Enterprise Risk Solutions
RiskFrontier ™ — Credit Portfolio Management for Insurance Companies
Leading insurance companies use RiskFrontier to manage their portfolio credit risk. The
solution produces a comprehensive measure of risk, expressed as Credit VaR or Economic
Capital, which comprises the basis for deep insight into portfolio dynamics for active risk
and performance management.
The Challenge: Understanding, Communicating and Managing Portfolio Credit Risk
Managing portfolio credit risk across complex portfolios requires a consistent modeling framework capable
of providing reliable portfolio-level insight and granular, instrument-level risk/return metrics. In addition, risk
management tools need to produce insightful reports that can be communicated across an organization and
provide the basis for improved business decisions, risk appetite and risk budget development, limit setting and
performance management.
RiskFrontier Helps You Improve the Performance of Your Credit Portfolio
Expected Spread - Annualized (bp)
RiskFrontier’s instrument-level risk/return measurements allow insurance companies to identify the strongest and weakest
performers in their portfolios based on contribution to portfolio risk.
Roadmap to Portfolio
Improvement
600.0
RiskFrontier provides you
with instrument-level risk/
return measure so you can
actively manage the nonperforming exposures.
500.0
400.0
Best Outliers
Worst Outliers
300.0
Sampled Data
Sharpe Ratio
200.0
100.0
0.0
0.0
200.0
400.0
600.0
800.0
1000.0
Risk Contribution (bp)
1200.0
1400
Moody’s Analytics
The Solution: Comprehensive Credit Portfolio Risk Management
Quantify Risk in Complex Portfolios
RiskFrontier provides a single platform for modeling portfolio credit risk across complex portfolios by integrating all the relevant risk factors
across complex portfolios to produce a holistic measure of risk, expressed as Credit VaR (“VaR”) or Economic Capital.
»» Correlation: Provides insight into asset correlation and concentration/diversification effects through GCorr, Moody’s Analytics industryleading global correlation model.
»» Asset Class Coverage: Includes a broad set of asset classes and instrument types including structured instruments.
»» Parameterization: Provides empirically-derived parameters for valuation, credit migration, and correlation, each of which is calibrated to
rich datasets spanning several business cycles across the world.
»» Granularity: Captures, analyzes, stores and reports instrument-level risk and return metrics, both from an absolute and relative basis. These
measures can be aggregated at the industry, region, business unit, and overall portfolio level.
Establish Dynamic Limits
RiskFrontier enables risk managers to determine limits explicitly accounting for concentration and correlation effects within a credit
portfolio. The solution allocates portfolio risk and return to individual holdings, products, sectors and portfolio managers (vis-à-vis risk
contribution and/or tail risk contribution). With these detailed risk metrics, risk professionals can create category limits and tolerances
according to the organization’s risk appetite.
Gain Insight into Portfolio Dynamics with Stress Testing
RiskFrontier offers easy-to-use stress testing tools. A user can easily stress a portfolio risk input (like PD, LGD, RSQ or internal rating) and
then compare the capital results to a baseline portfolio. Users can also implement a stress to any segment of their portfolio, including
industry, rating group or line of business. In addition, any stress scenario can be stored for easy access and replication.
Improve Risk Communication and Achieve Risk Management Transparency
RiskFrontier’s easy-to-use user interface enables users to quickly understand their portfolios’ dynamics. RiskFrontier’s reporting suite comes
with over 50 prepared reports that include Expected Loss, Unexpected Loss, VaR, Expected Shortfall and more. Reports can be downloaded
in a number of different formats and easily shared. Input and output data are easily accessible in the RiskFrontier database and can be used
for customized reports. For users who want granular exposure level results the Monte Carlo Output File feature produces trial-by-trial
simulation results that can be aggregated and analyzed by any dimension.
RiskFrontier Provides Easy Access To Insightful Reports
Capital EL
Capital consumption by industry enable risk managers to better understand the concentration risk in their portfolios.
Industry
2
moody’s analytics Enterprise Risk solutions
The Difference
Comprehensive Asset Class Coverage
RiskFrontier provides comprehensive portfolio coverage. It models the following asset classes and instrument types:
»»
»»
»»
»»
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Corporate Bonds
Sovereign
Municipal Bonds
Private Placements
Commercial Real Estate Loans
RMBS/ABS and Retail Loans
Credit Default Swaps
Custom Cash Flow Loans, Cash/Synthetic
CDO Tranches
»»
»»
»»
»»
»»
»»
CMBS and RMBS
Basket Default Swaps
Exposure Profiles for Derivative Contracts
Equity
Corporate Loans
Homogeneous Pools of Instruments
Robust Correlation Data—the Foundation for Accurate Portfolio Modeling
RiskFrontier uses GCorr, Moody’s Analytics multi-factor global asset correlation model that captures the correlation of risks between a
variety of asset types (corporate, sovereign, CRE, retail, SME and structured) and their related factors (industry, geography, property type
and retail product type). GCorr is calibrated from the world’s largest empirical dataset of publicly traded corporations, retail credits and
commercial real estate loans and spans several business cycles. This model is updated annually to capture current dynamics. GCorr is also
fully transparent: Moody’s Analytics publishes research on updates or changes to the model and underlying data.
