Actuaries can earn around £95,000. Dr Geraldine Kaye, managing director of GAAPS specialist Actuarial Recruitment Group, looks at their role.
Actuarial involvement in the general insurance field is fairly recent but, using the latest remuneration data as a measure of their value, they certainly seem to be proving their worth.
The average package for fully qualified members of the profession has risen by 6.7% over the last year – to aver4age salaries of £95,000. However, basic salary levels for those who have more than four years experience but are still taking their exams (known as part qualifieds or PTQs) have actually fallen by 16% to £37,000.
This shows that employers place a premium on professional judgement as opposed to technical ability.
As the final exams demand this professional judgement and are very difficult to pass, general insurers who have used fully qualified actuaries must realise the value of their skills.
According to the latest GAAPS annual survey, the fifth of its kind, there are now 507 members of the Faculty and Institute of Actuaries working in general insurance in the UK.
Actuaries make financial sense of the future. They analyse the past, model the future and assess the risks involved before communicating what the results mean in financial terms.
It should come as no surprise that their skills are well rewarded across the general insurance spectrum.
Many actuaries work in the London Market, some for insurance companies and others for the managing agencies of Lloyd's syndicates.
The classes of business in which they are involved range from the large commercial aviation, marine, non-marine, casualty and property risks to the bulk processing of motor and household personal lines.
The premium pricing process for general insurance business now tends to be much closer to that used for life assurance, with rates based on scientific analysis of statistics and computer modelling techniques.
Working in teams
Often actuaries work in tandem, the younger member of the team doing the computer modelling while the older and more experienced professional reviews the figures and makes the final pricing decision.
Although even actuaries cannot control the general insurance cycle, they are able to apply their expertise to plot the market's position on it and forecast the next likely move up or down.
General insurance can also be a financial balancing act. Insurers have to decide how much new business, even if it is scientifically priced with adequate margins for profit built into the premiums, they can afford to write on their own account.
Actuaries are best qualified to do the sums, taking into consideration the initial costs involved, the expected incidence of claims and the share capital available to support it.
The UK general insurance market is in a constant state of flux with mergers and acquisitions.
These movements require actuarial involvement. A vulture company may be interested in buying an insurer's closed book of business, but it will need expert help in evaluating the long tail cost of future claims. Both sides to a merger or acquisition will require a professional valuation of the business whose ownership is about to change. A start up insurer will want to ensure that its business plan is realistic and makes financial sense.
Actuaries are also playing their part in changing the face of the general insurance marketplace. New product developments, such as those combining property and liability cover, often have actuarial brains at their root. Actuaries look into the future as well as the past.
The latest GAAPS annual survey carries a great deal more information than the headline remuneration figures.
Where do they work?
It is not surprising that nearly 70% of those fully qualified are based in London and the South East. Fifty-one per cent are with insurance companies, 18% with consulting firms, 17% with reinsurers and six per cent at Lloyd's.
Rather surprisingly as many as four per cent work for investment banking firms, perhaps developing products which offer risk protection other than of the traditional insurance-based kind.
The General Insurance Study Group (GISG) of the Institute of Actuaries was formed in 1974, and General Insurance went on to the examination syllabus in 1978.
The aim of the Institute's and Faculty's current general insurance course "is to generate newly qualified actuaries with the ability to apply the actuarial scientific method and actuarial techniques, so that suitably trained actuaries are available to assist the UK general insurers to operate on sound financial lines".
Newly qualified actuaries should be "able to demonstrate a knowledge of the underlying framework" of general insurance business. They should "apply the actuarial philosophy, the actuarial scientific method and relevant professional guidance to the financial management of general insurance business". The newly qualified professionals should also "analyse straightforward problems in terms of the actuarial scientific method to a level where they may be processed by appropriate actuarial techniques".
How much do they earnNULL
Remuneration tends to increase progressively with each year of experience. However, there is no evidence that non-actuarial forms of training – such as project management or interpersonal skills – have any real impact on earnings. While eight per cent of UK general insurance actuaries are reasonably fluent in French or German, this does not affect their remuneration or promotion prospects.
Taking a two year MBA course does not affect overall earnings either. Although the mean salary of some £50,000 earned by a typical graduate of a leading business school is higher than the average PTQ receives after two years of employment (about £35,000), the difference is not enough to make up for the cost of full-time study and lost earnings.
And, according to the latest GAAPS survey, the perceived standard of education has no significant bearing on ultimate total remuneration. For example, actuaries who achieve a 1st or 2:1 on average earn no more than those with a lower degree, and graduates of Oxford or Cambridge tend to fare no better than those graduating from universities of the redbrick kind.
The survey also aims to build up an overall picture of working conditions and career patterns. On average actuaries work around 45 hours a week. While nearly half of them live a short distance from the office, some eight per cent spend four or more hours commuting each day.