THE ROLE OF THE ACTUARY IN THE ECONOMY Second International Professional Meeting of Leaders of the Actuarial Profession in Africa, Lagos, Nigeria, 20-22 February 2003

Actuaries make financial sense of the future

WHAT IS AN ACTUARY? An actuary applies mathematical skills to financial and business problems, especially those which involve uncertain future events, such as in life insurance, general insurance, risk management, health care financing, investment, corporate finance, banking, pensions and social security

ACTUARIES ARE….. acknowledged experts in the analysis and modelling of situations involving financial risk and contingent events concerned with both sides of the balance sheet able to provide realistic solutions to complex problems with a long term forward look practical, innovative and numerate independent, respected and trusted

THE ACTUARY - a brief history Roman origins of name (actuarius) actuary of the Society for Equitable Assurances William Morgan appointed actuary in 1775 first mention in legislation - 1819 Institute of Actuaries, 1848 Faculty of Actuaries, 1856 International Actuarial Association, 1895

ACTUARIAL SKILLS mathematical modelling analysing and managing uncertainty evaluating financial consequences analysis of risk and risk management scientific pricing and reserving techniques asset/liability management overall financial management and solvency

MAJOR FIELDS OF ACTUARIAL WORK life insurance general insurance pensions investments health care financing social security corporate finance risk management banking government service regulation education

ROLE OF ACTUARY IN FINANCIAL INSTITUTION - 1 product design pricing reserving investment strategy financial soundness risk analysis and risk management

ROLE OF ACTUARY IN FINANCIAL INSTITUTION - 2 profitability measurement control of dividend or bonus systems disclosure to customers assessing shareholder value dynamic financial analysis

ROLE OF APPOINTED ACTUARY adviser to Board and senior management responsible for assets as well as liabilities continuous financial monitoring annual valuation of assets and liabilities hot line to supervisor in case of difficulties operating under professional standards

CONTINUOUS MONITORING OF FINANCIAL POSITION product design and marketing premium rates and options current investments and continuing policy derivative exposures current and future level of expenses reinsurance arrangements

WHISTLE-BLOWING professional responsibility responsibility to regulator underpinned by legislation responsibility to policyholders responsibility to company need for protection or indemnity?

DYNAMIC FINANCIAL ANALYSIS (STRESS-TESTING) capital adequacy testing impact of regulatory requirements realistic future cash-flows alternative scenarios use of stochastic modelling identification of risks risk management strategies

ACTUARIES IN SUPERVISION understanding of actuarial issues effective monitoring of technical reserves monitoring of financial strength interface with actuarial profession support for appointed actuary safeguarding policyholders’ interests

GOVERNMENT ACTUARY’S DEPARTMENT independent source of actuarial advice available for all areas of government carries weight with the industry interface with actuarial profession easier to recruit and retain actuaries

ACTUARIAL ROLES IN SOCIAL SECURITY SCHEMES demographic projections estimates of future benefit outgo estimates of future contribution income long-term projections of financial balance short-term estimates of cash-flow advice on funding strategies

ROLE OF ACTUARIES IN SOCIAL SECURITY REFORM analysis of costs of existing arrangements advice on alternative structures modelling the transition advice on establishment of second pillar regulation of second pillar financial and economic impact

ACTUARIAL ROLES IN COMPLEMENTARY PENSIONS scheme design level of contributions funding and solvency management asset/liability management pricing of individual options bulk transfers

ACTUARIES IN INVESTMENT portfolio management research and analysis portfolio performance measurement asset/liability management - mandates strategic asset allocation investment indices complex financial instruments

ACTUARIES IN HEALTH & CARE demographic studies projecting future costs design of financing mechanisms health insurance products cost-benefit analysis of treatments financial appraisal of alternative strategies financing long-term care

CORPORATE FINANCE appraisal of capital projects risk analysis and management innovative financing mechanisms performance indicators and measurement

PERSONAL FINANCIAL PLANNING assessment of needs and risk profile insurance solutions advice on pension products tax planning investment advice

ASSESSMENT OF DAMAGES/LOSS value of loss of earnings value of dependency cost of care pension loss individual characteristics

ROLE OF PROFESSION initial education (may be in universities) qualification standards continuing professional development standards of practice interface with regulatory bodies disciplinary framework

PUBLIC INTEREST quasi regulatory functions protection of policyholders protection of pension scheme members serving the public pursuit of excellence