GLOBAL - The actuarial profession must make efforts to strengthen transparency and accountability in light of the global economic crisis, the International Actuarial Association (IAA) has said.
It called for wide ranging macro-economic reforms to prevent bubbles from over-inflating in the future, through counter-cyclical measures, and the creation of a 'country chief risk supervisor' within central banks to oversee risk management practices on a national level.
IAA enterprise and financial risk committee chair Tony Coleman added: "Failures in the banking system highlight the need for stronger systemic risk management at a micro level for individual entities, and at a macro level for the system as a whole."
On a micro-economic level, the IAA called for a tougher regulatory oversight of risk controls, including independent reporting by external agencies, such as actuaries, and the use of enterprise risk management (ERM) tools.
Coleman added: "An excessive focus on Value at Risk modelling that measures the minimum amount of loss and the absence of risk-sensitive capital charges for sub-prime lending and CDOs were among the primary drivers of the current crisis.
"Stringent risk models must now be embedded in appropriate risk governance and supported by an entity-wide risk culture. A sound risk culture will ensure timely reporting of risk critical information that allows management to take corrective action before risks erupt."
Australian Actuarial Institute president Trevor Thompson said: "The skills and approaches actuaries have been developing over many years are now more relevant that ever as nations and organisations look to practices that will better detect and mitigate the impact of calamitous risks in the future."
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