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Old 11-15-2017, 05:40 PM
Josh Peck Josh Peck is offline
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Default Is being a life insurance actuary really that stable?

Hi, so I am working as an intern at a life insurance company. I was there full time this summer, continue to work part time, and have accepted a job in January.

I am worried about a couple of things for the profession.

Can insurance companies survive long term in a low interest environment? I know that the short term rate has started to go up, but the long term rate has not. The yield curve is flattening out which seems like it will be very negative for insurance companies.

Also, it seems that many jobs that are done by a team of 10 people could be automated and turned into a 2 or 3 person job fairly easily. It seems that companies will need way less actuaries in the upcoming years because of this.

Finally I feel as though the exams are a huge waste of time and are preventing actuaries from learning valuable skills such as python, and data science related topics.

Can any experienced actuaries let me know what your thoughts are on these topics.

Thanks!
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Old 11-15-2017, 06:04 PM
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Originally Posted by Josh Peck View Post
Hi, so I am working as an intern at a life insurance company. I was there full time this summer, continue to work part time, and have accepted a job in January.

I am worried about a couple of things for the profession.
Sure - all of the below are my personal opinions, and I welcome responses/feedback.

Quote:
Can insurance companies survive long term in a low interest environment? I know that the short term rate has started to go up, but the long term rate has not. The yield curve is flattening out which seems like it will be very negative for insurance companies.
Well, there are challenges to a persistent low interest rate environment, and there is pressure on companies to support selling their business with adequate yields. But there are warning signs/analyses that are meant to catch some of these types of long-term concerns. For one, there's the Asset Adequacy Analysis, where a company would be projecting their business out over multiple interest rate & economic scenarios to get a better idea of the adequacy of their asset portfolio (and strategy) to support their liabilities. AAA is required (except in certain circumstances), and the analyses & disclosures a company has to do in completing the AAA will alert regulators (and the company) to major problems down the road associated with a persistently low interest yield curve (among other things).

Quote:
Also, it seems that many jobs that are done by a team of 10 people could be automated and turned into a 2 or 3 person job fairly easily. It seems that companies will need way less actuaries in the upcoming years because of this.
Doubtful. There may be some process things that could be made more efficient and reduce levels of human involvement, but PBR goes live this year, at the option of the company. There is some level of prescription, but you won't be able to automate all the processes under PBR. In addition, a good model governance structure under PBR would suggest peer review be used, where experienced actuaries will need to be used.

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Finally I feel as though the exams are a huge waste of time and are preventing actuaries from learning valuable skills such as python, and data science related topics.
If you've not taken Exam MLC yet, I don't think you've gained an appropriate level of appreciation yet for the exam process. On top of that, the FSA exams will dive deeper into whatever track you choose.

That's not to say that data science, predictive analytics and programming skills aren't important or valuable. But you don't end up with actuarial responsibilities *just* by honing your programming skills, nor will your resume later in your actuarial career be complete with just "predictive modeler". I understand it's the new trend and there certainly are actuaries, or people in actuarial roles, that can make a career out of pretty much just predictive analytics, but I don't think that's the norm, and I think it may be a while until it gets to be the norm.
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Old 11-15-2017, 06:14 PM
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It would depend on how big their book is regarding business written with guarantees. Mix of business essentially.

Most of those books are closed now, but the guarantees are very ITM, and are large liabilities for life insurers (as they need to reserve for them). Double whammy of low rates is that it reduces the rate at which you are allowed to discount your liabilities. So you end up with a higher PV of those liabilities as well.

Best way around that is expense management, an aggresive investment profile that generates optimal risk adjusted returns, and use of derivatives to protect the balance sheet, and optimize capital efficiency.

I would definitely learn Matlab and R (surprisingly few life insurers use these packages), given how useful they can be in many modelling areas.

The real danger to insurers is technological disruption, specially at the underwriting level (which is expensive). That is where insuretech firms come in. They automate that process and make it far cheaper and faster, which can then ultimately result in better prices and more satisfied customers.
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Old 11-15-2017, 09:31 PM
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Originally Posted by wat? View Post
Sure - all of the below are my personal opinions, and I welcome responses/feedback.



Well, there are challenges to a persistent low interest rate environment, and there is pressure on companies to support selling their business with adequate yields. But there are warning signs/analyses that are meant to catch some of these types of long-term concerns. For one, there's the Asset Adequacy Analysis, where a company would be projecting their business out over multiple interest rate & economic scenarios to get a better idea of the adequacy of their asset portfolio (and strategy) to support their liabilities. AAA is required (except in certain circumstances), and the analyses & disclosures a company has to do in completing the AAA will alert regulators (and the company) to major problems down the road associated with a persistently low interest yield curve (among other things).



Doubtful. There may be some process things that could be made more efficient and reduce levels of human involvement, but PBR goes live this year, at the option of the company. There is some level of prescription, but you won't be able to automate all the processes under PBR. In addition, a good model governance structure under PBR would suggest peer review be used, where experienced actuaries will need to be used.



