Candace Woods: engineering financial wellness

Published in: Risk, Risk management, Risk Models, Longevity - mortality, Conduct risk, Corporate strategy, Capital Models, Regulation, Accounting - tax, Rest of Europe, US - Canada - Bermuda, ROW

Companies: Prudential Financial

Prudential Financial's chief actuary talks to Christopher Cundy about her role in improving diversity, reforming its actuarial team and the regulatory challenges facing the insurer.

It's not easy to explain what an actuary does, but Candace Woods has a lovely phrase to sum it up: "An engineer of financial wellness".

But as chief actuary at one of the largest US life insurers, Prudential Financial, her role extends far beyond that. As well as the obvious technical responsibilities of any actuary, she has helped develop the firm's culture and diversity strategy, how it uses data analytics and its response to regulatory change.

It's a far cry from her childhood in rural Pennsylvania, growing up with four elder brothers and parents with great ambitions for their brood.

"My father wanted us to find professions where we would be more comfortable than we were growing up. My eldest brother is a doctor, then there's an accountant, an engineer and one in IT."

"I never did what my dad told me, and I wanted to do something different than my brothers"

Her curiosity about the actuarial profession had been piqued by a trigonometry teacher that had spotted her aptitude for maths and interest in business. But news that the most junior family member wanted to become an actuary did not receive the warmest reception at home.

She admits: "I knew no actuaries. Actually, my parents were not overly supportive of that decision. They wanted me to do something they were familiar with.

"However, at the time I never did what my dad told me, and I wanted to do something different than my brothers."

That willingness to take a calculated risk has served her well over her career.

Route to success

Woods attributes her success to three aspects. One is sheer hard work.

"Every time I went into a new assignment, I really tried to get to learn the area, provide value as quickly as I could, try to make some changes for the better before I left it," she says.

Second is the emphasis on skills beside the mathematical and technical – i.e. the business acumen and leadership skills. "I put a lot of time and energy, in my different assignments, really learning the business that I was supporting and to develop my leadership skills. Having a more balanced set of tools has really helped me."

The final thing is not choosing an obvious career path. After earning her actuarial credentials, Woods spent almost 20 years in various roles within the domestic life business for Prudential Financial.

About Prudential Financial

With a history dating back 140 years, Prudential Financial provides customers with financial products and services including life insurance, annuities, retirement-related services, mutual funds and investment management.

Based in the US with operations in Asia, Europe and Latin America, the group boasts close to 50,000 employees worldwide, and has more than $1trn of assets under management.

In 2017, it recorded a post-tax operating income of $4.7bn on revenues of nearly $60bn.

Known as "The Rock" – its logo is the Rock of Gibraltar – the firm transitioned from a mutual to public ownership in 2001.

"I decided I needed to get out of my comfort zone, so I took a lateral move to our corporate area. That gave me the enterprise perspective and I got to know all the businesses at Prudential."

After two years in that role, the vacancy for chief actuary of Prudential's international business came up. "Even though I had never spent a day in international, I thought a lot of the skills I had from domestic life would be transferrable, so I applied for that job."

That role, overseeing the actuarial function for 13 operations in 11 countries, which make up about 40% of the company's overall revenue, was the stepping stone to her current position.

"I had to think of how to help those businesses be more successful, and that really helped me with developing not only my strategic thinking but my influence skills. That role really made a big difference in my development."

Woods describes her current job as a blend between her technical responsibilities, overseeing talent and culture issues, and discussing with her C-suite partners "about how we drive the best financial results for the company, taking the right amount of risk".

Her team is mostly based in the north-eastern US, mainly in Newark, New Jersey, but with operations in Hartford and Shelton, Connecticut.

There are also small teams in Fort Washington, a suburb of Philadelphia, and overseas in Ireland. The international operations also have local actuarial teams.

Actuarial transformation

One of Woods' projects at Prudential Financial has been to restructure the actuarial function within the group companies.

