Hostname: page-component-cd9895bd7-hc48f Total loading time: 0 Render date: 2024-12-22T09:18:44.441Z Has data issue: false hasContentIssue false
  • English
  • Français

A review of the use of complex systems applied to risk appetite and emerging risks in ERM practice

Recommendations for practical tools to help risk professionals tackle the problems of risk appetite and emerging risk

Published online by Cambridge University Press:  14 November 2012

Neil Allan ,
Neil Cantle ,
Patrick Godfrey  and
Yun Yin
Get access Rights & Permissions [Opens in a new window]

Abstract

The Management Board of the UK Actuarial Profession has identified enterprise risk management (ERM) as an area of growth, particularly within the financial sector. It is an area which offers opportunities for actuaries, working with other disciplines, to move out of their traditional sectors of employment, with the skill set required fitting well with an actuary's training and practical focus.

Members of the Profession also highlighted ERM as one of the two main areas where they wanted the Profession to focus their research efforts in the membership survey in 2009. Consequentially the Management Board allocated funds to support research projects in ERM in 2010–2011 and has worked with the ERM Practice Area Committee to identify the topics that they feel most suited to external research where the outputs will have a broad strategic value to the financial services sector.

Keywords

Enterprise Risk management (ERM)Risk appetiteEmerging risks
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 18 , Issue 1 , March 2013 , pp. 163 - 234
Copyright
Copyright © Institute and Faculty of Actuaries 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Eden, C., Ackerman, F. (2004). Cognitive mapping expert views for policy analysis in the public sector. European Journal of Operational Research, 152, 615–630.CrossRefGoogle Scholar
Adams, J. (2001). Risk. London, Routledge.Google ScholarPubMed
Allan, N., Yin, Y., Cantle, N. (2010). Phylogenetic Approaches. From Research Papers to be Presented at Enterprise Risk Management Symposium, April 12–15 2012: http://www.ermsymposium.org/2010/call-for-papers.php [Retrieved 10 April 2012].Google Scholar
Anderson, P. (1999). Complexity theory and organisation science. Organisation Science, 10, No. 3, 216–232.Google Scholar
Arthur, W.B. (1990). Positive feedbacks in the economy. Scientific America, 262, No. 2, 92–99.CrossRefGoogle Scholar
Bar-Yam, Y. (1997). Dynamics of Complex Systems. Reading, MA., Addison-Wesley.Google Scholar
Batty, M., Dalenta, T. (2010). A practical guide to creating a leading practice risk appetite statement. ERM Symposium, Society of Actuaries.Google Scholar
Besar, D., Booth, P., Chan, K., Milne, A., Pickles, J. (2011). Systemic risk in financial services. British Actuarial Journal, 16, No. 2, 195–300.CrossRefGoogle Scholar
Blockley, D. (2005). New Penguin Dictionary of Civil Engineering. London, Penguin Books.Google Scholar
Blockley, D., Godfrey, P. (2000). Doing it differently: Systems for Rethinking Construction. London, Thomas Telford.Google Scholar
Bromiley, P. (1991). Testing a causal model of corporate risk taking and performance. Academy of Management Journal, 34, 37–59.Google Scholar
Calvo, G. (2003). Explaining sudden stop, growth collapse and bop crisis: The case of distortionary output taxes, 2002 Mundell–Fleming Lecture, IMF Staff Papers 50.Google Scholar
Capra, F. (1996). The Web of Life: A New Synthesis of Mind and Matter. London: Flamingo, London.Google Scholar
Chapman, R. (2006). Simple Tools and Techniques for Enterprise Risk Management. Chichester, England, Wiley and Sons.Google Scholar
Checkland, P. (1999). Systems Thinking, Systems Practice. Chichester, John Wiley & Sons Ltd.Google Scholar
Ciorciari, M., Blattner, P. (2008). Enterprise risk management maturity-level assessment tool. Society of Actuaries.Google Scholar
Cohen, J., Stewart, I. (1994). The Collapse of Chaos: Discovering Simplicity In a Complex World. New York, Viking.Google Scholar
Committee of Sponsoring Organizations (COSO) (2004). Enterprise risk management – integrated framework. Jersey City, NJ7 American Institute of Certified Public Accountants.Google Scholar
