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The Actuary The magazine of the Institute & Faculty of Actuaries

Careers: Underwriting: Look before you leap

Underwriting has traditionally been seen as an arcane science, with practitioners often relying on words such as ‘gut instinct’, ‘feel’ and ‘market knowledge’ to describe their work. With this in mind, it is very encouraging that actuaries have made strides to enter this arena, using their statistical skills to quantify what many underwriters simply see as common sense. Although there is a degree of resistance from underwriters, there is no doubt that more and more actuaries are crossing the divide in search of new horizons and experiences. So how have these early trailblazers done, and what lessons can we learn from them?

New priorities
First of all, it’s worth noting that, while a pricing actuary would probably regard price as the most important output of their work, for an underwriter, the technical price represents only one aspect of the final result. As David Coughlan, global head of Motor Underwriting at RSA, puts it: “You have to evaluate and understand the risk you are taking and how this fits with your strategy, set the often-overlooked terms, conditions, limits, wording and structure of the final deal and then complete the negotiation.”

Having a sound understanding of the statistical principles behind the work is valuable, but it is no substitute for the ability to interact with the wide spectrum of individuals in the underwriting community. These can range from traditional London market underwriters, with decades of experience but little IT literacy, to information-savvy recent graduates for whom the internet is part of their daily lives. The ability to communicate is key, given that interaction for underwriters is generally on a one-to-one basis, which can take some actuaries outside their comfort zone, especially if they are used to dealing with people via e-mail.

Taking ownership
One other aspect that actuaries have to take into account when stepping into an underwriting role is ownership and responsibility. The work moves from being advisory in nature to one where you make the decisions. This entails having the courage of your convictions; you are, after all, committing very large sums (also called ‘lines’) of your company’s money.

One senior underwriter who switched from actuarial work early on in his career commented how nervous he was the first time he committed a £1m line — he now commits £25m a time on a very regular basis. As an underwriter, you are also usually measured on quantifiable KPIs, such as loss ratios, and thus performance measurement is easier compared to a traditional actuarial environment. It is important to note that priorities are different — it’s no longer about the answer and the assumptions behind it — it’s about the top line and bottom line.

As an underwriter, you are also the face of the company and therefore the role is much more client-oriented than a traditional actuarial position. Tim Tetlow, an FIA and FCAS-qualified reinsurance underwriter based in Bermuda, adds: “You have to manage broker relationships carefully. If you decline business rashly or without careful explanation for your reasons, will it affect their perception of you in the future?”

The emphasis on creating and maintaining long-term relationships is much greater, and some underwriters spend as much time out of the office entertaining clients and brokers as they might do in the office, so such a role will clearly be more appealing to those who like networking.

Making the move
So assuming none of these issues puts you off, what steps should you take to progress into an underwriting position? First of all, take as much pricing responsibility as possible; many insurance groups now have dedicated business unit actuaries working with underwriters on a daily basis, often at the same desk. This will allow you to see their work and get a better appreciation of the issues they are faced with.

It’s also worth finishing the actuarial qualification too, as that will offer you a fallback in case things don’t work out. However, if you are finding the exams a struggle — especially if you are still at the beginning of your career — it may be better to re-evaluate at an early stage.

The type of work you are involved in often makes a difference, as Mark Daters, chief underwriter at Gen Re UK puts it: “The change from an actuarial to an underwriting management position can be less of a leap in reinsurance than insurance as there is a greater loss cost modelling requirement for a reinsurance underwriter than insurance underwriter.” Certain lines of business lend themselves more naturally to this type of move; property underwriting, for instance, can make use of catastrophe (CAT) models, so a pricing actuary with an understanding of these models will often function very well as a bridge between underwriting and CAT/ actuarial teams.

Some actuaries with significant pricing experience have also, in the past, approached senior management with business plans or proposals for new products, which has led them to taking up underwriting positions where they can generate premium income. Clearly, this type of role will tend to appeal more to entrepreneurial actuaries who are happy to take a risk.

Regardless of approach, making the switch isn’t for the faint-hearted. The adjustment from an environment where there is usually one correct answer to an environment where networking could be just as important as price will put some off, but for others bold enough to do so, it will prove to be a career choice worth taking.