Brilliant minds

Actuaries have never been the coolest kids in town, but this Christmas they will be top of every insurer’s wish list. As Solvency II approaches, the need for actuarial expertise has surged, and demand is now fast outstripping supply. Insurers must choose between trying to snap up talent in a rapidly shrinking pool by offering inflated wages, or waiting around for the peak to slide and risk losing out on top-quality staff. Actuaries are currently the ‘it crowd’ of the insurance industry.

Solvency II stipulates that insurers must analyse and monitor risk in a much more complex way. Article 47 sets out how actuaries will perform a crucial role in implementing these new regulatory requirements. This has put actuarial expertise at a premium in the marketplace. Industry experts estimate that insurers require roughly double the amount of actuaries compared with a year ago. One FTSE 100 insurer hired 33 actuaries this year, compared to just 15 during 2008. As a result, many are now able to command hefty wage packets.

Currently, the salaries for top actuaries are fast approaching investment banking levels, according to one industry source, who says they have increased from an average base salary of £80,000-£100,000 with a 50% bonus a year ago, to present levels of £150,000-£180,000 with the same bonus percentage. The news is even better for contractors. Day rates for those professionals well-versed in Solvency II now fall in the £1,250 bracket, but the most skilled experts can demand between £3,000 to £5,000 a day. There is scope for these figures to rise even further as we get closer to 2012, when the regulation takes effect.

Meanwhile, the dearth of domestic talent in the UK has forced insurers to look further afield. James Stokes, partner of recruitment consultant The River Partnership, says that nearly half of all eligible candidates for actuarial positions are now based outside the UK. “The demand outstrips local supply. We would present a list of candidates, and approximately half would be based in Paris, Zurich, Madrid or Geneva.”

Why the shortage?

Deloitte partner Dr Lis Gibson explains why there aren’t enough actuaries to cope with the sudden demand created by Solvency II.“The profession can’t suddenly change the amount of actuaries it has. The number is slowly growing, but it does take a long time. It takes five or six years to qualify.” Insurers also face stiff competition from the banks, which are targeting this prized talent too. “They have deeper pockets and are more aggressive about it, and insurers have to up their game and pay more money,” Stokes says.

Furthermore, under the new requirements, the role of the actuary has expanded greatly, which means that some qualified actuaries have yet to gain the additional expertise. “Under article 47, the actuarial function has very wide-reaching responsibilities that cover not just the traditional areas of reserving and capital, which an actuary has been doing for a long time, but more broadly the areas of risk management of underwriting controls, reinsurance, and data,” Gibson says. “Effectively, the things that actuaries have been doing for the past ten years – they have to do that and a whole bunch of other things.”

ABI director of financial regulation and taxation Peter Vipond agrees that the bar has been raised. “The game is changing considerably and there is a new landscape for risk. Clearly, people who are in risk functions are going to have a bigger role in the future and we are looking at a different sort of people: not just people who can crunch the numbers, but those who can have a risk dialogue in their own firm and be part of the most senior management.”

The race for talent

Now that the requirements of Solvency II are becoming clearer, some insurers are scrambling to seize the remaining talent. “I would imagine the actuarial consulting firms are getting calls directly from the insurers on a day-by-day, hour-by-hour basis,” Stokes remarks.

But, while some insurers are beating down the doors of recruiters, others are holding back. Are these companies lagging behind in the race for actuaries? “There are organisations that are still defining what Solvency II means for the business and they are operating like rabbits in headlights. They are almost waiting for divine intervention to tell them what they have to do,” IBM associate partner of insurance strategic business solutions, John Smith, says.

Industry headhunters believe that, thanks to the recession, some insurers are settling for the minimum requirement when it comes to recruiting for Solvency II. Smith argues that this approach may create future pitfalls.

“First, they are going to struggle to get the best that they would want, and secondly, as the day rates increase or salaries continue to increase, impact in a monetary sense is likely to increase proportionately.”

Recruitment consultant Original Search director Tim Rickman agrees that the longer an insurer waits, the harder it will be to find a good-quality candidate. “Their skills are at a premium … they are being well-treated and well-looked after,” he says.

Vipond believes that while the shortage has yet to hit crisis point, it will put pressure on smaller insurers. “It means insurers need to invest in training and development of staff and develop new infrastructure for business. It will tend to support firms with larger books rather than smaller books, as these costs can be better set off against the wide spectrum of business.”

The consensus is that European domiciled insurers, such as Zurich, are ahead of the game. “Zurich does not see an increased need for recruiting additional experts in the run-up to Solvency II,” a spokesman says. “Zurich introduced a risk-based approach some time ago. Furthermore, as a Swiss-based global company, it already complies with the Swiss Solvency Test, which is similar and in some respects even goes beyond the envisaged Solvency II requirements. Zurich therefore already has the experts in place.”

The UK position

Industry sources suggest that UK general insurers continue to be divided between the choice of scrambling and stalling. According to one headhunter, market giant Aviva has opted for the former, paying 20% more than rivals to secure the necessary quota of actuaries. “Aviva, in particular, is starting to pay what may look in a year or two as over the odds,” he says.

Aviva’s group talent management director, Arvinder Dhesi, says: “We've been gearing up for this for some years, and have been heavily involved in the debate and shaping of Solvency II. We therefore already have a strong talent pool of actuaries and risk people within the company. We do foresee a demand from the industry as we move closer to the implementation of Solvency II, and we’ll continue to focus on retaining and developing our existing talent.”

Elsewhere, RSA has been identified as one of the ‘wait and see’ pack. “They have a view that it is something that they don’t see as necessary and therefore not adding anything to the bottom line,” an industry source says. “It is going to cost them in the future. They are going to have to implement it and the only way they are going to source the skills is to headhunt from the firms that are actively implementing this and are further down the road.”

But an RSA spokesman said: “RSA leads the industry in its capital modelling capabilities and is experienced in running big regulatory projects such as SOX. We've been working very closely with the FSA as they develop their Solvency II plans, and will continue to do so in the future.”

While it is widely held that this intense demand will tail off in 18 months as more actuaries come on stream, in the meantime insurers are still faced with the dilemma of either pouncing on actuaries with the promise of large sums or waiting till the rush dies down. Stokes believes that while the first option may be a tough call during a recession, the latter could be an even bigger gamble. “It is imperative they catch up, not just to put a tick in the box in terms of regulatory approval and compliance, but to stay competitive. You need to be able to allocate capital as well as your competitors.”

As Gibson puts it, there is “little wriggle room” when it comes to the new role of actuaries in insurance. She says: “A lot of the nuts and bolts of Solvency II will be done by actuaries. That is the way the directive has been written, that seems to be what the legislators intended, and that is what is going to have to happen in practice.” It seems there is no getting around it. The time of the actuary is now. IT