IAA Banking Working Group & ASSA Seminar, Chicago

Institute President Jenny Lyon reports on the International Association of Actuaries Conference in Chicago that included a seminar initiated by the Actuarial Society of South Africa: ‘The Actuary in Banking’. Australia was specifically invited given our work in developing a Part III banking subject.

I was lucky enough to attend this October conference, where representatives from the actuarial bodies of South Africa, Canada and the United States presented on the development of the actuarial banking profession in their respective countries. The seminar was chaired by Michael Tichareva and the key speakers for the day were Rolf van den Heever (South Africa), Erick von Schilling (Canada) and Brian Brown (USA).

Michael Tichareva described the areas that actuaries have been involved in supporting banks to achieve their strategic objectives. He highlighted the profession’s risk management expertise as an essential requirement in running all aspects of a banks.  Michael strongly encouraged individual associations to support this new practice area.

South Africa

Rolf van den Heever, the Principal Examiner for the South African Banking Fellowship and a member of the ASSA Banking Committee, outlined the strong presence of the profession in the South African banking scene. The expansion of big data capabilities and transfer of actuarial skills has enabled actuaries working in banking to move into customer analytics by identifying opportunities across the lifetime of customers.

Capital management was identified as another area where actuaries in South Africa have played a pivotal role. Rolf walked us through an income statement of a bank to identify the areas where actuaries are having an impact. He also highlighted the process engineering capabilities required in understanding and influencing operational expenses.

Opportunities and challenges have arisen in banking because of regulation, fintech, unprecedented volatility, systemic risk and scarcity of actuaries.

Rolf stressed the importance of actuarial judgment and wider perspectives, particularly with regards to statistical projections and the use of historical data.

Rolf indicated there are significant opportunities for actuaries in applying new regulation including Basel III, ICAAP/CCAR, recovery plans, IFRS 9, BCBS 239, anti-money laundering and financial crime.

Casualty Actuarial Society (CAS) 

Brian Brown, the President of the Casualty Actuarial Society and the Global Practice Director of Milliman, provided detail of the work that actuaries in the USA perform within banks and bank-related functions. The key area of involvement is in the mortgage market, mainly driven by property-casualty actuaries.

The US Financial Accounting Standards Board’s (FASB) current guidance does not require banks to set reserves for bad debts for mortgages until a mortgage payment is delinquent by 60 or 90 days. The new FASB requirement which is referred to as the ‘ Current Expected Credit Loss’ will require banks to use a more sophisticated approach to set a lifetime bad debt reserve for mortgages. This new requirement is effective in 2019.  CAS members in the US have been doing lifetime reserving work for their mortgage insurance clients for years. This hopefully will create opportunities for CAS members to do work for banks in the US.

The key challenges to execute these tasks are access to and quality of data, analysis skills and model building skills. This development is like the transition to IFRS 9  that dealt with recognition and measurement of financial instruments. The standard is being implemented in South Africa from the beginning of 2018. This is a critical area for actuaries to get involved as the skill-set required for this new approach is firmly within actuarial territory.

Brian described the performance of subprime loans by several risk characteristics, clearly displaying the need to stochastically model credit risk for the mortgage market. They have more recently developed default score-cards and repurchase score-cards to improve risk management and optimise customer lifetime opportunities. They have displayed the value the actuaries are bringing to credit-based organisations by discussing how the models are being used across the organisations. The continuous assessment of these models and the risks of these products also require actuarial skills.

Brian discussed credit model framework with the audience to display the need for innovative credit risk modelling. Once again, this is extremely valuable in mortgage analysis and risk management. The role of actuaries in bringing independence and transparency was echoed by Brian as a critical value-add that is required by banks.


Erik von Schilling, the Vice President of Pensions and Treasury Investment Management with the Canadian Imperial Bank of Commerce and the co-Chair of the IAA Banking Working Group, discussed the progress that the Canadian actuarial profession has made in penetrating the banking sector.  To date, the advancement of actuaries within banks has mainly been at an individual level, as opposed to an organisational level. The key areas of banks where actuaries currently operate are credit and mortgage insurance; asset management; HR benefits and other insurance-related benefits. Erik described his journey within banks working in the Treasury, asset liability management and capital management. He described the value of balancing the business objectives and the statistical rigor required of actuaries.

Erik identified key opportunities for actuaries in Canada and other jurisdictions. These include IFRS9, institutionalising enterprise-wide stress testing; retail product acquisition, profitability and collections; corporate and commercial credit management; operational and market risk modelling; and credit insurance.

Martin Collins (United Kingdom), Jennifer Lyon (Australia) and Kudzai Chigiji (South Africa) joined them for a lively panel discussion where they answered a range of questions covering education, CPD opportunities, entering banking as an actuarial student and challenges for (and from) banking employers when recruiting and training actuarial students.

However, there was a consensus that individuals need to learn about the overall business to deliver value in a bank. The key challenges that are faced are lack of a community within banks which identifies as being ‘actuarial’; lack of support from leadership within banks and the member associations; poor overall branding of actuaries outside of insurance, healthcare and pensions; and the strong requirement to up-skill to be able to navigate the banking world.

It was clear that even with the right curriculum, there is a significant amount of work that needs to be done between the profession and banks, and within the banks themselves to ensure that the opportunities for actuaries are more readily presented.

I was heartened by the fact that our Banking Practice Committee is working steadily to develop our banking course and to develop a network of banking actuaries to promote the profession’s skill set within that sector. Australia is certainly on par with other Institute’s in its efforts to create pathways for the profession into banking.

The presentations made by the speakers can be found on the IAA Banking Working Group website. 


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