The Growing Importance of Risk ManagementA fireside chat with a model validator August 2021
Over the past decade, we have seen models grow increasingly complex with regulatory changes along with greater demands for value-add outputs. It is more crucial than ever to manage risk through benchmarking models, including those used in financial reporting, cash-flow testing, pricing, asset-liability management, economic capital and hedging.
I met with Pier van Loon from Aegon/Transamerica’s risk team to gain his perspectives on risk management. Pier previously ran the actuarial consultancy firm Van Loon & Van Loon Actuaries for 10 years and has worked on many different projects, such as developing the first online collective defined contribution pension scheme in the Netherlands, pricing commercial line property and casualty (P&C) products and valuating a large Dutch insurance company. In his spare time, he serves on the supervisory board of a Dutch theater group and volunteers for the Vegan Society.
I hope you enjoy this look into his Pier’s responsibilities as they relate to risk management.
Can you tell me about your interest in risk management?
I haven’t always worked in risk management. For most of my career, I owned an actuarial consultancy company with my father, who is also an actuary. Most of our projects consisted of product development, pricing and problem-solving for life and nonlife insurers in the Netherlands.
I transitioned into risk management about five years ago when I joined Aegon/Transamerica. I had seen different aspects of the actuarial field from up close and figured that knowledge could be useful in a risk management role. I like having a broader view of the risk process and helping to improve it. Because I see and have seen a lot of different products, I help make sure a best-practice approach is used to benefit everyone.
Describe a typical day.
I see a lot of different parts of the company and get to work with a wide variety of people. On top of that, I travel to the different Transamerica offices to meet model owners.
I am always working on one or two model validations. We do these to verify that the model works correctly and is fit for purpose. I live in the Netherlands, and most of my colleagues are in the United States, so I start the morning by reading through the validation materials, doing independent tests on the model or writing a report. In the afternoon, I usually have a check-in call with my validation team to discuss the materials we have been given and potential findings we encounter. I have weekly calls with the model owners to go over these findings and ask for clarifications. I also coach some of our younger team members to help get them to the next stage of their careers, so I check in with them regularly as well.
After work, I like to go with my wife and our dog for a nice walk in the forests around Amsterdam. I find the Japanese practice of Shinrin-yoku (forest bathing) very relaxing.
What are the day-to-day challenges?
Currently, we’re working on International Financial Reporting Standard (IFRS) 17 implementation on all of the cash-flow models. This is particularly challenging because it’s a completely new process. We are validating incremental parts of the model while working on a tight deadline, which means having to think about downstream processes that are still in development or with assumptions that are not yet approved. Luckily, we have a good team, and everybody has their eye on the ball, so nothing is missed.
Can you address some of the technical and modeling requirements?
Part of our role is to assess the potential material impact of certain findings—often with limited information. As actuaries, we’re used to dealing with uncertainties and limited data, so this helps us come up with creative ways to calculate a reasonable estimate or limit impact for a potential modeling issue or simplification.
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