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The Actuary The magazine of the Institute & Faculty of Actuaries

To see ourselves as other see us

The Morris Review of the Actuarial Profession has published most of the responses it has received to its initial consultation document online (see below*). The only responses not yet published apparently are those specified as confidential and those from clients of The Government Actuary’s Department. The mention of ‘client confidentiality’ in this regard does seem a little over-egged and means that public-sector views of the actuarial profession generally remain unknown for the time being. Nevertheless, the wide range of other responses, particularly from outside the profession, are an unprecedented opportunity for us. In the words of Burns, ‘Oh, would some power the giftie gie us to see ourselves as others see us’.

Public interest
Several responses question actuaries’ public interest role, or at least our concept of it. Most suggest that actuaries’ primary duty should be to their clients, who in turn may have public interest responsibilities. The profession collectively also is criticised: ‘Although the profession claims for itself a public interest role, it does not appear to have a clear view of how to perform this role. I do not believe that it can be left to individual members of the profession to raise issues of public interest and a better way needs to be found to establish and communicate the profession’s views on public interest issues.’ (Hugh Stevenson)

Appointed actuary
A specific is that most responses are wholly supportive of the Financial Services Authority’s moves to abolish the appointed actuary role in life assurance and to bring actuaries within essentially the same control regime as any other senior functional manager. The Association of British Insurers (ABI) goes further: ‘The actuarial liabilities of the life fund are now audited and the role of the actuary is like that of any other professional employed by the company. Actuaries have an important, but specialised, role as part of the overall risk-management of life insurance companies. It is important that the profession fits into this framework, and does not attempt to impose an actuarial alternative on life companies.’

Actuarial standards
The ABI is part of a very broad consensus: ‘The production of actuarial standards is a matter of public interest and other interested bodies should be represented in the process as with the formulation of accounting standards, for instance.’ This point is echoed by the Institute of Chartered Accountants in England and Wales (ICAEW), which says that its involvement of actuaries in the formulation of standards has not been reciprocated. It would appear that moves towards an independent standard-setter have come in the nick of time, if not too late.

The deficiencies of some actuaries in communicating clearly their advice are recognised by the National Association of Pension Funds (NAPF), among others: ‘In general terms it is the case that trustees have not always understood the advice given by their scheme actuary. Actuarial advice is, however, being increasingly challenged by trustees and there is a noticeable trend taking place whereby trustees are better informed and more confident about their role, an inevitable result of the higher public profile of pension issues and developments following the Myners report.’

Conflict of interest
Our growing sensitivity to conflict of interest also has come only in the nick of time. Again the NAPF is critical: ‘In the case of an individual scheme actuary providing advice to both the trustees of a scheme and its sponsoring employer, we consider that there could be real conflicts of interest. These will become even more acute with the enactment of the current Pensions Bill. We therefore believe that such practice should generally be prohibited except perhaps on issues such as costing a proposed benefit improvement. However, provision of advice to both scheme and sponsoring firm by the same actuarial service provider should still be permitted provided that appropriate Chinese walls are put in place by the provider and acknowledged by the trustee board.’

This article can convey only a flavour of the responses to Morris and, in a classically actuarial way, has focused on some of the criticisms. Underneath these is a broad implicit and explicit acknowledgement of the important role we play in assuring the stability of public and private financial security mechanisms.

By the time this article appears, Sir Derek Morris will be close to outlining his thinking on these issues it appears that he has a mandate for change!

The responses to the initial consultation document are at www.hm-treasury.gov.uk/independent_reviews/morris_review/review_morris_resp.cfm