Transcript Presentation - International Association of Black Actuaries

Evolution of Actuarial Organizations
Matthew Clark FSA, MAAA, CERA
Tony Johnson ASA, MAAA
Deloitte Consulting LLP
August 2013
Agenda
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Actuarial Organizations in Industry
Actuarial Profession
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Catalysts For Change
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3
Catalysts for Change in Actuarial Organizations
There are many catalysts for change in Actuarial Organizations today. Pressure from the market, leadership, and
external audiences has driven the need to improve the Actuarial processes.
Evolution of Products
Internal Audience Requests
• Increased Guarantees
• Senior Management
• Complexity of Benefits
• Increased Attention From The Board of
Directors
Economic Environment
• Low Interest Rate Environment
External Audience Requirements
• Increased Scrutiny From Rating Agencies
• Volatility in the Markets
• Investors Want Further Insight
Regulatory Environment
• Evolution of Accounting Standards
• Capital Requirement Changes
Regulations and requests increase the complexity and strain on Actuarial Organizations.
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Audience Considerations
The Actuarial Organization is facing an increasing number of inquiries regarding financial results, risk management,
and predictive capabilities.
Senior Management & Board of Directors
• Economic Events are Impacting Results
• Increased Need for Sensitivities
• Predictive Capabilities Needed
Needs From the Actuarial Organization:
Regulators
• Changes in Regulations
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• Increased Focus on Risk Based Examinations
• Expanding Requirements to Include Sensitivities
Stochastic Requirements
Sensitivity Analysis
Granular Splits of Analysis
Faster Turnaround
Rating Agencies & Investors
• Request Sensitivities and Granular Results
• Focus on Risk Based Analysis
• Increased Level of Sophistication
Trend towards stochastic requirements requires evaluation of processes and Actuarial platforms.
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Strain on the Actuarial Process
The catalysts to change have resulted in added pressure on the Actuarial Processes. Internal and external
audiences are asking for more information and decisions are being made faster.
Speed of Production
• Accelerated Financial Reporting
• Faster to Market Product Development
• Agility to Respond to Requests
• Increased Strain from New Requirements (e.g., Stochastic Processing)
Granularity of Results
Needs From the Actuarial Organization:
• Increase Processing Speed
• Increased Analysis/Insight
• Reconciliation Across Models/Functions
• Stochastic Capabilities
• Focused on More Detail/Granularity
• Ability to Understand Results
• Aggregating Results in a Stochastic Environment
Reconciliation/Accuracy
• Ability to Reconcile Results Across Accounting Basis
• Actual-to-Expected Analysis
• Compare Impact of Economic Events Across Products (Stochastic)
• Reconcile Asset and Liability Movements
Emerging expectations exceed the capabilities of the existing Actuarial Organizations.
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Modernization of Actuarial
Organizations
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7
Traditional Actuarial Organizational Structures
The traditional Actuarial Organization structure is focused either across product or function. The governance and
oversight is limited with decisions made at the product/function.
Characteristics of the Traditional Actuarial Organization:
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Product Line or Function Focused
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Dislocated Technology Solutions
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Manual Processes
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Significant Time Spent on Data Related Challenges
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Limited IT/Actuarial Coordination
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Limited Governance & Oversight
The Characteristics Above Create the Following Challenges:
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Inconsistent Processes, Methodologies, and Assumptions
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Challenges Reconciling Results Across Actuarial Functions and Products
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Limited Confidence in the Actuarial Function Across the Organization
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Challenges Coordinating Across Non-Actuarial Functions
Inconsistent models, methods, and techniques will impact the ability to meet the emerging needs.
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Examples of Centralized Organization Structures
As shown below, there are two frameworks that may be considered for the operating model for these areas. Further analysis, discussion, and an
understanding of the broader regional and home office operating model and expectations are required to determine which of the two models is
appropriate for a given area. In the diagrams below, the owner may be a function or a Center of Excellence.
