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The Actuary The magazine of the Institute & Faculty of Actuaries

Not a presidential address

Financial institutions still need the services of people with statistical training and experience combined with a knowledge of the world of finance and investment. A specific qualification and membership of a body which offers such advice to its members, together with a system of standards and disciplines, must serve a useful purpose.
A new regime of requirements for qualification should be evolved. My vision is one in which graduates from appropriate university courses would be required to have worked in an approved actuarial environment for, say, five years and to have passed maybe three or four examinations. The examinations would place emphasis on judgement and the ability to express oneself clearly, rather than on a detailed knowledge of current legislation and current techniques.
The above is a very broad specification and I recognise that just to define an approved actuarial environment would, on its own, present formidable difficulties. However, a serious attack on qualification times must be mounted and radical thinking and hard work are required. A collateral benefit from a less onerous examination system would be a lightening of the burden of tuition and examination setting and marking which must absorb a great deal of energy from members of the profession.

Appointed actuaries
The appointed actuary concept was developed in the UK to strengthen the supervisory structure without departing too far from the principle of freedom with publicity. By putting responsibility on the shoulders of a named actuary, the system was intended to provide the regulatory authorities with reliable and timely information in a flexible and light-handed manner. This system has been painted as being more effective than more prescriptive regimes but as avoiding the costs and difficulties of most alternative approaches.
The way the system was supposed to work is pictured by Peter Clark in his presidential address, when he recollects his experience as appointed actuary to Vanbrugh Life. He talks of how he ‘took tea’ with the late Sir Edward Johnston (government actuary 19731989), and one has a cosy picture of him toddling along for an improving fireside chat with his actuarial Uncle Ted.
But the system which is said to rely on the credibility, integrity, and personality of the individual actuary was not robust enough to identify the problems at the Equitable and in due course will surely be found wanting in other circumstances. This must be particularly true if, as Peter suggests, the status of the appointed actuary in many UK life companies has fallen.
There is no perfect system of protection against foolishness, carelessness, determined roguery, or just bad luck, but a more detailed and rigorous system than appointed actuaries is needed.

Actuarial audits
As a result of the troubles at Equitable Life, the profession is to undertake an inquiry into the appointed actuary arrangements in the UK. The starting point for such a review should be a recognition that the existing regime has failed and that it will not be sufficient to elaborate on what is already there by, for example, tacking on a peer review requirement. Much less emphasis should be placed on specifications for the person producing a report and much more on a requirement for an independent review or audit report to be published in the same way as with audited accounts.
The argument for actuarial audits seems quite simple. Actuarial reports are to a life company or similar institution as the accounts and balance sheet are to any other commercial enterprise. The work of the company accountants is subject to scrutiny and certification by independent auditors. The work of the company actuary should be subject to equivalent review.
Audits would provide more cost-effective protection both for the public and for the reputation of the profession than an appointed actuary system, and would have the added advantage of freeing officials in insurance regulatory offices from responsibility for overseeing the soundness of life companies.

I hope it is not just because I am in a state of continuing professional decline that I find this a piece of unnecessary busybodying by the Institute in the affairs of members.
The only coherent argument put forward for the imposition of CPD is that it is needed if we are to hold our heads up in the company of other professional bodies. The fussing about with CPD is too high a price to pay just so that when attending meetings of associations of professional bodies our various presidents can say that we also have requirements for CPD. I suspect that those other professions would be less impressed if they were aware of the meaninglessness of our system of self-recording and self-classification. CPD has as one of its aims the development of ‘personal, business, and management skills’. There are not many sporting or social activities which could not legitimately be recorded as assisting towards that broad aim.

Standards and guidance notes
In recent years user manuals in the form of standards and guidance notes have been written to cover most areas of actuarial work. Many of the guidance notes are merely checklists of things which an experienced practitioner would or should carry out automatically. These checklists no doubt serve a very useful purpose as a guide for those in unfamiliar territory, or as a final check when signing off an important report. However, the trend is towards ossifying the way things are done and reducing the room for judgement by producing prescriptive instructions. I have a feeling of unease at this increasing intrusion of the professional body in the details of how members go about their work.

Public interest
At various times there has been a call for actuaries to have regard for the public interest in going about their work. This seems to be an example of the profession taking itself far too seriously. The pursuit of the public interest should not be elevated much beyond a broad responsibility not to pursue one’s personal interests at the expense of those of the general public. In the absence of yet another guidance note, more ambitious definitions will create problems for some of us in deciding where the public interest lies in individual cases.

Wider fields
The final area where I think our professional bodies are misdirecting their energies is in the endeavour to encourage practitioners to work in non-traditional areas. Any initiatives to apply actuarial expertise in wider fields must come from individual actuaries or from their clients. The best way to ensure that potential employers and clients in those wider fields look to actuaries to help them with their problems is to evolve a system which produces actuaries who fulfil AH Rowell’s vision of newly qualifieds as young, alive, and alert, and not exhausted by the struggle to qualify.

Last words
I am afraid that what I have written may sound like the sour comments of one of yesterday’s men. It certainly gives me no satisfaction to take a critical line. I am also aware that there are signs of change in at least some areas, which may answer my carping.
However, there are also signs that I am not alone in feeling that intrusion by our professional bodies in the way members conduct themselves should be kept to a minimum. Inflated claims as to the abilities or importance of actuaries create discomfort. There is a real need for people with a combination of mathematical and financial expertise and the ability to apply those skills to practical problems. Those of us who acquired those characteristics through actuarial training would like to see the profession retain that role. To do so requires urgent and effective action, particularly in simplifying and updating the requirements for qualification. I hope that this article will make a contribution towards stimulating such action.