The asset management division of a multinational insurance company required a model risk review of their risk analytic and valuation models, to assess fit for purpose relative to the tremendous growth of its balance sheet, and subsequent onboarding of various alternative investment portfolios. Post assessment and review they wanted an action plan to implement enhancements and changes required to their model framework.
A fit for purpose review was conducted across the portfolios on the balance sheet and the models being utilized by the firm to value and portfolio risk manage the various exposures. This turned into a full year’s review since the balance sheet growth and diversity of product usage was changing dynamically. Additionally, in working with the in-house quantitative research teams, various legacy models needed to be retired. In some cases, better data inputs needed to be secured, various input parameter had to be recalibrated, and the entire model inventory needed to be refreshed.
The board of directors and the risk committee to the board were provided bi-monthly updates on the progress being made to enhance the models deployed, their monitoring, reporting and controls framework. Model inventory and documentation was considerably improved. Audit worthy and third party developed models were used, when the modeling wheel did not need to be recreated. Bespoke models were developed for specific products and exposures. Stress tests processes for various models were institutionalized. The model management framework was made transparent and reporting around related risks made more intuitive.