Actuarial Profession after the Morris Review

Caroline Instance

January 2006

Governance of Actuarial Profession

Complex: two Councils, Meet as individually and as two Councils Delegate to FIMC

Chief Executive heads up executive structure and sits on FIMC. 102 staff over three sites Involved in operational delivery, policy making

and “public face”.

Penrose Report

Criticisms of actuaries were: Lack of comprehensive standards

(particularly in defining policyholders reasonable expectations)

Over reliance on role of Appointed Actuary Lack of scrutiny and audit of calculations Reactive discipline procedures Reluctance to challenge fellow professionals

Morris Review

Approach Positive, open engagement Confident in our own reforms Willingness to embrace further change Regular dialogue and supplying information Recognise change happening to all professions

(accountancy, medicine and law) Focus on future, not argue about past

Morris Review

Work was already in progress Plans to set up independent standard setting

body Compliance monitoring / peer review Revalidation of competence (enhanced CPD

requirements) New discipline procedure (completed) New education syllabus (completed)

Morris : Final Recommendations

Market for actuarial services Regulating the Profession Education & CPD Actuarial roles Standard setting Public interest and accountability Scrutiny and discipline

FRC responsibilities

Set up Board for Actuarial Standards for technical standards (in consultation with AP) New communication standard (first job)

Independent oversight of Profession’s role in: Setting ethical standards Running exams and CPD Monitoring compliance with standards Administering discipline procedures

Extend the remit of the AIDB to include ‘public interest’ cases involving individual actuaries

Morris : Final Recommendations

Actuarial Profession supported the implementation of the Morris recommendations and therefore agreed that it would pass its

technical standard setting role to BAS and be subject to general oversight by FRC

Knows it will have to “comply or explain” in relation to POBA reviews

FRC Revised Structure

Board

Board forActuarial

Standards

AccountingStandards

Board

AuditingPractices

BoardPOBA(A)

ReviewPanel

A(A)Investigation

andDiscipline

Board

Council

FRC Project

Treasury sponsored (committed to implementing Morris in total– their closure to Equitable/Penrose)

Voluntary at this stage – full legislative backing unlikely for 2 to 5 years Implication in short term is that the new

regime can only mirror current arrangements of the Profession

FRC Project

Legislation to provide indemnity for FRC as regulator to

cover extended role to underpin funding

Problem with Sewell motion (Scotland) No final decision on funding following

consultation

FRC Project

Morris has not provided a blueprint Input from Treasury, Actuarial Profession,

FSA and TPR FRC in driving seat

Programme Steering Board Programme Management Group

FRC set up website – RAP-communications intended to report on progress and “sell” changes to those who will pay for it

FRC Project

Implementation planned for 1 April 2006 AIDB part may be later

FRC (and BAS) will protect their independence

They have experience of standard setting and are following same model for BAS If BAS want volunteers for a working group

they will report to BAS not the Profession

FRC Project

FRC has now appointed: Chairman (Paul Seymour) Technical Director of BAS (Nigel Bankhead) and Head of Actuarial Oversight of POBA (Paul Kennedy).

Currently recruiting BAS Board members and a new Actuarial Board member for POBA.

FRC Project

Transition arrangements to be agreed will be post 1 April 2006

They understand that current GNs are a mix of different types of guidance

Might need: clarity over application to overseas members extracting non-technical material back to PCS

Next steps for Profession

Minor changes to charter and rules Consultation/ voting by membership on AIDB

proposals Work with BAS on transition Conclude Strategy Review

Reasons for change

World is changing Move from paternalism and solidarity to

individualism Globalisation of markets and firms Society expects something different from

Professions Growth in risk management Growth in computing and internet

Reasons for change

Morris’s crossroads

Retrenchment into narrow reserved roles, leading to decline and our eventual demise as a separate profession

Expanding the use of our skills into “a wider remit”, bringing us into increasing competition with others

