Despite a significant increase in numbers over the past ten years, actuaries working in the UK are busier than ever. The major traditional users of actuarial advice – life insurance companies and final salary pension schemes – are demanding more sophisticated analysis to cope with changes in the regulatory environment and pressure on their financial position resulting from low interest rates, increasing longevity and the return of volatility to financial markets.
In response to these changes, actuaries have continued to expand the range of techniques they are able to bring to bear in analysing complex long-term liabilities. In life insurance these techniques include the use of option pricing theory to value minimum benefit guarantees and sophisticated modelling of the range and distribution of possible outcomes reflecting varying investment and other conditions. Some of these techniques have been in use for many years in a limited way, but they now form part of the actuary’s regular toolkit.
There has been dramatic growth in the number of actuaries working in general insurance over the past 20 years. General insurance actuaries have also developed new techniques, including the use of complex multivariate analysis to calculate premium rates based on a comprehensive range of risk factors. In addition, they have built models to evaluate the potential insured losses arising from natural catastrophes such as hurricanes and earthquakes.
In pension schemes, actuaries are seeking to use these same techniques to manage the risks to scheme members and their employers.
Actuaries now have an impressive array of methods at their disposal for analysing, measuring and managing financial risks. Many of these methods have been developed in the context of traditional areas of actuarial activity, but their potential application is much wider. Around the world an increasing number of actuaries are working in new areas, such as climate change, genetics, energy supply and major infrastructure projects. This trend is expected to continue. Within the financial sector, the involvement of actuaries in both retail and investment banking is likely to continue to grow.
More generally, it is clear that the modern actuarial skill set equips actuaries to play a key role in risk management throughout the financial sector and beyond, particularly in areas where a long-term perspective is important. Internationally, actuarial professional bodies are cooperating to promote the involvement of actuaries in risk management, which is now a high profile activity in all areas of business. This will be an important initiative in the years ahead.
This activity will be supported by changes to education and training, to ensure that actuaries working in this area have all the knowledge they need. Other changes are likely to be made to education methods and syllabuses to equip actuaries for the challenges they are likely to face in the future, as well as those that are around today. An increasing proportion of training is expected to take place face to face in a university environment, although self-study will remain available as an alternative for the foreseeable future.
In recent years there has been increasing convergence of actuarial education systems around the world, largely as a result of the efforts of international actuarial bodies such as the International Actuarial Association and the Groupe Consultatif (which covers the EU). While some major differences remain at a detailed level, many countries now adhere to the same minimum core syllabus. This has improved the portability of actuarial qualifications and many actuaries now qualify in one country and end up working in another. UK actuarial qualifications continue to enjoy a high reputation throughout the world and the job prospects of internationally-minded UK actuaries are excellent.
Until recently, attaining Fellowship of the Institute or Faculty of Actuaries has been the primary goal of most actuarial trainees. However, the Associateship qualification now covers all the major actuarial techniques and concepts and is a self-contained qualification that may be particularly suitable for those intending to work outside mainstream actuarial areas, with the benefit of a significantly shorter time commitment.
One of the key challenges facing actuaries is how to communicate the results of our work to users of our advice. Insurance company directors and pension fund trustees need adequate information and understanding to enable them to take informed decisions on key financial issues, but they themselves are in many cases not experts on actuarial matters. As the investigations we carry out become more complex, the challenge of explaining our findings in a comprehensible form becomes greater. As a result, actuaries now need to put more effort into bridging the ‘understanding gap’ referred to by Sir Derek Morris in his review of the UK Actuarial Profession.
Much of our work relates to the quantification of the potential cost of uncertain future events. While a single figure answer may often be required for regulatory or reporting purposes, it is important that actuaries also provide information on the uncertainty surrounding their calculations in their advice to employers or clients. This all adds to the communication challenge and the need for actuaries to be articulate and fully in touch with the business world.
There is an important and exciting role for actuaries in the future, in financial risk management and beyond. The only thing we can be truly certain of is that the demands on actuaries will become more diverse and more dynamic. To that end, the Profession has recently resolved that ‘support for members throughout their careers’ should be the cornerstone of our strategy for the future. By doing so, we can ensure that actuaries are well placed to take advantage of the opportunities that await them.