Model Risk

With the world becoming ever more dependent upon complex computerised models to help guide and automate human decision making, the risks involved in reliance upon such systems is increasing.

In 2013 the BBC highlighted the potential global economic implications of errors in such models with the student who caught out the profs article; reinforcing the old adage 'garbage in, garbage out'.

Similarly, CFO magazine have provided a timely reminder of the Top 10 Tax and Accounting Mistakes that Cost Companies Billions, focusing on the financial losses and reputational damage that can result from such mistakes.

Approaches to mitigate such risks have become an increasingly important part of how progressive analysts craft their trade. As such, SL Investment Management welcomes the Actuarial Profession's current attention on this topic.

SL Investment Management Senior Actuary, Louise Witts attended the Institute and Faculty of Actuaries (IFoA) event "Model Risk - Daring to open the black box" at London's historic Staple Inn, High Holborn, on 23^rd March.

Over the last year Louise has been a member of the Model Risk Working Party. The event was organised to discuss the findings of the Working Party's paper, aimed at:

• Raising industry awareness and understanding of model risk.
• Development of a framework for management and measurement of model risk
• Fostering good practice around the governance and control of models

Louise commented, "At SL Investment, we already take a risk averse approach to modelling, with much of our complex financial analysis performed within the industry standard Towers Watson 'MoSes' modelling environment. However, as always, some useful ideas have come out of the Working Party's research which we plan to incorporate into our modelling processes going forward."