ERM Symposium Panel: Actuarial Professional Risk Management

In just a few days, actuaries will be the first group of Enterprise Risk Management (ERM) professionals to make a commitment to specific ERM standards for their work. In 2012, the Actuarial Standards Board passed two new Actuarial Standards of Practice (ASOP) on Risk Evaluation and on Risk Treatment.

These standards become effective May 1, 2013. In a panel discussion at the ERM Symposium, I was joined by Maryellen Coggins (PWC), Gene Connell (PA Department of Labor and Industry) and Andreas Graser (Allianz Life of America) to discuss the repercussions of these new standards.

What the Standards Require

Broadly, the standards require that actuaries keep at least one eye on the big picture context at all times when doing ERM work. This means that the financial strength, risk profile, risk management system and risk environment of the organization should be considered in both risk evaluation and risk treatment work.

The standards go on to discuss a number of specific considerations that actuaries should consider when doing economic capital modeling, stress testing, emerging risk evaluation, work on risk appetites, tolerances and limits, as well as risk mitigation.

When the Standards Apply

Much traditional actuarial work is focused on determination of insurance premiums and reserves. There are over 40 existing actuarial standards that apply to such actuarial work. These new standards apply to actuarial work that is part of an ERM system. One important point is that the risk management of a firm does not need to be a complete ERM system for the standards to apply.

When Actuaries Work with Others

ERM is a rising new specialty of actuaries, but actuaries by no means “own” ERM. Most ERM systems have actuaries and other non-actuaries in various roles, including in many cases the head of the risk management system, the Chief Risk Officer.

These standards create the potential for conflicts between actuaries – who are seeking to comply with professional standards – and the other professionals who have no such standards to meet. The panelists each gave their own reflections on how this might play out in different situations.

The bottom line is that conflict is not an intended or required consequence. Actuaries need to be able to explain to their non-actuarial colleagues and bosses how their organization might benefit from the new standards. These new ERM standards are consistent with good risk management practice and also an extension of existing general actuarial standards.

About half of actuaries in a recent poll said that their ERM work was already in compliance with the standards. Actuaries need to understand how they can navigate that discussion to everyone’s benefit.

About Dave Ingram

Dave is an Executive Vice President of Willis Re, specialising in theory and practice of ERM for insurers. Based in…
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