Articles - Actuarial Modelling: London Whale 2.0?


Modelling Design Partners and SolveXia recently conducted a survey, in collaboration with Actuarial Post, to better understand the challenges faced by actuarial departments. The results revealed that the most pertinent challenge that is associated with actuarial processes is vulnerability to input error. Not surprisingly, the majority of respondents also indicated continued concern about regulatory requirements. Most worryingly, though, is that a significant dependence on spreadsheets for major calculations was noted.

 Spreadsheets are pervasive in many industries, due to their flexibility and perceived reliability. Actuarial departments are no exception: 90% of respondents indicated that their departments use spreadsheets. Despite their ease of use, spreadsheets are notoriously difficult to audit and control. Frequent manual manipulation of data and equations is often required, which leave spreadsheets vulnerable to human error. The London Whale incident and the Reinhart-Rogoff fiasco are both extreme examples of such errors- one in investment banking, and the other in international economics. In both cases, highly qualified mathematicians, and world-renowned economists accidently copied incorrect equations in spreadsheets, which led to disastrous errors.

 The insurance industry uses the same investment instruments as investment banks, within asset-liability hedging strategies. In our survey, almost 70% of respondents indicated that spreadsheets are used to perform major calculations in actuarial departments. Undetected errors in these spreadsheets may lead to insurance executives not correctly estimating the risks within their portfolios, thereby increasing the risk of extreme losses in relatively ordinary market conditions.

 Nonetheless, the survey results also show that an increasing number of actuarial departments use process automation. Process automation platforms, such as SolveXia, allow actuaries to have the flexibility of spreadsheets, while reducing the risk of error caused by manual input and also adding transparency and audit ability.

 Is process automation the solution to overcome these issues relating to risk and cost?

 To view the full results of the survey please click below.

 
  

Back to Index


Similar News to this Story

Has Trumps stance on ESG impacted its growth
The principles of Environmental, Social, and Governance (ESG) remain a prominent force in shaping corporate strategies worldwide, though their applica
March 2025 Edition of the Actuarial Post Magazine
The Spring Statement from Rachel Reeves was a little disappointing in its lack of clarity around pensions – not least the lack of clarity around the s
Devolution and LGR governance implications for the LGPS
2025 has got off to a hectic start for the LGPS with the ‘Fit for the Future’ consultation and planning for the year(s) ahead. That’s going to continu

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.