Post Financial Crisis: A New World?

I had the pleasure of attending (and speaking at) the 2nd Actuarial Society of Hong Kong Risk Management Regional Conference in Macau earlier this month.

The Macau conference theme was, “Post Financial Crisis: A New World?” Over 230 professionals participated in this event to discuss risk management since the crisis, and how risk management can provide an opportunity for the actuarial profession. 

There were several excellent presentations, and a full view of the agenda and slide presentations is available on their Web site.  My presentation on “The Future of ERM: What’s the Next Crisis?” was very well received. I tried to focus on the next risks we need to be concerned with. I believe that most financial risks give plenty of warning before they strike, and I gave the example of rapidly widening credit spreads in the 18 months prior to the Lehman Brothers bankruptcy filing. Some risks now signaling yellow include inflation, currency erosion (for example, due to deficits), underfunded pensions and rising medical costs as the baby boomers age. 

One of the memorable sessions I attended was, “Lessons from the 2008 Crisis and New Directions for the Risk Manager”, presented by John Hibbert of Barrie & Hibbert. John made the excellent point that all along we’ve been preaching that companies need a risk-aware culture, and that’s true, but it’s not enough. Company boards and management need to develop an understanding of their own judgment and decision making processes. Most people underestimate rare risks and are overly concerned about recent risk events. A better understanding of our own logical weaknesses would lead to better risk judgments. (John: Forgive me if I paraphrased!)

I also attended a workshop, “Guide to an ERM Risk Map and Working in Practice,” that was led by Edith Pfister of RGA Reinsurance Company of Australia. The exercise was to build a risk framework. At first I wondered why Edith had not given us clearer instructions. Turned out, that was part of her plan! There were 15 small working groups. I was asked to move from group to group, to help get the discussion going. I can tell you, the groups were all very energetic and very diverse. It was a very interesting insight into how different groups had different dynamics and approaches, much like the diverse approaches companies take in the real world. Some groups were very analytical, working through detailed checklists. Other groups were very strategic, taking a lofty approach. At least one group worked up a framework based on risks from a policyholder perspective. 

All in all, it was a world-class conference. Congratulations to the ASHK, and I certainly hope to attend future meetings of yours!

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