, Intern & PhD student at Heriot-Watt University said, “It is really good for me to gain some industry modelling experiences, which have a different taste compared to the academic modelling. It is also a good contribution to my knowledge on mortality modelling, and gives me a real insight into actuarial modelling in industry.”

Project summary

Barrie & Hibbert supplies software to insurance and financial companies to enable them to understand and estimate their risks. Mortality is one of the key risks in the insurance, pensions and banking business, and Barrie & Hibbert’s software includes a stochastic mortality model which is used when assessing the solvency capacity of an insurance company using the run-off method. The run-off method answers the question “how much capital (also called risk-based capital) should be held today?”, so that, with a particular probability (normally 99.5%), this capital will be sufficient to fund ultimate liability cashflows.

“Longevity is a slow-burning risk factor for all pensions providers. Unlike the dramatic events in the financial and credit markets in 2008, its effects emerge over time, and it must be modelled and reserved for. This is especially so, since there are no significant markets in longevity risk except insurers and pension funds themselves. This is a major area of applied research and very promising for collaboration between academia and industry. Barrie and Hibbert are leading advisers on risk and their need for a leading-edge model of longevity and its impact under the UK’s new solvency regime makes this internship very valuable,” said academic mentor Angus Macdonald, Heriot-Watt University.

“Mortality risk is a key risk for our clients, and it is important that we can offer models which capture the key uncertainties and possible impacts of these uncertainties on our client business. Our stochastic mortality model was originally implemented in collaboration with the Department of Actuarial Mathematics at Heriot Watt, and this internship allowed us to build on and extend this collaborative effort,” said company supervisor Nick Jessop, Barrie & Hibbert.