CRMPG III (2008). Containing systemic risk: the road to reform. Available at www.crmpolicygroup.org/docs/CRMPG-III.pdfGoogle Scholar
D'Arcy, S.P. (2009). Risk appetite, Risk Management. Society of Actuaries, Issue 15, 38–41.Google Scholar
Daft, R. (1992). Organization Theory and Design, (4th ed.). St Paul, MN, West Publishing.Google Scholar
Dorner, D. (1996). The Logic of Failure: Recognizing and Avoiding Error in Complex Situation. New York, Metropolitan Books.Google Scholar
Eden, C. (1988). Cognitive mapping. European Journal of Operational research, 36, 1–13.CrossRefGoogle Scholar
Fiegenbaum, A., Thomas, H. (1988). Attitudes Toward Risk and the Risk-Return Paradox: Prospect Theory Explanations. Academy of Management Journal, 31, No. 1, 85–106.Google Scholar
Friedman, N., Geiger, D., Goldszmidt, M. (1997). Bayesian network classifiers. Machine Learning, 29, 131–163.Google Scholar
Fontana, W., Ballati, S. (1999). Complexity. Complexity, 4, No. 3, 14–16.Google Scholar
Gell-Mann, M. (1995). What is complexity. Complexity, 1, No. 1, 16–19, available at http://web.archive.org/web/20011121181321/www.santafe.edu/sfi/People/mgm/complexity.htmlGoogle Scholar
Government Accountability Office (2009). Financial Regulation: review of regulators’ oversight of risk management system at a limited number of large, complex financial institutions. GAO-09-499 T. Available at http://www.gao.gov/new.items/d09499t.pdfGoogle Scholar
Helbing, D. (2010). Systemic risks in society and economics. Available at http://irgc.org/IMG/pdf/Systemic_Risks_Helbing2.pdfGoogle Scholar
Herrera, S., Perry, G. (2002). Determinants of Latin spreads in the new economy era: The role of US interest rates and other external variables, mimeo, The World Bank.Google Scholar
Herrero, A., Ortiz, A. (2004). The role of global risk aversion in explaining Latin American sovereign spreads, mimeo, Bank of Spain.Google Scholar
Hitchins, D. (2007). Systems Engineering: a 21st Century Methodology. Chichester, John Wiley and Sons Ltd.Google Scholar
Holland, J. (1995). Hidden Order: How Adaptation Builds Complexity. Reading, MA, Addison-Wesley.Google Scholar
Ingram, D. (2010). Treat systemic risk as an emerging risk, Insurance ERM, available at http://www.insuranceerm.com/analysis/treat-systemic-risk-as-an-emerging-risk.html?searched=Emerging+risk&advsearch=exactphrase&highlight=ajaxSearch_highlight+ajaxSearch_highlight1Google Scholar
The Institution of Civil Engineers and the Faculty and Institute of Actuaries (2011). Handling uncertainty - the key to truly effective Enterprise Risk Management. The Institution of Civil Engineers and the Faculty and Institute of Actuaries. Available via http://www.actuaries.org.uk/research-and-resources/documents/handling-uncertainty-key-truly-effective-enterprise-risk-managementGoogle Scholar
International Actuarial Association (IAA) (2008). Practice note on enterprise risk management for capital and solvency purposes in the insurance industry. International Actuarial Association. Available at http://www.actuaries.org.uk/research-and-resources/documents/practice-note-enterprise-risk-management-erm-capital-and-solvency-pGoogle Scholar
Jackson, M. (2004). Systems Thinking: Creative Holism for Managers. Chichester, John Wiley & Sons Ltd.Google Scholar
Kanh, I. (2008). Asymmetric impacts of global risk appetite on risk premium for an emerging market. Physica A, 387, 3218–3226.Google Scholar
Kahneman, D., Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 47, No. 2, 263–292.Google Scholar
Kamiya, S., Shi, P., Schmit, J., Rosenberg, M. (2007). Risk Management Terms. University of Wisconsin–Madison, available at http://www.ermsymposium.com/2007/pdf/handouts/R/R5_combo.pdfGoogle Scholar
Kasser, J. (2011). Unifying systems engineering: Seven principles for systems engineered solution systems, The 20th International Symposium of the INCOSE, Denver.Google Scholar
Kauffman, S. (1993). The Origins of Order: Self-Organisation and Selection in Evolution. Oxford, Oxford University Press.CrossRefGoogle Scholar
Kelliher, P., Wilmot, D., Vij, J., Klumpes, P. (2011). Discussion paper: a common risk classification system for the actuarial profession. British Actuarial Journal, 18, doi:10.1017/S1357321712000293.Google Scholar
