Risk Management Special Interest Group

Developing the Profession’s Risk Management Vision

Tuesday, 17th April 2007

Overview

Introductions and OverviewPurpose of This EveningGuest SpeakerRMSIG Questionnaire FeedbackThe Big Question(Hopefully) The Big IdeaRefreshments

Overview

Introductions and OverviewPurpose of This EveningPeter Vipond, ABIRMSIG Questionnaire FeedbackThe Big QuestionThe Big IdeaRefreshments

18:00

18:30

19:29

19:30

19:00

18:15

18:10

Purpose of This Evening

Against the background of a changing environment for actuaries, explore the role that risk management1 might play in our future2 and identify what the profession3 should do to make this happen.

1. hereafter “RM”

2. and vice versa

3. initially through the RMSIG

Guest Speaker

Peter Vipond, ABI

RMSIG Questionnaire

Profile of Respondents~270, thank you!

RM Events What Actuaries Need to Learn Risk Management Taxonomy Research Education

Participant Profile By Practice Area

39% Life Insurance 14% General Insurance 12% Pensions 7% Investment 5% Banking 18% Other 4% did not specify

Majority looking to apply RM knowledge in existing practice area Most did not specify an RM affiliation

3% PRMIA 3% GARP 6% FIRM 4% CFA 5% SoA RM Section 12% Other(?)

RM Events - format Most are interested in attending RM events in 2007 On average participants would like to see

3 networking evenings 1 half day seminar 1 full day seminar, but no 2-3 day conferences in 2007

On average participants likely to attend a generic RM event, but unlikely to attend a life, pensions, general insurance or investment event

Several from overseas, so unlikely to be able to attend One participant commented

“Half-day seminars are likely to require a full-day for travelling etc and therefore fuller days are more attractive from the perspective of time-effectiveness.”

RM Events - topics

“Assessment of the risk arising from low frequency but extremely high impact events.”

“Best practice risk management framework - organisational and committee structures.”

“Introduction to risk management benefits, terminology and tools.”

“In-house Hedge programs for options embedded in insurance liabilities”, also adding, “in Canada have already implemented certain hedge strategies in the asset-liability management.

These companies may be doing so relatively quietly and reaping the rewards of competitive advantage.”

“Would like to see discussions on how we can apply risk management techniques in a wider context and in other areas of the financial services industry such as in a start-up situation, managing joint-venture or channel risks, and enterprise risk management.”

What Actuaries Need to Learn

Most participants agree that actuaries need to learn the language of risk management

learn new risk management concepts, and

learn new risk management techniques

Key Areas

Market Risk many responses around corporate finance, hedging,

Value at Risk, techniques used by investment banks

ERM (Enterprise Risk Management) applying processes to measure and manage risk

across a whole business

Operational Risk Strategic Risk

What Actuaries Need to Learn

“Just need to have a wider appreciation….the issues are wider than the existing solution.”

“The key concept is to evaluate the risk for reward trade-off for the business that your company underwrites……risk management is not about eliminating risk.”

also, “[need to develop a] proper pricing regime that keys on an 'appropriate' return on capital metric…. [a] risk management framework is of no use if it simply logs potential problems.”

“The management of demographic risks (mortality, morbidity, longevity) are areas within life insurers, where actuaries can taking a leading role in developing risk management techniques and practices.”

RM Taxonomy

Most agreed that an RM taxonomy useful for the RMSIG

52% said willing to contribute to development Of those whom commented, most noted that there

was already a well developed taxonomy which we should build from References to CAS, GARP and RAMP

Several also referred to Solvency II or Basel II papers

RM Taxonomy

General feeling“Don’t reinvent the wheel, but reach out to others who are ahead”

One participant commented“My experience, to date, acting as an expert witness is that many of the Risk Management concepts (and consequently techniques)…..are flawed because they have been based on false assumptions. I believe that if actuaries learnt the language, concepts and techniques they could add enormously to the risk management industry”

Research

Not a great many research ideas Some pleas to disseminate research already done by others

and for education rather than new research Some support for research into

copulas tail risk

e.g. correlations in extreme conditions, identifying 99.5% level risks operational risk

One participant commented

“Crucial decision is whether the profession attempts to position itself as a force in wider risk management or in financial risk management. Experts in financial risk management who are very comfortable with wider risk management is a possible sale. We ought to be keepers of market leading financial risk models.”

Education

Useful role for the RMSIG to fulfil Educational requirements for fellowship should have more RM material Qualification should be expanded so as to encompass the bulk of the

RM concepts and techniques in use within the financial services and corporate sector

Some suggested inclusion of an ST subject, not a compulsory subject Several comments about linking to/integrating with other bodies

PRMIA and CFA mentioned, as well as SOA Split of opinion

more technical material (e.g. copulas, financial economics), against ensuring better general understanding of the nature of risk

past disasters the techniques available for managing risk, and how to communicate it

Delivery Mechanisms

To Qualified Actuaries CPD events (6/10) Informal provision (5/10)

through distance learning and e-based learning

Formal provision (5/10) in addition to qualification requirements

through distance learning, short courses and e-based learning leading to recognised certificates and/or accreditation

Delivery Mechanisms

To Future Actuaries CPD events (5/10) Informal provision (6/10)

through distance learning and e-based learning

Formal provision (6/10) in addition to qualification requirements

through distance learning, short courses and e-based learning leading to recognised certificates and/or accreditation

Additional Education Material for RM

Most willing to contribute to the identification of additional material to better equip actuaries for work in RM

A slight majority of participants were willing to contribute to the development of the identified additional education material

Several specific ideas for material CFA courses information from FIRM, GARP and PRMIA (including research) references to University courses.

Some suggested producing a guide to existing resources or having an RM section in the Actuary

Purpose of This Evening

Against the background of a changing environment for actuaries, explore the role that risk management1 might play in our future2 and identify what the profession3 should do to make this happen.

1. hereafter “RM”

2. and vice versa

3. initially through the RMSIG

Conclusions

Times have changed RM is relevant to actuaries Actuaries are relevant to RM RMSIG is here to improve that relevance You have told us what RMSIG should do next

Thank You