25 January 2010

Published in: Corporate strategy, Risk governance, Regulation - supervision

Opportunities abound for actuaries who relish challenge

Those with risk and capital management skills will be most in demand, and the trend from technical to business actuary will also gather pace, says Chris Cannon

Solvency II and the general increasing focus on ERM are having quite an impact on the prospects for actuaries.

Until the European Parliament approved the Solvency II legislation last March, a lot of companies may have been putting off genuine preparations for the directive until the October 2012 deadline was finally set in stone by the European legislation. So it may be that this year will see the full implications of the European legislation emerging for actuaries as significant projects develop to deliver the requirements for the directive.

Certainly, a shortage of people with risk management skills is very likely - and, for now, at least in the insurance industry, that means mainly actuaries. Every industry participant wants people with risk management skills - not just life and non-life insurers and reinsurers but also consultancies, software houses, investment firms, capital markets participants, rating agencies and regulators. This means, as some of the experts surveyed by InsuranceERM recently highlighted (IERM, Corporate strategy, 5 January 2010, 2010 will bring many challenges, warn risk experts), that resources are scarce and they will become scarcer as we progress through 2010.

It is no surprise that the FSA continues to actively recruit for positions relating to Solvency II, many of them aimed at the actuarially-qualified. Several large life offices are each looking for 20-30 positions with Solvency II responsibilities, and have turned to broader sourcing solutions including extendible fixed-term contracts as they attempt to grow their teams.

Article 47 of the Solvency II directive gives the actuarial function in insurance companies a much broader role than exists today. There will be extended responsibility for data quality, the reliability of the calculations, comparing best estimates against experience, even for expressing an opinion on overall underwriting policy and on the adequacy of reinsurance arrangements.

Meeting this explicit resourcing need isn't just a question of technical qualifications, however impressive these may be. If actuaries want to contribute to the wider role that solvency and risk management undoubtedly offers to them in the large corporate insurers and reinsurers, they will find that aside from the technical expertise, such positions are demanding a broad set of skills that enable them to articulate opinions, interact, communicate and influence across all parts of a corporate business.

This will hasten the trend from "technical actuary" to "business actuary" and the challenge for many in the profession will be to overcome the perception that they are highly specialized technicians who are not trained to contribute to the wider roles of running an insurance company.

The demand for actuaries will come from across the board, from those companies which already have an important actuarial function to those where the function is relatively new. Most large life offices are now at the stage of establishing larger teams to address aspects of Solvency II, and I have already seen the evidence of additional demand for part-qualified and qualified actuaries, in some cases between an additional 5% -10% of the overall actuarial function in larger organizations, as a first wave of recruitment. Several non-life Lloyd's syndicates are also in the market for actuaries with a risk focus.

For those actuaries who can deliver broader experience and a more visionary approach, the CRO role beckons. But to stand in good stead for this role, actuaries must prove they can contribute in the areas of operational and other non-financial risks -- and this is more critical in larger organizations than smaller ones.

What about the supply of actuaries? Are there enough qualified actuaries with the right experience and expertise to take on the wider roles envisaged for the profession by Solvency II?

Certainly the Groupe Consultatif Actuariel Europeen does not expect a dramatic increase in the demand for actuaries and believes that the growth rate it foresees in qualified personnel across Europe of around 6% p a will be sufficient to meet demand. This view was based on a survey of the market produced at the end of 2008, when there were about 19,000 fully qualified actuaries across Europe, compared with 15,000 five years previously, implying an annual growth rate of about 5%.

The Groupe Consultatif does see a shift in the areas in which actuaries are engaged. For example, in some countries there is definitely less demand for pension actuaries and a much stronger demand for non‐life actuaries, so the Groupe Consultatif notes that some actuaries will need to move into new areas of practice, although I think this poses significant challenges for actuaries who have specialized for many years in one sector. Work on Solvency II is no doubt very high on the priority list for most organizations and competence in risk management will naturally become increasingly important. The Groupe Consultatif also concluded that actuaries will probably have to be more flexible in terms of where they work.

The European shift of actuaries from the life to non-life side of the business has been mirrored in the UK. According to figures from the Actuarial Profession, the percentage of fellows of the Institute of Actuaries and Faculty of Actuaries in the life and pensions sectors remained pretty stable between 2001 and 2008: 71% in 2001 (life 38%, pensions 33%) and 73% in 2008 (life 35%, pensions 38%). The proportion in non-life increased from 8% to 12% in the same period.

In terms of skills, individuals with some existing exposure to Solvency II preparation are already well placed in the actuarial job market, but those skills reside mostly within the consultancies, given that the industry is at the early stage of Solvency II implementation. Actuaries with a strong exposure to financial reporting, and particularly individual capital assessment (ICA) modelling work, are also in demand.

Consultancies will not expect to see their share of the Solvency II implementation work diminishing, and we can expect some cross-movement as individuals with strong communication skills as well as technical reporting and modelling backgrounds move into consultancy. The directive will also have a major impact on actuarial software and supporting systems, which will also drive up demand for more technical actuaries.

Away from Solvency II and ERM in general, there are also potential opportunities for actuaries in the insurance-linked securities market and in the emerging longevity/mortality market. De-risking of large pensions liabilities remains high on the agenda for many large organizations.

There is no doubt that the actuaries most in demand right now are those with expertise in capital modelling and risk management. Major insurers are keen to recruit in these areas to cut down their spending with consulting firms but face an uphill struggle in doing so. Consultancy firms are prepared to pay attractive salaries to attract the best candidates, including those with good experience of FSA-mandated ICAs and balance-sheet modelling, and they have the advantage of being concentrated in London.

It may be that insurers will be prepared to raise their pay scales to attract the extra talent they need, perhaps evidenced by the fixed-term contract approach, but this may not be sufficient to meet demand. Mobility of resource is a significant factor, especially on the life side, since many qualified actuaries are less inclined to face relocation within the UK, particularly where this includes a family move.

Chris Cannon is a partner in The Actuarial Recruitment Company

chris@the-arc.co.uk