Actuarial Profession after the Morris Review

1
Actuarial Profession after the Morris Review

• Caroline Instance
• January 2006

2
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.

3
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

4
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

5
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)

6
Morris Final Recommendations

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

7
FRC responsibilities

• Set up Board for Actuarial Standards for
  technical standards (in consultation with AP)
• New communication standard (first job)
• Independent oversight of Professions 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

8
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

9
FRC Revised Structure
10
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

11
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

12
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

13
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

14
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.

15
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

16
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

17
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

18
Reasons for change

• Morriss 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

19
The strategic objectives

• Restoring confidence
• Increasing market share of talent leaving
  University
• Increasing value added by actuaries and thereby
  their influence
• Leveraging global capabilities

20
How

• Consulting and collecting evidence from
• Customers
• Employers
• Universities and
• Recruiters
• Member consultations
• Meetings and email

21
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

22
Students out-number Fellows
Membership split by qualification
Note Excludes retired and unemployed
actuaries Source Membership database as at
June 2005
23
73 membership is under 40
24
More students from overseas
Reduced O/S rate
Full home rate

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

Full O/S rate
25
Mis-match membership/Profession
26
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

27
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

28
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

29
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)?

30
Consultation questions

• Post graduate University-only provision of core
  technical subjects?
• 2 tier qualification?
• Associate
• Fellow
• Should Profession produce more rounded actuaries,
  and how?

31
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?

32
Councils and Members views
33
Next steps

• Councils deciding on way forward at joint meeting
  on 6 February
• Proposal is around UK-careers strategy

34
Questions for you

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

35
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?

36
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?

37
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?