Actuaries in Banking

The Actuaries Institute’s Banking Practice Committee (BPC) was formed in late 2013. It was established to support the growth of the actuarial profession in the banking sector at a time of heightened focus on Australia’s financial system.

The BPC is determined to give Institute members better visibility in the areas of banking that actuaries are already working in, with a view to promoting the Actuary brand, helping actuaries understand the opportunities available and facilitating new opportunities through education.

Committee members come from a wide range of roles across commercial and investment banking in Australia and Asia. Members also include consulting actuaries regularly engaged by banks.

The members include: Phillip Everett (Convenor), Michelle Cater, Steven Claxton, Joshua Corrigan, James Hickey, Paul Nuttall, Chao Qiao, Nick Scott, Lisa Simpson, Peter Sinkis, and David Su.

SURVEY AND INTERVIEW METHODOLOGY

In order to support the BPC objectives, a survey was conducted to better understand the current profile, thoughts and ambitions of members working in banking today. The target group was Institute members who identify their practice area as banking. The survey was followed up by several interviews with self-selected survey respondents from the survey pool. Overall, there were 47 respondents, representing 16% of the targeted potential member universe.

RESULTS AND FINDINGS

BACKGROUND

As banking is a relatively new sector for the profession, we were initially interested in how members arrived at their role in banking.

Actuaries are active in ‘front-office’ banking roles as well as the often stereotyped corporate and middle-office roles.

Figure 1 Background

Figure 1 shows both the length of time our survey respondents have worked in the banking sector, and their typical practice areas prior to moving into banking. Overall, it shows that there is a broad mix of backgrounds from traditional – predominately life and general insurance – and non-traditional areas.

Further, there was an even allocation across the experience brackets, indicating in our view a good mix for the survey results and inferences. More importantly, it may also imply a healthy distribution of new entrants and seasoned professionals across the sector.

CURRENT ROLES

Actuaries have taken on a variety of roles within banking, as demonstrated in Figure 2.

Figure 2 Current Roles

The high combined percentage in Investment Banking and Markets (29%) shows actuaries are active in ‘front-office’ roles as well as the often stereotyped corporate and middle-office roles. At this level, there is a pleasing variety of roles across the highly diverse segments of Credit Risk and Treasury. The large percentage of members in Credit Risk roles was expected based on the anecdotal recognition of this area as the more natural ‘cross-over’ point from statistical modelling roles in general insurance noted above.

Of particular interest was the small number of respondents in product management and pricing roles. We are aware of a number of actuaries who have been highly successful in these roles. In their experience, banking products are fertile ground for actuarial methods developed in similar roles within the insurance and superannuation sectors.

PERCEPTIONS

Actuaries are positively regarded within banks and there is no evidence of any perception issues that are limiting the opportunities of actuaries within banking. However, within the major subject area of Credit Risk, there is some indication that actuaries are perceived as ‘modellers’ as opposed to managers using skills ‘across the control-cycle’.

As shown in Figure 3, there is a significant group that do not believe their actuarial background is relevant to their colleagues’ perception of their skill set. This is notwithstanding that actuaries themselves certainly feel particular aspects of their skill set is relevant on a day-to-day basis, as presented previously.

This reflects a number of members who have simply made their own way in banking where there is less recognition of the value of the actuarial qualification. Although strong quantitative skills are seen as a key feature of the actuarial profession it was noted by some respondents that actuaries were not necessarily ‘top-of-mind’ for quantitative roles.

Figure-3-Perceptions

SUITABLE AREAS

As a bridging question to future opportunities, we asked what areas of banking are best suited for actuaries. This question allowed multiple responses, and unsurprisingly, this is in many ways an extension of current roles as shown in Figure 4.

Treasury and Product Management and Pricing both scored above 10% and it indicates strong interest in these areas. One reason we suggest for Treasury’s high score is the recent increased regulatory and market focus on funding and liquidity within Banking.

As mentioned earlier the well-established role of actuaries in product pricing in the insurance sector has offered a natural transition into banking. In post-survey interviews, we discussed the application of disciplined pricing techniques developed for insurance being used for products in the retail sector, and the uses of quality data available in this sector for certain products such as credit cards, loans and deposits.

Figure-4-Suitable-Areas

FUTURE OPPORTUNITIES

A number of future opportunities were identified through the survey and the follow-up interviews:

  • risk management (10%) and the Basel III Requirements (10%) are the most dominant issues and challenges;
  • post-survey interviews revealed potential areas including sovereign risk models, stress testing and credit provisioning (IAS 9); and
  • several members also highlighted the opportunity to apply quantitative pricing models to banking products.

CONCLUSION

The survey results support in many ways our hypothesis and perception that actuaries are working in a wide range of banking roles, with a slight bias shutterstock_flying-money161301017towards credit risk modelling. In the absence of a banking specific qualification and the wide range of banking roles, no one profession or qualification suite dominates the banking sector – with the possible exception of accountants which, as expected, dominates finance roles.

One of the objectives of the BPC is to provide banking specific education for members. This would improve the relevance and suitability of an actuarial qualification for roles in banking. As there is also no single widely-recognised banking specific qualification there is a compelling case for the Institute to support this initiative.

The diversity of banking roles occupied by actuaries is healthy and a sign of the wide applicability of the actuarial skill-set, experience and ambition of actuaries. Actuaries are active in client-facing investment banking roles as well as the wide array of risk and product management roles.

The continuous increase in levels of both modelling sophistication and regulatory oversight across banking activities can only be a positive sign for the profession.

Lastly, we would like to sincerely thank all our survey respondents and interviewees, as this article would not have been possible without your time and effort.

The diversity of banking roles occupied by actuaries is healthy and a sign of the wide applicability of the actuarial skillset, experience and ambitions.

PAPER

This article was based off a paper presented at the Financial Services Forum in May 2014. The full paper can be found at the Actuaries Institute website: http://actuaries.asn.au/Library/Events/FSF/2014/SinkisScottBankingPaper140505.pdf

AUTHORS’ BACKGROUNDS

Peter Sinkis is currently Manager, Portfolio Management & Analytics in NAB’s Deposit Products Team.

Nick Scott is currently Director, Funds & Insurance Advisory, Europe in NAB’s Global Institutional Banking Group.

Both Peter and Nick are members of the Actuaries Institute Banking Practice Committee.

CPD: Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.

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