1. THE ROLE OF THE ACTUARY IN THE ECONOMY AND IN THE FINANCIAL SECTOR
Actuarial seminar in Chisinau, Moldova
27-28 March 2008
Chris Daykin
Executive Director, IAA Fund

2. WHAT IS AN ACTUARY? An actuary is a professional person
who applies mathematical skills to
financial, business and social problems,
especially those which involve
uncertain future events…

3. Actuaries make financial sense of the future
THE ACTUARIAL PROFESSION
160
years
The Actuarial Profession
making financial sense of the future

4. THE ACTUARY - a brief history
Roman origins of name (actuarius)
actuary of the Society for Equitable Assurances
William Morgan,
John Finlaison, government actuary
Institute of Actuaries, London, 1848
International Actuarial Association (IAA), 1895
new constitution of the IAA, 1998

5. ACTUARIAL TRAINING mathematics statistics economics
finance and financial mathematics
modelling
investment and asset/liability management
financial management
enterprise risk management
professionalism

6. MAJOR FIELDS OF ACTUARIAL WORK
life insurance
general insurance
reinsurance
pensions
social security
investment
financial engineering
enterprise risk management
health care financing
corporate finance
government service
regulation
personal financial advice
expert witness
education and research

7. WHAT IS A PROFESSION? 6 key characteristics of a profession are:
Members join together to apply a specialised skill
The skill has been developed through appropriate education
Members have a special relationship with those served
Recognised by the public as an authority in field of expertise, able to serve the public interest
Sets standards of competence and conduct of members
High level of integrity by members in exercising judgement

8. HOW DOES THE PROFESSION SERVE THE PUBLIC INTEREST?
it ensures quality control of qualified actuaries through
initial qualifications and requirements
Continuing Professional Development
practising certificates or qualification standards
it sets a code of conduct and technical standards
it supports statutory roles by education and standards
it investigates complaints against members
it disciplines where there has been misconduct

9. VISION STATEMENT OF IAA
The vision of the IAA is:
To seek worldwide recognition for the actuarial profession
as a major player in the decision-making process
within the financial services industry,
in the area of social protection
and in the management of risk,
for the well-being of society as a whole.

10. ACTUARIAL SKILLS mathematical modelling
managing and communicating uncertainty
evaluating financial consequences
analysis and measurement of risk
finance and financial economics
scientific pricing and reserving techniques
asset/liability management
overall financial management
within a professional framework

11. ROLE OF ACTUARY IN FINANCIAL INSTITUTION - 1
design and pricing of products
pricing guarantees and options
reserving for liabilities
estimating fair value for accounts
asset/liability management
investment strategy
reinsurance/securitisation
analysis of experience

12. ROLE OF ACTUARY IN FINANCIAL INSTITUTION - 2
profitability measurement
control of bonus systems
assessing shareholder value
disclosure to policyholders/customers
solvency analysis
dynamic financial analysis
financial condition reporting
enterprise risk management

13. “APPOINTED ACTUARY” or “RESPONSIBLE 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

14. 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

15. UK “THREE ACTUARY” MODEL
Head of actuarial function…
…to advise Board of Directors
With Profits Actuary…
…to advise Board’s Policyholder Committee
…on exercise of discretion
Reviewing Actuary…
…to advise auditor
plus independent peer review of each

16. WHISTLE-BLOWING professional responsibility underpinned by legislation
interests of policyholders
responsibility to company
responsibility to regulator
need for indemnity…
…and protection against litigation

17. DYNAMIC FINANCIAL ANALYSIS (STRESS-TESTING)
realistic future cash-flows
impact of regulatory requirements
alternative scenarios
use of stochastic modelling
identification of risks
risk management strategies
financial condition report

18. INDIVIDUAL CAPITAL ASSESSMENT (ICA)
risk-based capital requirements
use of internal models
stochastic modelling of variability
scenarios in respect of other uncertainty
correlations between risks

19. THE ACTUARY AS RISK MANAGER
Basel II emphasis on risk management
actuary well-placed to advise on all risks
especially in insurance companies…
…but also in other financial institutions
actuaries specialise in the analysis of risk
…and can fulfil roles as Chief Risk Officer
modelling risk and uncertainty
communicating risk to the Board

20. ACTUARIES IN SUPERVISION
understanding of actuarial issues
effective monitoring of technical reserves
monitoring of financial strength/solvency
able to challenge company actuaries
…as well as supporting statutory actuary
interface with actuarial profession

21. ACTUARIES IN PUBLIC POLICY
financial services regulation and supervision
design and financing of social security
pensions policy, regulation and supervision
public sector pension arrangements
financing of health care and long-term care
consumer credit
understanding demographic trends
projecting the population

22. ACTUARIES IN PUBLIC POLICY
assessment of compensation, e.g. for injury
appraisal, risk evaluation and financing of capital projects
modelling catastrophes and epidemics
assessing long-term liabilities, eg nuclear waste disposal
implications of global warming
evaluating costs associated with environmental damage

23. 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/medium-term estimates of cash-flow
development of funding strategies
interactions with complementary plans

24. 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
impact on public expenditure/borrowing
impact on investment markets

25. ACTUARIAL ADVICE FOR GOVERNMENT
informal discussions with actuaries or the profession
individual actuaries on government working parties
private consulting contracts for government
actuaries employed by government departments
shared actuarial services between departments
government actuary’s office or department

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

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

28. ACTUARIAL ROLES IN INDIVIDUAL ACCOUNTS
design of structure
level of contributions needed
disclosure of expenses
pricing and reserving for guarantees
asset/liability management
pricing and reserving for annuities
design of alternative draw-down methods

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

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

31. CORPORATE FINANCE appraisal of capital projects
risk analysis and control
innovative financing mechanisms
performance indicators and measurement

32. ASSESSMENT OF DAMAGES value of loss of earnings value of dependency
cost of care
pension loss
mitigation of loss
individual characteristics

33. ROLE OF LOCAL ACTUARIAL PROFESSIONAL BODY
requirements for initial education
qualification standards
professionalism training
continuing professional development
standards of practice
interface with regulatory bodies
promotion of the profession
disciplinary framework

34. What does society gain from having an actuarial profession?
access to specialist skills
quality control of experts
high standards of actuarial service
integrity and objectivity in advice
input into public debate
support for statutory roles

35. GROUPE CONSULTATIF - EUROPEAN ACTUARIAL CONSULTATIVE GROUP
countries of EU + other European countries
Observer Members
representative role for actuarial profession in EU
advisory role to Commission/Parliament
professional meetings (CPD)
common core educational syllabus
common code of conduct requirement