Watsonwyatt.com An Introduction to the Actuarial Profession 21 October 2008

watsonwyatt.com

An Introduction to the Actuarial Profession

21 October 2008

Copyright © Watson Wyatt Worldwide. All rights reserved

2

Agenda

Introduction / benefit consulting – Mark Cooper Investment consulting – Iain Douglas Msc Actuarial Finance – Dr David McCarthy The profession – Robert Hail

Please stop us if you have a question!


3

My Background

Graduated from Imperial with Maths Bsc in 2005 September 2005 – Joined the Watson Wyatt

Graduate Scheme Ocobter 2006 – commenced Msc Actuarial Finance

(part time) at Tanaka business school

3


4

What is an actuary?

Statistical heart– Analysing future financial events in the presence of

uncertainty Types of work:

– Pricing financial derivatives

– Setting premium rates for insurance policies

– Advising corporate on pension scheme issues

– Recurring theme is dealing with uncertain amounts and timing of future cash flows

The ability to communicate clearly difficult topics to non-specialists is of paramount importance.


5

Most popular first degree subjects studied by new entrants to the profession

Mathematics Actuarial science Economics Finance Physics Science Mathematics - MORSE Computer science


6

Qualified actuaries working in the UK

37%

32%

1%

9%

9%

12%

Pensions Life Healthcare General Investment Others

Where do actuaries work?

Currently 9,000 qualified actuaries in the UK


7

Actuarial Education

Currently there are 15 exams you must pass before you are a qualified actuary

– Range of skills tested, some technical others more applied (wordy)

Typical qualification time: 4 – 7 years Alternative exam paths available

– Imperial Msc Actuarial Finance

– Various other post grad courses

Employer provides generous study package


8

Variety Relationship management Solution focused Challenge It pays well!

Why Consultancy?


9

Actuarial consultancy

Graduate entry (dependent on exemptions) £22k-27k

Newly qualified £46k-60k

3 years+ PQE £70k-86k+

7 years+ PQE £100k+

UK Actuarial scales


101010

Role of a pensions actuary

Defined Benefits – mostly Final Salary Pension Schemes

Questions:– How much should Mr Jones’ employer save now in order that

he can retire at age 65 on a pension of 2/3 of his salary at that time?

– I want to make Mr Jones redundant, what is the cost of providing him with an extra £1,000 of pension?

– I want to buy the company Mr Jones works for, how much should the pension plan affect what I am prepared to bid?

– What is the impact of the credit crunch on Mr Jones’ pension?

Pension = (Service / 60) * Final Pensionable Salary


111111

Role development I

Starting out as a pensions trainee actuary:

Graduate training Exams Work / Study/ Social balance Day-to-day work

– Individual calculations

– Valuation calculations

– Spreadsheets and calculators!


1212

Role Development II

After a couple of years:

Professional development Junior training Shaping career Less doing, more checking Client contact Regular clients / one-off projects Project management

watsonwyatt.com

Investment Consulting

Iain Douglas


14

Role of the investment practice

70%

100%

85%

Time

Funding target for pension plans

Actual progress

Ideal progress

How can we help with this journey plan using investment strategy?


15

What do we do?

Investment strategy

Manager research

Client reporting


16

Setting investment strategy

Ongoing funding level after 10 years

3. Would like at least this much return

1. “Minimum” risk

2. Too much risk?

3. Would like at least this much return

1. “Minimum” risk

2. Too much risk?

95th Percentile

Lower Quartile

Median

Upper Quartile

133

142

152

161

171

6467697275778081828277

9594929189

8186

9595 95 96

107

127123

120116

112

85

99

8994

103

116

124

100

89

107

94

0

20

40

60

80

100

120

140

160

180

0%RS

10%RS

20%RS

30%RS

40%RS

50%RS

CurrentPolicy

70%RS

80%RS

90%RS

100%RS

(%)

Matching Return-seeking

Asset allocation

Quantitative modelling, plus:

Sponsor covenant

Maturity of liabilities

Risk beliefs


17

Setting and implementing strategy

Matching

Equities

Return-seeking

OtherDebt

Alternatives

Asset allocation

Privateequity

Property

Long termequity

Overseas UK

Corporatebonds

Index-link.GiltsGilts

Hedging

PFICommodity

Overseas

Swaps

Man

ager

s

Bonds

GTAA/currency

Hedge funds

Benc

hmar

ks

Setting and implementing investment strategy


18

-

Global manager research resources

European Manager Research Team

39 full-time manager researchers10 support staff

25 part-time manager researchers(56 full-time equivalents)

Americas Manager Research Team

17 full-time manager researchers

2 support staff

14 part-time manager researchers

(20 full-time equivalents)

Asia Pacific Manager Research Team


3 support staff



Global Manager Research Team


15 support staff



We cover over 1,000 organisations and rate over 4,000 products through 2,000-3,000 research meetings per year


19

America

Atlanta MontrealBoston TorontoChicago VancouverNew YorkSan Francisco BrazilWashington Mexico

Europe

Belgium GermanyFrance IrelandNetherlands Portugal Sweden Switzerland Spain UK

Asia Pacific

Australia China Hong Kong IndonesiaJapan Korea New Zealand MalaysiaPhilippines SingaporeTaiwan Thailand

Over 300 dedicated investment consultants in 22 countries Regional centres: London, New York, Hong Kong and Tokyo Over 1,000 pension funds, institutional investors, fund distributors, charities and family

offices with assets of around $1.9 trillion.

Investment consulting resources


20

An ongoing process

Investment strategy

Manager research

Client reporting

watsonwyatt.com

Msc Actuarial FinanceImperial College Business School

Dr David McCarthy

22

The Actuarial Profession

Robert Hails

Council Member, Institute of Actuaries

October 2008

23

Role of the Actuarial Profession

Provides qualifications…

…and continuing education

“Learned society” Promotes profession Regulates conduct Disciplines miscreants Serves public interest

24

Our strategy

To support members throughout their careers so they have the skills, attributes and knowledge appropriate for the evolving needs of the UK financial sector, primarily as quantitative risk professionals.

25

Broadening the Profession

26

Professional Administration

Joint Councils

Audit andGovernance

Management Board

DisciplinaryBoard

QualificationsProfessional Regulation

Member Support

InternationalCMI

Examination Board

Professional Community

Practice Areas(linked to qualification)

Member Interest Areas

Emphasis changes over time

Communication at all levels:•actuarial knowledge - left to right•management decisions - right to left

*

*

Public Affairs

27

Oversight by Financial Reporting Council

FRCBoard

Board forActuarial

Standards

AccountingStandards

Board

AuditingPractices

Board

ProfessionalOversight

Board

ReviewPanel

Accountancyand

ActuarialDiscipline

Board

28

The international dimension: distribution of actuaries worldwide

USA

Canada

Latin America

Caribbean

UK

Europe ex UK

Africa

Middle East

Asia

Australia/NZSource: IAA

29

The UK dimension: distribution of actuaries by qualification

Fellows

Students

Affiliates

Associates

Source: UK Profession

30

Current issues

Broadening range of services to members

Strengthening links with universities

Promoting Associate qualification

Expanding role in risk management

Encouraging new structure to provide member support

31

Actuaries are:

“Dedicated, skilled professionals providing important and useful advice, with commitment, integrity and a strong sense of duty”

Sir Derek Morris, March 2004

32

The Actuarial Profession

Robert Hails

Council Member, Institute of Actuaries

October 2008

Documents

Watsonwyatt.com An Introduction to the Actuarial Profession 21 October 2008