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The Actuary The magazine of the Institute & Faculty of Actuaries
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President’s comment: remorse and reparation

As I write this piece, the leader of one of the UK’s biggest banks has stated in public that the time for bankers’ remorse is over. The remark was made principally in the context of whether bonuses should be modified from what market forces might otherwise suggest. I am not competent to comment on this professionally, even though, like others, I may have strong personal views on the matter.

I would agree that, if the concern was that ‘remorse’ is an emotion that drags on people’s ability to do their job well, it would be better that they were freed of that burden. However, I would be dismayed if that remark was intended to suggest that there is no further learning to be had from the crisis. I would be similarly dismayed if it signalled a belief that raw commercial interest is more important than the public interest. If we are unwilling to continue to learn and if we do not acknowledge our interdependence then we will surely precipitate further crises and will deserve the consequent dreadful financial and social consequences.

It is also vital that we do the right sort of learning; more than just tweaking models to give greater weight to tail risk. I was asked recently (and unexpectedly) in a pension fund context what were the risks I worried about most. My answer was:
>> That the internet, on which so much business life depends, fails
>> That China asks the US to repay some of its debt (or at least stops lending as much as it currently does), thereby undermining the dollar’s role as a reserve currency
>> That the UK bond market suffers an assault like Greece or Ireland or Portugal, and that UK government bonds are no longer perceived as ‘risk-free’
>> That the global financial crisis precipitates serious social unrest with consequent economic turmoil and a return to protectionism
>> That there is a major war
>> That inflation takes off.

It was a spur-of-the-moment response, but it struck my questioner and I that only the sixth of these perceived risks is susceptible to modelling and hedging and is consequently the only one that the entity could do anything to protect itself against. The first five are potentially more dangerous yet any risk mitigation is mostly by way of scenario testing and contingency planning. Our analysis, modelling and risk management skills are valuable and important but they can only ever be part of the picture. That said, as a profession we must do what we can to improve our overall understanding of the risk picture.

The chartered enterprise risk actuary (CERA) qualification is not a silver bullet but it seeks to teach risk in both breadth and depth. It is an important step in equipping our members with the practical tools needed in order to be at the forefront of sound risk practices.

Ten more actuaries have recently qualified as CERAs, joining the nine who qualified last summer. They are the standard bearers for our commitment to risk management and, through them and future CERA students, we will make the qualification the gold standard in risk management.

One of the actuaries who qualified as a CERA last summer, Steve Mathews of EMB Consultancy LLP, has spoken about the benefits of the qualification, saying: “It gives me the authority and confidence to speak on these topics.”

In autumn last year, the Actuarial Profession helped launch the global CERA website www.ceraglobal.org, providing information for candidates and for employers. I would encourage you to take the time to look at the website and find out more about the qualification.

Council has recently committed to putting major resources into creating a plan to help actuaries who wish to branch out into risk management to do so. Individual actuaries will need to display enterprise in seeking out opportunities but your professional body can do a lot to create a following wind. We are committed to doing so and we will share our plans with you as soon as they are formed. That plan will emphasise not only our skills as actuaries, but also our ethical code and the professionalism which is expected of members of a body with a Royal Charter.

The time for remorse may or may not be over but the time for humility is certainly not. If we fail to continue to learn and if we fail to recognise that there are forces at work that we cannot control, then we will have failed the public interest. Such failures would surely bring reasons for further remorse all too quickly.

Ronnie Bowie is the president of the Institute and Faculty of Actuaries