2014

Actuaries Provide Insight on Systemic Risk and Financial Reform in Post-Recession Economy

SCHAUMBURG, Ill., Feb. 7, 2011 /PRNewswire/ -- A cautiously optimistic economic outlook and increasing confidence in the global marketplace makes it more important than ever to analyze the risk systems in place to ensure financial institutions avoid the mistakes of the past.  In response to this need, the Society of Actuaries (SOA), the Casualty Actuarial Society (CAS), the Canadian Institute of Actuaries (CIA), the Enterprise Risk Management Institute International (ERM-II) and the International Network of Actuarial Risk Managers (IN-ARM) published a series of essays, "Risk Management Part Two–Systemic Risk, Financial Reform, and Moving Forward from the Financial Crisis," which addresses financial regulation post-recession and highlights the need to develop accurate warning indicators and reform measures to prevent the realization of systemic risks in the future.

With rigorous training in identifying, managing and mitigating risk, actuaries are well-equipped to discuss the areas of risk that need attention as we work to rebuild the U.S. financial system post- crisis.  This collection of essays is a follow–up to a collection of essays published at the end of 2008 on managing risk in the financial crisis, highlighting key lessons learned from the crisis in the interest of inspiring prudent risk management practices for years to come. This second collection of essays provides the next step in addressing financial systems, institution structure and systemic risk indicators, as they relate to six overarching themes:

  1. Modeling
  2. Role of Government vs. Role of Market
  3. Emerging Systemic Risks
  4. Treating Systemic Risk
  5. Company Management/Board Governance
  6. Regulation

"In order to avoid past mistakes, executives and investors need to consider allocating more resources to the assessing and managing their corporation's risk," said Robert Wolf, FCAS, CERA, ASA, MAAA, Staff Actuary at the Society of Actuaries, "This requires an accurate understanding of emerging and potentially emerging risks, a perspective that actuaries are well-suited to provide."

Though all essay themes remain relevant to timely enterprise risk management issues, two of the top three prize-winning essays relate to the theme of regulation.  The winning essay "The Financial Crisis: Why Won't We Use the F(raud) Word?" by Louise Francis, FCAS, MAAA, consulting principal at Francis Analytics & Actuarial Data Mining Inc., discusses the role of fraud in financial regulation and the need for increased emphasis on enforcement.  In her discussion, Francis notes that the recently passed financial reforms may be ineffective in addressing fraud, a key factor in the global financial crisis.

The second-winning essay "Perfect Sunrise – A Warning Before the Perfect Storm," by Max Rudolph, FSA, CERA, CFA, MAAA, owner of Rudolph Financial Consulting, LLC, addresses the problems with the recent Dodd-Frank financial reform measure.  Rudolph suggests ways to improve upon the regulation, including increased transparency and required capital and stress testing.

Each essay provides an in-depth understanding of the often hidden assumptions and unintended consequences of the various components embedded in each theme. The essays, as a whole,  illustrate the need for increased discrepancy between the historic and current approach to risk management as it relates to financial institutions, system structure and government regulation.

"Though the outlook of financial institutions is less bleak than in years past, the stability of the system relies on a critical analysis of several factors, including the practices of company boards, government financial regulation, and modeling structures," notes Robert Wolf, stating that "Increased transparency in financial regulation and unbiased, third-party insight are essential in reforming the system to better withstand future systemic risk."

For the full financial essay collection visit: http://www.soa.org/library/essays/fin-crisis-essay-2011-toc.aspx

About Actuaries

Actuaries bring a complex future into focus by applying unique insight to risk and opportunity. Known for their comprehensive approach, actuaries enable smart, more confident decisions.

About the Society of Actuaries

The Society of Actuaries is an educational, research and professional organization dedicated to serving the public, its members and its candidates. The SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems. The SOA's vision is for actuaries to be the leading professionals in the measurement and management of risk. To learn more, visit www.soa.org.

SOURCE Society of Actuaries



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