March 2, 2011
version française

Note on Enterprise Risk Management for Pensions

The IAA is pleased to announce the publication by its Pensions and Employee Benefits Committee of a Note on Enterprise Risk Management for Pensions.

Actuaries play a key role in the management and communication of risk. Risk comes in many forms, not all of which can be readily expressed in numerical terms. The IAA released a Note on Enterprise Risk Management for Capital and Solvency Purposes in the Insurance Industry published in March 2009. This paper focuses on the identification and management of risk within and across the business lines of an insurer, either in the life or general insurance field, considering risk from the perspective of the overall enterprise. The management of risk can be both quantitative and qualitative.  It is critical to the health of the insurer, the benefit of its policyholders and investors, and the robustness of the regulatory framework, that when looking at risk one needs to look not just at the risks inherent in the products written by the insurer but also at the governance, risk management culture and risk control processes in place in the insurer.

The principles underlying the Enterprise Risk Management framework have application across the pensions industry also. The framework encompasses the breadth of pension arrangements in force globally, not just in terms of product design (defined contribution and defined benefit plans) but as importantly in terms of the legal, financial and operational structure – pension funds, book reserved plans, multi-employer/industry-wide plans, insured plans etc – through which the benefits are provided and their governance models. The IAA has considered these principles in its Note on Enterprise Risk Management for Pensions from the perspective of the different parties to a pension plan – the sponsor who finances that plan, the employees and their dependants who benefit from it, the trustee who runs the pension plan, and the regulator who can apply ERM principles in support of a prudential risk-based supervision model.

This paper demonstrates that Enterprise Risk Management is a robust and adaptive framework that can strengthen the financial health of pension plans by integrating quantitative and qualitative approaches to risk management.  It supports ongoing work by the member associations of the IAA to build expertise and knowledge in Enterprise Risk Management globally to assist businesses in making smarter decisions based on sound analysis and understanding of their risks.

A leading group of IAA member associations joined forces in 2009 to implement the most comprehensive and rigorous globally-recognised Enterprise Risk Management credential available.  The global CERA credential is now supported by 13 IAA member associations in 12 countries, and more associations are expected later this year.  The number of actuaries awarded the CERA credential is approaching 800, and applications are expected to grow even more rapidly in future. 

To learn more about the work of the IAA on this topic, contact the IAA Secretariat, care of the Chairperson of the Pensions and Employee Benefits Committee.
The International Actuarial Association (IAA) is the worldwide association of professional actuarial associations, with a number of special interest sections for individual actuaries. The IAA exists to encourage the development of a global profession, acknowledged as technically competent and professionally reliable, which will ensure that the public interest is served.
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