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The Actuary The magazine of the Institute & Faculty of Actuaries

Letters to the editor

Letter of the month

Merging realities
I have been meaning to add my voice to the discussion for some time but, from the shores of Seattle, it all seems so far away.

As a fellow of the Institute, I view the merger question as being one primarily for the Faculty to decide. I don’t think it matters greatly to the Institute whether the two bodies merge or not — subject to the comments that follow. I do agree that if we weren’t where we are it would be hard to justify two separate bodies for such a small profession. But we aren’t starting from scratch.

As far as I am concerned, there are only two arguments that could justify a merger. One is efficiency, both in terms of cost and fleet-footedness, and the other is image. Efficiency is the easier, so let’s take it first. A single body, once established, should be somewhat more efficient than its two predecessors, operating as at present. However, we need to take into account the not insignificant costs of establishing the new body and dissolving the existing bodies. Against this we must also set the opportunities for further efficiencies that exist within the current structure, many of which have been identified already by others.

There are two more that I think should be up for consideration.

First, does the profession really need a "prestige" permanent London base at all? Apart from sessional meetings (which are themselves a rather outdated format and should in any case be more distributed around the country) all the administration functions could be consolidated elsewhere with much cheaper office space, not necessarily in London. Space for sessional and committee meetings should be fairly easy to find.

Second, there should be more delegation within the profession’s committee framework. Having seen this from the inside some years ago I found it extremely frustrating that everything discussed at (say) a Life Board was duly reported to FIMC, who then enjoyed themselves going through the debate again amongst different people, almost always resulting in a referral back to the LIfe Board for further consideration on some point or other. Result: really slow progress. The new management structure introduced this year should be an improvement; time will tell.

Overall, I believe that there remains considerable scope for efficiency within the existing structure and I am not at all sure that the net result of a merger would be very much different.

I now want to turn to the more difficult issue of image. This is more difficult because it is impossible to prove anything. All the arguments are really no more than beliefs — and so, I admit, are mine. First, I find it hard to believe that the images of the current bodies — and ‘the Actuarial Profession’ — are really that tarnished. I think it is still more that the majority of the public just don’t understand our role at all. Second, I find it hard to believe that the ‘trick’ of renaming ourselves will remove all chance of the problems of the past sticking to the new body too. We would need to steer a very careful path between burying the past entirely and our desire to still have a history. It seems to me that if the amount of money that is going to be needed to achieve the merger was instead applied to a PR budget with the sole aim of improving the image of the profession in the UK we would end up a good deal further forward. The SOA has been tackling a very similar image problem in the States over the past few years. Perhaps someone should take a look at what they have achieved.

Considerable unnecessary emotion has been added to the debate as a consequence of the process used which has, rightly or wrongly, made some members (myself included) feel as if they are being "managed" towards a predetermined conclusion. I am writing while the Institute’s "in principle" vote is taking place; by the time this is published the vote will be over. I hope that the result of this vote will not be taken as providing a stronger mandate for action than those voting believed they were giving.

One final thought that relates to a comment in The Actuary, August 2007. I suspect that the reason that there isn’t much reaction from more recent generations of actuaries is that they simply don’t care that much. My overall feeling was that many of the younger generations of actuaries didn’t care for the profession beyond obtaining a qualification, thereafter their focus has been on career and family. They may be in line for a rude awakening when the new professional standards emerge. To put my conclusions in a nutshell, I would propose: no merger, cut costs harder and examine the sacred cows, work more closely together, become much better at delegation — and really go on the offensive with PR.

Adrian Saunders
20 July 2008

The writer of the letter of the month receives a Venecia fountain pen kindly supplied by HBOS

Communicating change
Communication skills are increasingly important in the modern actuarial world as evidenced, inter alia, in the August editorial and in recent BAS publications. I am writing in response to the article on CA3 [Communications” on the student page (The Actuary, August 2008). As the article helpfully points out, it is not a lack of ability that causes candidates to fail but a lack of preparation. According to ActEd, the pass rate for those attending their preparatory course for CA3 was 65% compared to the overall 29% pass rate achieved in the April examination.

The other generic reason for the low pass rate in CA3 is that candidates attempt the examination too early in the exam sequence and before they have gained enough practical experience to help them communicate difficult actuarial concepts effectively. The revised version of CA3, due to be tested later this year and rolled out from 2009, has been the subject of extensive research with students, employers, universities and others.

The revised version of CA3 will involve communication specialists [non-actuaries” in delivering material and being involved with actuaries in assessing a candidate’s performance. Candidates will also have to complete tasks from a workbook before attending the two-day course and completing the assessment to help ensure they are adequately prepared. In addition, candidates will have to have passed the CT subjects and CA1 before entering for the CA3 assessment.