Prior to the change, there was a small corporate actuarial team whose role was mainly oversight, along with actuarial teams embedded in each business.

The transformation involved pulling certain functions – modelling, valuation, projections – from the businesses and consolidating them in one centre of excellence.

This brought efficiency to the process of developing actuarial tools and techniques for the company. "When we were thinking about building capabilities, it allowed us to think about building one capability for a particular business – but in a way that we can easily expand it to the others.

"Will we ever get rid of all of all our spreadsheets? I don't think so."

"It also drives faster the use of best practices across the organisation, and your strongest talent can be utilised more in an enterprise perspective. From a talent and efficiency standpoint, it really will be more valuable for the company."

The other aspect of the transformation has been a consolidation of software systems.

"We had already started making our systems more automated, so we can spend less time on preparing results and more time on analysing the results."

Now the US businesses are trying to cut down to just two actuarial platforms: PolySystems for valuation and GGY (now Moody's Analytics) Axis for projections.

Some of the project's success can be measured in efficiency of production. "However, a lot of it is just how much capacity we free up to do other things. We can also build additional capabilities in the systems."

Woods says the end-to-end automation of processes has meant the firm relying a lot less on Excel spreadsheets. "Will we ever get rid of all of them? I don't think so. However, we are trying to reduce them."

Regulatory change

Woods highlights regulatory change as one of the biggest challenges for the insurance sector.

"Prudential Financial has always been supportive of good regulation. However, we want to make sure regulation does not drive unintended consequences," she says.

One of her main worries is the work on the International Capital Standard (ICS) at the International Association of Insurance Supervisors.

"We do not feel the ICS is where it needs to be"

As a firm with international operations, Prudential Financial has participated in the ICS field testing programme. And while there has been progress, "we do not feel it is where it needs to be," Woods says.

"We are concerned that where they are today is going to inhibit companies from underwriting long term products: life insurance, annuities. You do not want to create a capital system that would actually make it more difficult to serve a good public policy."

Allowing for jurisdictional differences will be an essential aspect of the standard. "Different geographic areas have different products. What might work in Europe may not work in Japan, Korea or the US. Local regulators, who decide to implement the ICS, will need to consider making adjustments to the framework."

IFRS 17

Changes to accounting standards also end up on Woods' desk. In the US, the focus is on the FASB Targeted Improvements, while elsewhere it's IFRS 17.

Prudential Financial's two largest operations – the US and Japan – are not affected by IFRS 17, but practically all its other international operations are. Since those international firms are not large, IFRS 17 has become a global programme, because each firm trying to implement it on their own would be difficult.

The FASB split from IFRS 17 in 2014 and decided to pursue "targeted improvements" to insurer accounting on its own. But Woods begs to differ: the changes "are very material; I would not really call them targeted, I would call them significant."

"We tried to advocate for 2022 [for FASB Targeted Improvements] but so far they have not been willing to change on the date"

IFRS 17 was published in May 2017, giving over three years for firms to comply with the effective date of 1 January 2021. But FASB is giving less time – a little over two years.

"That is going to be a very challenging thing, to make those changes in such a short period of time. That, again, affects us globally because all of our operations have to do US GAAP reporting because it consolidates up."

"We tried to advocate for 2022 [for FASB] but so far they have not been willing to change on the date. I hope they change their mind."

Data analytics

One priority for Woods' actuarial team is supporting the product development needs for the business as it builds out its financial wellness platforms. Another is data analytics.

Prudential Financial has a group of data scientists that works closely with the actuarial team on a number of projects, taking an agile or iterative approach to development. The two tribes are not kept apart – in fact for new actuaries, their rotation around the business now includes a stint with the data scientists.

"The policyholder behaviour for products like a variable annuity with living benefits is complex. We therefore use data analytics to help us better understand the key factors that are driving different behaviour.

