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The Actuary The magazine of the Institute & Faculty of Actuaries
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President’s comment: Risky business

There are few corners of financial services in Europe that are not touched by the effect of Solvency II. Multinational ownership of insurance companies means that the effect is not limited to Europe. Some, for example insurance companies, are in the eye of the storm, whereas others, such as pension plans, may be less directly affected (although the eventual impact is not yet known).

At times it may look as if CEIOPS is engaged in a job creation scheme for actuaries — indeed, I understand that part of the reason why the actuarial function holder is not required to be a qualified actuary is that, in some European countries, there are not enough actuaries to fill the jobs. Even the UK’s relatively large supply of actuaries is being put under strain, as are employers who find themselves in a hiring merry-go-round.

I confess to a degree of schizophrenia over Solvency II. That it is in the public interest that there should be a high-quality, consistent, holistic approach to the risk management of European insurance companies seems to me to be self-evident. But is that laudable goal being unnecessarily undermined by the practicalities of implementation? In particular, will the post-Solvency II insurance products offer the choice, scope and price competitiveness that Europe’s ageing savers need?

Growing demand for the skills of actuaries should be a blessing but is this lucrative demand blinding us to two significant risks? First, the risk that the demand could dry up quickly causing a dislocation in the employment market and a difficult period of readjustment. Second, is too much of the demand in areas with a very high technical content at the expense of a more evenly balanced demand between technical and strategic roles? Might we find that while we have been making money making models in the engine room, others have taken over the bridge?

This was brought home to me at this year’s GIRO conference — as always, a showcase for excellence within our general insurance constituency. In one plenary session we heard of the outstanding work being done to develop the next generation of catastrophe models — to clear up any doubt, these are models that help to anticipate the impact of catastrophes rather than some recent catastrophic investment banking models.

On the same platform was a chief risk officer for whom models were merely one component of his toolkit. Without underplaying the importance of good models, his primary tools in risk management were ‘culture’, ‘practicality’ and ‘common sense’. As actuaries, we can contribute much to the development of better models and to the understanding of their powers and limitations. But a proportion of us need to develop the skills to be able to cultivate and harness the full range of tools including embedding risk aware cultures if we are to gain our share of positions on the bridge.

Not every actuary yearns to understand the complex but fascinating world of developing an organisational culture. But for those who do, the opportunities will outlast the current Solvency II feeding frenzy.

The new Chartered Enterprise Risk Actuary (CERA) qualification includes modelling in the syllabus but places the modelling in the context of the full range of tools. In that respect, CERA is a pointer to the way forward. As this edition of The Actuary goes to press, I will be proud to be awarding the CERA designations to the first batch of our members to have gained this exciting new qualification. I congratulate them for their success and salute them as pioneers in the work of risk management.

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Ronnie Bowie is president of the Institute and Faculty of Actuaries