Description: Risk management techniques do not include system science. System science requires that the uncertainty of the world is incorporated into the results. The articles explains the difference between risk and uncertainty. Learn how risk practices create an overoptimistic view of future outcomes.

Description: Enterprise risk management (ERM) has grown fast in the 21st century, thankful due to a variety of extreme yet unfortunate risk events and regulatory changes. However, challenges continue with many other initiatives competing with ERM for resources within an organization. In this month’s newsletter, we revisit this old yet still important topic and bring a few relevant reports to your attention.

Description: The article argues that effective Enterprise Risk Management (ERM) should be tailored to fit a company’s unique characteristics rather than forcing a standardized "best practice" approach. Drawing from decades of experience, the author explains that companies often reject rigid ERM frameworks that don’t align with their business culture, risk philosophy, or strategic priorities. Key challenges include resistance to aggregate risk tolerance, formal governance structures, emerging risk management, and capital models that expose underperforming business units. The article suggests four steps for aligning ERM to a company: clarifying ERM objectives, understanding risk culture, leveraging existing risk management strengths, and committing to an iterative improvement process. A well-aligned ERM program can enhance strategic decision-making and resilience by being embraced rather than resisted.

Description: An article from The Actuary on benchmarking enterprise risk management practices in a derivatives firm. Actuaries can become the future of enterprise risk management by enhancing their unique skill sets with practices adopted from other industries and promoting themselves to firm managers.

Description: The 2024 Dangerous Risks survey shows respondents react to recent increases in "old favorite" risks as technology evolves and the environment moves away from the pandemic.

Description: Joint Risk Management Section chairperson's corner, June 2023

Description: The Federal funds rate increased by 4.25% in 2022 with further increases in 2023, which have already resulted in a liquidity crisis for a few banks. As the rapid increase of the interest rates pushed the new money rates above the yields of many life insurers’ investment portfolios, insurance companies are facing a dilemma between compressed margins from peer pressure and the concern with liquidity shortfalls and realized capital losses should mass surrenders happen. This paper discussed main emerging risks under rising interest rate environment, and several ways to mitigate these risks.

Description: An introductory article describing how Bayesian statistics has evolved over the past 20 years and why it offers the actuarial discipline powerful tools to better understand and manage risk. Compared with traditional (frequentist) and black-box (machine learning) approaches, Bayesian analysis provides explainable models focused on distributions of estimates instad of simply point estimates.

Description: Duration matching is a risk management strategy, commonly used in the insurance industry, where the duration (price sensitivity to a yield curve movement) of an asset portfolio is adjusted to be made equal to the duration of the liability. However, this approach has flaws. In this essay, I note some key failures of duration matching and offer a potential alternative.