The Internationalisation of the Actuarial Profession

Chris Daykin, Past Chairman, International Forum of Actuarial Associations

Introduction

In 1691 in the Netherlands and in 1693 in England respectively, Johann de Wit and Edmund Halley published their analysis of the mathematics of the annuity, and calculations based on first attempts at mortality tables. These papers can be considered as the beginnings of actuarial science.

In 1762 the Equitable Life Assurance Society was founded as the first life insurance company to operate on actuarial principles, selling long term policies with an increasing risk profile for level annual premiums. The Equitable was also responsible for introducing the word "actuary" into the insurance business. Initially the term was used to refer to the Secretary to the Board, who was also responsible for signing new contracts on behalf of the company. The word was derived from the Latin "actuarius" - the business manager of the Senate, who also kept the daily record. Mathematical advice was provided by eminent Fellows of the Royal Society (FRS) of the day, initially especially by James Dodson. In 1775 a new Actuary was appointed who was also a mathematician and FRS. This man, William Morgan by name, can be regarded as the first person to hold the title actuary and carry out work which today would be regarded as actuarial.

By the early years of the 19^th century, there were quite a lot of life insurance companies in the UK and a good number of people calling themselves actuaries. The chief actuaries of the 12 or so leading companies in London formed an informal luncheon club. In Scotland the general managers of the life offices, some of whom were actuaries, formed the Association of Scottish Life Offices. However, a vision was born to establish a profession, not restricted to the privileged few but open to those meeting entry qualifications, dedicated to the furtherance of the profession of actuary, to education, to research and to high standards of behaviour.

Thus, in 1848 the Institute of Actuaries was born, the first professional body for actuaries in the world. In the years that followed, insurance companies grew in importance, especially in Europe, North America and Japan, and actuarial associations were set up in a number of countries, at an accelerating rate towards the end of the 19^th century.

International Actuarial Association

In 1895 the first International Congress of Actuaries was held in Brussels and the International Actuarial Association was formed by the associations from the five founding countries - Belgium, France, Germany, the United Kingdom and the United States. Over the years since then, international congresses have been held every four years or so, with a couple of gaps enforced by wars.

The 26^th International Congress of Actuaries was held in Birmingham on 6-13 June 1998, celebrating the 150^th Anniversary of the UK actuarial profession, indeed, we might say, of the profession worldwide. The 27^th International Congress of Actuaries will be held in Cancun, Mexico from 17 to 22 March 2002.

The IAA was conceived as an association of individual actuaries from around the world. The Council was made up of eminent actuaries from all the countries where there were significant numbers of actuaries, together with a couple of representatives of small associations. The ultimate governing body was the General Assembly of individual members convened on the occasion of each International Congress of Actuaries.

Associations of actuaries could become Donating Members A of the IAA, by paying a subscription, but they did not have any rights to control the organisation, any more than Donating Members B, which included commercial and other non-actuarial corporate bodies.

In more recent years the IAA expanded its scientific activities through the formation of the ASTIN section in 1957 (Actuarial Studies in Non-life Insurance) and the AFIR section in 1988 (Actuaries and Financial Risk). These sections have organised their own meetings, known as colloquia, which are usually held each year when there is no congress (and sometimes when there is!) Individual members of the IAA can opt to pay subscriptions to belong to ASTIN, AFIR or both. ASTIN publishes a refereed scientific journal, which now also includes articles and papers relating to the AFIR section. A list of the congresses and colloquia which have been held (or are currently planned) is at Annex A.

The Role of Professional Associations

Although a number of actuarial associations were formed, many did not follow the tradition of common law countries such as the United Kingdom in operating as self-governing professions. In the UK the Faculty of Actuaries (in 1868) and the Institute of Actuaries (in 1884) were granted Royal Charters confirming their autonomous role and the right to confer qualifications, in particular Fellow of the Institute of Actuaries (FIA) and Fellow of the Faculty of Actuaries (FFA). There was an underpinning concept of professional behaviour and the implicit right, or even duty, to discipline members who did not conduct themselves appropriately. The role was similar to that of older professional bodies such as those for lawyers and doctors.

