Actuaries bring expertise to assessing risk
To the outside world, actuaries are seen to be part technicians, part fortunetellers.
They use mathematical and economical models as their crystal balls to calculate probabilities of future events and hence help to manage long-term risks.
Actuarial profession is relatively new in China, largely emerging alongside the development of China’s insurance industry. In 1999, the nation’s first vocational certificate examination was initiated for actuaries.
Today, there are about 1,700 professionals in the industry in China, according to the China Association of Actuaries. The actuarial profession carries considerable prestige.
However, the new technologies such as data science and artificial intelligence are posing new challenges for actuaries.
Shanghai Daily sat down with Derek Cribb, the Chief Executive of the Institute and Faculty of Actuaries, to discuss the actuarial qualifications and how the profession is being changed by high technology.
Merging from two of the world’s oldest actuarial bodies in the UK, the 170-year old IFoA is dedicated to educating, developing and regulating actuaries based both in the UK and internationally.
Of its nearly 30,000 global members, about 1,000 are based in China’s mainland, Hong Kong, Macau and Taiwan. These include student actuaries.
Q: Actuaries are experts in mathematics, economics and finance. What kind of skills and competence do they exactly need to acquire?
A: An actuary is, above all else, a business professional. Actuarial qualification is not purely an academic qualification; it also requires strong technical and business skills. We train our actuaries to apply their technical skills in the business environment. Actuaries are high ethical people as they need to comply with high professional standards.
To qualify as an IFoA fellow (FIA), our members have to pass 15 exams under our current curriculum. The first phase includes nine technical subjects on statistics, financial mathematics, probability, and basic business and accounting. We have accredited eight universities in the mainland and Hong Kong, including Antai College of Management and Economics in Shanghai, to allow students to claim exemptions from some or all of the CT exams after they graduate.
The second phase provides our members with more practical skills, where students need to learn how to apply actuarial theories and technical skills to the real business world.
The second phase is called the “specialist stage,” where students focus on specialized areas such as life insurance, general insurance, risk management, health management, or finance and investment.
The IFoA therefore provides two levels of actuarial qualifications. Before reaching the specialist stage, one can qualify as an associate. That requires a member to pass 12 exams with at least one year work experience. If the member wants to become a fellow, then he/she needs to pass further three specialist exams and accumulate at least three years of work experience.
Half of our members are fellows. But we are encouraging our members to go wider fields so not over specializing can be a good thing. I think any companies with long term liabilities can benefit the services of actuaries so there are great opportunities for actuaries in a wide range of businesses.
Q: We tend to associate actuaries with the insurance industry. Could you elaborate actuaries’ work you just mentioned in the other sectors?
A: Yes, more than half of our members are working in the insurance industry. But we are seeing growing number of members going into other industries as well. The essence of being an actuary is to have long term views and understand long-term labilities, unlike the accountants or management consultants who work with the past and mainly focus on what happens in the next year or two.
So actuaries take a much longer-term view. For example, in the pharmaceutical industry, to develop a new drug, there may be a significant upfront cost in research. But after the drug is tested successful then there will be a series of cash inflows to the company in future years. To determine the financial impact on the company, one needs to analyze the initial investment, future possible cash flows and probabilities — all core skills of an actuary. The same might apply in the oil and gas industry, where there are long term liabilities and financial uncertainties.
Q: How long does it take to pass all the IFoA exams to be an actuary?
A: Some students go through the university exemption process as I mentioned earlier. Some just sit our professional exams after they have found jobs with their actuarial employers. On average, our members qualify in 3-6 years. To qualify as an actuary we also require our members to have at least three years of work experience. We believe work experience is essential to anyone who wants to become an actuary.
Q: Computers are already challenging pure manual work in the finance industry. Should actuaries be worried about being replaced by high technology?
A: Yes, it is a threat, but it’s also a massive opportunity for actuaries. There are no other professionals that I can think of that have such a rational data-thinking competence. Actuaries love data and they are good at working with data. There are three stages involved working with data.
Stage one is identifying the problems — what issues the company has — and choosing the model which will help to understand the issues better.
The second stage is data analysis — design the model and run the data. This is the stage where machine learning and artificial intelligence pose the greatest threat to manual work. As time progresses, I believe machines will replace man work in terms of pure model running.
The final stage is understanding the output of the model and being able to interpret the results to business leaders for decision making and action taking.
So artificial intelligence will eventually replace all work currently at stage two, but not stage one and three where detailed analysis and communications are required from actuaries. This is why I say our actuaries should be prepared to acquire business skills. Pure technical actuaries are at danger of being replaced.
Q: So there will be no place for the pure technical actuaries?
A: I think actuaries with strong business skills will progress more quickly through their careers. If they only have technical skills, they may still have a good career for now, but they are facing a lot of challenges in future.
Q: Are actuaries all super rich?
A: Various third parties conduct surveys on actuarial salaries on a regular basis. In the UK, the average annual basic salary for a newly qualified actuary is about 55,000 pounds (US$72,400). In Hong Kong, the average annual basic salary for actuaries with around 5 years experience is around 700,000 Hong Kong dollars (US$89,000). Chinese mainland employers are reluctant to disclose salaries but I think earning at the senior level can be aligned to that in Hong Kong.
In the mainland, companies tend to hire more senior-level actuaries and have fewer openings for students who just finished their degrees. However the trend is changing nowadays with more companies willing to hire junior levels.