Proposal of an ERM Framework for the Analysis and Management of the Trend Breaks

Proposal of an ERM Framework for the Analysis and Management of the Trend Breaks


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Speaker(s): Fatoumata Ndoye, Thomas Behar, Anani Olympio (Institut des Actuaires)

Further information is presented in a detailed paper: Ndoye_Article.pdf

A good risk management practice cannot be achieved without full understanding of all phenomena of trend breaks that can distort our view of risk factors. As risk managers or actuaries, we face a key question about future trend breaks. Are we able to anticipate future trend breaks in a changing world and integrate these anticipatory measures in our capital assessment or fundamental hypothesis? The main objective of this article is to try to understand and evaluate this phenomenon in the risk management system framework. We are therefore involved in consideration of life insurance policies. We anticipate changes in our environment while ensuring our creditworthiness. Then we test the robustness of our hypothesis in most of the extreme situations that may occur.

To achieve this goal, we adopt the COSO II framework which facilitates our analysis in its entirety. We can use the case of a fictitious life insurance company and have structured our approach in three main steps. The first step is the Identification of risks, in which we present our understanding of phenomena of trend breaks and of the risks that may arise when they are not taken into consideration in modeling. The second step will consist in the Assessment and Quantification of risks in which we suggest that you follow a six-stage approach.

Finally, in the third step, regarding Treatment and Monitoring, we will show that the dynamisation of the deterministic modeling of risk factors should be parallel to an adaptation of the current risk governance. We need to define and follow a set of best practices facilitated by the group ERM governance. We have needed to reduce the various risks identified especially to ensure the stability of companies. The respect of this process will help the company's own risk assessment.

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