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The great actuary shortage

Across Europe, a shortage of trained actuaries is reaching crisis point, as the industry experiences a growth in demand for pensions-related services. Much of the demand is generated by amendments in national legislation in many European countries, forcing changes to employers’ pension provision — companies are either responding directly to new conditions, or are being proactive and putting systems into place to prepare for the future.
In Switzerland the demand for actuaries is so great that many firms are forced to look outside the country for new recruits, according to Jalila Susini, pension funds expert at Buck Consultants in Geneva. Part of the problem is that there is only one training programme, at the University of Lausanne, which produces only five or six graduates each year. “The demand for their services is such that the students have all lined up jobs before they have even completed their degrees,” says Susini.
Foreign recruitment is not necessarily a solution, however, and the fact that business in Switzerland is conducted in three different languages compounds recruitment difficulties. “Swiss pension plans and companies are quite conservative,” says Susini, “and they prefer to go to domestic companies, although multinationals tend to gravitate towards the big international firms. But because of the nature of the Swiss market, even the international consultancies need to have Swiss staff.”
And although actuaries have enough work on that they do not need to look to diversify their services, recent regulations have required actuaries in Switzerland to have an understanding of investment consultancy, and some of the younger actuaries are actively exploring the possibilities of the field. But for experienced Swiss actuaries, it is more of a stretch. “I am a typical Swiss actuary,” says Susini, “and I don’t feel very comfortable with investment. We should have some training.” There is a small programme at the University of Lausanne for qualified actuaries, but the Swiss Association of Actuaries, although it is becoming more active, does not yet offer professional training.
In Ireland, too, actuaries are finding themselves somewhat unprepared for the new business environment they are facing. “They have to shake themselves out of the old, comfortable environment,” says Gerry O’Carroll, partner at Watson Wyatt in Dublin. “They have to change to accept the new conditions.”
In Ireland, the past five years have been tumultuous, because of the sea change in the Irish economy, driven by high-tech companies and American multinationals. More legislation is due shortly, expects O’Carroll, as the government becomes concerned by the low level of state pensions and diminishing participation, especially since, over the past year or two, pensions have been supplanted by share options in many employee benefit schemes. A new pensions vehicle is expected, which employers will be obliged to make available.
“The result of all this is a huge workload on an already overstretched industry,” says O’Carroll, noting that there is a particularly huge demand from the life industry. In addition, much of the work is investment related: advising on selecting investment managers, defining and structuring mandates, or offering asset-liability management. O’Carroll is also finding that actuaries are being called upon to work closely with other professions to develop solutions for their clients. Internally in his firm, there are cross-practice teams, and he finds clear benefits to the multi-disciplinary approach. And with many multinational clients, Watson Wyatt is often called upon to work across borders. “A lot of our work is global now,” says O’Carroll.
“Our numbers are low but we have great influence,” he says of actuaries in Ireland, “and the profession is doing great work.” The Society of Actuaries in Ireland is very active. “We are doing all in our power to grow the industry as rapidly as possible,” says O’Carroll, without relaxing the stringent selection criteria.
In Spain, similarly, although there is not a shortage of actuaries per se, there is a need for actuaries who are experienced enough to provide a full range of services, particularly consultancy on plan redesign as well as benefit consultancy. “There is a high number of actuaries,” says Manuel Peraita of Peraita & Asociados in Madrid, “and we are fairly well covered, but not everyone is able to provide the full range of services.”
This results from legislation passed five years ago that imposes that any employer’s pension arrangement should be externally funded, either through a pension fund or an insurance company. The deadline for fulfilment of this requirement, originally set for 2001, has been extended to the second half of 2002 as companies, as well as unions and other employee associations, are still scurrying to get suitable pension schemes in place. So, according to Peraita, the demand is coming from three sectors at once: from employers and unions looking to consultants for advice; and from financial institutions experiencing an increase in business levels.
As a result of these changes, Spanish actuaries are being called upon to advise on plan design, because “a lot of redesign of plans is involved in this process,” explains Peraita, as well as benefit consulting, but it is rare for actuaries to get involved in investment advice. This has created for a demand for actuaries who had experienced the on-the-job training provided by the larger actuarial firms, particularly the multinationals but also some of the larger Spanish groups.
In Spain knowledge of the national market is of prime importance, as there is not much call for cross-border consultancy. It is far more common for foreign multinationals to seek local advice, rather than for Spanish multinationals to seek, in Spain, advice outside the national market.
In order to offer a range of international services, when required, Peraita & Asociados is a member of Euracs, a European association of independent actuarial consulting firms. Founded in 1982, it has members in almost every European countries. “Each firm is important in its own country, but is not multinational,” is how Peraita described the membership. It is also affiliated with Noracs, the North American equivalent with members in the US, Canada and Mexico. Euracs undertakes joint research and analysis projects and organises cross-border seminars and co-operation.
Germany is also experiencing a shortage of trained actuaries, and legislative changes in the pipeline are creating even more pressure. “There is definitely not enough actuaries,” said Thomas Hentrich at the Deutsche Aktuarvereinigung (the German Actuarial Association). “Many companies are trying to hire actuaries and discovering that they are difficult to find. We are frequently contacted for assistance.” This is despite the fact that around 150 people qualify every year, having completed the Association’s training programme. Around 1,000 are currently in the programme, most working in insurance companies or consultancy firms as they do so. There is also a training programme at the University of Ülm. There is an increased demand for actuaries to possess some expertise in areas of financial management in Germany. This is reflected in the Association’s training programme, which is increasing the emphasis on investment-related subjects. It is also trying to help qualified actuaries by offering seminars.
Unlike Germany, in France there have been no legislative changes, retaining the traditional pay-as-you-go system. Some companies are setting up supplemental private schemes, often for top management, according to Jean Berthon of the Fédération Française des Actuaires, and are using actuarial consultancies to advise on manager selection and plan design. But because this is happening on a reasonably small scale, there is no stress on existing firms. That said, trained actuaries are still in demand. “There is not precisely a shortage,” said Berthon, “but there is a lot of demand. Newly qualified actuaries have no problem finding a job.”
The situation is similar in the UK. While there have been no precipitating events, actuaries are very much in demand, according to Peter Morgan at actuarial firm Bacon Woodrow. They are also being called upon to do more investment consulting, for which they are, uniquely, prepared. “Actuarial training in the UK, for the past 30 or 40 years, has included a lot on the the investment/asset side,” said Morgan. “In the rest of Europe it is not as good, but it is increasing.”
The shortage of actuaries in the UK is down to a number of factors according to Paula Cook of Bacon and Woodrow. In the past three to five years, fewer university graduates have been attracted to the field, looking instead to more generic corporate finance work. “The best and the brightest are not seeing the actuarial field as equally valuable, despite the fact that it is a good proving ground and is as remunerative” said Cook. “So we are not getting the same calibre of applicants as in the past.” There is also some concern that if current numbers are not maintained, this will lead to a shortfall in the future. The number of trainees is determined by the actuarial firms, so they are under pressure to ensure their own continued success.

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