Actuarial Profession - Annual Report of the Councils

2008/09 Annual Report of the Councils Faculty of Actuaries Institute of Actuaries The Actuarial Profession making financial sense of the future Introduction The past year has been one of great turbulence in the financial sector. The global economic crisis has continued to have a significant impact on the way our members work and the way in which the Actuarial Profession supports its members. Many of the activities detailed in this report have been shaped by the changes and challenges faced by our members, and others, as a result of the crisis. However, the Profession has also maintained a longer-term focus in its activities and plans for the future in the areas of member support, learning, regulation and communications. This year, the Profession established fresh objectives to: Provide world-class membership services Build a quality framework which promotes public confidence in the work of actuaries Enhance the profession’s reputation in traditional and non-traditional areas. These objectives have been designed to support our members in their careers and it is important to recognise the range of ways that we work with our various and valuable partners to provide this support. In the following pages you will hear from actuaries at different stages of their careers and other stakeholders about the ways they work with the Profession. You will also read about some of our main successes and our future plans in this report. Contents Joint Presidential Statement Chief Executive’s Statement Supporting our members Learning and knowledge Communications Membership statistics Corporate governance Accounts Pension Scheme Costs 4 6 10 18 28 32 34 40 42 Joint Presidential Statement Ronnie Bowie President Faculty of Actuaries and relevant. It is for this reason that the Profession has been active in ensuring members comply with their CPD obligations. The Learning programme for students has been updated in several ways to ensure that students have the skills they need in the evolving workplaces of today and tomorrow. Communication skills are becoming increasingly important to actuaries as they move into non-traditional and leadership roles, and in order to arm them with the skills they need, the communications (CA3) exam has been overhauled to better meet students’ future needs. New modules have also been offered online to make it easier for students to access information and training from their workplace or more remote locations. The global financial crisis has had an enormous impact on actuaries, the financial world and the wider community in 2008/09. For members of the profession, it has changed the environment in which we operate and highlighted the vital importance of reinforcing public confidence in our profession. While many of our members will face continuing challenges in recovering from the events of the past year and adapting to the new financial landscape, the coming year will also offer many opportunities for our profession to grow and evolve. The economic crisis has exposed weaknesses in the existing financial sector, and in doing so, it has highlighted the need for well-trained, experienced and ethical professionals to provide leadership for the future. This is a role that our members are well-placed to fill, and the Profession has a central part to play in ensuring actuaries have the skills, knowledge and ethical standards to do this, through its education and training programmes and regulatory framework. Our members are fortunate to have access to the latest information, research and discussion in their areas of work through the Profession’s continuing professional development (CPD) programme. At a time when confidence in the financial sector is low, it is essential that actuaries maintain their skills and knowledge at the highest level by embracing the development opportunities available through their professional body. The wide range of CPD events offered by the Profession reflects the importance of ongoing professional development as a means of keeping our skills fresh Enterprise risk management (ERM) offers new opportunities for actuaries as companies and regulators seek to tackle the financial turmoil of 2008/09. Actuaries have a real opportunity to lead the way by nesting their skills in modelling within a robust risk management framework to ensure organisations are better equipped to cope with uncertain economic conditions in the future. The Profession has included ERM in its educational syllabus, organises ERM events and continues to support members who work in the ERM field. It is also seeking to cooperate with actuarial associations in other countries to build an internationally recognised actuarial ERM qualification. The Profession has established a global financial crisis group to keep members informed of developments in the wider financial sector. In addition, members have the opportunity to discuss all aspects of the global financial crisis, particularly in relation to the Profession, in an online forum. 4 Annual Report of the Councils 2008/09 “We are looking forward in the coming year to listening to, and working with, our members so that we can all embrace the opportunities available to us in our changing and evolving profession.” Our training and CPD provision will provide us with the tools to embrace challenges and move forward after the economic turmoil we have seen this year. The Profession’s ethical and regulatory framework will also play a vital part in maintaining public confidence in our expertise and professionalism. In 2008/09, the Profession instigated a change in the resources devoted to our professional regulation. We appointed two new lay members to our Professional Regulation Executive Committee and recruited two senior members of staff to support it. We have worked extensively with the Financial Reporting Council (FRC) and the three relevant arms of the FRC, the Board for Actuarial Standards, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board. We also signed a Memorandum of Understanding with the Pension Protection Fund to streamline our cooperation. We expect 2009/10 to see significant developments in our professional regulation which will put the Profession in the vanguard Nigel Masters President Institute of Actuaries of professional ethics and quality. As global economic conditions have made a significant and sometimes personal impact on our members, we are also working to provide members at an individual level with the range of support that they should expect from a world-class membership organisation. Building the Profession’s infrastructure so that it can rightly claim to be worldclass must be a theme for the future. As you will be aware, work is underway to provide members with the opportunity to vote on a proposed merger between the Faculty and the Institute. We believe the merger would help the Profession become a stronger, more effective organisation, better able to anticipate the needs of our members. Through the merger, we believe the Profession would be taking important steps to develop its role as a world-class membership organisation. Our priority is to lead the profession towards a secure and successful future, while retaining the positive aspects of the two bodies. The members of the profession have a crucial role in this decision, and we hope that you will all take the time to think about the future of your membership body and play your part in this evolution. We are looking forward in the coming year to listening to, and working with, our members to meet the challenges ahead so that we can all embrace the opportunities available to us in our changing and evolving profession. Ronnie Bowie President, Faculty of Actuaries Nigel Masters President, Institute of Actuaries 5 Annual Report of the Councils 2008/09 Chief Executive’s Statement Caroline Instance Chief Executive an integral part of the decision and policy-making process. Centres of expertise and excellence will be developed amongst the staff, adding value to the Profession’s work and aiding the development of world-class services for members. Enhanced knowledgesharing and CPD Facilitating more knowledge-sharing and increasing opportunities both for informal networking and obtaining verifiable CPD remain central to supporting members throughout their careers and in their personal professional development. Discussion boards have already been established to permit an exchange of ideas on topics as diverse as the proposed merger and the global financial crisis; the level of activity indicates that members welcome this new means of interaction. Additional, topic-specific boards, including ones for pensions, general insurance and life insurance, are in the development stage and will be launched early in the 2009/10 financial year. Following the success of the Profession’s first webinar, which was held in September on cash equivalent transfer values, this format will be extended to other topics. This will allow members to receive verifiable CPD from the comfort and convenience of their own offices. Face-to-face opportunities for CPD have also increased, with 78 events offered in 2008/09 compared to 44 in the previous year. Residential practice-specific conferences continue to achieve record attendance levels while new style events, such as open fora and networking evenings, are becoming increasing popular and frequently provide opportunities for networking with members across the range of practice areas. The past year has produced profound challenges for all involved with financial services and actuaries were no exception. The Profession remains firmly committed to supporting our members and helping them meet the increasing challenges they face in their working lives. Structures and governance The Profession introduced new structures for volunteer activity and staff organisation in March 2008 to increase the efficiency and effectiveness of support provided to all members. The new volunteer structure facilitates ‘top down’ decision-making within the Professional Administration areas of Professional Regulation, Qualifications and Member Support. Professional Community activities have been designed to encourage and facilitate ‘bottom up’ activity and initiatives. It has never been easier for a group of members with a common interest to network, to share information or work together to increase awareness of a topic, or to promote the development of new knowledge. The high level of participation in and flourishing activity of Member Interest Groups demonstrates that this is a service which members at all stages of their careers value greatly. Suggestions for new interest groups are encouraged to ensure they continue to reflect the interests and needs of a broad range of members. Parallel revisions to the staff structure meant that many staff started the past year in newly created positions or with significantly altered responsibilities. In addition to enhancing support to members, these changes will ensure that the members of the executive with responsibility for delivering services directly to members are 6 Annual Report of the Councils 2008/09 The Profession’s website, relaunched in April 2008, provides a modern, fresh look and feel along with enhanced functionality, although work remains in progress to simplify navigation and resolve