Welcome

Welcome to this President's Address. Many of you I recognise in the audience are volunteers in the Profession. You, like me, will have spent a lot of time, either in the Council Chamber, at Staple Inn, or in the corresponding room at Maclaurin House in Edinburgh. Council debates and the discussion that take place here are characterised by intellectual argument, thoughtful debate, followed by crisp and decisive action. However occasionally one's mind wanders, and when it does my eyes often settle on the boards of distinguished past presidents in both places. My imagination then takes over and I imagine each president handing on the baton to his successor – the baton of leadership – with that successor using his skills and his interests and, according to the circumstances of the time, giving it a polish, trying to improve it, before handing it on in turn to his successor.

Today is different. The baton that I hold is a new one. It is the one forged by the merger of the Institute and the Faculty of Actuaries. I am keenly aware therefore that there is a big responsibility on me and on the present Council to set a course for the new body so that, in years to come, our successors will look back and affirm that the history of this new body is as distinguished as those of its predecessors.

It is a truth universally acknowledged that a President in search of inspiration for his Address looks back at the wise musings of his predecessors. I am the first person in 160 years who has had to look back and read his own previous address.

When I looked back at my President's Address to the Faculty of Actuaries written and delivered two years ago at a time when the world was just beginning to emerge from the global financial crisis, I was relieved to find that the path that I had sought to signpost that day remains, in my view at least, the right path for the Profession. That is not to say that what I am going to say today is a “business as usual” agenda. Because I believe that today we need to define that road more clearly, and we need to pick up the pace at which we are travelling along it.

So what I want to do today is set out a vision, both for individual actuaries and for the professional body, and to suggest some actions that would allow us to achieve that vision. Because vision without action is just day-dreaming, and action without vision is just passing the time. But it is when we combine vision and action that we really achieve things.

The Recent Past

Each president has had to deal with the circumstances of his time, and we have many distinguished past presidents here today. My predecessors of five to ten years ago were having to deal principally with the consequences of the Morris Review – a review which many of our members at the time felt had ripped the heart from our Profession. Our leaders at the time were having to lead the journey from a status of full self-regulation to a status which I might describe as “regulated self-regulation”, where our self-regulation is conditional upon the oversight of the Financial Reporting Council.

At the time that seemed like a big ask. It is however a measure of our progress that Sir Philip Mawer, to whom the Profession owes a great debt as Chairman of the Professional Regulation Committee, describes the current relationship as ‘mutually respectful’ between the Institute and Faculty of Actuaries and the Financial Reporting Council. The work that Sir Philip and others have done, has been transformational. In enthusiastically embracing this new regime we have shown that we have nothing to fear from openness or from being accountable for our actions, and have gone a long way to restoring that confidence that was the priority five years ago.

That priority of restoring confidence was articulated in the vision statement which was agreed at that time. We have also seen that other professional bodies that were reviewed after us had much less of their self-determination preserved. So, on balance, we have done well.

And we have been doing a lot of other things besides. We have rejuvenated our research programme, the hallmark of a learned society. And we have been integral to the creation of the CERA qualification – the Chartered Enterprise Risk Actuary – which, is already participated in by a dozen countries round the world, will be a transforming qualification for the global actuarial profession.

And along the way, as you might have noticed, we achieved the merger of the Institute and the Faculty. When we were discussing the benefits of merger with our members at the time, we said that one of the key benefits was the crisper decision-making process that would result and which would allow us to deliver the means to a successful future more quickly. This would in turn be a combined effort of volunteers and staff.

At this point I want to pay tribute to our Chief Executive, Caroline Instance. Caroline, who is here, joined us in 2002 and became our first Chief Executive. Caroline's dedication and commitment has epitomised the conduct of our staff here at Staple Inn, in Edinburgh and in Oxford. Of course, Caroline's regulatory experience was enormously helpful as we sought to build that mutually respectful relationship with the Financial Reporting Council. Caroline has always said that her vision for the UK Actuarial Profession is that, through the combined efforts of the volunteers and the staff, it should be the best actuarial association in the world. And she has long said that one of the keystones of achieving that goal of being the best actuarial association in the world was the merger.

As many of you will know, at Council yesterday I announced that Caroline had decided that, as the Profession moves into a new phase of its professional life, so, too, will Caroline. Caroline, we owe you a great debt which we will acknowledge more fully when you leave in a couple of months. But in the presence of this large and distinguished audience, please accept our thanks for all that you have done.

