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 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

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 • 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

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. Universal application Applicable tospecialist sectors Compliance Consulting Scheme administrator Project appraisal Financial planning Universal application Investment Regulation Appointed Actuary team Applicable tospecialist sectors Pricing Practice areas Compliance Strategy General management Risk Management Other Client adviser – Pensions Learned Society and Promotion Systems Compliance Consulting 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?