Michael Stefan - Actuarial Society 2011 Convention Template

2011 CONVENTION 8 – 9 NOVEMBER
Professional development opportunities in
the UK & European actuarial marketplace
Michael Stefan
Hanover Search & Selection, London, UK

Purpose
1. Presentation is targeted at South African Short Term Insurance actuaries who are
interested to know about market opportunities in the UK / European market
2. Not intended as a “recruitment exercise” but rather to show the types of roles that are
available, and to outline some specific features of these markets
3. We will cover both actuaries working in “traditional” actuarial positions (pricing, reserving
etc) as well as non traditional roles (leadership or “C” suite positions, broking,
underwriting, banking, quantitative analytics, insurance linked securities etc)
4. Most of the detail relates to the UK, however, other countries will be covered at a higher
level (ie a bit less detail). Presentation will probably be more useful to experienced /
qualified professionals, although student opportunities will also be covered briefly
5. Views expressed here are my own and not necessarily those of my employer
2

Some definitions
1. Chief Actuary and Group Actuary usually mean the same thing
2. In the UK, “short term insurance” as a term is generally not used; instead, following terms
are used and inter-changeable (first two are most common)
1. Non life
2. General Insurance or “GI”
3. Property & Casualty (aka P&C), more of a US term that has made its way to the UK
3. PL = Personal Lines; CL = commercial lines
3

Personal Lines
• Personal lines is self explanatory
• Motor / private car / “auto” – largest, and usually least profitable product
• Household insurance (buildings & contents); some may be familiar with US term
“homeowners”
• Travel and pet are also underwritten by most larger firms
• Priced using GLM pricing tools
• Usually huge teams comprised of pricing actuaries, students, “statisticians”, actuaries
with no exams etc; the Top 3 Private Insurers have c staff each in the technical pricing
area
• Teams usually combine actuaries studying for exams with statisticians who do the
same work but don’t study; that usually is not an impediment to career progression
and some of the most senior personal lines actuaries have never “qualified”
• A very large proportion of personal lines insurers have their actuarial teams OUTSIDE
London, meaning less competition for jobs but also lower salaries; usually attract
those seeking a quieter, “country” lifestyle
4

Small Commercial
• “Small Commercial”
• Also called “SME” (small & medium enterprise) business
• Examples: motor fleet, taxi, commercial property, business interruption etc.
• Usually priced using GLM pricing tools, as long as there is enough data
• Some attempt by some insurance companies to price traditional commercial lines
using GLM pricing tools (best example is marine)
• Actuarial teams tend to be much smaller, but again, there is a combination of actuarial
and non actuarial types
• Most positions based in London
5

Large Commercial / Lloyds
• No agreed definition really exists, but usually called the “Lloyds and London Market” (or just
London Market)
• Many companies will “trade” via both Lloyds and non-Lloyds distribution channels; they will
usually do so on both an insurance and reinsurance basis
• Lloyds was set up around 1688 in a coffee house, and has grown from a traditional marine
insurer to a diversified market
• Lloyds is not an insurance company – it is an insurance market of members
• In 2009, over £21.97 billion of gross premium was transacted in Lloyd's, and it achieved a
record pre-tax profit of over £3.8 billion
• Won’t go into the details of Lloyds market – it has a very complex structure and those
wishing to find out more are encouraged to use the Internet
6

Large Commercial / Lloyds (cont’d)
• Insurance products aimed at large risks / corporations
• Casualty / Liability
• Marine (incl Hull, Cargo etc)
• Power & Utilities / Energy
• Aviation / Space / Satellite
• Property
• Financial Lines (D&O, E&O, PI, Crime & Fidelity etc)
• Sports / Events (eg concert cancellations)
• Piracy / kidnap & ransom
• Weird & Wonderful (famous actors, The Titanic, rock stars, footballers etc)
• Actuarial teams can vary – the largest employers will have between 40 and 50 actuaries
and students (not to mention catastrophe modellers, risk specialists etc); the smallest can
have just 2 or 3
• Supported by a large amount of actuaries working in consulting firms as well as brokers
7