Five years is a long time in anything, and we have made great strides. It is a measure of our success that if our vision today is criticised by its members, typically for being too timid, or too insular. In particular the letters “UK” in front of “Financial Services”, fails to recognise that over 40% of our members live and work outside the UK.

Our Challenge

Five years on we are in control of our own destiny, as far as it is ever possible. We have some wind in our sails; and I believe that this is the moment for us to set ourselves a much more ambitious vision and to pursue it with greater energy than we have ever done before.

A benefit of the merger process was that we gained much increased levels of engagement with our members, far higher than either professional body has had for many years. We need to keep that heightened level of engagement by really delivering. But, more than that, that we need to inspire our members, to inspire them to have a real pride in their work, a pride in their Profession and a pride in the contribution that they make to society. Seeking to inspire is a very un-actuarial kind of ambition. But I make no apology for it because if we fail to inspire our members then we will have failed to unlock our collective potential and our collective future will be much less bright.

The Trusted Expert

So I want to use the creation of the Institute and Faculty of Actuaries as a defining moment in our Profession's history, and I want to use this time today to try to better define what it is that makes the actuarial skill-set special, and what is the role of the professional body in achieving that vision.

Members of all the eminent professions seek to be regarded as trusted experts. Any vision therefore needs to deal both with expertise and with trust.

Our Unique Experience

What is it that defines the actuarial expertise? For years actuaries have been in the forefront of financial and statistical developments. Much of the research that we are doing will guarantee that we continue to be so. In a global internet age, knowledge is however rarely a competitive advantage for long. It is quickly transferable. So, in addition, we need something deeper, something more permanent, that characterises the actuarial skill-set.

I offer you a few suggestions of what it is that lies at the core of the actuarial skill-set: long-term thinking, rare at the moment; an understanding both of the power and the limitations of data; an understanding both of the power and, more importantly, the limitations of modelling; that modelling should be something that helps to inform decisions, not to actually take the decisions. As actuaries we love problem solving, and we love it the more complicated and multi-dimensional and multi-factorial the problem. We have an advantage that we can see the whole picture. By seeing the whole picture, we can devise solutions that actually recognise the whole picture, not just one little corner. We understand the difference between measurement and management, and we understand the danger of simply managing through some lockstep relationship with the measurement. It is when we get both the measurement and the management wheels going that we add the most value.

Let me illustrate my points by drawing on examples of some of our young Fellows whose careers can already be an inspiration to us all, whatever our age and whatever our area of work.

My first example is Himal Pabhoo, whom I met at the new qualifiers’ ceremony here. Himal is South African. He started his work as a trainee actuary in a bank in South Africa. He was put in the overdraft department. But he brought such rigour, such analytical skills, to the bank's overdraft book that he was promoted into the loss estimation group, where he was thinking not just how likely is it that that person will default on their overdraft but what is the likely loss as a result of that default. How much will the bank get back? A question posed by Basel II. He was then promoted into helping define the bank's total risk appetite. Banking is one of the areas we hope that the Profession will expand into.

When I met Himal just as he qualified here two or three weeks ago, he said that, firstly, he is looking forward to sitting the CERA because that will help him increase his ability to see across the silos. But also he could not have dealt with that range of subjects but for his actuarial training.

Other professions could claim one or more of these skills; but few, if any, could claim the whole set. I believe it is the combination of those individual skills that sets us apart; that gives us that competitive advantage; that value; that rarity. But we can actually distil it down even further to its essence; a deep, deep understanding of uncertainty, particularly as it affects financial outcomes.

The Necessary Behaviours

The vision of the Institute of Actuaries of Australia positions the Profession so that “wherever there is uncertainty of future financial outcomes, actuaries are sought after for their valued advice and their authoritative comment”. I find that vision helpful for three reasons. Firstly, it has our essential skill in the headline. Secondly, it places no boundaries on where we can apply those skills. And, thirdly, it aspires that we be sought after. It is pulling us to do more than just do our work. It is pulling us to a point where people seek us out. My only criticism is that it is silent on the trusted part of the “trusted expert”.

So what are the behaviours that actuaries should exhibit to win trust? If it is the combination of skills that makes us special, what is the combination of behaviours that gives us a special element of trust? The first is lifelong learning.