issues with the search function. Broadening opportunities for actuaries The establishment of enterprise risk management as a separate practice area reinforces the Profession’s ongoing commitment to developing actuarial influence in this key area. The syllabus for the new enterprise risk management (ST9) exam is being introduced next year. This will not only prepare the actuaries of tomorrow for increasing involvement in risk management but also make the knowledge easily accessible to existing practitioners who are seeking to enhance their credentials and skills in this increasingly important area. Members can now log onto the website and specify their preferred form of address – whatever that may be! – and also update their job details and primary area of work. The more up-to-date and comprehensive the information provided, the better the Profession will be able to provide the services all members need and desire while also ensuring individual members receive information of interest and relevance to them. An extensive refurbishment of the main meeting rooms at Staple Inn was completed in February 2009. The concurrent introduction of video conferencing facilities in both London and Edinburgh will facilitate volunteer participation in the work of the Profession by ensuring that location is neither a deterrent nor a barrier to active involvement. proceed to a merger, we envisage a further £150,000 could be spent. Milestones/notable achievements The April and September 2008 examination sessions saw the highest number of exams taken under the new syllabus. Despite having over 21,000 individual exam scripts to process, receiving them from exam centres and distributing them to first and second markers, not a single unmarked script went astray in 2008. Non-members have become increasingly involved in the Profession’s activities and governance over the past few years; from the start of the new sessional year, the Chairman of the Professional Regulation Executive Committee will, for the first time, be a lay member. An important milestone for the future of the Profession was reached in early February 2009 with the registration of the 20,000th member; numbers continued to climb and stood at 20,256 at the end of the 2008/09 financial year. The past year has been characterised by consolidation, development and innovation for the Profession as well as by responding quickly to external events to support members in their working lives. The forthcoming year will be dominated by the continuing drive to enhance services for our members and to prepare the profession for a vibrant future, ensuring that all members are well-placed for years to come to meet the ever-increasing challenges of the 21st century. Merger project In addition to normal business activity we have been heavily involved in conducting a project looking at how best to set up a merged body – if the memberships of the Faculty and the Institute were to decide this was the way they wanted their professional body to develop. Eight work strands have been looking at a range of issues, including the development of an identity and name, the legal and tax structure of a merged body, and how best to build on our history. Work has been conducted so that, wherever possible, the outputs can be put to good use even if a formal vote of eligible members were not to result in a merger between the Faculty and the Institute. In the financial year ending February 2009, we spent £96,258 on merger project related costs. If we Responding to members’ needs Two-way dialogue with members is vital to identifying which services members value most and what additional support they would welcome from their professional body. A comprehensive membership survey was sent to all members early in March 2009 and the feedback will be used to inform the development of future member service priorities throughout the organisation. The Profession also responds to less formal feedback. When a number of members indicated that they did not appreciate the e-newsletters automatically addressing them by their first name, the Profession responded quickly to address this. “An important milestone for the future of the Profession was reached in early February 2009 with the registration of the 20,000th member.” 7 Annual Report of the Councils 2008/09 Member’s viewpoint: Marjorie Ngwenya Company: Swiss Re Role: Vice-President, Life and Health Risk Management 8 Annual Report of the Councils 2008/09 “I’ve had a varied and interesting career so far and there is still plenty to try.” Marjorie Ngwenya had a diverse range of options in front of her when deciding on her future career path: dentist, pilot, actuary. The actuarial option won out in the end, and to her surprise, she has discovered that the choice has enabled her to pursue similarly diverse interests within her career. While working as a risk manager with Swiss Re, Marjorie this year also took the helm as editor of The Actuary magazine, enabling her to combine her interest in publishing with her professional responsibilities. “I’d been a features editor for the magazine for almost two years and enjoyed it. This wider role allows me to have a holistic view of the magazine production process.” The Actuary is produced by the Staple Inn Actuarial Society, with production support from the Profession, which supplies news and education content. Marjorie enjoys the opportunity to encourage discussion and debate through the pages of The Actuary. “The magazine provides a medium through which actuaries and other readers can communicate. Readers can have their say and provoke challenge about subjects that are of interest to them.” In her professional role as an actuary and as a member of the profession, Marjorie also values the diverse experience and opportunities available to her. “I’ve had a varied and interesting career so far and there is still plenty to try. “My membership of the profession offers me access to a wide range of professionals, relevant practice information and recognition of the high standard of education that comes with the qualification.” 9 Annual Report of the Councils 2008/09 Supporting our members Continuing Professional Development (CPD) The Profession remains strongly committed to providing members with a broad range of opportunities to obtain verifiable CPD throughout the year. During 2008/09, the number of CPD events increased to 78, from 44 the previous year, and 7,620 delegate registrations were received. Sessional meetings More than 343 hours of CPD seminars, professionalism events, open fora and networking evenings were available in 2008/09. Faculty Vice-President John Hylands presents Colin Wilson with the inaugural Sloan Prize. The Profession is committed to reinvigorating sessional meetings by fostering more debate and audience participation. Contributions are actively encouraged from a wide cross-section of the membership, including younger members. One initiative, the Sloan Prize, has been introduced to recognise the best spoken contribution at a sessional meeting in Scotland by a student or an actuary who has been qualified for less than 15 years. In future, each practice area will sponsor a minimum of one formal, peer-reviewed sessional meeting paper each year to ensure that high-quality, rigorous research and thought leadership remains one of the hallmarks of the profession in the 21st century. Networking events and open fora Networking events and open fora provide high-quality CPD opportunities in a less formal environment; topics frequently cover the ‘hot’ issues of the day. Last year more than 15 open fora and networking events were held, with each practice area sponsoring at least one open forum event. Attendance numbers, which ranged from 80 to 170, prove that this initiative has found favour with a wide spectrum of members. Subjects covered have included practice-specific topics (bulk buy-outs, underwriting in a soft market) and multi-disciplinary ones (behavioural aspects of risk and finance, an introduction to Solvency II). One of the most topical, and most popular, was on the credit crunch and its practical implications for actuaries. 10 Annual Report of the Councils 2008/09 Virtual CPD provision and podcasting The Profession recognises that it is not always possible for members to attend every event in person and is committed to making CPD available via the website. While podcasts of sessional meetings have long been available for on-demand download, this year has seen this service extended to other free CPD events. Members can now receive this information at their convenience, at a time and location of their choosing. Over 560 delegates, at 144 registered sites, took part in our first webinar. Lawyer Hugh Gittins of Eversheds delivers his presentation to the Profession’s first webinar. In September 2008, the Profession launched a new era in CPD provision with its first webinar. Over 560 delegates took part at 144 registered sites for this innovative seminar on the implications of the then-imminent changes to cash equivalent transfer value legislation. Each participant received high-quality, verifiable CPD from the comfort and convenience of their home or office. Innovative and joint events The Profession also works with relevant external organisations to offer a varied programme of CPD for members, providing actuaries with exposure to non-actuarial expertise and viewpoints on issues with both actuarial and non-actuarial components. The highlight of last year’s joint work with the International Longevity Centre (ILC-UK) was the Ageing Population Conference 2008: Choosing population projections for public policy. Collaboration with ILC-UK is ongoing and the forthcoming year will see a further series of joint events, including a debate on the effects of the credit crunch on pensions reform and personal accounts. Longevity issues are of interest and relevance to those who work outside actuarial practice. In September, the Profession and the Royal Society of Medicine collaborated to produce a joint event exploring the medical factors shaping longevity. 11 Annual Report of the Councils 2008/09 The Profession is committed to providing members, regardless of where they live and work, with opportunities to interact with each other and to share knowledge and experience. The conference provided doctors and actuaries with a better understanding of the current thinking, issues and practice in each profession and explored how the actuarial and medical professions could work together in future to address the increasing challenges of longevity. The Profession also works with the CFA Society of the UK and with INQUIRE UK (the Institute for Quantitative Investment Research) to provide relevant seminars on topics of interest to members of all three bodies. Knowledge-sharing and facilitating discussion The Profession is committed to providing members, regardless of where they live and work, with opportunities to interact with each other and to share knowledge and experience. Topic-specific and practice-specific discussion boards and wikis are at the heart of knowledge-sharing and direct member interaction, allowing members to engage with each other, regardless of their location. The Global Financial Crisis Group was one of the first to embrace this means of communication and information-sharing. Faculty President Ronnie Bowie and Chris Morton focus hard on their performance of Daydream Believer during the karaoke event at the Momentum Convention 2008. Member interest groups Member interest groups are specifically designed to: Respond efficiently to members’ needs and developing interests by engaging members directly and adopting a ‘bottom up’ approach; Reduce formality and bureaucracy; Promote knowledge-sharing among group members; and Encourage members to support each other in their careers, in furthering their skills and knowledge and in enhancing their professional development. Topic-specific member interest groups have been set up in areas such as ageing population, banking, financial consumer issues, resource and environment issues, risk management, Solvency II for private medical insurance, and variable annuities. In addition, groups in the process of being established include one on pensions issues in the context of corporate mergers and acquisitions and one for actuaries with a professional interest in China. 