Risk management must integrate actuarial functions

A key lesson learned from the current financial crisis is that risk management must integrate risk and actuarial functions, Swiss Re Canada’s Online newsletter said.
Traditionally the focus of risk management has been on identifying and reporting risks, but the crisis shows companies need to pay more attention to managing risks in a pre-emptive way, said Raj Singh, Swiss Re’s chief risk officer.
“One clear lesson is that models are an important tool, but they have to be supplemented by judgement,” he said. “Models don’t make decisions.”
Swiss Re, Singh said, is now viewing the risks it’s taking on “in a more actuarial way.”
Actuaries reserve against future losses by gathering information from the business side, Singh said. “Being able to do this effectively can be very, very critical for creating a pre-emptive risk management process.”
An integrated risk and actuarial function is the future of the insurance industry, he continued.
“It’s not just about having a financial risk manager,” he said. “It’s about having people who truly understand how the financial and actuarial risks come together.”
Moving forward, the status of the chief risk officer and risk managers will increase, and more companies will implement a holistic approach to risk management, Singh predicts.
“Independent oversight and control is very important,” he said. “Risk management must be independent from P&L [profits and losses] responsibility, and it is important that the chief risk officer has an equal seat at the executive table with his business colleagues.”