Let me introduce Steve, one of the first nine Fellows to achieve the CERA. Steve was 10 years qualified as a Fellow before he sat the CERA examinations, so it is something that many Fellows can aspire to. He works in general insurance, again with a broad portfolio of clients and broad portfolio of interests. Steve said that the qualification had helped him put all the reams of Solvency II material in some kind of context. That allowed him to help his clients to identify what were the key risks, the ones that there was real exposure to, and then, by identifying that, to manage them and to mitigate them. He would thoroughly recommend the CERA qualification to all of you, irrespective of age and stage of career.

The Second Behaviour is Collaboration

We are known for, and we should be proud to be known for being technically able and often mathematically gifted. But we can also be regarded as somewhat insular. We need to add team-based skills with words like “collaborative”, “forward thinking”, and “influential” that are really going to help us turn our expertise into results in multi disciplinary teams.

Just as I tried to distil down that combination of expert skills to its essence – an understanding of uncertainty – what, I ask, is the essence of the behaviours? In my view it would be professional backbone – the essence of the trust part of the trusted expert. Actuaries who are prepared to speak out, bolstered by their code, when they think something is going wrong. We are all, in our daily lives, subject to rule books. However, all the actuaries I meet want to do the right thing, not because of the rule book, but because they believe in doing the right thing. When brought together, that combination of rare skills and professional backbone is an enormous force for good.

What then do we as individual actuaries have to do and what is it that our professional body is going to have to do to support our actuaries as they develop our role as trusted experts?

The Role of the Institute and Faculty of Actuaries

A professional body is one that seeks to reassure the public that, through its education and its code of professional conduct and discipline, its members are performing at the highest level of professional services. In the UK over 10% of people in employment work in professions. Yet the professions have a low voice in public debate. It may be that professional bodies have been too insular in the past. The Institute and Faculty have enjoyed considerable benefit from working more closely with our sister associations overseas. I hope that over the next couple of years we will also build links with like-minded professional bodies in the UK so that we begin to get some of the influence that our collective proportion of the UK's workforce suggests we should have.

Notwithstanding the need to collaborate, what is it the Institute and Faculty alone can do for its members? Again, I have a few headings. These are areas where I believe the Institute and Faculty is at a crunch point, where it needs to make difficult decisions which will define our professional body for the next decade.

Our current strategy says that we should promote the Associate status as the foundation stone of our qualification, yet the number of Associates is actually falling. Our strategy and the reality are inconsistent. If we are going to deliver the current strategy on Associate status we are going to need to work much harder with the universities to create a pathway for people to get that qualification. The Associate could be an excellent foundation qualification. It could be a core round which individuals could build a constellation of other qualifications – our own fellowship, in its individual subjects; the CERA; the certificate in derivatives. If this is the route we follow then we should have the self-confidence to partner with others to extend that constellation. Why not work with people in banking, in management, in investment, in investment banking, in risk management, and a range of other areas, so that our members, equipped with their foundation, can then put together a portfolio of qualifications that suit their career aspirations at the time of qualification? More importantly, as they go on through lifelong learning, they can adapt, as Steve did, by adding on additional skills that are relevant at a particular stage in their career.

This takes me into education. We have a world-class pre-qualification education programme that has been adopted by other countries round the world. We need to ensure our post-qualification education measures up to that same standard. We have work to do.

Consider John's perspective on the actuarial qualification. John and I met at the new qualifiers’ ceremony in Edinburgh in September. John works in the electricity trading department of one of Scotland's biggest utilities. John has never worked with anybody else going through the actuarial training. He works in an organisation that has never put anybody through the actuarial training. Yet, when he looked around in his early days for the qualification that would best equip him, he chose the actuarial qualification. He prepared an analysis for us of how our actuarial syllabus fits across to an energy trading desk, which I am sure will be enormously helpful to our education team. But it is what he said at the end of his note to me that I want to read to you.

John, and his like, present us with a challenge. If we want to encourage people to move further and further from our mainstream, we need to follow them. We need to be with them side by side so that our post-qualification offering is right not just for those in traditional areas but also for people like John. We cannot let him down.

The next of the challenges where the Profession needs to define its role and, by so doing, will define the shape of the Profession for the next decade. And that is in risk management.

