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Uploaded byServaas Houben, AAG-FIA, CFA, FRM
Working in insurance1.5
This document discusses various topics related to working in the insurance industry such as capital requirements under Solvency II, differences between insurance companies and pension funds, career paths within insurance including working for a life insurance company or as a consultant, and what a typical day might involve. It also provides references and links for further information on actuarial topics and qualifications as well as background on the presenter, Servaas Houben.
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Working in insurance1.5
- 1. Working in insurance CFAUK 24 July 2013 Servaas Houben 1
- 2. 2CFA UK -24 July 2013
- 3. WIIFM 3CFA UK -24 July 2013 Source: ReThink Recruitment – Actuarial Salary Survey 2013
- 4. Capital requirement underSII 4 Bonds Equities Property Your Pension, Annuity and Life Insurance Assets Liabilities Solvency Capital Requirement (SCR): Sufficient capital to withstand a 1 in 200 year shock (99.5% 1yr VaR) ABC CFA UK - 24 July 2013
- 5. A tale ofthree countries 5CFA UK - 24 July 2013
- 6. A tale ofthree countries 6CFA UK - 24 July 2013 www.creditwritedowns.comec.europa.eu
- 7. A tale ofthree countries 7CFA UK - 24 July 2013
- 8. 8 Asset mix Premiumincome Indexation policy Payments to policyholders Difference insurance companies and pension funds CFA UK - 24 July 2013 𝑆𝑜𝑙𝑣𝑒𝑛𝑐𝑦 𝑟𝑎𝑡𝑖𝑜 = 𝐴𝑠𝑠𝑒𝑡𝑠 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡
- 9. Sweet smell ofsuccess 9CFA UK - 24 July 2013 0 1 2 3 4 5 6 7 8 9 10 1990 1996 2001 2007 2012 Yieldtomaturityin% Date YTM Dutch Swap curve 5-year 7-year 10-year
- 10. Starter choices Life insurance company •Specialisation • Business as usual • Longer term Consultancy • Variety • Task/project based • Short term 10CFA UK - 24 July 2013
- 11. A typical dayin insurance 11 INSURANCE CFA UK - 24 July 2013
- 12. Career advice pleasure 12CFAUK - 24 July 2013
- 13. References and links •Actuarial links: www.math.uconn.edu/~valdez/IntActLink.htm • Actuarial Glossary: http://www.commerce.uct.ac.za/actuarialscience/resources/glossary/gloss ary.asp • CFA UK economic capital special interest group: https://secure.cfauk.org/about/institute/special-interest/economic- capital.html • Solvency II news: http://solvencyiiwire.com/ • UK actuarial institute: www.actuaries.org.uk/ • Networking (free events): Staple Inn Actuarial Society (http://www.sias.org.uk/) 13CFA UK - 24 July 2013
- 14. About me Servaas Houbenheads the risk scenario generation team at Prudential, London. He studied econometrics in the Netherlands and worked in life insurance for the first four years of his career. Following this, he worked in Dublin and London. Besides actuarial, Servaas completed the CFA and FRM qualifications, and regularly writes on his blog, for CFA digest and Dutch actuarial magazines. Email: servaashouben@gmail.com Blog: http://actuaryabroad.wordpress.com 14CFA UK - 24 July 2013
Editor's Notes
- #3 In the movie Babel there is no clear relationship between the main characters It also seems there is no clear link between the CFA program and the insurance sector However, Insurance involves asset portfolio management as well as CFA (e.g. level 3) Quantitative aspects like CFA Ethics: protecting policyholders’ interest
- #4 Computer skills: VBA + Excel Actuarial software like prophet and moses Stochastic modelling Economic capital&Solvency II Classical actuarial Reserving, pricing, embedded value, product development Financial reporting (accountancy) Risk management (GARP) Cfa related topics: Investment, ALM
- #5 Own funds = assets – liabilities SII looks at 1 year time horizon Focus on a single part of the distribution (worst case scenario) Alternatives are P&L or expected profit per unit of capital requirement Value at Risk metric used to determine capital requirement over 1 year horizon Based on instantaneous stress (standard formula) Monte Carlo method to determine capital requirement Scenario file creation based on estimation 1 year in the future CVaR: conditional VaR (tail value at risk) ORSA applies multiyear horizon Alternative measures are formula based or replicating portfolio Although VaR is widely used, it has its limitations (sub-additivity: VaR of a combined portfolio can be larger than the sum of the VaRs of its components)
- #6 Started my career in Holland in pensions Switched career to life insurance Asset liability management great combination of actuarial and CFA Worked in Ireland 2 years during boom (2008) and bust (2010) Learned lessons of diversification (too much focus on property market and international companies) Saving of banks was quite exemplary of too big to fail issue Now working in London for 3 years First in consultancy Now in life insurance Combination of actuarial and CFA Personal preference: like to broaden myself Networking opportunities Actuarial focusses more on liabilities instead of assets (like CFA) No market for insurance liabilities Guarantees in insurance liabilities which makes them difficult to value (use Black Scholes for simple products) Some insurance liabilities are longer term and hence no comparable markets instruments to value them Interaction between assets and liabilities essential to understand and manage risks Like CFA3: people invest for different reasons so important to understand their goals! Active outside of work: Chair CFA ECap special interest group Regular writer for actuarial magazines Regular presentator