• Actuaries have traditionally been involved in reserving, and so this is probably the most
mature discipline, and also the one where the greatest numbers of actuaries work in
• Some of the first actuaries to work in the Lloyds market started around mid to late 80s, and
virtually most companies are within a mile of the Lloyds building on Lime St
• Capital modelling has also featured very heavily since c 2004, and a huge issue now with
the advent of Solvency II
• Pricing is a bit harder to generalise; due to lack of data, pricing usually done in a bespoke
manner, with some lines only having 5-10 rating factors
• Pricing actuaries often sit with the underwriting teams; giant strides have been made to
integrate pricing actuaries into Lloyds / London Market, and most underwriters are now
familiar with (and accept) actuarial input; some “pockets of resistance” still exist (eg D&O)
8

• Qualification wasn’t always critical to succeeding in the Lloyds market, and a number of
senior actuaries exist who have never sat exams
• Communication / inter-personal / “soft skills” are critical – even the largest Lloyds insurers
are much smaller than their personal lines equivalents
• Easy to lose yourself in a team of 100 actuaries – stand out much more in a team of 4 or 5
• Actuaries within smaller teams (3-5 people) will have “mixed” roles, though as teams get
larger, positions become a lot more rigid
• Chief Actuary may or may not report to CRO; sometimes the Chief Actuary IS the CRO!
9

Typical Structure
10
CFO / FD
Chief Actuary
(aka “Group
Actuary”)
Head of
Pricing
(+3-5 staff)
Head of
Reserving
(+8-10 staff)
Head of
Capital
(+3-7 staff)

Or This…
11
CRO
(maybe an
actuary)
Chief Actuary
(aka “Group
Actuary”)
Head of
Pricing
(+3-5 staff)
Head of
Reserving
(+8-10 staff)
Head of
Capital
(+3-7 staff)

Or This…
12
CFO / FD
Chief Actuary
Head of
Pricing
(+3-5 staff)
Head of
Reserving
(+8-10 staff)
Head of
Capital & Risk
(aka “CRO”)
Head of
Capital
(+3-5 staff)
Catastrophe
team

Consulting
• Consulting firms have provided general insurance actuarial consulting services since the
late 80s
• Most of the “Big 4” will have teams of 50-80 GI actuaries and students, with a number of
“non-audit”, “pure” consulting firms
• Traditionally, consulting firms provided reserving services to the Lloyds and London Market;
this involved both “outsourcing the reserving process” (i.e. Consulting Firm A does the
reserving for Syndicate X as they don’t have an actuarial team) as well as providing
opinions on reserves / signing off reserves
• Client mix has changed in the last 3 years due to the Solvency II – many consulting firms
are now targeting larger clients (typically, multi-national personal lines insurers) as they
provide much larger engagements and hence much larger fee income
13

Consulting – typical work
• Reserving
• Audit support work
• Reinsurance modelling / advising on reinsurance purchase / optimisation
• Building / reviewing capital models and support work (eg documentation)
• Secondments
• Personal lines analytics – risk pricing, price optimisation, using statistical techniques to
detect claims fraud
• (Less common) Pricing and underwriting reviews for larger commercial / Lloyds clients
Change in client mix (away from mostly Lloyds to a balance of Lloyds and personal lines) has
meant there are many more opportunities for personal lines actuaries to gain experience of
Lloyds work (via working for a consulting firm)
14

Brokers
• Probably not all that different from brokers in SA, with the exception that the “analytics”
teams of UK brokers are a) much larger and b) have a far greater mix of non actuaries (who
are nevertheless mathematicians, but they just don’t take exams)
• Work is related to the placement process for (re) insurance, and much of that work involves
catastrophe modelling (some brokers in London have 20-25 cat modellers)
• Requires a very specific type of personality – very good communication skills, but willing to
sacrifice ego and willingness to accept that “the broker is king” and all work is related to the
broking process
• Some actuaries have morphed into brokers – responsible for fee revenue; idea is that their
highly analytical background can be used to come up with innovative ways of transferring
risk BUT I have yet to be convinced by their sales ability!
15

Non Traditional Roles – “C” suite
• Small number of highly ambitious actuaries who have broken beyond the actuarial “box”
• Most common one is going into a “C” suite position – CRO, CFO, COO, CEO, CIO
• Requires a combination of skills
• Excellent inter-personal skills and the ability to communicate high level concepts efficiently
• Ability to manage multiple stakeholders and “play the political game”
• Diverse range of experience – not one for “technical specialists”
• May or may not have an MBA
• Direct and frequent access to the CEO / Board and ability to interact with them
• Excellent technical understanding of insurance risk AND strong understanding of financial markets
risk
• Strong management and delegation skills – managing / delegating what you are not good at
personally
16

