the role of the actuary in the economy · how to become a good actuary? • work hard and focus...
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The role of the Actuary in the Economy and in the Financial Sector
Yangon, Myanmar 14 July 2014
Chris Daykin, Chief Executive, IAA Fund
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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
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Actuaries make financial sense of the future
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The Actuary - a brief history
• Roman origins of name (actuarius) • actuary of the Society for Equitable Assurances • William Morgan, 1775-1830 • John Finlaison, government actuary 1822-1851 • Institute of Actuaries, London, 1848 • International Actuarial Association (IAA), 1895 • new constitution of the IAA, 1998
– association of professional associations
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Actuarial Training
• mathematics • statistics • economics and financial economics • finance and financial mathematics • modelling • investment and asset/liability management • financial management • enterprise risk management • professionalism
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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
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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
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How does the Profession serve the Public Interest?
• it ensures quality control of qualified actuaries through – initial qualifications and requirements – Continuing Professional Development – qualification standards or practising certificates
• 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
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Vision Statement of the IAA
The vision of the IAA is:
The actuarial profession is recognised worldwide 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,
contributing to the well-being of society as a whole.
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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 and risk management • …within a professional framework
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Principles of Professionalism
• Integrity • Competence and care • Impartiality • Compliance • Communication
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Role of Actuary in Financial Institution - 1
• design and pricing of products • profitability of products • pricing guarantees and options • reserving for liabilities • estimating fair value for accounts • embedded value for shareholders
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Role of Actuary in Financial Institution - 2
• solvency analysis • financial condition reporting • surplus distribution (e.g. bonus) • asset/liability management • investment strategy • reinsurance/securitisation • enterprise risk management
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The Actuary as Risk Manager
• actuary can advise on wide range of risks • especially in insurance companies… • …but also in other financial institutions • modelling risk and uncertainty • communicating risk to the Board • enterprise risk management
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Actuaries in Public Policy – 1
• 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 • modelling impact of demographic trends
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Actuaries in Public Policy – 2
• assessment of compensation, e.g. for injury • appraisal and financing of capital projects • modelling catastrophes and epidemics • assessing long-term liabilities, eg toxic waste • implications of global warming • evaluating costs associated with environmental
damage
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Actuarial Roles in Social Security
• 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
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Actuarial Advice for Government
• informal discussions with actuaries or the profession • individual actuaries on government working parties • consulting contracts • actuaries employed by government departments • shared actuarial services between departments • government actuary’s office or department
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UK Government Actuary’s Department
• 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
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Actuarial Roles in Defined Benefit Pensions
• scheme design • advising on level of contributions • funding and solvency management • asset/liability management • transfers and individual options
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Actuarial Roles in Individual Account Pension Systems
• level of contributions needed • expense disclosure • pricing and reserving for guarantees • asset/liability management • pricing and reserving for annuities • design of alternative draw-down methods
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Actuaries in Investment
• portfolio management • research and analysis • portfolio performance measurement • asset/liability management • strategic asset allocation • complex financial instruments
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Actuaries in Health & Care
• projecting future costs • design of financing mechanisms • financing long-term care • cost-benefit analysis of treatments • financial appraisal of alternative strategies • design of performance indicators
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Corporate Finance
• appraisal of capital projects • risk analysis and control • innovative financing mechanisms • performance indicators and measurement
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Assessment of Damages in Courts
• value of loss of earnings • value of dependency • cost of care • pension loss • mitigation of loss of earnings
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Other roles
• micro-insurance • utility pricing • mobile phone contracts • managing carbon credits • valuing all sorts of long-term liabilities
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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
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Role of Actuarial Professional Body
• requirements for initial education • qualification standards • continuing professional development • standards of practice • interface with regulatory bodies • promotion of the profession • disciplinary framework
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What makes a successful actuary?
• integrity and objectivity • problem-solving ability • comfortable with mathematics • ability to see the broader picture • good communication skills • able to work with others in a team
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How to become a good actuary?
• work hard and focus 100% on studies • learn the principles thoroughly • understand rather than memorise • prepare well for exams and practise a lot • answer the questions (read them carefully!)
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