C2: Reverse Stress Testing: A Case Study

Document description

The UK Pension Protection Fund was established to protect the pensions of members of UK private sector defined benefit pensions which have insufficient assets and whose corporate sponsor fails.

To improve its ERM framework, the PPF engaged with experts both inside and external to its operations to explore its current risk profile and develop a suite of reverse stress test scenarios. The analysis provided the PPF with new insights into its risk profile, the scenarios leading to the PPF’s potential “failure” and interactions between these scenarios.

This session will review the principles and objectives of reverse stress testing in the special case of the PPF and then illustrates the application of complex system science techniques for the purpose of reverse stress testing.