Professor Paul Sweeting

Actuarial Education andERM in the UK

Topics Today• Actuarial education in the UK• ST9 (the UK Profession’s ERM exam)

About Me• Fellow of the Institute of Actuaries• Professor of Actuarial Science• Member of syllabus development group for ST9(Enterprise Risk Management Subject)• Examiner for the profession...
• ...and teach ST9 at the University of Kent

The UK Actuarial Education Structure
stages:• Four Core Technical (CT) Core Applications (CA) Specialist Technical (ST) Specialist Applications (SA)• Early subjects designed to give theoreticalgrounding...

• ...and designed to test knowledge• Later subjects about application of knowledge incomplex scenarios...

• ...and operation in particular regimes• For Fellowship, 3 years work experience neededCore Technical• 9Subjects
CT1 Financial Mathematics
 CT2 Finance and Financial Reporting CT3 Probability and Mathematical Statistics CT4 Models
 CT5 Contingencies CT6 Statistical Methods CT7 Business Economics
 CT8 Financial Economics
 CT9 Business Awareness Module• Passes in all required• CT1-CT8 examined by 3 hour exam
• CT9 examined by 2 day residential course plus
post-course exam

Core Applications• 3Subjects
CA1 Actuarial Risk Management
 CA2 Model Documentation, Analysis and Reporting CA3 Communications• Passes in all required• CA1 examined by 2x3 hour exams• CA2 requires attendance at 2 day residential
course plus assessed data handling• CA3 examined by 2 day residential course plus
assessed presentation (previous alternative ofexamination being phased out)CA & CT Completion• Completion of the CA and CT examinations

gives technical skills needed to be an actuary...

• ...so there is an option to register as anAssociate of the Institute (AIA) or Faculty (AFA)at this stage• This is a generalist actuarial qualifications...
• ...and holders are referred to as actuaries

Specialist Technical• 9Subjects
ST0 Alternative Specialist Technical ST1 Health and Care
 ST2 Life Insurance Specialist Technical [ST3 General Insurance – no longer available]
 ST4 Pensions and Other Benefits
 ST5 Finance and Investment A ST6 Finance and Investment B
 ST7 General Insurance: Reserving and Capital
Modelling ST8 General Insurance: Pricing
 ST9 Enterprise Risk Management• Passes from 2 subjects needed• All except ST0 examined by a 3 hour exam

ST0

• Awarded for alternative study• Examples
 MSc in relevant subjects
 Alternative professional qualification• Approval for exemption must be sought before
study commences• Not an easy alternative!

Specialist Applications• 7Subjects
SA0 Research Dissertation
 SA1 Health and Care SA2 Life Insurance
 SA3 General Insurance
 SA4 Pensions and other Benefits SA5 Finance SA6 Investment• All except SA0 examined by a 3 hour exam
• One pass required• Knowledge of equivalent ST generally
assumed...

• ...but ST not requiredSA0• Awarded for research carried out with approvalof the profession...

• ...but not available for any research carried out
as part of any previous qualification

UK Practice Modules• Passes in CTs, CAs, STs and SAs...
• ...plus sufficient work experience (3 years,recorded in work based skills log)...

• ...allows an individual to become a Fellow of
the Institute (FIA) or Faculty (FFA)• However, to hold reserved role (e.g. Pension
Scheme Actuary), UK practice module alsoneededEducation approach• Traditional approach is distance learning andself-study• Employees typically given one day a week offfor study...

• ...to supplement time taken in evenings and onweekends• Core reading supplied by the profession...
• ...supplemented by materials from ActEd

ActEd• Owned by BPP• Provides
 Additional study materials
 Question and answer banks
 Marking Revision/tutorial courses• Close relationship with the profession...
• ...in return for guaranteeing to provide materials
for all subjects, no matter how few students

Universities – overview• Increasing amount of education provided byuniversities• Partly in response to external review of theprofession (“Morris review”) highlighting benefit
to the profession of greater external influence• Exemptions from some subjects had been

widely available anyway (e.g. exemption fromeconomics subject for an economics degree)• Scope of degrees now much greaterActuarial Science Degrees• 20+ universities in the UK have courses withexemptions...

• ...from 1 CT...
• ...to all examined CTs and CAs and 2 STs• Exemptions from SAs not available
types of degree:• Three BSc
 Postgraduate diploma
 MSc

Actuarial Science Degrees• BSc
 3-year course Exemptions up to all CTs
 Offered by largest number of universities
 Sometimes offered as sandwich course

diploma• Postgraduate
 1-year course Entry usually requires numerate first degree Same exemptions as BSc (up to all CTs)

• MSc
 1-year course Postgraduate diploma or Act Sci BSc required Exemptions up to all CAs and two STs...
 ...but all CA exemptions often not available
 Other work-related modules also available

Traditional vs Universities• Traditional approach allows students to gain
valuable workplace skills whilst studying...

• ...and part-qualified students from thetraditional route more “useful”...

• ...but traditional route can takes longer thandegree route (BSc anyway)...

• ...and universities can use a wider range ofassessment techniques Presentations
 Group work
 Projects

ST9• New enterprise risk management course• Will provide eligibility for CERA qualification
broad subject• Very External risk frameworks
 The ERM process Risk classification
 Risk measurement
 Quantitative analysis of time series
 Modelling techniques Responses to risk
 Economic capital Case studies

ST9 – External frameworks• Mandatory (e.g. Basel II)• Advisory (e.g. COSO, AS.NZS 4360)• Proprietary (e.g. credit rating agencies)

ST9 – The ERM Process• Stakeholders• Context• Risk appetite• The risk management function• Strategy• Control cycles

ST9 – Risk Classification• Full taxonomy• Important as basis for rest of course

ST9 – Risk Measurement• VaR• Tail VaR• Time horizon• Related issues

ST9 – Models and Quantitative Analysis• Degree to which modelling possible• Risk identification• Stress testing• Stochastic analysis• Statistical distributions, copulas• Tail risk
• Extreme value theory• Very technicalST9 – Responses to Risk

• Transferring• Modifying• Diversifying• Hedging• Accepting (including residual risk)

ST9 – Economic Capital• Capital allocation...
• ...and some complex maths!

ST9 – Case Studies• Difficult to carry out case studies of when risks
managed well...

• ...so most case studies of failures!

Examining ST9questions• Examination
 Bookwork – lists of factors (e.g. “what makes a goodmodel?”), calculations (e.g. probabilities under jointdistributions copulas) However, more detailed scenarios more useful – “arisk manager is considering a new product...”; “apension scheme is considering how to manage risks
to which it is exposed”; etc...

• Projects
 Review risk management statements in company
accounts
 Review risk management failures
 Design risk management structures• Presentations on projects

Who needs ST9?

• All actuaries!
• Useful for any actuary managing risk...
• ...who wants to expand area of influence
beyond traditional actuarial fields• Also useful as CROs becoming more
important...

• ...particularly if CRO becomes a regulatory
requirement...

• ...and an appropriate qualification is needed