Partially Decentralized Model
Centralized Model
Corporate
Owner
Corporate
Owner
Corporate
Corporate
ERM
Investments
Regions
Regions
ERM
ERM
ERM
ERM
ERM
ERM
ERM
Investments
ERM
Inv.
Act.
ERM
Inv.
Act.
Actuarial
Owner
Owner
ERM
ERM
ERM
Actuarial
RegionsERM
Inv.
Act.
ERM
Material Regions
Inv.
Act.
Non-Material Regions
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The centralized model creates a single ownership structure at the
corporate level. Support is provided by various corporate
functional areas, which in turn receive support from related
regional functions.
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The decentralized model contains a corporate ownership structure,
which is supported by replica structures at the regional level. In
turn, the regional structures are supported by various regional
functions.
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The centralized model is appropriate for areas that are not required
to meet local regulatory requirements at the regional or country
level.
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Every region or country may not need to replicate the full
ownership structure. The structure only needs to be created in
those regions or countries that are material and / or require the
structure to meet local regulatory requirements. Other regions
may be integrated at the corporate level using a centralized model,
as shown in the schematic above.
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Key Considerations
When considering change, the focus is on People, Processes, Models, and Data.
People
• Assess and Develop the Skillsets Needed to Meet Evolving Needs
• Consider the Organizational Structure
• Explicit Governance & Oversight Roles
• Address Cultural Resistance to Change
Processes
• Consider the Efficiency of the Actuarial Processes
• Focus on Opportunities to Automate
Models
• Update Models to Meet Evolving Needs
• Consider Aligning Models Across Products and Functions
Data
• Consider Standardizing Data
• Identify Opportunities to Reduce Data Hurdles (Format, Cleanliness, etc…)
• Develop Data Repository
Need to Align and Automate Actuarial Processes with Strong Oversight & Governance
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Changes Impacting
Actuaries
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Changes in Social Structure
“More jobs available in
the market compete with
actuarial jobs, make
scouting more difficult”
“Aging population affects the nature
of actuarial work” “Changes in
longevity”
(most frequently
mentioned change)
“Over supply of actuarial
students for jobs available
in domestic market”
“Big changes
proposed in public
sector pensions”
“Growing general
unemployment”
“Big gap arising between pension
‘haves’ and ‘have nots”
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Changes in Technology
“More complex outputs
expected from actuaries
given advances in
software”
“Increased connectivity is allowing our
members to be more mobile and take on
work from nearby countries whilst keeping
up with work commitments at home”
“Mobile phone commerce is
assisting introduction of micro
insurance”
“Change creates concern
with data security and
protection of confidential
information”
“Many of our members
are small business owners
so keeping up with
technology is difficult”
“Continuing pressure to upgrade skills and
knowledge”
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Changes in Economy (factor with highest impact)
”Lower interest rates have
required review of
actuarial liability adequacy
standards.”
“Our client base is very directly
affected by the economy. When the
economy drops, so does the pool of
potential clients.”
“The economic recovery
increased interest in
actuarial mathematics”
“Challenges in new
models to reflect new
realities.”
“Sluggish economy coupled with low interest rate
environment..challenging especially in pricing for
products with lifetime guarantee.”
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“The job market is directly
affected by the
economy,..a bad economy
seriously reduces the
number of actuaries that
can be absorbed”
Changes in Environment
“Natural disasters in recent years affect the way we
view and quantify risks, thereby affecting price and
solvency standards.”
“There is greater awareness
of long-term environmental
issues.”
“Challenges in modeling effects of climate
change.”
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Changes in Political Structure
“The less said about
politics the better!”
“Lack of commitment to sorting out the long
term problems in pensions and long term
care.”
“Wars and the level of
physical insecurity ..has led
to a loss of business
confidence in the local
economy..”
“Extreme partisan approach. Keeps Washington
from responding to economic pressures.”
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“EU decides more and
more of the
legislation…members
must work together with
Groupe Consutatif and
IAA…”