We hope the measures we are taking will legitimately increase the pass rate in this subject and help future actuaries to be well prepared for the challenges of modern business life.

Dr Trevor Watkins
31 July 2008

Solvency 2, Practicalities 2, after extra time
The roundtable discussion on Solvency II from August 2008 was fascinating. It was interesting to read some of the issues affecting areas other than the life insurance sector, and the snippet on Pillar 3 was intriguing. Yet, several of my own key concerns were not raised fully and I assume that I am not alone in wondering about the practicalities of implementing Solvency II.

My first concern was hinted at as Roger Dix stated that his hope was that “Solvency II was not just a geeky thing for actuaries...”. With so much stock apparently being placed on the company’s risk management model being used for key company decisions, how are actuaries and risk management teams going to convince the rest of their business that the model must be used? I sincerely doubt that when a marketing or pricing team dreams up a new product variant, they would pay more than lip service to any such model. Would it be the responsibility of the actuaries who come into contact with the variant to adapt it into the model? The practicalities of using the model on a company-wide basis have never been made clear; they have always been assumed to happen.

The second idea that came to mind when reading the discussion related to the less financially sophisticated countries in Europe. There were some comments about whether all countries would have enough resources to implement Solvency II — I wonder whether all would have the commitment. Is there no chance that some countries veto or amend the legislation at QIS4 or later? CEIOPS may have worked closely with the main regulators in Europe, yet I cannot believe that a smaller country (Freedonia, say) would stand by if it discovers that all its insurers are suddenly far less competitive than their neighbours, especially if their neighbours are free to market in Freedonia itself. European legislation that is most likely to fail is that where some of the countries feel that they are at a significant disadvantage, so just because lots of progress has been made does not mean that it will come to fruition. We shall see.

Despite my apparent negativity, I do think that even if everything relating to Solvency II does not actually happen, then at the least, the insurance industry will be doing more to protect the policyholder by being yet more aware of risks in general, and each company’s relative strengths and weaknesses will be more comparable across Europe. There is a lot of good that should come out of Solvency II, whether it all comes off or not.

Graeme Cluskey
3 August 2008

Pastures new
I read with interest last month’s supplement on working overseas, and would like to present the virtues of working as an actuary in New Zealand. As most people will know, New Zealand is a beautiful country with a high standard of living. I myself emigrated from the UK some 25 years ago. We have approximately 100 practicing actuaries, most operating in Auckland or Wellington. While the small numbers make for a close knit community, recruiting the right person can be a problem for actuarial employers. Anyone wishing for more information on working in New Zealand should visit www.actuaries.org.nz

Ian New President
New Zealand Society of Actuaries
24 July 2008

Freedom of movement?
Recent developments in European, Westminster and case law have created an interesting scenario if the merger between the Institute and Faculty fails. Mobility of professional qualifications should mean that members must be able to move freely between them. The regulator should encourage members to swap whenever they feel like it and as often as they wish. Any entry or exit barrier erected by either body would be removed immediately by the regulator. This is already the aim with bank accounts and energy supplies. Why should providers of other services be exempt?

Consequently, actuarial people will look at each body at regular intervals (usually when subscriptions are due) and decide which to belong to. Intangible features will have some effect, for example the state of the headquarters, the eminence of the president, and the strictness of the discipline procedure. However, the level of subscription will, and should, be the main reason, with the majority of moves going to the cheaper body. Thus we will have a price war, which is always thought to be in the ‘customer’s’ (sorry, member’s) interest.

Any attempt by the bodies to standardise the subscriptions will be ‘price fixing’ and illegal. Any official proposing it will be liable for prosecution, as BA executives are finding out. If any members are resident in the US then their laws will come into effect, leaving the officials liable to extradition.

Will the prospect of this scenario mean that the merger will definitely go ahead? No, because another aspect is that the Monopolies Commission will have to ban it as, between them, the combined body will have more than 95% of the actuarial people in the UK.

Robert Steel
7 August 2008

Shortage of actuaries?
In her letter (The Actuary, August 2008) Dr Geraldine Kaye alerted members to the fact that actuarial roles have not been on the government’s National Shortage Occupation List since 2006. New requirements of the Migration Advisory Committee of the UK Border Agency mean that onerous evidential industry-wide data needs to be produced, and may need to be independently verified, in order for occupations to be included in future.

The Profession’s Management Board has decided that this is not a matter which warrants action on the part of the professional body. We are already encouraging multiple routes to qualification which should increase supply in coming years. The change does not impact on intrafirm transfers and there is no indication that employers cannot get work permits for non-EU actuaries when required if they can demonstrate that recruitment advertising has failed to attract suitably qualified EU actuaries. The Management Board does not wish to divert resources from other member services to undertake a time-consuming exercise which may prove to be of little benefit to our members.

John Hylands
Chairman, Management Board
11 August 2008