Financial experts tackle economic capital management

In a recent conference held at Johannesburg Country Club in Auckland Park, a wide range of delegates from the financial sector gathered to debate the current trends surrounding economic capital management.

The conference, organised by Professional Risk Managers' International Association (PRIMIA) and the Actuary Society of South Africa (ASSA) focused on the current issues surrounding practical economic capital management, and the benefits thereof on overall performance figures.

As one of the key sponsors, SAS was proud to present Machiel Kruger, head of the SAS Laboratory, Centre for Business Mathematics and Informatics, North-West University (Potchefstroom campus) as one of the key speakers. Kruger spoke alongside industry experts Bernd Granitza, Director of KDB Krall, Demmel, Baumgarten and David Jewell, Director at Liberty Life.

Capital management is a constant issue facing the finance sector but it has recently come into the limelight again as banks grapple with compliance issues controlled by regulations like the Basel II Accord. The conference highlighted the fact that such regulations are moving the financial industry into a new paradigm where the solutions involve linking finance and risk strategies via integrated management of risk, return and capital.

"Calculating economic capital and managing capital efficiently can really benefit a bank's performance, and is a crucial part of managing risk and compliance issues," says Kruger.

In his talk, Kruger focused on the calculation of Economic Capital for Low Default Portfolios (LDPs). He gave an overview of the literature that is related to the modelling for the conservative estimation/calibration of probability default for LDPs and applied some of the approaches to a small synthetic portfolio. He also covered the calculation of risk contributions, capital allocation and diversification measures (using expected shortfall as risk measure) that are needed to effective manage these portfolios.

"It is really a privilege to have the opportunity to speak to financial delegates who work directly with risk and capital management daily, and I look forward to sharing insight at such events in the future," ends Kruger.