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The Actuary Magazine December 2004 - The Image of the Actuary: How Does the Profession Measure Up In Other Parts of the World?

The Image of the Actuary: How Does the Profession Measure Up In Other Parts of the World?

by Glenda Maki

Answers for those who have wondered what the rest of the world thinks about actuaries.

Jeremy Lee is a fourth–year student at the University of Waterloo in Waterloo, Ontario. Like most candidates before him, Lee is pursuing a career as an actuary because of his interest in mathematics, business and finance. Though only working in the industry for a short amount of time (most recently as an actuarial consultant at Ernst & Young in New York), he has already become aware of the stereotypes of actuaries and has also noted a lack of specific information about actuarial science in the general public.

Actuaries are lauded for their technical and analytical skills, but aren't so well known for their communication and general business skills. Is this the case worldwide? The Actuary spoke to actuaries from Australia to the United Kingdom and a sampling of regions in between to get their take on the topic.

Actuaries in the news
Terry Singh, a principal in the international consulting practice of Mercer Human Resources, sees a lot of similarities between the perceptions of actuaries in the United States and Australia. Singh, who has worked in Australia, the United States and currently in the Netherlands, moved to the United States in 1992. Back then, people in the United States were "definitely more aware of what actuaries do." He adds that Australia has finally caught up, though, in its awareness of the actuarial profession. "It's much less often that I have to explain at a loud party that I'm an 'actuary' and not an "actor," says Singh.

Actuaries made the news in Australia when HIH Limited, the country's second–largest general insurer, became insolvent in 2001–the largest corporate insolvency in Australia's history. Because actuaries were central to the investigations around the situation, their profile in Australia has increased dramatically.

From his current post in the Netherlands, Singh says that clients' perceptions of pension actuaries are similar to what he's seen in the United States. "Clients rely heavily on European pension actuaries for advice around funding, design and legislative issues. There has been less reliance on actuaries for assistance with accounting issues, but this is changing very quickly. The wider community, however, seems to be less aware of what an actuary is and does."

Large population; few actuaries
Four years ago the Society of Actuaries of China was founded, and claims 43 fellows and 79 associates.

As you can imagine, with the above numbers, Shen Chengfang, general manager of the valuation department at Ping An Life Insurance Co. of China, says that the number of actuaries in China is still very limited compared to the demand of the market. Because of this, and the fact that actuaries in China can get a good job with a good salary, he expects China to have the most actuaries in Asia in the next five years. "Many young students are studying actuarial science and are trying to get qualified as fast as possible," says Chengfang. He adds, "More and more junior people are going to the United States, Canada or the United Kingdom to study the actuarial profession."

As for differences in the work that Chinese actuaries do, Chengfang says that they have broader responsibilities than their U.S. counterparts because the number of actuaries is still very limited in China. One actuary in China may do the work of several people in the United States. He adds, "And even if one person is in charge of a particular function, their time in that position could be quite short," compared with the United States where an actuary may remain in a post for many years.

Building the profession from the ground up
In Kazakhstan, the development of the actuarial profession began with the country's National Bank (a regulatory and supervisory body) initiative to transition from a pay–as–you–go system to a fully funded defined contribution system, due to pension reforms launched in 1998. The National Bank also decided to introduce new regulations to ease  the development of a financially sound insurance industry.

Actuarial training programs in Kazakhstan commenced in 2000 and the first two groups of 31 actuaries to take basic courses were mostly from the banking, pension and insurance industries, according to Dina Urzhumova, president of the Kazakhstan Actuarial Society and research intern at the Society of Actuaries. A few held senior managerial positions at their companies and some had advanced degrees in mathematics or economics. "Due to their prior experience in various areas, these actuaries had broader than purely technical knowledge and skills. They were independent and could defend their position when dealing with company management or regulatory agencies," says Urzhumova. Although only a few of them had worked for insurance companies previously, "the respective insurance companies soon realized how much they benefited by having actuaries on staff," she adds.

Starting in 2002, the new groups of actuarial trainees began to consist of younger, more inexperienced people–mostly university students studying math or recent graduates. "They were lacking in the broader outlook and experience compared to the initial group. Because of the shortage of actuaries, insurance companies that did not have senior and more experienced actuaries on staff employed many newly trained young people. Thus, many young actuaries had nobody to consult with on the job. They tended to view company management as unquestionable authority and give in to the management in difficult situations," says Urzhumova.

In addition, because the actuarial field is so new to Kazakhstan, there is a lack of insurance statistics, forcing actuaries in property/casualty insurance to use simplified methods to calculate premiums and reserves or just apply rules of thumb. Adds Urzhumova, "This makes other specialists in property/casualty insurance companies think that actuarial work is simple and that anybody can do it."

Looking at the bright side, the actuarial profession is respected by the supervisory agency and some of the ministries that worked with the most experienced actuaries on a number of projects, Urzhumova says. The field is growing with the Actuarial Society of Kazakhstan, formed in 2001. Its goals for the future include developing a comprehensive training program, counseling inexperienced actuaries in difficult situations, implementing better data practices at insurance companies, developing actuarial standards of practice, recommending necessary changes to insurance and pension laws and publicizing the profession.

