Canadian Volunteers’ Model Contributions

By Trevor Howes, FCIA

Actuarial models are not what they used to be. They are larger, more complex, more demanding of IT horsepower, and more important in the changing landscape of insurance reporting and risk management, and they are attracting way more attention from regulators, auditors, and C-suite executives.

Actuarial professionals who have worked with and depended on models for years are starting to ask new questions, looking for help in making models run faster, or improving their practices in maintaining, validating, and governing their use of models.

This heightened interest explains why a group joined me last year to petition the Society of Actuaries to form a new section to support the needs of those around the world who work with models. The formation of the new Modeling Section was approved in June 2014, and within weeks of its start-up, it easily reached the 200-member threshold required to begin formal activities.

We see the Modeling Section supporting the common interests of the professions in Canada, the U.S., and around the world, and crossing all national and practice areas. We already have over 100 members from Canada and two of us serving on the interim section council are Canadians.

One of the topics that interested me even before the section’s formation is model efficiency. With regulatory and accounting frameworks in Canada and globally moving increasingly to stochastic modelling techniques, greatly-increased modelling capacity is being demanded that can only be realistically satisfied by improved efficiency in the modelling techniques themselves. The Modeling Section will have a subgroup of members interested in model efficiency helping to deliver services, opportunities, and benefits related to this topic.

Another modelling topic of interest is the governance of models used by a company. While models are essential, they also bring with them inherent model risk from the potential impact of erroneous or inappropriate model results. Companies are establishing formal model governance policies to establish ownership and accountability for all models and to assure proper care in the design, control, review, validation, and documentation of all important models. Actuarial professionals love working with models, creating computer systems that implement the modelling theory and deliver powerful analytics on demand. However, they have not always been disciplined enough to document their work thoroughly and clearly, or to assure independent review and validation of every component of their models. There are clear signs that we must improve our skills and our discipline in these areas.

A third area of heightened interest globally has been the theoretical approach to modelling trends in mortality experience, and especially the risk that increasing human longevity poses to our insurance and pension systems. While there has been more attention paid to this area of modelling in Europe in the past, North American actuarial professionals are also starting to worry more about this risk and the Modeling Section is expecting to help inform its members about ongoing research and help to drive more research in this area that may have practical benefits to those in industry or in academia.

Sections of the SOA exist to bring volunteer resources together to help direct and deliver needed activities in research, professional meeting programs, webinars, and newsletters, all within the specific areas of interest of each section, and that is what the Modeling Section will do for the specific interest areas noted above and for others to be identified. We already have our first issue of The Modeling Platform newsletter in the planning stages and we are looking for research ideas of interest that we can help translate into productive activity. We depend on volunteers, and we welcome CIA members to contact us about their specific areas of interest in modelling and to consider how they can help the Modeling Section achieve its mission.

Actuarial models are not what they used to be, and there will almost certainly be even more significant changes yet to come. If the potential growth and power of models excites you too, then join the Modeling Section and help us make this happen.

Trevor Howes, FCIA, is Chair of the SOA Modeling Section.

Canadian Institute of Actuaries/Institut canadien des actuaires
http://www.cia-ica.ca/