ACTUARIAL CAREERS MY CAREER AS AN INVESTMENT ACTUARY

1. ACTUARIAL CAREERSMY CAREER AS AN INVESTMENT ACTUARY 20 MARCH 2014 Rebecca BakerMercer Financial Strategy Group, London

2. Agenda • About me • Types of actuarial work • The route to qualifying as an actuary • My role as an investment actuary • Applying for actuarial jobs • Questions?

3. ABOUT ME

4. About me… 2002-2006 • Castle student • Maths undergraduate degree 2006-2010 • Maths PhD at Durham, supervised by Professor Coolen • Research in Nonparametric Predictive Inference (NPI) – in the field of imprecise probability 2010 • Applied for a job at Mercer to work in the Financial Strategy Group

5. About me… • Since 2010 I have been working at Mercer • I work in Investment Consulting, within Mercer’s Financial Strategy Group - involves a mix of investment advice and actuarial techniques • I am also working towards becoming a fully qualified actuary (“Fellow of the Institute of Actuaries” – FIA) • GLOBAL CONSULTANCY FIRM SPECIALISING IN: • INVESTMENTS • PENSIONS • HUMAN CAPITAL

6. TYPES OF ACTUARIAL WORK

7. Types of actuarial work • Actuarial work is all about modelling and managing the financial impact of risk and uncertainty • This is important in several areas of work:

8. Types of actuarial work Pensions *Designing and advising on company pension schemes *Calculating the value of a scheme’s accumulated pension commitments Life Insurance *Creating and pricing life insurance products (e.g. term assurance, whole of life insurance, annuities) *Ensuring insurance companies reserve enough money to cover claims General Insurance *Creating and pricing non-life insurance products (e.g. home, car, travel) *Ensuring insurance companies reserve enough money to cover claims Investments *Deciding which assets to include in a client’s investment portfolio *Assessing and hedging investment risk

9. THE ROUTE TO QUALIFYING AS AN ACTUARY

10. The route to qualifying as an actuaryThe actuarial qualification • To become a Fellow of the Institute of Actuaries, you have to: • Pass 15 exams • Demonstrate 3 years’ worth of work based skills • Most employers will be very supportive: • One day off a week to study • Pay for your study materials and exam fees • Pay you a full-time salary

11. Typically takes 3 to 5 years to qualify The route to qualifying as an actuaryMore about the exams • 9 “Core Technical” exams • 8 3-hour written exams (CT1 to CT8) • 1 practical course (CT9) • 3 “Core Applications” exams • 1 3-hour written exam (CA1) • 2 practical courses (CA2, CA3) • 2 “Specialist Technical” written exams • Choose 2 from ST1 - ST9 • 1 “Specialist Applications” written exam • Choose 1 from SA1 – SA6

12. The route to qualifying as an actuaryMore about the exams • “Core Technical” exams: • “Core Applications” exams: Actuarial risk management, Modelling, Communications • “Specialist” exams: Subject studied depends on your area of work • All about interest rates • May be possible to get exemption depending on module choices at Durham! • Lifetime models, life annuities

13. Faster route to qualifying but less flexibility The route to qualifying as an actuaryAlternative route to qualifying MSc in Actuarial Finance at Imperial College, London • Designed for trainee actuaries in full-time employment • 2 year part-time course (1 day per week) • Fee c. £20,000 PAID BY YOUR EMPLOYER! Exemptions from CT2, CT6, CT7, CT8, CA1, CA3, 2 x ST of your choice

14. MY ROLE AS AN INVESTMENT ACTUARY

15. My role as an investment actuary Designing investment strategy Which assets should a client invest in? “Dynamic de-risking” strategies Hedging investment risk Interest rate risk and inflation risk “Liability Driven Investment” Communicating this to clients Writing papers Regular presentations and meetings

16. Who are Mercer’s clients? • Within the Investment Consulting business, Mercer’s clients are large institutional investors • Mainly pension schemes • Our pension scheme clients need advice on how to invest their portfolio to give the best chance of meeting their pensions obligations or “liabilities” in the future • There are several factors that may prevent a pension scheme from being able to meet its obligations, including: • Pensions deficits • Poor investment returns in the future • High inflation in the future

17. Risk Reducing Assets portfolio comprises assets whose primary purpose is to reduce risk relative to the liabilities. Return Seeking Assets portfolio comprises assets whose primary purpose is to generate excess return over the liabilities. Risk Reducing Assets (RRA) Return Seeking Assets (RSA) Cash Index Equities linked Gilts Corporate bonds Designing a client’s investment strategyAsset allocation

18. Designing investment strategyDynamic de-risking • Investment strategy may change over time depending on how much risk the client is able/willing to take.

19. £100 £61 Today (time 0) 10 years' time REMINDER!Present value Present value of a cashflow • The present value of a cashflow is the amount of money you would need to invest today in order to pay that cashflow at the date it is due to be paid. • Discounting a cashflow using an appropriate rate gives us the present value. • For example, consider a £100 cashflow due to be paid in 10 years. • For a rate of 5%, the present value of this cashflow is £61. • If we invested £61 today at a rate of 5%, we would have £100 in 10 years’ time. £100 cashflow in 10 years Cashflow present value is £61 Discount at 5% for 10 years

20. A pension scheme’s liabilities are sensitive to changes in interest rates and inflation. Hedging investment riskInterest rate and inflation risk INTEREST RATE PRESENT VALUE OF LIABILITIES DECREASES INFLATION INTEREST RATE PRESENT VALUE OF LIABILITIES INCREASES INFLATION

21. It is possible to structure a client’s asset portfolio such that its sensitivity to interest rates and inflation matches that of the liabilities. Hedging investment riskInterest rate and inflation risk FIXED INTEREST BONDS INFLATION-LINKED BONDS Down Down INTEREST RATE Down n/a INFLATION Up Up INTEREST RATE Up n/a INFLATION

22. Deficit Liabilities Deficit Liabilities Rates fall Rates fall Assets Assets 0% Hedged 100% Hedged Deficit Liabilities Assets Deficit Liabilities Assets Hedging investment riskLiability Driven Investment (LDI) • The risk that the liability value will increase can be hedged by holding assets that respond in the same way to movements in interest rates and inflation. • For example, a hedge ratio of 50% means that the change in value of the asset is expected to be around 50% of the change in the value of the liabilities.

23. APPLYING FOR ACTUARIAL JOBS

24. Useful source of information: www.actuaries.org.uk Applying for actuarial jobs • Most firms offer internships and graduate opportunities • Semi-numerical degree is usually required • The application process typically involves online tests, telephone and face-to-face interviews and an ‘assessment centre’ day

25. Find out more: http://careers.uk.mercer.com/graduates Applying for actuarial jobsOpportunities at Mercer Internships • Internships across many of our UK locations Graduate Roles • Graduate positions in all areas of Mercer • 18 month Graduate Development Programme, on the job training and support with professional qualifications

26. Q & A

27. Contact me: rebecca.baker@mercer.com Q&A ANY QUESTIONS?