JFAR Risk Perspective highlights the interconnectivity of risks
News types: Generic Announcement
Published: 8 December 2022
The Joint Forum on Actuarial Regulation (JFAR) has published its 2022 Risk Perspective.
This year’s report analyses the key theme of the interconnectivity of risks. As the world becomes ever more connected, fewer and fewer activities can be assessed in isolation.
Recent issues facing liability-driven investments (LDIs) - which aim to mitigate the interest rate and inflation risks related to a pension scheme’s liabilities - clearly demonstrated how addressing one specific risk gave rise to other risks. It also highlighted the care that must be taken when evaluating models, and how actuaries should be aware not just of the direct risks, but also the causal links between risks which may at first appear to be unrelated.
In this year’s report, JFAR identified five ‘hotspots’ where there is a perceived increase in risk to the public interest, and where actuarial work is central to understanding the risk.
The five interconnected hotspots identified are:
Sustainability - including climate change
This year’s report analyses the key theme of the interconnectivity of risks. As the world becomes ever more connected, fewer and fewer activities can be assessed in isolation.
Recent issues facing liability-driven investments (LDIs) - which aim to mitigate the interest rate and inflation risks related to a pension scheme’s liabilities - clearly demonstrated how addressing one specific risk gave rise to other risks. It also highlighted the care that must be taken when evaluating models, and how actuaries should be aware not just of the direct risks, but also the causal links between risks which may at first appear to be unrelated.
In this year’s report, JFAR identified five ‘hotspots’ where there is a perceived increase in risk to the public interest, and where actuarial work is central to understanding the risk.
The five interconnected hotspots identified are:
Sustainability - including climate change
- Inflation - following a long period of low and stable inflation
- Mortality and morbidity - including the long-term impacts of Covid on both
- Unfair outcomes for individuals - including the risk that actuaries may not act in the best interests of consumers, either intentionally or unintentionally
- Technology - in particular the changes it will stimulate in areas such as modelling
“High quality actuarial work promotes well-informed decision-making and mitigates risks to users and the public. Recent market events have only highlighted the need for actuaries to appropriately plan for market risks that impact the public interest.”
This publication will be the final report from JFAR. In recognition of the pace at which events can unfold, a more agile approach will be adopted where the forum will now be replaced by ongoing informal dialog between former members to continue the collaboration in identifying risks to actuarial work, and the FRC will chair multilateral meetings on specific issues as and when required. The FRC will continue to scan the horizon to maintain a knowledge of current and emerging risks from actuarial work.
JFAR was created in 2013 and brought together senior actuarial representatives from the Financial Conduct Authority, The Pensions Regulator, the Prudential Regulatory Authority, the Institute and Faculty of Actuaries and the FRC to coordinate the identification and analysis of public interest risks to which actuarial work is relevant.
JFAR was created in 2013 and brought together senior actuarial representatives from the Financial Conduct Authority, The Pensions Regulator, the Prudential Regulatory Authority, the Institute and Faculty of Actuaries and the FRC to coordinate the identification and analysis of public interest risks to which actuarial work is relevant.