12 Annual Report of the Councils 2008/09 Member interest groups engage in a variety of activity. For example: The Banking Interest Group delivered a presentation at the Life Conference in 2008 on how the integration of insurance and banking techniques and thinking can add real commercial value. The Variable Annuities Group is developing a presentation for the Risk and Investment Conference in 2009 and has recently launched a newsletter for its members. The regional member interest groups develop programmes of events and activities to provide members with opportunities to obtain CPD and to network with other actuarial professionals in their own regions. Global Financial Crisis Group The global financial crisis presented unprecedented challenges for actuaries and the Profession moved quickly to support its members. A cross-practice global financial crisis group was set up to lead the work and to enable members to share knowledge about the issues underlying the crisis and the possible implications for the future. An open forum on the credit crunch and its practical implications for actuaries was held in early September 2008 and more than 140 people attended. An online discussion forum was launched in mid-December to provide members with a means to discuss the crisis. A broad range of discussion topics emerged and included posts on liquidity premia, the origins of the crisis, policy options and solutions, lessons learned, the roles of the credit ratings agencies in the crisis and implications for enterprise risk management. Discussions got off to a strong start and approximately 150 posts were made by the end of February 2009. The group also established working parties to undertake new research on value at risk and liquidity issues in the context of the financial crisis. Research on systemic risk has been commissioned from Cass Business School. A seminar on the financial crisis, due to take place in June 2009, was to provide a platform for a range of risk management experts, policymakers, regulators and finance professionals at the centre of the debate over the future of financial regulation. Highlights of member-led research 100 YEARS OF STATE PENSION By Tony Salter, Andrew Bryans, Colin Redman & Martin Hewitt Members of the Ageing Population Group produced 100 Years of State Pension – Learning from the Past. The book was published in January 2009 to coincide with the centenary of the payment of the UK’s first state pension. The book explores the history of the UK state pension legislation and how future pension policy can be developed to enable people to plan more effectively and with more confidence for their retirement. It was widely reviewed and promoted in articles in the general and trade press. The work of the General Insurance Reserving Oversight Committee (GIROC) is focused around three working parties: reserving under Solvency II, the effectiveness of reserving methods and understanding the business better for reserving. More than 60 actuaries have been involved in examining approximately 44,000 actuarial estimates for the effectiveness of reserving methods. Over 250 general insurance actuaries have been actively involved in GIROC. Learning from the past 13 Annual Report of the Councils 2008/09 Volunteer’s viewpoint: Bruce Macdonald Company: Scottish Widows Role: Managing Actuary, Final Salary Pensions 14 Annual Report of the Councils 2008/09 Faculty of Actuaries Fellow Bruce Macdonald has had an association with the profession that extends beyond his own membership; his father, Robert, is a former President who joined the Faculty more than 60 years ago. Since he qualified in 1983, Bruce has followed in his father’s footsteps by making a significant contribution to the Profession. This includes three years as a member of Faculty Council, five years on the Pensions Board and a decade as a member and the chairman of the Pensions Technical Support and Research Committee. He has also worked as an examiner and is currently a member of the Disciplinary Pool. Bruce said that although he did not originally plan to become an actuary, he had observed his father’s enjoyment of his career. “My father was President some time ago, and while I don’t think he influenced my choice of career, he clearly enjoyed his job, so it might have affected my decision indirectly.” Despite the similarities of their career paths, the role of an actuary has changed considerably during his career and that of his father. “I have ended up with a very varied career in a number of different roles, from managing teams, investment management, pensions consultancy, European insurance development, systems development, and latterly, pensions scheme actuary.” Bruce says the Profession has provided him with valuable support in his evolving career and the opportunity to continue to develop his skills. “Some of the biggest benefits of being a part of the Profession have been the increased knowledge I have gained, the opportunity to meet other members with similar interests and requirements, and the high standard of professionalism it promotes. “In the future, I’d like to see the Profession offer more advice on the ways actuaries could do things better.” His record of volunteering his services demonstrates Bruce’s willingness to be part of making this happen. “Some of the biggest benefits of being a part of the Profession have been the increased knowledge I have gained, the opportunity to meet other members with similar interests and requirements, and the high standard of professionalism it promotes.” 15 Annual Report of the Councils 2008/09 Staff member’s viewpoint: Karen Brocklesby Organisation: The Actuarial Profession Role: Registrar 16 Annual Report of the Councils 2008/09 “My role is all about encouraging people to join the profession and supporting them throughout their time as students. My team manages the various methods by which a student can qualify and ensures they are kept aware of developments to the education strategy and syllabus.” 9.15am Start the day with a coffee, then check through emails. These can range from emails from students who have questions about the work-based skills documentation, examiners who want to clarify the exam marking process, the Indian Association regarding our work helping standardise their processes, to internal emails from colleagues about issues such as the promotion of the Associate qualification. Prepare management information for meeting with the Professional Oversight Board. This involves gathering reports from our membership database about student performance on exams and converting this into trend information, which can then be discussed at the meeting and published on the Profession’s website. Prepare the latest edition of the Education Noticeboard. This is our key document sent to all students electronically, once every three months, to keep them abreast of the latest developments which may affect them as students. Meet with Careers Committee to discuss our latest university strategy. This helps me focus the staff resources allocated to this area to ensure that the Profession gets maximum exposure at selected university fairs. Staff meeting with the Registry Team to catch up on latest developments throughout the Profession and allow staff members to discuss the implications of them and raise any issues they may have. Finalise some papers concerning the current exam regulations for discussion and decision at the Education Committee. 11.30am 1.00pm 2.00pm 4.00pm 5.30pm 17 Annual Report of the Councils 2008/09 Learning and knowledge The three most popular universities for students to take their first degree before joining the profession were University of Warwick, Heriot-Watt University and City University. Twins Charles and Nicholas Owen both qualified as Fellows following the April 2008 exam session. Improving learning and knowledge opportunities Demand to qualify as an actuary continues to grow, evidenced by the increasing number of people coming into the profession each year. The Profession is committed to offering an excellent and continuing education provision to ensure members develop their knowledge and understanding throughout their careers. The number of applications to sit the Profession’s exams demonstrate a healthy interest from students wanting to pursue an actuarial career. The number of students applying to sit exams in April 2009 was 11,818 compared with 10,421 for April 2008. This represents a 13.4% increase. The number of applications to sit the core technical exams was particularly high, which reflects the increase in the new students registering in the last year. Of the 7,250 students registering to sit the Profession’s exams in April 2008, just under 4,000 (54%) did so online. Martin Jecks (right) – the third generation of his family to qualify – celebrates receipt of his Fellowship Certificate with his father and grandfather, actuaries Keith and Peter Jecks. 