Working in Risk Modelling
In simple terms, a risk modeler is someone who looks at historical information and events in order to make predictions about the future. They will take that information and construct models based on specific variables, correlations and events in order to ascertain the likelihood of future losses or incidents depending on which area of risk they are working in.
Within the financial services sector, risk modelling jobs can typically be found in banking, insurance, investment management and pension fund management.
Credit risk modelling is most commonly the focus area for banks as they use models to forecast future losses on loans. Meanwhile, in insurance the focus is more on managing market risk impacts on an organisation’s investment portfolio. While for investment management risk modelling is used to assess and manage a portfolio’s risk exposure and return, and in pension fund management they are used to determine things like the timeline for an investment.
Risk models use relevant historical data gleaned via data collection, data visualisation, data analytics and also talking to people well-versed in the topic at hand. All this information combined will help the risk modeller to understand the probability of a risk event occurring and its potential severity.
What a risk modelling job actually entails will in some regard differ depending on the industry and company, however the fundamental goal of working in risk modelling is to build and run risk models. This will require you to form a close working relationship with business line leaders in order to develop a thorough understanding of the business and its objectives.
You will need to stay informed and up to date on market and credit trends as it is this research along with the information you glean internally that will inform the risk models you build. Part of the process also involves running stress test models to ensure the quality of the data being generated and note any improvements or adjustments that may be required.
Risk modellers should possess high-level quantitative, technical and analytical skills, and be able to demonstrate a good hands-on knowledge of statistical software. Organisations rely on their risk modellers to make critical decisions about credit and market risk. These insights into market trends can make all the difference and give businesses an important edge over their competitors.
Risk modellers are expected to have a good knowledge of and experience with various modelling techniques, database architecture and design, and financial analysis. But just as importantly, they must be able to turn all that technical information into a language that the business can both understand and utilise. Risk modelling is as much about making sense of the data as it is interpreting it, and strong, clear communication is key.
Being adaptable is a necessity for a Risk Modeller, as the technology used to capture data is ever evolving. Being able to think differently and be creative in the way they work with the data due to its complexity and the sheer amount of data available is another trait hiring managers will be looking for.
Candidates moving into careers in risk modelling tend to come from a background in Mathematics, Physics, Engineering, Finance or Computer Science with a bachelor’s degree in one of those subjects. Those hoping to progress to more senior roles may opt to complete a post-doctorate degree in an area such as Economics, Statistics or Business Administration. Further certifications that could prove useful include the ARM (Associate in Risk Management), CFA (Chartered Financial Analyst), FRM (Financial Risk Manager) and PRM (Professional Risk Manager).
Risk Modelling careers can develop with deeper specialisations that will see you working with more complex risk models as a Senior Modeller or veering more towards the analytics side either with a customer focus or perhaps more on the market risk side depending on your skills and preference. A career in Risk Modelling does tend to be one people take on for the long haul as the role is highly technical, though there are steps to higher ranking roles via this career path. Risk Modelling can take you to CRO (Chief Risk Officer), VP of Risk Management, Senior Risk Manager or Director of Risk Policy to name a few.
Working in Risk Modelling arms you with a lot of transferable skills that could also allow you to pursue other routes such as Data Science, Compliance, Risk Analysis, Insurance Underwriting or working as an Actuary.