Actuarial Smurf

Question is whether actuaries are best positioned for the role of Chief Risk Officer (CRO)....

More and more the CRO becomes one of the most important positions at board level to analyze, control and optimize risks in (financial) institutions. Qualified actuaries are pre-eminently positioned to qualify as CRO. After all, managing risk has been their primary task for decades. Rolling out the new Chartered Enterprise Risk Analyst (CERA) credential, actuaries will get better trained and educated than ever before.

CRO Role at Risk
Despite of all this, the CRO role is 'at risk' itself. CRO responsibilities and position are by definition conflicting with certain other stakeholder roles.

This is clearly demonstrated in a graph developed by Professor Emeritus Harry Panjer(Actuarial Science University of Waterloo).

Let's take a look at the slightly adapted graph of Harry Panjer:

• Regulator
  Regulators’ primary responsibility is to protect customers. Thus avoiding downside risk is their focus.
  
• Rating agencies
  Rating agencies focus on both the possibility of large losses as well as the possible gains to shareholders.
  
• Investors
  Investors are interested in both gains and losses and are willing to take the risk of the loss of capital as long as there is compensatory opportunity for gains.
  
• CEO
  The CEO with big stock options, has huge upside potential but little downside risk. Getting fired is one of the embedded options of the CEO's personal strategy.
  
• CFO
  The CFO's first responsibility is to stay 'in control'. The CFO will try to prevent excessive unforeseeable or unexplainable results, whether down- or upward.
  
• Clients
  Clients are primarily interested in value for money, service, quality and the continuity of the (financial) institution. Clients will keep satisfied as long as the financial results of the company remain stable and (average) positive within limits.
  
• CRO
  The CRO is trying to control the downside risk. The CRO is a kind of 'Risk Management Smurf' who only has a big STOP sign to limit the CEO and shareholders in their (short term return) demands. 

It's clear, acting as a CRO is like:

• Walking on eggshells
• Communicating with a silver tongue
• Listening like a fly on the wall
• Looking like a policeman
• Convincing like a missionary
• Calculating like an actuary

Don't wait any longer, become a professional Actuarial Smurf!

Links:
- Panjer: ERM and the Role of Actuaries (2009,pdf)