18 Annual Report of the Councils 2008/09 Developments for students The Profession has continued to review and revise the content and delivery of exams and supporting materials to ensure they are relevant to business practice and to provide students with the skills and knowledge that will enable them to make a valuable contribution to their employers. Some of these changes include: The core applications concepts subject has been renamed (core applications – actuarial risk management) and revised to reflect its emphasis on risk management. From 2010, the Profession will offer enterprise risk management as a specialist technical subject. April 2010 will see the introduction of separate exams in pricing and reserving to replace the single general insurance specialist technical subject. The content and delivery of the communications subject has been reviewed to better equip students with the skills to become successful communicators in their careers. A successful pilot of distance learning options for the business awareness and model documentation analysis and reporting subjects will enable students based outside the UK and unable to attend a Profession-run event to attend a distance learning version of the exam. Students can now take the UK practice module online – enabling them to sit the exam in their office, at any time of year. In the past year 342 students applied to sit the exam online. Of these, 263 had completed the exam and 202 had passed the exam by February 2009. University accreditations The number of university courses accredited by the Profession doubled this year, from six to 12 universities. The universities which gained accreditation were: University of Oxford, University of Cambridge, Queens University Belfast, University of Manchester, University College Dublin and University of Waterloo (Canada) – the first international university to gain accreditation from the Profession. Promotion of Associates In June 2009, the Profession was due to hold its first ceremony to recognise the achievement of students gaining the Associate level of qualification. The Associate qualification equips people with the skills to work in diverse roles within the financial sector and the ceremony will highlight the benefit and value of becoming an Associate. The Associate qualification is recognised internationally as meeting the minimum requirements to be an actuary in many countries. Extending awareness of actuarial skills The Profession opened its door to non-members for the first time in 2009, offering them the opportunity to take the financial mathematics (CT1) exam. The initiative aims to provide prospective actuaries and financial services staff with the opportunity to decide whether they would like to pursue actuarial studies, to prove their skills to employers, or to develop their numeracy skills. More than 70 non-members applied to sit the exam in April 2009. 19 Annual Report of the Councils 2008/09 Newly accredited universities: University of Oxford, University of Cambridge, Queens University Belfast, University of Manchester, University College Dublin and University of Waterloo (Canada) Building relationships with school and university students Students from across Scotland take part in Enterprising Mathematics in Scotland. The Profession takes part in a range of careers activities with schools and universities. For example, representatives of the Profession make about 100 visits to schools and 20-30 visits to university careers fairs each year to introduce and explain an actuarial career to students. In addition, the Profession sponsors a number of mathematics events for school students. The UK Maths Trust Intermediate Maths Challenge is one of three maths challenges sponsored by the Profession. The Intermediate Challenge is open to students in school year 11 and below in England, S4 and below in Scotland and year 12 and below in Northern Ireland. Some 258,950 students from 3,198 schools and colleges took part in the event in 2008. The Profession also sponsors Enterprising Mathematics in Scotland, organised by the Scottish Maths Council. In 2008, 51 schools/colleges and about 250 children aged between 14 and 16 took part in the event at the University of Strathclyde. International liaison Institute President Nigel Masters presents a Fellowship Certificate to Ting Zhi during an official visit to the Shanghai University of Finance and Economics. Many students who undertake the Profession’s education and exams process are based overseas. During each of the two exam sessions held each year, centres are set up in 60 countries throughout Europe, Africa, Australasia, North America and South America to ensure international students have the opportunity to take the exams locally. Representatives of the Profession also travel to universities around the world to speak to students, meet members and award Fellowship certificates. 20 Annual Report of the Councils 2008/09 Library and research activity Members of the Profession can now access a range of electronic resources direct from their PC, using Athens – a portal which is also used by many academic institutions. A full catalogue of the Profession’s archive was completed in 2007. The focus is now on preserving the content of the archive for research purposes and the production of a digital presentation of key manuscripts of actuarial innovation and heritage. A number of historical texts have been added to the collection, including: An Alarum against Usurers, Thomas Lodge, 1584. This includes evidence of a debtor having to repay his moneylender a ‘life-annuity’. Past Growth and Present State of the City of London, Corbyn Morris, 1751. A first edition and used by James Dodson to calculate mortality rates and level annual premiums by age for those applying for life assurance. Rules for the contributory Drury Lane Theatrical Fund, 1777. This was set up by actor David Garrick in 1775 and is still running. The fund is designed to support actors “whose age or infirmities should oblige them to retire from the stage” and may become the longest-running occupational benefit scheme. Research activity is a key part of the Profession’s role in promoting actuarial thought leadership. Recent studies have included: A study into the detrimental effects of obesity on life expectancy in the UK. Ben Rickayzen, Les Mayhew, Jon Richardson. The research used actuarial calculations of Body Mass Index (weight, in kilograms, divided by the square of the height, in metres) and waist to height (WTH) ratio measures to gauge the impact of excess fat on mortality. It was the first study of its kind to use data from the UK to quantify the years of life lost by an individual to obesity. Smooth models of mortality with period shocks. James Kirkby and Iain Currie. The researchers developed a method of forecasting mortality rates that incorporates unusual events such as a bird flu epidemic or extreme weather. It can be used to measure volatility in mortality forecasts and will prove valuable to pension scheme actuaries in modelling and forecasting mortality rates. Smoothing over-parameterized regression models with applications to mortality data. Iain Currie. The study discussed the difficulties of using penalized splines to smooth over-parameterized regression models and suggested a new smoothing paradigm, direct smoothing with B-splines and penalties, or direct P-splines, or DP-splines for short. Including count data in claims reserving. Anders Jessen, Richard Verrall, Jens Perch Nielsen. A so-called paid run-off triangle is considered in this study and it is assumed that the numbers of reported claims (in a similar triangular array) are observable. The researchers set up a stochastic model (built on a compound Poisson framework) using only these two triangular arrays for data. The model takes into account the delay from when a claim is incurred to when it is reported (the IBNR delay) and the delay from when a claim is reported to when it is fully paid (the RBNS delay). 21 Annual Report of the Councils 2008/09 Student’s viewpoint: Lesley-Anne Lappin Company: Prudential Role: Actuarial trainee 22 Annual Report of the Councils 2008/09 “I’m confident that the Profession will help me acquire the knowledge I need to excel in my career.” Faculty student Lesley-Anne Lappin helped the Profession reach an important milestone in February this year: the registration of its 20,000th member. The 23-year-old graduate of the University of Strathclyde is excited to be embarking on her career as an actuary and looking forward to using her mathematical skills. “I always enjoyed mathematics at school, and I also have an interest in finance, so I’m looking forward to applying that in my career as an actuary.” After completing her degree in Mathematics, Statistics and Finance, Lesley-Anne did not wait around before embarking on her professional duties, graduating on a Friday and starting her new job with Prudential in Stirling, Scotland, the following Monday. She hopes to get a general grounding as an actuary on her two-year rotation, which currently involves working in the Business Development department, and is looking forward to the challenges ahead. “I’m currently in the middle of studying for my exams in April when I will be sitting financial mathematics (CT1) and models (CT4). I am finding the adjustment from full-time study to full-time work and study challenging, but it’s a challenge which I enjoy tackling. Prudential offers an excellent package which helps support me in my development. The allocated study time the company provides allows me to take time away from work to concentrate on my exams.” While it is still early days for Lesley-Anne as a member of the profession, she believes her professional body will provide her with important support throughout her career. “I’m confident that the Profession will help me acquire the knowledge I need to excel in my career. My main aim is to become a well-rounded actuary with the ability to adapt to future changes.” As a woman in the Profession, Lesley-Anne is already making her mark on a traditionally male-dominated industry. However, she would like to help pave the way for more women to follow in her footsteps. “We have quite a few women in our department, but I would like to see a lot more in the future.” 23 Annual Report of the Councils 2008/09 Researcher’s viewpoint: Iain Currie Organisation: Heriot-Watt University Role: Lecturer and researcher 24 Annual Report of the Councils 2008/09 Researcher Iain Currie works closely with actuaries and the Profession to produce groundbreaking research on mortality modelling and forecasting. In 2008/09, Dr Currie worked with research student James Kirkby to develop a method of forecasting mortality rates that incorporates unusual events such as a bird flu epidemic or extreme weather, also known as ‘period shocks’. He enjoys working with actuaries to produce studies that could have a real impact on the way the industry works. He cites a recent paper on longevity risk and annuity pricing with the Lee-Carter family of models, in which he analysed the risk of forecasting using a particular member of that family. “There are obvious connections with the credit crunch here since some, at least, of our current woes stem from a blind belief in the correctness of certain financial models.” In his research, Dr Currie works on the statistics and the actuaries involved carry out the actuarial applications. He values the opportunity to work independently from the Profession, although with its support, to produce research which has benefits for actuaries and the financial industry as a whole. Dr Currie is looking forward to further improving the accuracy of mortality modelling used by actuaries in the future. “Forecasting mortality with limited data is a problem of interest to actuaries. I have some ideas for tackling this problem.” “I enjoy working with actuaries to produce studies that could have a real impact on the way the industry works.” 