Scribd
Upload
35 views6 pages

Risk and Investment Conference 2013: Brighton, 17 - 19 June

This document summarizes a presentation given at the 2013 Risk and Investment Conference titled "Actuaries as Financial Engineers: A Strategic Analysis". The presentation covered several key themes: 1) It explored the historical evolution of the actuarial profession in relation to periods of permissive versus rigorous governance standards and how this impacted the scope of actuarial work. 2) It posed two puzzles - why the actuarial profession sometimes accepts a limited scope, and why its bureaucratization developed opposite to the accounting profession. 3) It argued that the greatest expansion of the actuarial profession occurred post-war during a period of permissive governance, when actuaries were able to internalize more financial

Uploaded by

KathGu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
35 views6 pages

Risk and Investment Conference 2013: Brighton, 17 - 19 June

This document summarizes a presentation given at the 2013 Risk and Investment Conference titled "Actuaries as Financial Engineers: A Strategic Analysis". The presentation covered several key themes: 1) It explored the historical evolution of the actuarial profession in relation to periods of permissive versus rigorous governance standards and how this impacted the scope of actuarial work. 2) It posed two puzzles - why the actuarial profession sometimes accepts a limited scope, and why its bureaucratization developed opposite to the accounting profession. 3) It argued that the greatest expansion of the actuarial profession occurred post-war during a period of permissive governance, when actuaries were able to internalize more financial

Uploaded by

KathGu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 6

13/06/2013

Risk and Investment Conference


2013
Brighton, 17 – 19 June

13 June 2013

Actuaries as Financial Engineers:


A Strategic Analysis
Yally Avrahampour Ph.D.
Lecturer, Department of Management
London School of Economics & Political Science

13 June 2013

1
13/06/2013

Overview
1) Conceptual background
- Jurisdiction, bureaucratization and internationalisation

2) Historical evolution of the profession


- A couple of puzzles regarding the actuarial profession
- Periods of permissiveness and rigor in standards of governance
- Expansion of the actuarial jurisdiction into a ‘wider field’.
- Why actuaries are financial engineers

3) What might future expansion of the profession look like if history


repeated itself ?
- A simple and positive message

Three Claims
1) A focus on financial technique is key to understanding change in the scope
of the actuarial profession historically.

2) Greatest expansion of the actuarial profession jurisdiction was in the past


associated with increased discretion in the financial aspect of actuarial work.

3) Increased discretion was driven by broad changes in the degree to which


there was a focus on governance within the financial markets…

… but was also the consequence of the actions of some actuaries.

Two important caveats: 1) I am advocating sensitivity to the broad context


within which this change occurred.

2) I do not have time to examine whether the consequences were in the


interests of sponsors and members.

2
13/06/2013

Themes Relating to the Strategic


Position of the Actuarial Profession
1) Jurisdiction
- The work that actuaries do.
- Its relationship to the work of other professions.

2) Bureaucratization
- The workplaces within which actuarial work is conducted
- Is the work conducted in corporations (insurance companies) in
a professional service firms (consultancies)?
- A question of independence

3) Internationalization
- Where in the globe actuarial work is done.
- Where will future important actuarial innovations originate?

Puzzle 1: Under What Conditions is the Actuarial


Profession’s Jurisdiction ‘Limited’?
The actuarial profession is a dominant profession. Like lawyers and
doctors, but unlike nurses, it has unimpeded control over a
jurisdiction.

However, in contrast with other dominant professions which are


aggressively expansionist, the actuarial profession sometimes
accepts a limited jurisdiction.

The limited nature of actuarial work reflects, broadly, limitation of the


actuarial expertise to expertise in the application of statistics to
problems of life expectancy, classically within insurance companies.

Why does this happen when, ostensibly, only subordinated


professions, such as nurses, would accept a limited jurisdiction?

3
13/06/2013

Puzzle 2: Why did the Bureaucratization of the


Actuarial Profession Develop in Reverse to that of
the Accounting Profession?
Initially, accountants worked in professional partnerships. The trend
over the past sixty years, until recently, has been for accountants to
work in corporations.

Actuaries first worked in corporations (as insurance company


actuaries). The trend over the past sixty years, until recently, has
been for actuaries to work in professional partnerships.

Why did the bureaucratization of the actuarial profession evolve in an


opposite manner from the accounting profession?

One might expect that they would develop similarly.

Limited Actuarial Discretion During Periods of


Strict Governance
Actuarial expertise initially involved application of modelling and statistics
within insurance companies.

However, this raises a question about independence. How, after all, can a
profession that is subject to corporate influence exercise independence?

During periods in which standards of governance are strict, and this type of
concern salient, the actuarial profession outsources the financial aspect of the
work it conducts to another profession.

In the 1930s actuaries did not have discretion over the financial assumptions.
When valuing pension funds, they utilized techniques developed by
accountants. Investment management was conducted by other occupations.

Today, similarly, actuaries and accountants share a common framework for


conducting valuations and a range of occupations exist concerned with
statistical modelling of risk.

4
13/06/2013

Expansion of the Profession’s Jurisdiction


Post-war
In the 1950s and 1960s the context for corporate governance was
permissive. In such an environment concerns regarding independent
practice are reduced.

Consequently, the financial aspect of actuarial work is internalized.


There is increased scope for discretion in the conduct of the financial
aspect of actuarial work.

The consequence was the expansion of the actuarial jurisdiction into a


wider field, namely, consulting work as a means of advising
occupational pension funds, facilitating actuarial influence over
investment management.

Eras of Permissive and Rigorous Governance


1920 - 1945 - 1970 1970 - 1990 1990-2005 2005 - 2013
1939

Governance Strict Permissive Stricter Stricter Strict Again

Actuarial Bureaucrac Professional Professional Professional Bureaucraci


Workplace ies Partnerships Partnerships Partnerships es
(insurance (consulting (consulting (consulting (insurance
company actuaries) actuaries) actuaries) company
actuaries) actuaries)
Actuarial Limited Expansive Consolidation Static Static /
Jurisdiction Shrinking

Technical No A Great Deal Less Less No / Very


Actuarial Financial of Financial Financial Financial Little
Practice Discretion Discretion Discretion Discretion Financial
than than Discretion
Previously Previously

5
13/06/2013

Conjectures
Based on the preceding analysis future growth of the profession would …

… consist in the development of a new actuarial jurisdiction.

… be associated with technical innovation and to the extent that that consists
in greater discretion, expansion will be more powerful.

Sources of such innovation might be located in countries that have


undergone similar processes of loosening up to those that occurred in the
UK in the mid-twentieth century.

New categories of membership are plausibly likely to be a source of ideas


that could contribute to such growth.

A simple and positive message: there are large opportunities available to


those maintaining openness to how context influences technical change.

You might also like