Publication
Operational risk in the actuarial valuations of defined benefit pension schemes
| Summary: | Operational risk has always been a concern throughout history, especially since the 2008 financial crisis. Organisations, nowmore than ever, focus on excellence and regulation. Through the recognition of operational risk as an intrinsic part of organisations and an effective risk management strategy, operational risk can be leveraged as an advantage for organisations. UK law requires that, every three years, defined benefit pension schemes should be subject to an actuarial valuation. The goal of this is to provide a clear view of the scheme’s liability, which allows for a proper asset-liability management. As new technologies are developed, new challenges arise in terms of ensuring the maximum quality of results provided by actuarial valuations. In the context of a five-month curricular internship at Willis Towers Watson’s Lisbon subsidiary, which led to a deep exploration of actuarial valuations of defined benefit pension funds, I was given the project to do a deep study of the specific mechanisms in place to manage the operational risk and to guarantee the accuracy of the results produced. To present my findings, I simulated two types of errors, into a sample client: input errors (changes in the client’s data) and setup errors (changes in the information embedded into the internal software, used for the calculations). After simulating the errors, I saw how they could be identified using the internal mechanisms designed to prevent them. The overall conclusion is that the operational risk is well managed in the organisation, which contributes to the quality of the services provided. |
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| Main Authors: | Marques, Ana Luísa Paquete |
| Subject: | Pension fund Operational risk Actuarial valuations Fundo de pensões Risco Operacional Avaliações atuariais |
| Year: | 2021 |
| Country: | Portugal |
| Document type: | master thesis |
| Access type: | open access |
| Associated institution: | Universidade de Lisboa |
| Language: | English |
| Origin: | Repositório da Universidade de Lisboa |
| Summary: | Operational risk has always been a concern throughout history, especially since the 2008 financial crisis. Organisations, nowmore than ever, focus on excellence and regulation. Through the recognition of operational risk as an intrinsic part of organisations and an effective risk management strategy, operational risk can be leveraged as an advantage for organisations. UK law requires that, every three years, defined benefit pension schemes should be subject to an actuarial valuation. The goal of this is to provide a clear view of the scheme’s liability, which allows for a proper asset-liability management. As new technologies are developed, new challenges arise in terms of ensuring the maximum quality of results provided by actuarial valuations. In the context of a five-month curricular internship at Willis Towers Watson’s Lisbon subsidiary, which led to a deep exploration of actuarial valuations of defined benefit pension funds, I was given the project to do a deep study of the specific mechanisms in place to manage the operational risk and to guarantee the accuracy of the results produced. To present my findings, I simulated two types of errors, into a sample client: input errors (changes in the client’s data) and setup errors (changes in the information embedded into the internal software, used for the calculations). After simulating the errors, I saw how they could be identified using the internal mechanisms designed to prevent them. The overall conclusion is that the operational risk is well managed in the organisation, which contributes to the quality of the services provided. |
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