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The Actuary The magazine of the Institute & Faculty of Actuaries

ERM careers: Opening new doors

Opportunities for actuaries to work in enterprise risk management (ERM) are set to increase as companies learn the lessons from the credit crunch and Solvency II and Basel II are implemented. The new focus on risk management has made it more important than ever for actuaries to develop their ‘softer’ skills to complement their traditional technical acumen.

Companies are increasingly recognising the need for effective ERM strategies. Recent issues, such as the credit crunch and the troubled opening of Terminal 5 highlighted the need for a better approach. It often takes a disaster for companies to realise they have to do something, even though the time to consider risk is when things are benign. After all, the best time to mend the roof is when the sun is shining, not when a monsoon is occurring. Better risk management processes might not have prevented the credit crunch from happening but it would have meant that managers were better prepared for the possibility, and mitigating actions could have been taken.

An integral part of business
Companies needed to consider ERM as a more integral part of their business if they wanted to operate effectively and be prepared for the future. It should be a foundation upon which you build your company. It is not only relevant to insurers and financial managers but in all walks of life. Quite simply, it is about assessing your risks, the return obtained from accepting them and the capital required to cover future risks.

As the head of a team of risk managers, about half of whom are actuaries, I believe actuaries are well-placed to work in risk management roles as a result of their technical skills. They should aspire to be leaders in the field. Their core training and way of thinking of the world is highly suited to working in ERM. Their ability to create quantitative models and manipulate figures is valuable in risk management, and their structured way of thinking can also be beneficial.

Important skills
‘Softer’ skills, such as communication, are also highly important in the field. The key skills that I look for when I am recruiting are solid technical skills and an ability to communicate well — not just to other actuaries but to colleagues in other departments and at different levels. Risk managers don’t work in a vacuum, but as part of a wider company or organisation. The value of these skills is increasingly being recognised and actuarial students are required to pass a communication skills module as part of their education to qualify for the Profession. The organisers of this year’s Momentum Conference for newly or soon-to-be qualified fellows have also acknowledged the importance of non-technical skills by including sessions for a range of ‘soft’ skills in the programme. Actuaries who are interested in working in ERM should attend networking events to build their communication skills and gain a better understanding of the area. It can be exciting because there are no textbooks, t-shirts or films with a unified theory on risk management. People who become involved are coming in at an early stage in the evolution of risk management and can embrace the creation of new structures and processes. It is a broad sector that can have a significant impact on a company.

The problem-laden opening of Terminal 5 at Heathrow was an example of where a more embedded culture of risk management could have helped to prevent problems. There would have been various clues telling the managers of the project that the terminal wasn’t ready, although hindsight makes that a lot easier to see. Perhaps if there had been an ingrained risk culture where staff in different areas could flag their concerns, scenario-planning had been carried out and the appropriate processes put in place, that would have helped. With the appropriate risk processes one would have hoped that it would have opened successfully, or a decision might have been made to postpone the opening until the problems were ironed out.

Increased demand
Increased regulation involved with the introduction of Solvency II and Basel II, as well as companies’ bad experiences is likely to increase demand in enterprise risk management. The implementation of the new forms of regulation will mean that companies will have to prove their risk management credentials, leading to the creation of further risk management roles. Actuaries are very well placed to undertake these roles. They have a strong role to play in creating quantitative models and potentially leading risk management teams. They will be invaluable to companies, and I am confident that they will prove their worth in the risk space.

Roger Dix is head of group insurance and investment risk at HBOS