Model Review and Validation
Probe the Model
Pensions risk models can be complex and opaque. In this theoretical and numerical analysis of the strengths and weaknesses of a pensions risk model, clients receive a detailed scan that identifies any surprises or oversights lurking in their risk modelling.
- If the model is used to make decisions, its failings could lead to bad decisions
- Vast sums can be lost as a result of events that banks’ models said should never happen.
- Changes in allocation, hedging decisions or market shifts can affect the appropriateness of a model.
- The regulatory landscape is changing
- New regulation like Basel III, Solvency II and EMIR change the game.
- Model risk management is a hot topic, with the US Federal Reserve recently issuing guidelines on method.
- Knowing the limits of a model means it can be used appropriately.
- Avoid missing out on investment opportunities, demanding excessive contributions or taking on excessive risk that could impact funding ratio.
The Model is analysed to check that it
- Complies with relevant legislation and requirements
- Helps the governance team engage with the regulator
- Aids in engagement with trustees on the topic of consideration of investment strategies that are more efficient with respect to capital requirements
The Model Review Report gives
- An objective, third party review of the strengths and weaknesses of the model
- A review of the conceptual soundness of the model’s assumptions and methodology
- A review of the validity of key numerical outputs
- Judgement about where the model is likely to be less reliable
- Ongoing monitoring of the model’s validity
Download the Model Review Summary on the right of this page.