Risk Management Special Interest Group

1
Risk Management Special Interest Group

• Developing the Professions Risk Management
  Vision
• Tuesday, 17th April 2007

2
Overview

• Introductions and Overview
• Purpose of This Evening
• Guest Speaker
• RMSIG Questionnaire Feedback
• The Big Question
• (Hopefully) The Big Idea
• Refreshments

3
Overview

• Introductions and Overview
• Purpose of This Evening
• Peter Vipond, ABI
• RMSIG Questionnaire Feedback
• The Big Question
• The Big Idea
• Refreshments

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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.
• hereafter RM
• and vice versa
• initially through the RMSIG

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Guest Speaker

• Peter Vipond, ABI

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RMSIG Questionnaire

• Profile of Respondents
• 270, thank you!
• RM Events
• What Actuaries Need to Learn
• Risk Management Taxonomy
• Research
• Education

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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(?)

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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.

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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.

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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

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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

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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 underwritesrisk 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.

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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

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RM Taxonomy

• General feeling
• Dont 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

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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.

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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

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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

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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

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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

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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.
• hereafter RM
• and vice versa
• initially through the RMSIG

21
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

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• Thank You