25 Annual Report of the Councils 2008/09 External stakeholder’s viewpoint: Joanne Segars Organisation: National Association of Pension Funds (NAPF) Role: Chief Executive 26 Annual Report of the Councils 2008/09 “The continuous evolution of the pensions landscape means the Profession is central to tackling issues such as pension fund deficits, the pressures on employer covenants and longevity.” “ The current economic crisis – now a full-blown recession – that has been at the forefront of our minds over the past 18 months has intensified the pressure on pension funds and those charged with running schemes. We have seen falling asset values mirrored by rising liabilities, all adding to the already significant size of many schemes’ liabilities. At times like these, pension fund professionals turn to their advisers, none more so than their actuaries. Whether it is dealing with deficits, assessing the scheme’s mortality profile, measuring sponsor covenant strength, considering scheme changes or dealing with the second round of Statutory Funding Objective valuations and negotiations with employers on changes to the underlying assumptions, trustees are increasingly turning to their actuaries. In undertaking this work, trustees take reassurance from the high professional standards of their actuaries and the continuing support and professional development provided by the Actuarial Profession. While the events of the past 18 months have led to many hours of analysis, it is vital that all professions operating in the finance industry not only contribute to solving the problems but also help to build a more robust system for the future. The role of the Actuarial Profession is pivotal. The continuous evolution of the pensions landscape means the Profession is central to tackling issues such as pension fund deficits, the pressures on employer covenants and longevity. In fact, I cannot see a time in the future where the Profession’s influence would reduce, I can only see it increasing as the pensions landscape becomes more complex. The pensions industry, employers, members and society itself will be relying on the Profession to help find solutions to these challenges that will enable people to enjoy retirement. The NAPF will always value and welcome the input and expertise that the Profession provides to the Association, its members and the on-going debate on the future of pensions. We look forward to continuing working with the Profession in the future. ” 27 Annual Report of the Councils 2008/09 Communications The pace and application of communication tools in business and leisure has continued to evolve dramatically. In 2008/09 more than 79% of members, and 66% of Fellows, were aged 45 or under. The Profession needs to take account of the communications experience and expectation of these members and other key stakeholders. While continuing to use traditional communication tools (eg printed publications), the Profession increasingly relies on digital communications (eg website, e-newsletters) to ensure that information is relevant to the recipient, is easily digested, and is shared in a timely manner. Among a range of initiatives during 2009/10, the Profession will launch a Facebook site for students and other members, develop microsites for specific events and activities, and continue building relationships with the media and external stakeholders to raise the profile of the Profession. Some of the feedback received: Communicating with members For speed and convenience, communication with members is increasingly delivered via email. During the year the format and content of e-newsletters were redesigned to provide more targeted and relevant information and news. The next phase will see the introduction of practice-specific and student newsletters. Members will be able to specify which newsletters they wish to receive, ensuring information is relevant to their interests and needs. “I have just two words to describe your new innovation – BRILLIANT WORK!” “The new format looks new and fresh.” “Well-designed and time-saving…” “Excellent!” “Much improved and very helpful! Looks great.” “Well laid-out and easy to find the items relevant to me.” Listening to members The Profession is committed to developing world-class member services which fulfil the needs and aspirations of its members. A comprehensive survey, to clarify levels of satisfaction with existing services and to identify priorities for future services and activities, was sent to all members in March 2009. The results of the survey will be used to inform future planning across the range of member services provided by the Profession. 28 Annual Report of the Councils 2008/09 Representing members The Profession regularly engages with policymakers and regulators to try to ensure that actuaries’ views and expertise are considered in policy development and that any changes will be workable in practice. Actuary volunteers also represent the Profession on advisory and working groups established by the Pension Protection Fund, Personal Accounts Delivery Authority, the Pensions Regulator and HM Treasury. The Profession regularly responds to consultations both to support members’ interests and fulfil its public interest obligations. More than 140 consultations were evaluated in 2008/09 and over 30 responses issued. During the past year, the Profession hosted two meetings with senior civil servants and regulators to discuss developments and plans on longevity. Similar meetings on longevity and discount rates will take place in 2009. As part of its public interest work, the Profession published a briefing note on income drawdown, explaining how it works and what risks a pensioner should consider before implementing such an arrangement. Promoting members In 2008/09, the Profession’s press office produced 40 press releases. These publicised events and activities ranging from fellowship ceremonies and conferences to research carried out by the Profession and its partners. As a result of this media activity, 102 articles were generated in trade, national and international media. The press office also responded to 85 queries or requests for comment from the media. In 2008, NHK Television of Japan filmed materials from the library archive for a programme about the beginnings of the insurance industry. The programme featured the work of James Dodson, who in 1755 first defined how actuarial life assurance business could be operated. In early 2009, a film crew from More4 News visited Staple Inn to talk about the Profession’s move to preserve its archive at a time when other business archives may be at risk of dispersal. The press office worked with external bodies including universities, schools, professional organisations, journalists and companies to produce press releases and liaise with media outlets. Supporting members The website has continued to develop and provide more features and capabilities. The technology that the site uses has enabled the redevelopment of a range of pages to make them easier to update and manage. This has meant, in particular, that publicity and material related to CPD events is updated and made available more quickly. The exam pass lists, of major importance to student members, are now available at the earliest opportunity on the relevant day. Fellow Zoe Craig – also an accomplished rider – discussed her views on the role and contributions of actuaries for the first in a series of short, promotional films featuring members. 29 Annual Report of the Councils 2008/09 Employer’s viewpoint: Paul Sweeting Company: Munich Reinsurance UK Life Branch Role: Longevity Strategist 30 Annual Report of the Councils 2008/09 “ Munich Re could not function effectively without the strong quantitative skills that a team of talented qualified actuaries brings. This is particularly true in my area, longevity, where the analyses of current life expectancies and potential future improvements involves actuaries using a wide range of complex mathematical techniques. The approaches being used in this and other parts of the financial services industry are constantly developing. Techniques from disciplines ranging from epidemiology to extreme value theory are being adopted – and adapted – at an ever-increasing rate. Strong mathematical skills are essential for this work, and actuaries are among the best qualified for the job. Just being able to carry out this sort of analysis is not enough. An ability to communicate the methods, assumptions and results effectively to a nontechnical audience can also be key. Other qualitative skills are also important. The commercial issues present in our industry require an appreciation of subjective factors, not just the outputs of calculations. Fortunately, communications and business awareness are skills that actuarial students learn as part of their training. The Profession also offers a range of opportunities for qualified actuaries to keep their skills up-to-date with a varied calendar of continuing professional development. All of this means that the actuaries employed by Munich Re possess the full range of skills necessary to stay ahead in the world of reinsurance. ” “The Profession also offers a range of opportunities for qualified actuaries to keep their skills up-to-date.” 31 Annual Report of the Councils 2008/09 Membership statistics The membership numbers have continued to grow during 2008/09 – reaching a milestone of 20,000 in February. Review of the membership statistics show a young, global profession with strong representation continuing in traditional industry sectors and types of employers but an increasing number moving into diverse areas. These figures are accurate as of 28 February 2009. Total membership Fellows Associates Students Affiliates Honorary Fellows 40% of members are based outside the UK 9572 10000 8000 6000 4000 2000 0 457 9643 482 102 Membership by body Body Faculty Institute Fellows 1495 8077 Associates 25 432 Students 1365 8278 Affiliates 38 444 Honorary Fellows 19 83 Totals 2942 17314 Membership by location Location Europe Overseas UK Fellows 744 1973 6855 Associates 25 181 251 Students 802 4177 4664 Affiliates 63 99 320 Honorary Fellows 31 23 48 Totals 1665 6453 12138 Membership by gender Gender Female Male Fellows 1881 7691 Associates 70 387 Students 3451 6192 Affiliates 118 364 Honorary Fellows 7 95 Totals 5527 14729 Totals 9572 457 9643 482 102 20256 36% of current students are female 32 Annual Report of the Councils 2008/09 66% of Fellows are aged 45 or younger Membership by age Age <21 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-80 81-85 86-90 91-95 96-100 >100 Not Known Fellows 0 44 1483 1819 1639 1352 829 566 666 445 252 190 139 70 43 30 4 0 1 Associates 0 1 37 60 37 20 12 42 107 56 36 13 21 8 2 3 2 0 0 Students 122 3920 3302 1263 554 244 116 58 31 10 6 3 4 1 1 0 0 0 8 Affiliates 1 12 40 51 71 94 55 69 47 20 7 6 2 3 1 1 0 0 2 Honorary Fellows 0 0 0 0 1 0 6 6 14 28 14 14 4 2 0 0 1 0 12 Totals 123 3977 4862 3193 2302 1710 1018 741 865 559 315 226 170 84 47 34 7 0 23 Membership by industry sector Sector Pensions Life insurance Health and care General insurance Investment management Investment banking Education Information technology Other actuarial Other non-actuarial Unknown Retired Fellows 2845 3063 128 976 455 162 88 53 147 249 443 963 Associates 106 91 7 34 22 13 6 11 13 26 46 82 Students 1578 1947 116 869 225 110 184 52 161 153 4231 17 Affiliates 85 104 2 71 25 7 19 13 9 25 98 24 Honorary Fellows 10 8 3 5 2 1 33 0 0 7 21 12 Totals 4624 5213 256 1955 729 293 330 129 330 460 4839 1098 Membership by employer type Employer Insurance or reinsurance Consulting firm Investment manager Investment bank Retail bank Public service Education Other financial company Other non-financial company Retired Not actively employed No information provided Fellows 3248 3718 284 162 109 147 102 122 111 963 224 382 Associates 107 139 18 4 2 11 8 20 16 82 19 31 Students 4028 3253 105 87 142 183 174 115 146 17 83 1310 Affiliates 145 166 9 8 10 13 23 12 17 24 9 46 Honorary Fellows 12 19 0 0 0 5 40 2 2 12 2 8 Totals 7540 7295 416 261 263 359 347 271 292 1098 337 1777 Totals 9572 457 9643 482 