Actuaries slam mortgage risk models
Over-reliance on models used in securitising mortgage risks has contributed to the subprime crisis, according to the US Casualty Actuarial Society.
A panel of actuaries, including Willis Re Senior VP David Ingram, told the society’s AGM in New York last month a failure to question basic assumptions played a role in the crisis.
“The models gave the wrong answers and people acted on those answers,” Mr Ingram said. “This was not a one-in-100, 1000 or 5000 event, but a one-in-one event. The idea of issuing these kinds of mortgages and securitising them was tried once and it failed out of the box.”
Panel moderator Thomas Hettinger says the debate over the effectiveness of models will no doubt split down the middle. But he believes it’s too complex to merely say the models didn’t work.
“We’ll just move on to the next evolution of models,” he said.
A panel of actuaries, including Willis Re Senior VP David Ingram, told the society’s AGM in New York last month a failure to question basic assumptions played a role in the crisis.
“The models gave the wrong answers and people acted on those answers,” Mr Ingram said. “This was not a one-in-100, 1000 or 5000 event, but a one-in-one event. The idea of issuing these kinds of mortgages and securitising them was tried once and it failed out of the box.”
Panel moderator Thomas Hettinger says the debate over the effectiveness of models will no doubt split down the middle. But he believes it’s too complex to merely say the models didn’t work.
“We’ll just move on to the next evolution of models,” he said.