The growth in opportunities in risk management is enormous, but the competition for roles there is rising just as quickly. We, as a profession, need to identify and then capture the right pieces of that emerging market. Council members will know we have a big project just now to seek to do just that. It is too early to say what the findings of that project will be, but I am optimistic that it will suggest that we can carve out an important and substantial part of that growing market. Whilst it is still too early to make any decisions on this subject, I do believe that they will be some of the most important decisions we make in the course of the next year. If we get it right we will redefine the shape of our Profession. If we get it wrong, we will have let down a generation of young actuaries.

The UK is the second largest actuarial association. We have more members outside our home base than all of the other associations put together have outside their home base. We are a global association, whether we like it or not. How should we respond to that fact? How do we define our place in the global actuarial community?

We need to do a number of things. We need to continue to build our links to individual sister associations as we have been doing. We need to be much more energetic in keeping contact with, and keeping within the actuarial family, the thousands of people who come from outside the UK to study at the 13 world-class universities who are accredited to educate in actuarial science in the UK.

The majority of the people who graduate from those courses are lost to the UK Profession, either because they go into work in the UK in roles where the actuarial qualification does not interest them at that point, or they go back to their home country, and either they do not join the actuarial family at all or they join another actuarial association. We need to do much more to keep that group in our family.

One such person who stayed in our family is Piyo Zhang. Piyo Zhang is an investment banker. She studied actuarial science at the LSE and went to the investment bank and found that she was in an area of the bank that was advising insurance companies. So, having done the actuarial degree, she thought she would do the actuarial exams. She does measurement; she does management; but she also does execution of complex transactions. Measurement, management and then execution, combine to form an enormously valuable trio of abilities. People like Piyo can help the Profession build closer links between the British branch of the actuarial family and the Chinese branch of the actuarial family.

We already have 8,000 members overseas. Not only do we need to serve them, but we are wasting an opportunity to use them as great ambassadors for our Profession. We need to demonstrate that we understand their particular needs and that we are ready to serve them. If we do I am sure we will enjoy a return on our investment.

My final challenge, and one that concerns our members more than most others, is where is the Actuarial Profession's voice in matters of public interest? Why do we never hear the Actuarial Profession quoted in the big financial and risk debates of our time?

It is a difficult task: our Profession is a broad church with many, sometimes conflicting, individual views. The way we will deal with that is to not take sides but rather to seek to inform the debate and keep the debate honest. We are in the process of increasing our resources in this area. We are beginning to get some momentum and I am absolutely confident that in 2011, while the level of coverage of the Profession in public debate may not be what we aspire to ultimately, you will notice a difference between what has gone before and what will come afterwards.

There are five really big subjects for your professional body to get to grips with – qualification, education, risk management, global actuarial community and public affairs. How we respond in each and every one of those will have an influence on how our professional body and our Profession is defined in the next ten years.

A Privilege

As President, it is a huge privilege for me to stand on the shoulders of so many great predecessors. I do so for a year and it is my personal great fortune to do so at a time when we have wind in our sails and when we have as much control of our own destiny as we possibly could. Hence it is my intention to seek an ambitious vision and to put a lot of energy into delivering it.

There is no happier moment in a president's term of office than to be here at the new qualifiers’ ceremony. I am overwhelmed by their enthusiasm, their ambition, their confidence, their lack of inhibition. They are everything we would want from the next generation of actuaries. I have introduced you to a few of them. I could have shown you hundreds of them in the last few minutes; I am spoilt for choice. I just want to introduce you to one more.

Is that not a wonderful affirmation of what our qualification represents? The world is his oyster; he has no inhibitions; he has nothing but confidence and ambition. He and the 150 other people who passed through here over the last few weeks are all great adverts for our Profession. He knows that much of his success depends on his own individual application. He knows that if he really wants to gain and retain that “trusted expert” label over a whole lifetime he is going to have to embrace lifelong learning, both in his skills and his behaviours. It is a tough task and he should never face it alone. He should be able to rely at every step of the way on his professional body. He should know that the Institute and Faculty will be there for him; that when he needs training and development that it will be available to him; that it will be relevant; that it will be of the highest quality. He needs to be confident that the Institute and Faculty will identify new opportunities, and in partnership with his own enterprise, we will help clear a way to participate in exciting but challenging new areas. And he needs to be confident that when his professional body speaks out on matters, they do so in a way that makes his Profession feel valued and makes him feel proud. The Institute and Faculty must deliver that support to Ryan, and the thousands like him.

Setting out a Vision