102 20256 33 Annual Report of the Councils 2008/09 Corporate governance Joint Councils, September 2008. Constitution The Faculty of Actuaries in Scotland and the Institute of Actuaries work together as the Actuarial Profession. The Faculty’s powers and duties derive from its Royal Charter, awarded in 1868. The Charter establishes the Council as the Faculty’s supreme governing body. The Council’s members are elected by its Fellows, Honorary Fellows and Associates. The Institute’s powers and duties derive from its Royal Charter, originally awarded in 1884 and supplemented in 1959. The Charter establishes the Council as the Institute’s supreme governing body. The Council’s members are elected by its Fellows and Associates. In accordance with Bye-law 80, the Institute gives its members at least 28 days’ notice for the Annual General Meeting which must be held within 15 months of the previous AGM. Byelaw 87 requires 21 days’ notice for an Institute Special General Meeting. Rules 18 and 19 of the Faculty require a seven-day notice period for Ordinary and Special General Meetings. Corporate governance The Councils have adopted the provisions of Section 1 of the Combined Code prepared by the Committee on Corporate Governance, to the extent appropriate. Composition of Councils, Management Board and Audit and Governance Committee covered at these meetings was the proposed merger between the Faculty and the Institute. In addition to the annual accounts and budget and corporate plan, other topics discussed during the past 12 months were changes to the disciplinary schemes, developments in the qualification system, the global financial crisis, and the Actuaries’ Code. New structure On 1 March 2008, the Profession introduced a new structure with redefined responsibilities. The Management Board runs the Profession, under delegated authority from Joint Councils, on an operational basis in accordance with the Profession’s scheme of delegations, powers and principles and with the strategy set by Joint Councils. Responsibility for overseeing governance and financial management lies with the Audit and Governance Committee, which is chaired by a Fellow of the Institute of Chartered Accountants in England and Wales, and reports to Joint Councils. The Faculty and the Institute Councils The Councils are responsible for the management of the affairs and business of the Faculty and the Institute in accordance with their Charters. To run the Profession in a unified way, the Councils meet jointly on a regular basis. As Joint Councils they consider strategy and policy, and develop key areas of thought leadership. In the last financial year, Joint Councils met four times – 19 May, 19 September and 12 December 2008 and 4 February 2009. Joint Councils also met in March, April and May 2009. The main issue 34 Annual Report of the Councils 2008/09 As at 28 February 2009 the Councils comprised 54 members as follows: 30 members elected to Institute Council by the membership, 22 members elected to Faculty Council by the membership, and 2 members co-opted to Faculty Council by Faculty Council. The members of the two Councils since 1 March 2008 are given below: Faculty of Actuaries President Honorary Treasurer Ronnie Bowie2 Stewart Ritchie1 Vice-Presidents Peter Joshi Honorary Librarian Howard Waters Honorary Publicity Officer Ronnie Bowie John Hylands David Martin2 Richard Muckart Janina Slawski 1 Brian Murray Honorary Editor Kate Stewart Roper1 Ordinary Members Past President Stewart Ritchie Harvie Brown1 David Hare 1 2 Honorary Secretary Ross Ainslie1 +David Bowie2 Alastair Clarkson1 Gerry Devenney2 John Dickson +Adrian Eastwood1 Huw Evans +Margaret Flaherty1 +Alan Goodman1 Chris Hancorn2 Fiona Kirkland Colin Ledlie Katie Low2 Keith Miller2 Alan Rae +Alan Rubenstein2 +Gordon Sharp1 Kenneth Tindall Alan Watson Brian Wood1 Gordon Wood until OGM on 23 June 2008, 2 since OGM on 23 June 2008, + co-opted Institute of Actuaries President Treasurer 2 Nigel Masters Nicholas Dumbreck1 Past Presidents Robert Hails George Russell1 2 Ordinary Members Nicholas Dumbreck2 Michael Pomery1 Vice-Presidents Sally Bridgeland Seamus Creedon2 Nigel Masters1 Honorary Secretaries Sally Dixon Kathleen Byrne2 Charles Cowling1 Wendy Beaver Andrew Chamberlain2 Deborah Cooper Charles Cowling Jane Curtis Donald Duval Ralph Frankland2 Peter Gatenby Paul Greenwood1 Dermot Grenham David Hindley Paul King2 Mike Kipling2 Julian Leigh John Lister1 Martin Lowes Fiona Morrison2 Derek Newton Martin Pike1 Michael Pomery Ian Reynolds Nicholas Salter Stuart Shepley Mark Stocker Paul Sweeting Peter Tompkins2 Colin Wilson1 Peter Wright1 1 until AGM on 30 June 2008, 2 since AGM on 30 June 2008 35 Annual Report of the Councils 2008/09 Elections Faculty of Actuaries The Faculty conducts elections to the Council every year when one-third of 12 ordinary members retire by rotation. Any member may stand or join in nominating a member for, or vote in an, election to the Council. Members are usually elected for three-year terms following the Ordinary General Meeting (OGM) in the year in which they are elected, although their election is reconfirmed each year at the OGM. Faculty Council members nominate the Faculty President and Office Holders for election at the OGM. The Office Holders are four Vice-Presidents, one Past President, one Honorary Secretary, one Honorary Treasurer, one Honorary Librarian and one Honorary Publicity Officer. The incoming Institute President is generally chosen after soundings of Council members around six months prior to the end of term of the incumbent President. Management Board Management Board has direct management responsibility for all matters related to the development and implementation of the Profession’s strategy, corporate plan, policy and operational plans, and all matters related to the Profession’s resources. Management Board reported regularly to Joint Councils and submitted six reports on its activities and progress, as well as recommendations on decisions required by Councils, during the financial year. These reports are also made available to members on the Profession’s website. Management Board delegates some tasks to the executive staff. Management Board reviewed, on behalf of Councils, the remuneration packages provided for staff, including the Chief Executive. Staff are remunerated with reference to their annual performance rating and to market benchmark salaries. None of the members of either Council receives remuneration for services to the Faculty or the Institute, other than reimbursement of out-of-pocket expenses and, very rarely, payments on a normal commercial basis. Management Board met 12 times in the last financial year. The original members were appointed by Joint Councils on the recommendation of the Appointments Committee. The Presidents, Chief Executive and Faculty Secretary The Presidents and other Office Holders act as the leading ambassadors of the Profession. They represent the views of Councils and the membership to ensure that these are fully taken into account in the development of the Profession’s strategy and policies. They work in partnership with the Chief Executive and the Faculty Secretary. The Presidents, in particular, represent the Faculty and the Institute at home and abroad, present the views of the Councils to Government, other public bodies and the public, and chair respective Faculty or Institute meetings. The Chief Executive is responsible to the Councils for the development, promotion and management of the Faculty and the Institute to achieve the strategy set by the Councils. The Chief Executive is responsible for the management of staff and for ensuring the Faculty and the Institute operate effectively and efficiently, supported by the heads of divisions reporting directly to the Chief Executive. Institute of Actuaries The Institute conducts elections to the Council every year when five of the elected members retire by rotation. Retiring Council members are not eligible for immediate re-election; otherwise any Fellow may stand or nominate a Fellow for, or vote in an, election to the Council. Members usually serve for six years. Institute Council members choose the Office Holders – the President, two Vice-Presidents, two Honorary Secretaries and the Treasurer. The members of the Management Board since 1 March 2008 are given below along with their attendance from this date to the end of February 2009: Name Position Chairman and Faculty Council member Faculty President Institute Council member Institute President Institute Council member Chief Executive Institute President Faculty President Faculty Council member Attendance: actual/possible John Hylands Ronnie Bowie2 Sally Bridgeland Nicholas Dumbreck3 Robert Hails Caroline Instance Nigel Masters4 Stewart Ritchie1 Alan Rubenstein 1 12/12 8/9 10/12 4/4 12/12 11/12 8/8 3/3 11/12 until Faculty OGM on 23 June 2008, 2 since Faculty OGM on 23 June 2008, 3 until Institute AGM on 30 June 2008, 4 since Institute AGM on 30 June 2008 36 Annual Report of the Councils 2008/09 The members of the Audit and Governance Committee since 1 March 2008 are given below along with their attendance from this date to the end of February 2009: Name Position Lay Chairman Faculty Council member Institute Council member Institute Council member Faculty Council member Institute Council member until 30 June 2008 Attendance: actual/possible Ian Cherry Huw Evans2 Dermot Grenham Ian Reynolds Gordon Sharp1 Peter Wright 1 3/3 2/2 3/3 3/3 1/1 3/3 until June 2008, 2 from August 2008 Audit and Governance Committee The main role of the Audit and Governance Committee is to ensure that the Profession practises good governance and sound financial management. The Committee has an oversight role rather than direct responsibility for financial and governance matters. The Committee gives its views to management on the financial statements, external audit, risk management and internal controls, as well as other ad hoc issues. No specific reviews on governance matters were commissioned or initiated by the Committee during the past 12 months. In January 2009, members of the Committee met the external auditor, reviewed and discussed his planned basis and scope of audit work. This included his quality control processes and independence requirements. The Committee was content that these were satisfactory and approved the audit plan for the year. The external auditor’s performance of his duties was considered by the Committee at the year end and it had no specific views or recommendations. The Audit and Governance Committee reports to Joint Councils and a report was submitted to the Joint Councils’ meeting on 21 May 2009 summarising the work undertaken by the Committee since it was established in early 2008 up to its meeting on 7 May 2009. Audit and Governance Committee met three times in the last 12 months. views directly to the Chief Executive and Head of People Matters. Staff are involved in change projects through focused action teams. Creditor payment policy The Profession’s policy is to agree and communicate clearly the terms of payment as part of the commercial arrangements negotiated with suppliers and then to pay according to those terms upon the timely receipt of an accurate invoice. This is usually within 30 days. Employees The Profession is committed to equal opportunities for all its staff and it is policy not to discriminate on the grounds of age, race, religion, sex, sexual orientation or disability. Should an employee suffer a disability, the Profession will do all it can to accommodate that disability and to assist the employee to continue his or her career, either in an existing role where possible, or in an alternative position. The Profession will provide flexible working arrangements for staff wherever practicable. The Profession is committed to developing each member of its staff. This is achieved through regular discussions about performance and learning and development needs with opportunities to realise potential. The organisation is accredited with the Investor in People award. Employees are updated regularly on developments through the Profession’s in-house staff bulletin and intranet. A staff forum meets regularly to give staff representatives a further opportunity to be consulted and involved, and feeds back staff Going concern The financial statements have been prepared on a going concern basis. The Councils have made relevant enquiries and have a reasonable expectation that the Faculty and the Institute have adequate resources to continue in operational existence for the foreseeable future. Internal control The Councils are responsible for the Faculty’s and the Institute’s systems of internal control and for reviewing their effectiveness. