The 2008 financial crisis exposed systemic failures of risk management in financial institutions, and while the dominant approach among economists of rationality (treating the economy as tending towards equilibrium rather than subject to significant discontinuities through time) remains core to the regulatory environment, the crisis has led to some shifts in economic thinking, and signs of some shifts in regulatory approaches.
The 2008 financial crisis exposed systemic failures of risk management in financial institutions, and while the dominant approach among economists of rationality (treating the economy as tending towards equilibrium rather than subject to significant discontinuities through time) remains core to the regulatory environment, the crisis has led to some shifts in economic thinking, and signs of some shifts in regulatory approaches.
This will impact upon approaches taken by actuaries, who make judgments about long run economic and investment outcomes. In 2015, the IFoA's Research and Thought Leadership Committee (RTLC) therefore identified a need for better understanding of economic issues in actuarial practice. Through the IFoA's Actuarial Research Centre (ARC), it commissioned independent academic expert Dr Iain Clacher of Leeds University to undertake a series of detailed interviews with a range of experts both internal and external to the profession, looking at economic theories in common use in current actuarial practice.
Dr Clacher's initial findings were discussed with senior actuaries and experts at a recent ARC event, looking at how the profession could improve economic understanding in areas that inform actuarial work. Given the topic's complexity, the objective was to search for 'relevant questions' rather than 'find answers', and encourage plurality in economic thought - the importance of which is increasingly recognised.
Following these discussions, Dr Clacher's report will be published soon. One immediate conclusion is that it is very hard to do this kind of thinking. However, there is growing consensus that it is a necessary exercise for the profession, and a challenge which it is able to meet. Over the coming months, ARC and IFoA actuarial volunteers will be progressing further research and stakeholder discussion to ensure the profession is contributing to, and learning from, this important debate. For more information about this ARC research and Dr Clacher's report, please visit bit.ly/arc2568
