What is an actuary, and what role do they play in risk management?
Actuaries help businesses prepare for the future. They look at the different risks faced by a company. Their work covers a variety of roles including looking at how much money to keep aside for pensions or life assurance, how to price premiums for insurance and on the capital side, deciding how much cash should be held on the company’s balance sheet in case of future risks.
What attracted you to the profession?
I did a maths degree which I enjoyed, but I liked the applied side more than the theoretical side, that is looking at what the numbers actually mean. So using numbers in business to help solve problems appealed to me. Also, I knew I enjoyed studying so I liked the idea of getting a new qualification while working.
What kind of skills are needed to work as an actuary?
Communication is a big part of the job. You need to have good mathematical abilities, but you also need to be able to explain technical information in simple terms so that people in the business world who might not understand the numbers can still understand you.
Also, it’s all very well producing great models, but you have to be able to see the bigger picture too. That is, you have to look at what the numbers actually mean and be able to decide if they matter. It’s key to be able to think about and apply the maths you know to a business situation.
What was your route into the profession and can you tell us about your current role in risk management for an insurance company?
I started off working in pensions, then moved to general insurance and now work in risk management in insurance.
In my current job, the risk areas we look at are credit, market and liquidity risk. Our credit risk work involves monitoring the credit ratings of our bonds, our counterparties, the companies in whom we hold shares, and other companies in which we invest. Market risk is to do with the impact of changes in the market. For example, how inflation would affect us. Our liquidity risk work involves making sure we’ve got enough cash to meet our claim payments and working out what would happen if we couldn’t get the cash we needed to pay our claims quickly enough.
What does your job involve day-to-day?
I work with my colleagues on the company’s investment portfolio to make sure it stays in line with the risk appetite level set by the board to reflect the way in which they want to control the business. For instance, they put limits on how much the portfolio can invest in equities, property, or bonds, and also on how much cash we should hold. They also specify limits on credit ratings as the lower the credit rating of a bond or other investment is, the more risky it is so, for example, there are limits on how much we invest in Triple A bonds, how much in Triple B, and so on. We work closely with the investment team and monitor the portfolio monthly to make sure we’re within the set limits and if there’s any risk of us falling out of them, we have to find out why.
I also work a lot with the capital actuaries, looking how much money the company needs to set aside for future risks. We look at different scenarios such as what would happen if interest rates were to fall, or if we were to have another banking catastrophe, and work out how much money we need to keep aside.
The other main thing that I’m working on at the moment is Solvency II, which is a new EU regulation coming out in 2012. It looks at the risks of insurance companies across Europe to help them calculate how much money they need to hold for these risks. At the moment, consultation papers are being written, so there’s a lot of reading. It’s interesting because it’s new and we can actually play a part in developing something in the industry for the future.
What do you enjoy most about your job?
In this role I get to see many parts of the company and work with a lot of different people so I see how the business comes together. I’m not just sitting in front of a spreadsheet looking at numbers all day, but talking to people, which I enjoy because I like working with intelligent people and learning from them.
What are your ambitions for the future?
In my role, I’m looking at one aspect of risk - financial risk. But risk is a wide area. So my aim is to explore other areas further, perhaps with the ambition of becoming Chief Risk Officer for the company, managing all its risk globally, taking business strategy into consideration. I’m just at the start of my career but maybe I’ll get there one day!
What would your advice be for students wanting to get into the profession?
It’s important to have the right technical skills, but communication skills will also take you a long
way - you need to have both. Deciding to become an actuary is a significant commitment because you’ve got to study and work at the same time. Be prepared to put in a lot of time and effort because it’s a long process, but the returns are great. Actuaries have a big role to play in business which makes being one a rewarding career. We can go far in the business world so aim high!