If you've not taken Exam MLC yet, I don't think you've gained an appropriate level of appreciation yet for the exam process. On top of that, the FSA exams will dive deeper into whatever track you choose.

That's not to say that data science, predictive analytics and programming skills aren't important or valuable. But you don't end up with actuarial responsibilities *just* by honing your programming skills, nor will your resume later in your actuarial career be complete with just "predictive modeler". I understand it's the new trend and there certainly are actuaries, or people in actuarial roles, that can make a career out of pretty much just predictive analytics, but I don't think that's the norm, and I think it may be a while until it gets to be the norm.
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Old 11-15-2017, 09:50 PM
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Originally Posted by Josh Peck View Post
Can insurance companies survive long term in a low interest environment? I know that the short term rate has started to go up, but the long term rate has not. The yield curve is flattening out which seems like it will be very negative for insurance companies.
In addition to wat?'s points on asset adequacy analysis, I'd point out that a flat yield curve is generally a transitory phase. The majority of the time, yield curves are upward sloping. The flat or inverted yield curve historically indicates imminent recession. Not all companies will weather a recession but the industry as a whole will.

It isn't a good thing for the industry... but it's not a good thing for most retirement systems. We're all in the same boat with regard to current market conditions. The differentiator between insurers in such environments generally comes down to the robustness of their risk management programs. Did companies position themselves appropriately for varying interest rate environments? Some companies are better at this than others. The good ones can weather any interest rate scenario (assuming counterparty solvency).

The term "Life Insurance Companies" generally encompasses both the realms of "Life Insurance" and "Annuities or Retirement Protection". These are both social needs which don't go away based on the current interest rate environment. Look at Europe, which is currently seeing negative sovereign interest rates. Its life insurance market is bigger than all of North America's. People still need life insurance and retirement solutions there, and companies are willing and able to provide that service to the market.
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Old 11-16-2017, 09:33 AM
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Originally Posted by Hydraskull View Post


"It seems that companies will need way less actuaries in the upcoming years because of this. "
Actually, the increase in efficiency will mean less grunt work, but actuaries know that such a change increases the amount of time available for the actuarial analysis. No matter what you may hear about the importance of "big data" it's not the data that drives analysis. It's the knowledge and experience of the qualified actuary that can apply data insights to the actual business strategy.
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Old 11-16-2017, 09:55 AM
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My 2 cents.

Quote:
Originally Posted by Josh Peck View Post
Can insurance companies survive long term in a low interest environment?
The future is uncertain, don't make the mistake of assuming tomorrow will be like today. Things can change quickly and a spike in interest rates might not be all good.

Quote:
Originally Posted by Josh Peck View Post
Also, it seems that many jobs that are done by a team of 10 people could be automated and turned into a 2 or 3 person job fairly easily. It seems that companies will need way less actuaries in the upcoming years because of this.
This would already have happened if products were the same as 50 years ago. It seems that historically, improved capabilities have lead to more complicated products, which lead to more complicated regulations. Pricing becomes more refined. Forecasts are required to be more accurate. There are no guarantees, but technology has been improving at a rapid rate for a long time and there is still demand for skilled actuaries.
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Old 11-16-2017, 10:30 AM
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Originally Posted by Josh Peck View Post
Hi, so I am working as an intern at a life insurance company. I was there full time this summer, continue to work part time, and have accepted a job in January.

I am worried about a couple of things for the profession.

Can insurance companies survive long term in a low interest environment? I know that the short term rate has started to go up, but the long term rate has not. The yield curve is flattening out which seems like it will be very negative for insurance companies.

Also, it seems that many jobs that are done by a team of 10 people could be automated and turned into a 2 or 3 person job fairly easily. It seems that companies will need way less actuaries in the upcoming years because of this.

Finally I feel as though the exams are a huge waste of time and are preventing actuaries from learning valuable skills such as python, and data science related topics.

Can any experienced actuaries let me know what your thoughts are on these topics.

Thanks!
My opinions:
1. I've been at companies complaining about the low interest rate environment for over 10 years now. Companies are still selling products and there is still a need.

2. The places I have been at there hasn't really much of the 10 people doing something that could be automated down to 2-3. I'm guessing since you've only been an intern you either don't see everything they are doing or understand the challenges they deal with in data issues/communicating results/analysis. Most places I've been at do a good job of making sure actuaries are focused on analysis and not spending all their time doing easily automated work.

3. Some stuff on exams is useful, some isn't. But advancing in this career means passing exams. I've got a pretty negative opinion about the exams but they are what they are. Also you're probably overestimating the usefulness of python/data science depending on what type of work you're doing.
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Old 11-16-2017, 01:12 PM
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One of the principal points in passing exams is proving your ability to solve tough problems correctly and quickly. There is plenty of exam material that you will never use or just use occasionally. But there will be many actuarial problems for which there is not yet a textbook or software solution, which you must solve to be successful long-term.
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Old 11-16-2017, 01:17 PM
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The real danger to insurers is technological disruption.
The real danger to life insurers is tax law disruption.
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