We all (think to) know The Ten Commandments from the holy scripts by heart, do we?
Now close your eyes to see how far you can get in quoting those simple ten guidelines in life.............
The Ten Commandments for Investors
Just like the Ten Commandments for Man, God - more specific - created The Ten Commandments for Investors. Let's compare the two, while - at the same time - you can check out your Commandment-Memory on Man as well:
Risk-Return-Supervision Development
As you may have noticed, The Ten Commandments are a mix of rules-based and principles-based principles.
Just as in our own life, it's interesting to see how we apply and implement these two different kind of rules during the evolution of a financial institution (insurance company, pension fund, bank, etc.):
In time, the ideal supervision model consists of three phases:
Take a look at your own company's development and see for yourself where you fit in on the Risk-Return-Supervision lines....
It might be possible that you have to conclude that you aren't able to increase your Risk-Return ratio in the end. In this case it's likely you've become (so called) 'Supervisory Compliant': Your risk appetite probably corresponds more or less with the supervisor's minimal risk view. Instead of redefining your own risk appetite and restructuring your products from a risk-management perspective you merely implied new regulations and supervisor guidelines. As a result your Return and Risk-Return Ratio implode....
Ten Actuarial Commandments
Having learned the possible effects of supervisory rules in practice, we may now conclude with The Ten Commandments for Actuaries.
Apply supervisory rules and actuarial commandments in a conscious way...
Now close your eyes to see how far you can get in quoting those simple ten guidelines in life.............
The Ten Commandments for Investors
Just like the Ten Commandments for Man, God - more specific - created The Ten Commandments for Investors. Let's compare the two, while - at the same time - you can check out your Commandment-Memory on Man as well:
Risk-Return-Supervision Development
As you may have noticed, The Ten Commandments are a mix of rules-based and principles-based principles.
Just as in our own life, it's interesting to see how we apply and implement these two different kind of rules during the evolution of a financial institution (insurance company, pension fund, bank, etc.):
In time, the ideal supervision model consists of three phases:
- Phase I: No rules
In this phase we cannot value or the company. Chances are substantial the company is 'at risk'.
- Phase II: Rules-Based Supervision
In phase Ia 'Rules' are mostly perceived as 'Have to's" . As a result Risk will be reduced, but Return as well. Once the board, actuaries and financial specialists are becoming aware and will see the advantages and new possibilities of managing risk. 'Have to's" will develop into 'Want to's" . The Risk-Return Ratio will increase and even a better Return will result.
- Phase III: Principles-Based Supervision
Just like with the implementation of Rules-based Supervision, in case of Principles-Based Supervision, the Financial Institution needs time to adept to the new situation. At first there might be a unbalance between Risk and Return. It takes time to calibrate Risk and Return again.
After a while actuaries, investors and management will translate Rules-Based principles into own rules that fits the company's specific risk in an optimal way. The company will be able to take more risk and to optimize its own Risk-Return Ratio.
Take a look at your own company's development and see for yourself where you fit in on the Risk-Return-Supervision lines....
Having learned the possible effects of supervisory rules in practice, we may now conclude with The Ten Commandments for Actuaries.
The Ten Commandments for Actuaries
- There's only one God, as he's omnipotent he's also an actuary.
As you're only an actuary: be humble..... Remember: As God wants something in Return, you'll have to take Risk!! - Reality can't be comprised in a model.
Use your brains. A model is a help, not a decision machine. Don't mix up God with Risk or Chaos. Chaos for us humans (actuaries) can be defined as "Unrecognized Order" (quote). - Never blame anything or anyone than yourself for an unexpected or negative outcome.
- Be consistent, act sustainable. But change your opinion just in time, if circumstances or facts urge you to do so.
- Alway show respect to others, even if you think different. Appreciate where you come from. Nobody is perfect, not even you.
- As there is no 'right' model, never criticize other models, actuaries or other people. Try to give your opinion without slaughtering the other.
- Never advice or state anything you do not really mean or cannot defend.If you're not sure or don't know, tell it or get help.
- Always cite your sources or give credits to others that helped you.
- Don't 'steal' the advice.
Never include the final decision to be taken in your advice. Wrap up arguments, consequences and present scenario's so the board has to make a choice and not you. - Don't get carried away by results, reports or performances of others.
Stick to your own consistent approach.
Apply supervisory rules and actuarial commandments in a conscious way...
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