"That allows us to do a better job at pricing our products and making sure we have adequate reserves. However, it also helps us with in force management, when customers are coming in and asking to do something with their product, how do you best advise them?"

She also notes how the company has used data analytics for detecting fraud, and in claims management.

"Our group operation did some data analytics to determine who, when filing a short term disability claim, is most likely to have that claim then go into long term disability. Is there anything we can do earlier to stop that from happening, to get them back to work sooner? That has been very valuable for the company and the customer."

Underrepresented demographics

Woods notes there are certain demographics – blacks and Latinos - that are underrepresented within the actuarial profession, and as a result within her department.

To help address the issue, the firm has been engaging in early awareness programmes, going into high schools to talk to students who are excelling in STEM subjects and informing teachers and guidance counsellors about the profession.

Prudential has an operation in El Paso, Texas, and the firm has partnered with the University of Texas at El Paso to develop an actuarial programme in their risk management major. This includes students coming in for training and showing them the role of the actuary.

"Of course, being a woman, gender diversity issues are near to my heart"

The firm has also been sponsoring the International Association of Black Actuaries and the Organization of Latino Actuaries – the latter only being established last year.

"We are also partnering with the Society of Actuaries and the Casualty Actuarial Society to do more to increase the diversity and inclusion in the profession," Woods adds.

One indication of how seriously Prudential Financial is taking the issue has been the introduction of executive compensation targets linked to diversity (see box).

Diversity and inclusion

Woods says her experience of working in Prudential's international division, with many different countries and cultures, "really honed my appreciation for diversity of thought.

"Then, of course, being a woman, gender diversity issues are near to my heart."

Last year she co led a global women's forum that Prudential held with the firm's top 50 women and our top 50 male leaders. She credits the support she felt among her fellow senior leaders for helping cement her commitment to diversity.

More diversity = more pay

Prudential Financial is one of the very few firms to have linked executive pay to diversity within senior management.

As announced at its annual shareholder meeting on 8 May this year, executives at senior vice-president level and above will see their performance rewards (paid in the form of company shares) modified, depending on whether the company exceeds or misses target to improve senior management diversity by 5 percentage points between 2018 and 2020.

If the goal is met, payouts will be increased by up to 10%. If there is no change in representation, payouts will be decreased by 5%. And if representation falls over the three years, payouts will be decreased by up to 10%.

The definition of diversity includes gender and ethnicity, as well as persons with disabilities, LGBT and Veterans.

One topic of discussion was the gender imbalance among senior leadership in the financial services industry. Among staff joining the company in the US, the male:female ratio is near equal, but at higher levels, the ratio skews towards men.

"We were trying to understand why that happens and what we can do to try to prevent it," says Woods – and her personal experience is relevant in solving that problem.

First, is the need for employers to be flexible in terms of working part time or from home. After the birth of her second child, Woods wanted to spend more time with her family, but almost no women at the vice-president level worked part time.

Her supervisor said the responsibilities of the role were such that it could not be done part time. "I already knew that; I could not even do it full time, let alone part time," she says. But the supervisor suggested that someone be brought in to backfill her current role, and moving her to a role that could be done more flexibly.

"They gave me a role that still was meaty enough that I felt like I really was growing in my skills and abilities, but instead of working 50 hours a week, I could work 35. I did that for five years. It was really helpful and kept me in the workforce."

A second element to helping women excel is ensuring they are taking as much risk with their career as men are. Women tend not to apply for jobs unless they meet almost all of the criteria, whereas men are less worried.

"What happens is that a man will go for a riskier, stretch assignment before women will, so then they get that opportunity. When promotions come, they are more ready because they had better experiences.

"So making sure you have someone that is sponsoring your high potential women, encouraging them to take the risk and advocating for them to get those jobs, is critical to help women advance."

Having a role model like Woods is no doubt another important element, although she is too modest to mention this herself. And it is an important reminder - as if any actuary needed it – that rewards don't come without taking a risk.

Christopher Cundy