Business Strategy

The Actuary: An Unsung Hero of Financial Markets

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By Abubakar Ilyasu Kademi

We all remember the long-winded speeches, finger-pointing, and chilling “Out of Business” signs. The 2008 financial crisis, colloquially dubbed “The Great Recession”, was a worldwide financial crisis that ravaged the economies of countries throughout the globe.

It started from the United States and slowly crept into other major economies in Europe and Asia, the worst financial crisis since The Great Depression. Its aftermath prompted various measures by the U.S. Government, including the enforcement of stringent laws to combat the unscrupulous practices in the financial sector that led to it.

The most deleterious of these rapacious practices was the gross overleveraging of assets by banks and other financial institutions for profit. This created a massive bubble in the financial sector that inevitably crashed, leaving countless economic casualties in its wake.

In trying to rectify their past improprieties, one of the most important measures that these institutions have implemented is the intensification of Asset-Liability Management (ALM), a field where the Actuary is King.

Asset-Liability Management deals with the reconciliation of assets and liabilities in a company. In order to achieve this, actuaries assess various factors that compound the probability of returns like interest rate, and cash flow fluctuations. Using numerous statistical models, actuaries are able to take stock of the assets and liabilities in an institution and analyze the overall position of the company for risk and uncertainty. The ultimate goal is to prevent complications with liquidity and to ensure institutions have a good outlook on their financial standing. The assiduity of actuarial science has significantly limited reckless practices in financial markets.

While the relative solidity of the global economy in recent times is owed to various factors, it can be argued that this specialty is perhaps the most prized asset agents in the financial sector are using to avert financial instability. Nevertheless, the Actuary remains an unsung hero.

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