- #7 Started my career in Holland in pensions Switched career to life insurance Asset liability management great combination of actuarial and CFA Worked in Ireland 2 years during boom (2008) and bust (2010) Learned lessons of diversification (too much focus on property market and international companies) Saving of banks was quite exemplary of too big to fail issue Now working in London for 3 years First in consultancy Now in life insurance Combination of actuarial and CFA Personal preference: like to broaden myself Networking opportunities Actuarial focusses more on liabilities instead of assets (like CFA) No market for insurance liabilities Guarantees in insurance liabilities which makes them difficult to value Some insurance liabilities are longer term and hence no comparable markets instruments to value them Interaction between assets and liabilities essential to understand and manage risks Like CFA3: people invest for different reasons so important to understand their goals! Active outside of work: Chair CFA ECap special interest group Regular writer for actuarial magazines Regular presentator
- #8 Started my career in Holland in pensions Switched career to life insurance Asset liability management great combination of actuarial and CFA Worked in Ireland 2 years during boom (2008) and bust (2010) Learned lessons of diversification (too much focus on property market and international companies) Saving of banks was quite exemplary of too big to fail issue Now working in London for 3 years First in consultancy Now in life insurance Combination of actuarial and CFA Personal preference: like to broaden myself Networking opportunities Actuarial focusses more on liabilities instead of assets (like CFA) No market for insurance liabilities Guarantees in insurance liabilities which makes them difficult to value Some insurance liabilities are longer term and hence no comparable markets instruments to value them Interaction between assets and liabilities essential to understand and manage risks Like CFA3: people invest for different reasons so important to understand their goals! Active outside of work: Chair CFA ECap special interest group Regular writer for actuarial magazines Regular presentator
- #9 More flexibility pension funds on value of liabilities->hence more room for aggressive asset mix
- #10 Who is the most read CEO in the world? How do you define success? Monetary? Flexibility to choose your own career? (start your own company) Happy to go to work everyday? (Buddhist) -> work –life balance good in insurance Successful in actuarial: Combination of regulatory changes, modelling, and calculations->have to be broad! Continue learning your entire career! (different from my parents career which was more stable) New regulations New tools/models Add issues and opportunities Opportunities: Longevity risk hedging, as there is no market yet for hedging this risk General insurance issues: Like banking, insurance and pensions are not risk free anymore Can people not better save for themselves? Where to invest in? low government bond yields and high equity capital requirements
- #11 Departments in life insurance company that specialise in certain areas Banks also hire actuaries, but usually with more work experience Variety in consultancy for different projects and clients Contracting market is currently slowing down, hence not common anymore for starters to start their career anymore
- #12 Interaction with a wide variety of departments: IT: development of models Accountancy: financial statements E.g. annual reports and investor reports Risk: risk appetite and thresholds Pricing: product pricing for new products and new market conditions However, usually specialisation in certain area Background of people working in insurance: Mixed: Accountancy in reporting/finance CFA: asset management and asset liability management IT: engineering FRM: risk management
- #13 In the Fountainhead, Howard Roark holds on to his vision despite criticism from colleagues, press and public opinion While mainstream prefers office buildings with Roman and Greek ornaments Roark wants buildings to be functional Don’t wait for your employer to create the career you want to achieve: Join committees Write articles, give presentations Create a blog Lots of information available on the internet Linkedin is a great method to connect to people and get your profile known Different interaction Linkedin than other social media (more professional) Replaces need for an ordinary CV Great source of knowledge Don’t get disappointed when your career takes time to set off: E.g. Cezanne only painted his best paintings from age 50! Talent is sometimes not always understood directly as in Howard Roark: stick to your vision and in the end you might end up on top