Quotes on risk models from Swiss Re

Skipped over to this Swiss Re report this morning, thinking it would have some insights on Solvency II and capital modeling. Instead it focuses on ERM issues, such as getting a company used to the idea having a risk manager hanging around when a deal is pending. Interesting stuff, especially if you haven’t seen it before.

Beyond that, the report does manage to turn a phrase or two. Here’s a rejoinder to those who blame the financial crisis on poor modeling:

One argument emerging from the financial crisis was that banks became too dependent on models and that models failed. A response to this argument is to ask for more “common sense” in risk management. . . .After all, “models do not make decisions, people do”.

Or this on the value of risk models up to now:

This is not an industry where simplification will always improve understanding. In fact, risk modelling has served the business remarkably well. The long-term perspective required to manage a risk profile has been accurately reflected in the models; and even extreme recent events had been anticipated as remote but definitely possible occurrences.

Or more generally on the role of a risk manager:

It is vital that risk managers have the courage to speak up and make up their own minds: Should they escalate the issue, or persist in asking the difficult question until the answer emerges?

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