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    • Regulator defends use of models for financial institutions
        © Thompson’s World Insurance News 2009. No reproduction without written consent.
        Financial institutions that proved to be the most resilient during the financial crisis — and acted earliest — were those that used ‘models’ as part of an extensive tool-kit combined with strong risk management around their models, Canada’s top regulator says.
        “I have often heard people say that the global financial crisis has demonstrated that the use of models was a fatal mistake by both regulators and financial institutions,” superintendent of financial institutions Julie Dickson said.
        “Further, some say that the widespread use of models in the financial sector should be halted.
        “This is the wrong conclusion to draw from the financial turmoil.”
        Ms. Dickson was defending and encouraging the correct use of models to the 300-plus industry representatives at KPMG’s 2009 Annual Insurance Issues Conference held in Toronto.
        “Models can augment our ability to assess risk,” she said.
        “We need to harness this benefit.” She said successful firms use models and can derive important benefits from doing so, including better capture of risk and early identification of issues.
        “Indeed, OSFI sometimes prefers that institutions use models for the purpose of estimating the capital they should hold as model-based estimates of loss can be more risk sensitive than estimates provided by regulators for the industry.”
        A much more detailed account in our December 7 edition. If you are not a regular reader, click on Subscribe on the left hand side of the page to get it every week.
        
    		 


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