Comprehensive PD and LGD Data Integration
In addition to empirical correlation measures, Moody’s Analytics offers EDF credit measures, or probabilities of default, for corporate bonds,
commercial real estate, sovereigns and structured instruments (including RMBS, CMBS, ABS and CLOs), as well as loss given default (LGD)
estimates for corporate bonds, commercial real estate, and structured instruments.
Open Framework
RiskFrontier has a robust and transparent data management technology, which allows clients to easily import, store, and extract input data.
With an open model framework, clients have the ability to use their own model parameters (PD, LGD, credit migration, and correlation
assumptions) or use the established models that have been empirically derived from Moody’s Analytics research—or mix the two.
The Tool Box
Benchmarking
Default Risk and Recovery Correlations
Relative risk analysis allows portfolio managers to measure the
effectiveness of their portfolio strategies not just in absolute terms but
relative to a benchmark. RiskFrontier clients can assess their portfolios in
relation to a benchmark portfolio, an index or a previous iteration of their
portfolio both on an overall (portfolio) and individual (position or
instrument) level.
RiskFrontier models the relationship between default risk and recovery.
Clients who choose to use this feature benefit from an empirically derived
model which uses default and recovery data from over 17,000 firms across
the globe. Clients have the option to examine the effect of this correlation
on portfolio risk and capital.
Incremental Deal Analysis and Trade Optimization
RiskFrontier is a cutting-edge, server-based application. Its grid-computing
architecture allows massive simulations in a distributed environment. It
scales easily to fit the needs of large and complex portfolios and offers an
easy-to-use, web-based console for easy monitoring. Control features
include permissioning, different work groups and user types (with public/
private settings).
RiskFrontier can quantify the impact of a proposed transaction (i.e., new
trade or a change in position of an instrument or basket of instruments)
on a portfolio. It can also compute an optimal holding amount for an
instrument or basket of instruments based on user-defined parameters.
Technology
Easy-to-Use Stress Testing
RiskFrontier quantifies the sensitivity of your portfolio to stress or
alternative scenarios. Users can easily test their portfolios by changing
a variety of factors including PD, LGD, RSQ and other modeling
assumptions. Users can also move or modify specific exposures or groups
of exposures in and out of the portfolio—calculating the marginal impact
of changes.
Enterprise Risk solutions moody’s analytics
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A Commitment To Serving The Needs Of The Insurance Industry
»» Many of the world’s largest insurance companies use RiskFrontier to measure, manage and communicate their credit portfolio risk.
»» Moody’s Analytics is the recipient of the #1 Provider of Economic Capital solutions in a survey by Risk magazine.
»» Moody’s Analytics has been recognized for its ability to combine financial theory and empirical research to create industry risk
management best practices.
Moody’s Analytics Delivers Comprehensive Enterprise Risk Solutions
Moody’s Analytics enterprise risk management goes beyond credit, market and operational risk and delivers a solution for the entire
risk life cycle, from measuring and pricing for risk in loan origination to portfolio and regulatory risk management and reporting, to
managing balance sheet and liquidity risk. Our solution allows organizations to tie all credit exposures to an obligor, as well as to the
entire portfolio, providing a consistent view of risk from origination to regulatory calculation and reporting to portfolio analysis.
Economic Scenario Generation, Stress Testing,
Performance Mgmt & Reporting
Portfolio
Management
Regulatory
& Compliance
Balance Sheet
Management
» Portfolio Management
» ECap/VAR
» Exposure Monitoring
» Limits Management
» RAROC
» Trade Optimization
» Valuation
» Solvency II
» Reg Cap Calculation
- Life Insurance Risk
- Non-Life Insurance Risk
- Credit Risk
- Market Risk
- Operational Risk
» Regulatory Reporting
» Asset & Liability
Management
» Liquidity Risk
Single Obligor Credit Risk:
PD and LGD models & Benchmarking Data
Financial and Risk Datamart
About Moody’s Analytics
Moody’s Analytics helps capital markets and risk management professionals worldwide respond to an evolving
marketplace with confidence. The company offers unique tools and best practices for measuring and managing risk
through expertise and experience in credit analysis, economic research and financial risk management. By providing
leading-edge software, advisory services, and research, including the proprietary analysis of Moody’s Investors
Service, Moody’s Analytics integrates and customizes its offerings to address specific business challenges.
Please contact Moody’s Analytics to learn more, arrange a trial or schedule a personal demonstration of RiskFrontier. E-mail us at clientservices@moodys.com
or use one of the numbers below:
AMERICAS
+1.212.553.1653
EMEA
+44.20.7772.5454
ASIA-PACIFIC
+85.2.3551.3077
JAPAN
+81.3.5408.4100
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