Kelly, G. (1991). Personal Construct Theory. London, Routledge (Original work published in 1955).Google Scholar
Kirkpatrick, G. (2009). The corporate governance lessons from financial crisis. Financial Market Trends, OECD, No. 96, 61–88.Google Scholar
Kitching, I.J., Forey, P.L., Humphries, C.J., Williams, D. (1998). Cladistics: The Theory and Practice of Parsimony Analysis. London, Oxford University Press.Google Scholar
Korthals, G., Chase-Jenkins, L. (2010). Embedding ERM – setting a risk appetite. ERM Symposium, Society of Actuaries.Google Scholar
Kumar, M., Persaud, A. (2002). Pure contagion and investors’ shifting risk appetite: analytical issues and empirical evidence. International Finance, 5, No. 3, 401–436.Google Scholar
McCarthy, I., Ridgway, K. (2000). Cladistics: a taxonomy for manufacturing organisations. Integrated Manufacturing Systems, 11, No. 1, 16–29.Google Scholar
Mesoudi, A., Whiten, A., Laland, K. (2004). Is human cultural evolution Darwinian? Evidence reviewed from the perspective of the origin of species. Evolution, 58, No. 1, 1–11.Google Scholar
Mills, A. (2010). Complexity Science: An introduction (and invitation) for actuaries. Society of Actuaries.Google Scholar
Mishler, B. (2006). The logic of the data matrix in phylogenetic analysis. In: Parsimony, Phylogeny and Genomics, ed. V.A. Albert, Oxford, Oxford University Press.Google Scholar
Misina, M. (2008). Changing investors’ risk appetite: reality or fiction? The European Journal of Finance, 14, No. 6, 489–501.Google Scholar
Mitleton-Kelly, E. (2003). Ten principles of complexity and enabling infrastructure. Chapter 2 in: Complex Systems and Evolutionary Perspectives of Organisations: The Application of Complexity Theory to Organisations, Bingley: Elsevier.Google Scholar
Morel, B., Ramanujam, R. (1999). Through the looking glass of complexity: The dynamics of organisations as adaptive and evolving systems. Organisational Science, 10, No. 3, 278–293.Google Scholar
Nelson, R., Robinson, R. (1982). An Evolutionary Theory of Economic Change. Cambridge, Belknap Press.Google Scholar
Novak, J. (1998). Learning, Creating, and Using Knowledge: Concept Maps as Facilitative Tools in Schools and Corporations. Mahwah, NJ: Lawrence Erlbaum Associates.Google Scholar
Open University (2011). Open University Website, introduction to systems thinking, available at http://openlearn.open.ac.uk/mod/oucontent/view.php?id=399236&direct=1Google Scholar
Ossimitz, G. (1997). The development of systems thinking skills using system dynamics modelling tools, available at http://www.uni-klu.ac.at/users/gossimit/sdyn/gdm_eng.htmGoogle Scholar
Palmer, T., Wiseman, R. (1999). Decoupling Risk Taking from Income Stream Uncertainty: A Holistic Model of Risk. Strategic Management Journal, 20, No. 11, 1037–1062.Google Scholar
Pagel, M., Atkinson, Q., Meade, A. (2007). Frequency of word-use predicts rates of lexical evolution throughout Indo-European history. Nature, 449, 717–720.Google Scholar
Romme, W.H., Despain, D.G. (1989). The Yellowstone Fires. Scientific American, 261, (5).Google Scholar
Senge, P. (1990). The Fifth Discipline – The Art and Practice of the Learning Organisation. New York, Currency Doubleday.Google Scholar
Stacey, R. (2000). Complexity and Management. New York, Routledge.Google Scholar
Stewart, F. (2010). Pension funds’ risk-management framework: regulation and supervisory oversight. OECD Working Papers on Insurance and Private Pensions, No. 40. Available at http://www.oecd.org/LongAbstract/0,3425,en_2649_34853_44633540_119684_1_1_1,00.htmlGoogle Scholar
Taleb, N. (2007). The Black Swan: The Impact of Highly Improbable. New York, US, Random House.Google Scholar
Turner, Lord A. (2009). The Turner review: a regulatory response to the global banking crisis. FSA. Available at http://www.fsa.gov.uk/pubs/other/turner_review.pdfGoogle Scholar
Walker, Sir D. (2009). A review of corporate governance in UK banks and other financial industry entities. Financial Reporting Council.Google Scholar
Wang, C. (2003). Investor sentiment, market timing, and futures returns. Applied Financial Economics, 13, No. 2, 891–898.CrossRefGoogle Scholar
Wikipedia (2010). http://en.wikipedia.org/wiki/File:Complexity-map-overview.png accessed on 26th June 2012.Google Scholar