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives. They can therefore only provide reasonable and not absolute assurance against material misstatement or loss. 37 Annual Report of the Councils 2008/09 Wider aspects of internal control The Councils, through the Management Board, have established an ongoing process to identify, evaluate and manage the significant risks faced by the Profession. Each area identifies and reviews the risks faced and assesses the controls in place and any actions that may be required to manage those risks. The key risk assessments are reported regularly by the heads of division and reviewed by the Management Board, and there is oversight of this by the Audit and Governance Committee. The staff role should be viewed as that of an executive board where they give the Audit and Governance Committee the information it requires before it, in turn, prepares reports for the Management Board alongside the reports from the staff. Management Board agreed that this was their proposed way of operating, with some responsibilities delegated to the senior staff. The ongoing assessment of the risks is linked with the evolving Faculty and Institute Corporate Plan in compliance with the guidance document Internal Control: Guidance for Directors on the Combined Code. A high-level corporate risk register, together with the operational, divisional risk registers, already exists and is being integrated into a system to allow for easy update and tracking, linking with internal controls and corporate plan objectives. The aim is to achieve this integration in a number of key areas for review by the Audit and Governance Committee in October, with full completion for all areas by March 2010. The key elements in the system of internal control during the last financial year were: Delegation The overall objectives of the Faculty and the Institute are agreed by Councils, which assigned operational management responsibility to the Management Board and staff. There is a clear organisational structure, detailing lines of authority and control responsibilities. There are defined revenue and capital spend authorisation limits in place. There is a published Scheme of Delegations in place. Budgets Detailed annual budgets are prepared by the staff for approval by the Management Board and Councils. Actual results are compared to approved budgets on a quarterly basis and reported to meetings of the Management Board. Revised annual forecasts are also prepared and reported quarterly. Competence Staff skills are maintained and reviewed by both a formal recruitment process and a performance management system. Together, they provide regular opportunities for feedback on performance and identify training and development needs. Internal Audit Acting upon a recommendation from the Audit and Governance Committee, the Management Board agreed to the appointment of an external firm to provide an internal audit function for the Profession. Horwath Clark Whitehill were appointed from 1 March 2009. Review Councils, through the reports they received from the Management Board and the Audit and Governance Committee, review the effectiveness of the Faculty’s and the Institute’s system of internal control in operation during the financial year. Responsibilities of Councils Bye-laws 26 and 27 of the Institute and Rule 16(a) of the Faculty require each Council to prepare financial statements for each financial year. These give a true and fair view of the state of affairs of the Faculty and of the Institute and of the surplus or deficit for that period. Councils assigned these responsibilities to the Management Board which selected suitable accounting policies and applied them consistently taking into account the views and advice of the Audit and Governance Committee. In preparing the financial statements on behalf of Councils, the Management Board: made judgements and estimates that are reasonable and prudent; followed applicable accounting standards; and prepared the financial statements on the going concern basis. The Councils, through the Management Board and staff, were responsible for ensuring proper accounting records were kept, which disclose with reasonable accuracy the financial position of the Faculty and the Institute. They were also responsible for safeguarding the assets of the Faculty and the Institute and, therefore, for taking reasonable steps to prevent and detect fraud and other irregularities. 38 Annual Report of the Councils 2008/09 Attendance of Faculty Council members for the financial year 1 March 2008 to 28 February 2009 The attendance record at meetings of Faculty Council and Joint Councils is shown alongside each member (actual/possible). Name Faculty Joint Attendance of Institute Council members for the financial year 1 March 2008 to 28 February 2009 The attendance record at meetings of Institute Council and Joint Councils is shown alongside each member (actual/possible). Name Institute Joint Ross Ainslie David Bowie Ronnie Bowie Harvie Brown Alastair Clarkson Gerry Devenney John Dickson Adrian Eastwood Huw Evans Margaret Flaherty Alan Goodman Chris Hancorn David Hare John Hylands Peter Joshi Fiona Kirkland Colin Ledlie Katie Low David Martin Keith Miller Richard Muckart Brian Murray Alan Rae Stewart Ritchie Alan Rubenstein Gordon Sharp Janina Slawski Kate Stewart Roper Kenneth Tindall Howard Waters Alan Watson Brian Wood Gordon Wood 1/2 8/9 11/11 2/2 1/2 9/9 6/11 2/2 10/11 1/2 1/2 8/9 8/11 8/11 5/11 6/11 2/11 7/9 9/9 7/9 8/11 10/11 6/11 10/11 10/11 2/2 8/11 0/2 7/11 9/11 11/11 1/2 10/11 1/1 3/4 4/4 1/1 0/1 1/3 2/4 1/1 4/4 0/1 1/1 2/3 2/4 3/4 1/4 0/4 1/4 2/3 3/3 2/3 2/4 3/4 3/4 3/4 4/4 1/1 0/4 0/1 2/4 2/4 3/4 0/1 3/4 Wendy Beaver Sally Bridgeland Kathy Byrne Andrew Chamberlain Deborah Cooper Charles Cowling Seamus Creedon Jane Curtis Sally Dixon Nicholas Dumbreck Donald Duval Ralph Frankland Peter Gatenby Paul Greenwood Dermot Grenham Robert Hails David Hindley Paul King Mike Kipling Julian Leigh John Lister Martin Lowes Nigel Masters Fiona Morrison Derek Newton Martin Pike Michael Pomery Ian Reynolds George Russell Nick Salter Stuart Shepley Mark Stocker Paul Sweeting Peter Tompkins Colin Wilson Peter Wright 4/6 4/6 3/6 4/4 4/6 3/6 5/6 5/6 5/6 6/6 3/6 4/4 2/6 2/2 3/6 4/6 5/6 4/4 4/4 6/6 0/2 5/6 5/6 3/4 2/6 1/2 6/6 1/6 2/2 4/6 4/6 4/6 1/6 3/4 1/2 1/2 2/4 3/4 1/4 3/3 3/4 3/4 3/4 4/4 4/4 4/4 3/4 3/3 1/4 1/1 2/4 3/4 3/4 3/3 3/3 4/4 0/1 4/4 4/4 2/3 2/4 0/1 4/4 0/4 1/1 2/4 3/4 2/4 1/4 3/3 0/1 0/1 NB: Not all meeting venues had conference call facilities available. 39 Annual Report of the Councils 2008/09 Accounts For the year to 28 February 2009 These summary accounts are for illustration only and show the arithmetic total of the Profession’s financial position according to the accounts of the individual bodies. The balance sheet does not include adjustment for pension scheme position disclosures. Full details of the individual statutory accounts are available on the website at www.actuaries.org.uk. Income and Expenditure Total for Profession Total 2009 Income £000 Subscriptions and other income Subscriptions, admissions, certificate fees Actuary magazine fees Actuarial directory fees FTSE fees and other royalties Management services fees Lettings 8,399 78 20 50 34 136 8,717 Membership body activities Professional/ethical standards Member services International and Research Central Activities Executive People Matters incl. Pension arrangements Core Services 695 403 291 1,203 1,897 3,614 8,103 166 3,654 2,030 547 6,397 Expenditure £000 Net £000 8,399 78 20 50 34 136 8,717 (695) (402) (278) (1,145) (1,897) (3,612) (8,029) 79 2,945 1,085 (538) 3,571 (379) (198) 3,682 746 4,428 (186) 4,242 8,084 12,326 Income £000 7,580 51 41 57 45 169 7,943 22 20 749 384 186 756 6,955 3,524 12,554 165 3,173 1,962 653 5,953 Expenditure £000 Total 2008 Net £000 7,580 51 41 57 45 169 7,943 (727) (384) (166) (756) (6,955) (3,521) (12,509) 65 2,934 1,295 (652) 3,642 (331) (81) (1,336) 1,060 (276) (171) (447) 8,531 8,084 1 13 58 2 74 3 45 230 6,107 3,257 1 9,595 Activities supported by contributions DPB regulation Pre-qualification learning and professional development Post-qualification learning and professional development Practice areas & member interest groups 245 6,599 3,115 9 9,968 Participation in other bodies Gifts/donations Operating surplus/(deficit) Investment income Results before taxation Taxation Net result after taxation - surplus/(deficit) General and other reserves at beginning of year i.e. accumulation of past surpluses and deficits General reserves at the end of the year Central costs are not allocated to activities, so all contribution reported for any activity is gross of these costs. 