The strategic objectives

Restoring confidence

Increasing market share of talent leaving University

Increasing value added by actuaries and thereby their influence

Leveraging global capabilities

How

Consulting and collecting evidence from

Customers

Employers

Universities and

Recruiters Member consultations

Meetings and email

Key findings

Growth in membership is healthy Decline in pensions and life assurance not yet

happened Slow spread into ‘wider fields’ but lost ground in

investment area Reserved roles, held by only 25% of active

membership, are not valued by younger members Actuaries valued by employers and customers but

need to understand the broader business context

Students out-number Fellows

Membership split by qualification

Note: Excludes retired and unemployed actuariesSource: Membership database as at June 2005

6,2957,183

0

2,000

4,000

6,000

8,000

Members

Fellow s (47%) Non Fellow s (53%)

73% membership is under 40

0

100

200

300

400

500

600

700

19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65+

Fellow s Students and other members

UK 981

India 224

Kenya 75

Malaysia 49

China 134

Pakistan 25

Ireland 109

Australia/New Zealand 16

Other full o/seas rate 39

OtherEU, 46Singapore 29

South Africa 181

US 8

Other reduced o/seas rate 138Zimbabwe 32

More students from overseas

Full home rate

Reduced O/S rate

Full O/S rate

• Potential damage to finances if reduced O/S rate growth continues

Mis-match membership/Profession

Compliance Consulting

App

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Uni

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App

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Regulation

Practice areas

Learned Society and Promotion

Appointed Actuary team

Pricing

General management

Client adviser – Pensions Other

Risk Management

Systems

Strategy

Compliance Consulting

Compliance

Scheme administrator

Project appraisal

Financial planning

Investment

Demand

Confidence in actuaries from customers but criticisms around: insufficient real world understanding lack of business judgement patchy and sometimes inadequate communication skills

tendency to act as judge and jury

Healthy demand from employers, but they want: much more business understanding far stronger communication skills better ability to work in multi-disciplinary teams

Supply

Profession not known to graduates other than those who did maths

Employers control recruitment

Employers want non-mathematicians and better interpersonal skills

Loyalty to firm taken over from Profession

Younger members feel disenfranchised by Professional body

Three strategic scenarios

Co-Regulator

Strategy

Builds on the reserved roles and

compliance activities of the Profession to ensure competence

and integrity of actuaries in the UK

financial sector

UK Careers Strategy

Builds on developing members with a

range of skills and knowledge focused

on quantitative risk to meet the evolving needs of the UK financial sector

Global Player Strategy

Builds on our current global presence to

develop a world-wide community of UK trained actuaries

Consultation questions

Grow reserved roles? Continue to cross subsidise compliance

activities of the Profession by membership subscriptions?

Broaden membership beyond traditional areas (pensions and insurance)?

Consultation questions

Post graduate University-only provision of core technical subjects?

2 tier qualification? Associate Fellow

Should Profession produce more rounded actuaries, and how?

Consultation question

To what extent should we try to expand overseas membership?

What steps should be taken to improve the engagement of younger members with the Professional body, ie to capture better their hearts and minds?

Councils’ and Members’ views

Question in favour againstGrow reserved roles? √Subs. subsidise compliance? √Broaden? √University-only bases CT exams? √2 tier qualification? √Rounded actuaries? √Expand overseas? √

Next steps

Councils deciding on way forward at joint meeting on 6 February

Proposal is around UK-careers strategy

Questions for you

What sort of things could the Profession do to support you in your career?

Questions for you

What sort of things could the Profession do to support you in your career?

What additional help should be given centrally to Regional Societies?

Questions for you

What sort of things could the Profession do to support you in your career?

What additional help should be given centrally to Regional Societies?

Is there any activity you think the Profession should stop doing?

Questions for you

What sort of things could the Profession do to support you in your career?

What additional help should be given centrally to Regional Societies?

Is there any activity you think the Profession should stop doing?

What specialist forums would you be interested in joining?