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The Actuary The magazine of the Institute & Faculty of Actuaries

The day the outlier came to town

As I write this it is 8.35pm on 16 September and AIG is still solvent. By the time the magazine is published, it is very possible that AIG will have a different structure and the financial world as I know it tonight may have changed even more than it has in the past day.

This morning I attended a PR meeting for a high-profile industry body, where a group of senior actuaries discussed how the demise of Lehman Brothers and Merrill Lynch may impact the communities in which actuaries work. I confess we couldn’t find words to express a view as to the short-term impact of the events of yesterday.

The long-term impact of 15 September 2008 is beyond any confident prediction that an actuary could reasonably have made. Yesterday was an outlier, on the edge of the funnel of doubt which, like Hurricane Ike, unexpectedly came to town.

When outlier events happen in the financial community the public must question whether actuaries, and economists, who hold the other side of the crystal ball, add anything to the mix. As an actuary, I can’t predict the future but I know that I hold a valuable qualification which enables me to assist companies and trustees in managing risks and I can provide my clients with comfort when events unfold that are out of our hands.

The letters, phone calls and contributions we receive at The Actuary indicate that my views are not unique. Our letter of the month tells of how one actuary is bringing his skills to a commercial bank while, outside the profession, author and quantitative analyst, Paul Wilmott, calls on actuaries to bring some common sense back into his field (see page 10). There is talk in the press of a new financial architecture and, echoing Ronnie Bowie’s comments on page 6, I believe that actuaries are very able to help build it. Only time will show us the long-term effects of 15 September 2008. However, the short-term is happening now, unfolding around us day by day and we are arguably the best placed profession to mould it, and guide our clients along the way.

Margaret de Valois