40 Annual Report of the Councils 2008/09 Balance Sheet Total for Profession Actual 2009 £000 Fixed assets Investments Historical Books Stock Debtors Cash at bank Deposits Compensation fund bank account Current assets Creditors Members credit balances Taxation Deferred income Current liabilities Net current assets Net assets Represented by: General fund Investment revaluation reserve Compensation fund reserve 526 472 700 22 1,275 280 17,805 0 19,382 1,282 21 186 6,835 8,324 11,058 12,756 Actual 2008 £000 255 730 694 26 1,154 192 13,432 450 15,254 1,131 19 169 6,841 8,160 7,094 8,773 12,326 430 0 12,756 7,634 689 450 8,773 41 Annual Report of the Councils 2008/09 Pension Scheme Costs (FRS17 Equivalent Information) Faculty and Institute Of Actuaries Joint Disclosure 1 General These disclosures relate to the Faculty and Institute of Actuaries Staff Pension Scheme (the Scheme), a final salary pension scheme closed to new entrants with effect from 1 January 2003. Employed members continue to accrue benefits which are linked to the members’ final pensionable salary and service at their retirement (or leaving the Scheme if earlier). The Scheme assets are held in a separate Trustee-administered fund to meet long-term pension liabilities to past and present employees. The Trustees of the Scheme are required to act in the best interest of the fund’s beneficiaries. These disclosures exclude an allowance for any Additional Voluntary Contributions (AVCs). Introduction The Faculty and the Institute are two bodies that are separate legal entities and do not form a consolidated group for accounts purposes. There are no formal joint accounts, simply the summary memorandum version as shown on pages 40 and 41 in this annual report. The two Employers contribute to one defined benefit pension scheme and also contribute to other personal pension arrangements for staff who have joined since January 2003. The disclosures on all pension costs are shown in the statutory accounts of each body. The defined benefit element follows the required FRS17 disclosure for such multiemployer schemes. Both Councils wish to indicate to members the relevant disclosures on the defined benefit pension scheme as if there were only one combined body/employer. Set out below are the relevant disclosures that would be shown in the accounts of a combined body. The disclosures required under the FRS17 ‘Retirement Benefits’ have been calculated by an independent actuary based on the most recent full actuarial valuation at 28 February 2007 updated to 28 February 2009. The results of their calculations and the assumptions they have adopted are shown below. 3 Future funding obligations The most recently completed actuarial valuation of the Scheme was performed by the Scheme Actuary for the Trustees of the Scheme as at 28 February 2007. Following the valuation, the Employers agreed to pay fixed annual contributions of £940,000 from 1 December 2007. Prior to the 1 December 2007 schedule of contributions being put in place the Employers were paying contributions in line with those detailed in the schedule of contributions that was agreed on 16 December 2004. In addition, over the period 1 March 2007 to 1 December 2007 the Employers paid into the Scheme additional contributions of around £5.1m over and above the agreed amounts set out in the 16 December 2004 schedule. The next triennial valuation is due to be completed as at 28 February 2010. 2 How the liabilities arising from the Scheme are measured The liabilities of the Scheme are measured by discounting the best estimate of future cash flows to be paid out by the Scheme using the projected unit method, which is an accrued benefits valuation method in which the Scheme liabilities make allowance for projected earnings. 4 Disclosed expense All amounts shown in £000’s Fiscal Year Ending A Disclosed Expense 1 2 3 4 5 6 7 8 9 Employers service cost Interest cost Expected return on assets Past service cost Pension expense before special events Cost of curtailments Cost of settlements Other adjustments Adjustment to cost of curtailments, settlements and other adjustments for limit 10 Disclosed pension expense 824 1,300 (1,540) 0 584 0 0 0 0 584 849 1,099 (1,242) 0 706 0 0 0 0 706 28-Feb-09 29-Feb-08 42 Annual Report of the Councils 2008/09 All amounts shown in £000’s Fiscal Year Ending B Statement of Total Recognised Gains and Losses (STRGL) 1 2 3 4 5 Actuarial (gain)/loss arising during year Effect of the limit (Gain)/loss on currency Total (gain)/loss recognised via STRGL during year Cumulative actuarial (gain)/loss recognised via STRGL at fiscal year end 4,730 0 0 4,730 7,007 171 0 0 171 2,277 28-Feb-09 29-Feb-08 C Financial assumptions1 1 2 3 4 5 6 1 Discount rate Long-term rate of return on assets Price inflation Rate of salary increase Pension increases for in-payment benefits - LPI pension increases Pension increases for deferred benefits 6.00% 6.10% 3.40% 5.40% 3.40% 3.40% 5.10% 5.60% 3.00% 5.00% 3.00% 3.00% These assumptions were used to calculate Pension Expense as of the beginning of the year 5 Net balance sheet position Fiscal Year Ending A Development of Net Balance Sheet Position 1 2 3 4 5 6 Actuarial value of plan liabilities Fair Value of Assets (FVA) Surplus/(deficit) in the plan Unrecognised past service cost Amount not recognised due to asset restriction Pension asset/(liability) recognised in balance sheet All amounts shown in £000’s 28-Feb-09 29-Feb-08 (23,715) 22,238 (1,477) 0 0 (1,477) (21,940) 24,837 2,897 0 0 2,897 B Reconciliation to the Balance Sheet 1 Pension asset/(liability) at end of prior fiscal year 2 Disclosed pension expense for fiscal year 3 Employers contributions 4 Benefits paid directly by the employer 5 Gain/(loss) recognised via the STRGL 6 Gain/(loss) on acquisitions during fiscal year 7 Pension asset/(liability) at end of current fiscal year 2,897 (584) 940 0 (4,730) 0 (1,477) (2,456) (706) 6,230 0 (171) 0 2,897 C Analysis of liabilities into amounts arising from schemes that are wholly unfunded and amounts arising from schemes that are wholly or partly funded 0 0 1 Wholly unfunded schemes (2,897) (1,477) 2 Wholly or partly funded schemes (2,897) (1,477) 3 Total disclosed liabilities D Financial assumptions used at disclosure 1 2 3 4 Discount rate Price inflation Rate of salary increase Pension increases for in-payment benefits - LPI pension increases - Post-88 GMP (RPI pension increases, capped at 3%) Pension increases for deferred benefits 6.00% 3.40% 5.40% 3.40% 3.00% 3.40% 6.00% 3.40% 5.40% 3.40% 3.00% 3.40% 5 43 Annual Report of the Councils 2008/09 6 Demographic assumptions The mortality assumption adopted for the purposes of the calculations as at 28 February 2009 is as follows: Base table: “00 series” projected to 2007 in line with long cohort projections Future mortality improvements: long cohort projections from 2007 onwards, subject to a minimum improvement of 1% pa. The following table illustrates members’ life expectancy based on the mortality assumptions above: At 28 February 2007 At 29 February 2008 in years in years Retiring at Reporting date at age 60 Male Female Retiring 20 years after reporting date at age 60 Male Female 27 29 30 32 29 31 31 33 At 28 February 2009 in years 29 31 31 33 Members are assumed to retire at the earliest age at which they can take their full pension unreduced. This allows for the fact that pensions accrued up to 1 January 2003 can be taken unreduced from age 60. No allowance is included for members commuting their benefits at retirement. 7 Five year history of assets, liabilities and experience gains and losses All amounts shown in £000’s Fiscal Year End A Asset experience 1 Asset (gain)/loss during period 2 Asset (gain)/loss expressed as percentage of plan assets B Liability experience 1 Liability (gain)/loss during period 2 Liability (gain)/loss expressed as percentage of plan liabilities C Liability assumptions 1 Liability (gain)/loss over period 2 Liability (gain)/loss expressed as percentage of plan liabilities Total actuarial (gain)/loss recognised in STRGL Total cumulative actuarial (gain)/loss recognised in STRGL D Surplus/(deficit) 1 Actuarial value of plan liabilities 2 Fair Value of Assets (FVA) 3 Surplus/(deficit) in the plan 28-Feb-09 4,536 20.40% 29-Feb-08 1,439 5.79% 28-Feb-07 297 1.54% 28-Feb-06 (1,127) 6.78% 28-Feb-05 (453) 3.49% 194 0.08% 79 0.36% 19 0.09% (28) 0.14% 65 0.37% 0 0 4,730 7,007 (1,347) 6.14% 171 2,277 265 1.22% 581 2,106 1,810 8.93% 655 1,525 1,258 7.22% 870 870 (23,715) 22,238 (1,477) (21,940) 24,837 2,897 (21,717) 19,261 (2,456) (20,260) 16,627 (3,633) (17,420) 12,967 (4,453) 44 Annual Report of the Councils 2008/09 8 Changes in disclosed assets and liabilities All amounts shown in £000’s Fiscal Year End A Change in Plan Liabilities 1 Plan liabilities at prior fiscal year end 2 Employers service cost 3 Interest cost 4 Plan participants’ contributions 5 Actuarial (gain)/loss 6 Benefits paid from plan assets 7 Benefits paid directly by the employer 8 Administrative expenses paid 9 Plan change/past service cost 10 Acquisitions/divestitures 11 Curtailments 12 Settlements 13 Other adjustments 14 Plan liabilities at current fiscal year end B Change in Plan Assets 1 Fair value of assets at prior fiscal year end 2 Expected return on assets 3 Actuarial gain/(loss) 4 Employer contributions 5 Plan participants’ contributions 6 Benefits paid 7 Administrative expenses paid 8 Acquisitions/divestitures 9 Settlements 10 Other adjustments 11 Fair value of assets at current fiscal year end 28-Feb-09 21,940 824 1,300 0 194 (543) 0 0 0 0 0 0 0 23,715 29-Feb-08 21,717 849 1,099 0 (1,268) (457) 0 0 0 0 0 0 0 21,940 24,837 1,540 (4,536) 940 0 (543) 0 0 0 0 22,238 19,261 1,242 (1,439) 6,230 0 (457) 0 0 0 0 24,837 9 Additional disclosure information A Expected Future Benefit Payments for fiscal year ending 28 February 2010 B Expected Contribution Payments for fiscal year ending 28 February 2010 1 Employer 2 Plan participants C Actual Return on Plan Assets during fiscal year ending 28 February 2009 1 Expected return on assets 2 Asset gain/(loss) during period 3 Actual return on assets 561 940 0 1,540 (4,536) (2,996) 45 Annual Report of the Councils 2008/09 D Plan Asset Information Target Allocation Range (%) 15.0 15.0 14.0 28.0 28.0 0.0 100.0 Allocation Percentage 28-Feb-09 (%) 14.6 13.9 14.1 27.9 28.9 0.6 100.0 Allocation Percentage 29-Feb-08 (%) 14.7 14.7 15.2 27.9 27.4 0.1 100.0 1 2 3 4 5 6 7 UK equities Overseas equities UK Index linked gilts UK Fixed interest gilts Corporate bonds Cash Total The overall expected return on assets assumption of 6.2% as at 28 February 2009 has been determined with the aim of reflecting the average rate of growth expected on the funds invested having regard to the weighted average of the expected returns from each of the main asset classes. The expected return for each asset class reflects a combination of historical performance analysis, the forward looking views of the financial markets (as suggested by the yields available) and the views of investment organisations. Consideration is also given to the rate of return expected to be available on re-investment. 10 Membership of the Scheme as at 28 February 2009 Males Employed members Deferred members Pensioners Dependants Total 17 20 23 4 64 Females 35 55 21 5 116 Total 52 75 44 9 180 11 Sensitivity of the principal assumptions used to measure scheme liabilities Assumption Discount rate Rate of inflation Rate of salary growth Future mortality improvements Change in assumption Increase/decrease by 0.5% Increase/decrease by 0.5% Increase/decrease by 0.5% Move from long cohort projections with a minimum improvement of 1% to long cohort projections with a minimum improvement of 1.5% Impact on scheme liabilities Decrease/increase by approximately 10% Increase/decrease by approximately 10% Increase/decrease by approximately 3% Increase by approximately 2% 12 Solvency information The solvency (buy out) position as at the last valuation date of 28 February 2007 was estimated at 64%; this represented a monetary deficit of £11m. The latest estimate at 28 February 2009 is 67%, which is equivalent to a monetary deficit of around £11m. The solvency is inevitably an approximate position. 46 Annual Report of the Councils 2008/09 The Actuarial Profession www.actuaries.org.uk Maclaurin House 18 Dublin Street Edinburgh EH1 3PP Tel: +44 (0)131 240 1300 Fax: +44 (0)131 240 1313 Napier House 4 Worcester Street Oxford OX1 2AW Tel: +44 (0)1865 268 200 Fax: +44 (0)1865 268 211 Staple Inn Hall High Holborn London WC1V 7QJ Tel: +44 (0)20 7632 2100 Fax: +44 (0)20 7632 2111 Design and production by