Scenarios and forecasts can be used for a variety of purposes. They can help to assess the risks to business strategy and they can also be needed to fulfil regulatory requirements in measuring the impacts of adverse conditions upon business.
Volterra’s approach combines statistical analysis, historical context and expert judgement to identify the most appropriate methodology for each business need. We provide transparent and accountable analysis with clear supporting documentation. Our tools allow decision makers to input different parameters and in this way consider different outcomes, along with the likelihood of those outcomes.
At Volterra we advise clients on the range of scenarios that they should use to stress test and reverse stress test their business, and build bespoke scenarios that would best serve each client.
Linking scenarios to the business
The team has extensive experience linking scenarios to clients’ different business areas, by using econometric modelling techniques.
We also use new modelling techniques derived from behavioural economics to model areas with limited historic data or with limited incidence of events such as defaults.
Meeting stakeholders requirements
We work closely with the regulators to understand their expectations so we can guide our clients how to prioritise their efforts.
We work closely with our clients to ensure models are relevant and easy to use by stakeholders across the business.
We have first hand experience of working at Board level and understand the pressures and requirements of Board members to have adequate understanding of the risks facing their companies.
The bank needed to understand the extent of customer arrears and how a number of cases would evolve under different economic scenarios.
We used econometric analysis to establish the relationship between mortgage arrears and the economy, as well as how different policy options could impact customer behaviour. We then built a forecasting model to enable the bank to test different economic and policy scenarios and isolate the impact on their mortgage business.
Our analysis contributed to the design of our client’s strategy and helped the development of the bank’s stress testing analysis.
European insurance company
As part of its growth strategy, our client was looking to expand its business in certain areas but was unsure about the implications in terms of its potential future claims exposure.
We built bespoke models to link historic claim levels to the economic cycle for the insurance lines our client was interested in across a range of geographies. The models were then used to create projections of claims over five years under a number of economic scenarios.
Our client used the projections to adjust its growth strategy plan in these areas, withdrawing from some areas where claims were seen as likely to exceed its initial expectations and investing more heavily in those that now looked more benign.