Latin America
Less regulation, plenty of tradition
For Ronald Poon–Affat, CFO of Icatu–Hartford, Hartford's Brazilian partner, his career has taken him throughout Latin America, overseeing offices in Brazil, Chile, Argentina and Mexico. "In theory, Latin American actuaries have a lot of freedom. U.S. actuaries are more restricted, but they definitely have a stronger voice within their organizations," says Poon–Affat. In general, actuaries in Latin America tend to have more freedom in pricing and reserving, whereas U.S. actuaries are more restricted by legislation and insurance regulations. "However, American actuaries have a lot more responsibility within financial organizations. It's very rare to see an actuary in an insurance company in Brazil, for example, becoming CEO."

Poon–Affat illustrates another contrast between business in the United States and Latin America: "An American actuary once said to me, 'Ron, you come to Latin Am–erica and you're competing against families. You're not competing against other stock companies. Rich, Latin families own the insurance companies.' American companies, in general, have stock holders and certain financial requirements to provide."

Overall, perceptions of the actuarial profession tend to vary from state to state throughout Latin America. In addition, no formal actuarial exam system exists, with most actuaries carrying only an undergraduate degree.

From technician to professional
Having spent two years in Mexico City as an expatriate, Jose Berrios, an actuary at Milliman Inc. in Denver, Colo., says that actuaries in Mexico, for the most part, are considered to be technicians, meaning people who are very good with detail. They are viewed as being only responsible for the technical income of the company–that is, premiums less acquisition expenses less increases in reserves–and are not involved in the operation of the company, such as analyzing operating expenses, working with the investment area, analyzing cost of capital, taxes and setting strategic objectives related to ROI, profitability, etc., says Berrios. He adds, "In some companies, especially foreign–owned companies, the role of the chief actuary is slowly changing to encompass certain responsibilities in these areas."

In many cases, the actuarial department reports to the sales area rather than to the company's CFO or CEO. "These situations could create conflicts of interest and a lack of autonomy by the actuary to issue an independent opinion on the state of the products and the financial condition of the company," says Berrios.

However, these situations are beginning to change with new foreign–owned companies entering the market that are adopting different practices and structures. "These moves are enhancing the value of the actuary as a business person and not only a technician," says Berrios. In addition, the Sarbanes–Oxley law has prompted the insurance commissioner in Mexico to issue new regulations that will affect how companies are structured. The commissioner is also instituting a new certification requirement to enhance the value and image of the actuary. "However," Berrios says, "This process will take some time to evolve and for companies to measure the value that certified actuaries bring to the table."

Greater demand/acceptance for actuaries
As in China, the number of people taking actuarial exams in Pakistan is increasing rapidly. Nauman Cheema, consultant and chief executive of Nauman Associates, an actuarial consulting firm, estimates that there are currently 20 fellows in Pakistan and just about as many associates.

The Pakistan Society of Actuaries was incorporated in June 2001 and has 63 members, but does not conduct its own exams, instead recognizing individuals as associates and fellows based on their membership status with actuarial associations of other countries. Cheema says that the PSOA, "is in a nascent stage right now in view of the relatively small size of the actuarial community in the country and needs to take a more proactive and public role in order to ensure greater visibility for the profession in Pakistan."

On the insurance side, the main reason behind the growth of the profession is the promulgation of a new insurance law, which introduced the appointed actuary concept and increased the role of actuaries. In the case of employee benefits, the main reason for the profession's growth has been the mandatory application of International Accounting Standard 19 to listed companies. "IAS 19 has encouraged these entities to have their postretirement benefit liabilities determined on actuarial bases," says Cheema.

He adds, "Increased public exposure for the profession has come about as a result of a realization by the government of the need for actuarial involvement to handle the rapidly increasing liabilities of its own pension scheme." Various projects sponsored by International Financial Institutions that required actuarial services have also generated exposure for the profession.

Actuaries in Pakistan are known among the business population for performing complex calculations, having expertise in financial projections and having good investment–related acumen. Like U.S. actuaries, says Cheema, there is a perception that actuaries lack a larger business perspective, are poor communicators and are generally non–market oriented.

United Kingdom
A profession under scrutiny
In the United Kingdom, other professionals have a 'mixed' view of actuaries, says Kathryn Morgan, head of pricing and product development at Co–operative Financial Services. "We're often seen as opaque and technical. We have even been described as astrologers," says Morgan. "On the other hand, we are firmly embedded in life companies, pension funds and general insurers, and we do provide advice to general management."

Alan Twigg, principal consultant at KPMG LLP in London, says that it is generally agreed that actuaries have an image problem and that actuaries are inclined to be too technical, "though this does not prevent many actuaries from getting senior management positions in the insurance industry." Actuaries have been active in enterprise risk management in the insurance industry, but have not penetrated this area in related industries, such as banking.

Following a 2–1/2 year review of the near–failure of Equitable Life, a report was issued that focused on the actuarial profession and how it is regulated. "The life office review commented that the actuarial profession is a bit of a cozy club, with members knowing each other well, which makes actuaries regulating other actuaries difficult," says Morgan.

The Institute of Actuaries and the Faculty of Actuaries are working as one to promote the image of the profession. There is a program of meeting and briefing the media, politicians, etc. "However, the government inquiry is currently dominating the agenda," says Twigg.

Glenda Maki is a senior editor for the Society of Actuaries.