Banking
• 2004 – 2008 saw a huge demand for actuaries to move into banking, but the market fell
after late 2008
• A lot of the demand was for actuaries to work in teams that were involved in Insurance
Linked Securities (either analysing / structuring, or selling / trading, or both)
• Many didn’t like the hours, pressure and ILS issuance fell to the floor in 2009 – hence many
returned to more traditional roles; other opportunities have existed in equity research, and
the very strong technical actuaries have morphed into quants
• Interestingly, there are far more French qualified actuaries working in the banking sector
(both in France and the UK) compared to “British-trained”, FIA/FFA actuaries; I would
suggest that is due to the fact that French actuaries spent 5-6 years at university and study
A LOT of financial mathematics
17

Underwriting
• Small number (c 20) of GI actuaries that have gone into underwriting; a few in personal
lines (dual “Director of Pricing & Underwriting” roles are common) and a few have even
gone into a fully blown underwriting career
• The key skill is to make things simple for the underwriting team that you work for; you have
to remember that they are your customer, and the mathematical / statistical ability of 90% of
London Market underwriters is extremely low
• That being said, they are very canny people and can be very good at making money; as
their “numbers person”, ability to “keep it simple” is often valued
• Most actuaries will usually start out as the “numbers person” for one specialist division / line
of business and in time, they will have underwriting authority
• Usually happens in more technical lines where there is lots of data and actuarial
involvement is commonplace (eg marine, property etc; less common in D&O and so on)
18

Opportunities for contractors
• Solvency II has led to a huge increase in the demand for actuaries and most of the general
insurance firms now employ contractors
• There is some debate now as to what the term “contractor” really means and several terms
can be used inter-changeably:
• Contractor
• Freelancer
• Consultant / Independent consultant
• They will usually work via their own limited company, which is tax efficient; this company
can be just them, although, in rare cases, you find they actually go into a partnership with 1
or 2 other people and effectively we have a “super small” consulting firm
• Although contracting is very common now in the life industry, there are probably c 30-40 GI
contractors (both qualified and students)
19

Continental Europe
• Brief recap of qualification systems: Gold standard of: UK, US CAS exams, German, Swiss
• Most other actuaries in Europe qualify after graduation from university: France, Spain, Italy
etc
• FIA / FFA qualified actuaries are extremely well respected in the Continental European
market, especially in Germany and Switzerland
• To some extent, the European market can be broken down into a few “sub-sections”
• “Mediterranean” market – France, Spain, Portugal, Italy; actuaries generally qualify at university
• France – recruitment often done on the basis of alumni networks from the leading universities
(“Grandes Ecoles”)
• Germany / Switzerland – both markets are very similar; German is not needed in business but very
helpful; both countries have strong, exam based actuarial systems; actuaries have very high
mathematical ability
• Nordics – not many actuaries and very few leave / come in
• BeNeLux – strong Northern European business culture
• Eastern Europe – very much the “Wild East”, not much talent and governance not always great
20

The Holy Grail
• The skill set described here is almost impossible to find, but it more or less represents the “ultimate
actuary” that is highly sought after in the UK / Anglo Saxon European markets:
• FIA / FFA / CAS Qualified with 15-25 years experience
• Pragmatic and commercially focused: doesn’t get bogged down in endless detail and remembers
insurance companies are businesses that are there to make money
• Understands technical insurance risk as well as financial risks
• Has worked in a number of departments (not just actuarial – reinsurance, claims, underwriting, product
management, marketing) and perhaps has also worked as a consultant (MBA optional)
• Ability to disseminate complex information to everyone, from a student to a CEO
• Well dressed, professional, likes networking
• Able to delegate, manage and supervise; does not micro-manage people
• Geographically mobile
21

A section on visas / work permits
• UK Government has very recently (Sep 2011) put actuaries back on the “skills shortage” list
(was removed around 2007), meaning it should be much easier and quicker to obtain work
permits
• Experience in other countries tends to be mixed:
• Difficult but feasible for very experienced staff in Switzerland (esp with the “mega” insurers)
• Relatively easy in Belgium, Italy and Germany (at all levels)
• Less data for Spain, France etc
• Very few non-EU nationals working in the Nordics and Central / Eastern Europe, mainly due to the
limited size of the local markets there; however, those markets are very short in expertise
22

And finally…
• Ability / willingness to speak multiple languages and (most importantly) immerse
themselves in a local culture that will be different from their own
23

Thank you and please provide feedback!
Michael.Stefan@Hanoversearch.com
+44 7960 509 854

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