In some countries the actuarial associations did not confer qualifications, nor did they operate as professional bodies. They provided opportunities for actuaries to meet together, encouraged the writing and presentation of scientific papers, and in some cases provided a focus for public interface issues, such as discussions with regulators.

In the last few years the world has seen many changes in the fields in which actuaries usually work. In many countries there have been strong moves towards deregulation, with insurance supervision changing from substantive control (including approval of products, policy wording and premium rates) to normative control (monitoring of financial soundness and compliance with norms and principles). Many countries have introduced some variant of the UK appointed actuary system for life insurance, and sometimes for general insurance and pensions funds, with the regulator delegating to the actuary certain responsibilities, such as ensuring the adequacy of premium rates, establishing prudent technical provisions, advising on appropriate investment strategies and monitoring overall financial condition on a continuous basis. There is often also an explicit duty to blow the whistle to the regulator if all is not well at the company.

This evolution of the role of the actuary from a technical person responsible for carrying out certain mathematical tasks to the key professional individual on whom the regulator relies, has necessitated changes in the orientation of many national actuarial associations to fulfil the functions of professional bodies.

Operating as a professional body normally implies the adoption of a code of conduct, backed up by a fair but rigorous disciplinary process, explicit qualification standards, strong encouragement and facilitation of continuing professional development, close liaison with regulators and the ability to develop professional standards of practice to support the role of the actuary in statutory or similar roles.

International Forum of Actuarial Associations

The widespread emergence of professional issues at the top of the agenda for actuarial associations all around the world was one of the main factors leading to the initiation of discussions on forming an association of associations - a forum where these issues could be discussed and experiences shared, and a mechanism for handling professional issues at the global level. These discussions began in Montreal in 1992, at the 24^th International Congress of Actuaries, under the leadership and inspiration of Paul McCrossan, at that time President of the Canadian Institute of Actuaries. They came to fruition in September 1995, at the 25^th International Congress of Actuaries in Brussels, with the formation of a new section of the IAA to be responsible for professional affairs - the International Forum of Actuarial Associations (IFAA).

Unlike the other sections of the IAA, membership of the IFAA was limited to associations of actuaries, with the emphasis (for full membership) on being professional associations. The IFAA was established with objectives relating to professionalism, education, qualification standards, mutual recognition, representation of the profession’s interests internationally and public interface issues.

The overall direction of the IFAA was encapsulated in its statement of mission, adopted after its first year of operation: "to encourage the development of a global profession, acknowledged as technically competent and professionally reliable, which will ensure that the public interest is served".

The IFAA offered significant benefits to members, particularly perhaps to newer associations, and those still struggling for fuller recognition within their home country. Benefits included accreditation as members of a recognised international body, support from other actuarial associations, access to information and reports on the experiences of others, the possibility of sharing resources with other associations in tackling issues which have common threads internationally and a common voice for actuaries at a global level.

With professionalism being at the heart of the IFAA’s role, the first criterion for full membership (and initially the only one, apart from being a Donating Member A of the IAA and undertaking to pay the annual fees) was to have in place a code of conduct at least equivalent to that adopted in 1990 by the member associations of the Groupe Consultatif des Associations d’Actuaires dans les Pays des Communautés Européennes (the umbrella body for the actuarial associations in the countries of the European Union).

If an association seeking full membership status did not already have a formal disciplinary process, they had to commit themselves to introducing one within two years of becoming a Full Member. They also had to undertake that, before they issued any standards of practice or guidance notes, they would set in place a proper due process for developing and approving such standards. Full members also committed themselves to studying what minimum educational requirements should be recommended to Full Members of the IFAA for all newly qualified actuaries after 2005, on the basis that the requirements would be agreed by 1998. It was anticipated that the development of the IFAA, and the concomitant changes in the associations which become members of the IFAA, would lead to a much greater emphasis on professional issues at international meetings, as well as at the national and local levels.

The New IAA

After the IFAA had been established, active consideration began to be given by the IAA Council to the future structure of the IAA itself. This led to proposals for major constitutional changes being put to a General Assembly of the IAA at the 26^th International Congress of Actuaries in Birmingham. These were overwhelmingly supported, with the result that the IAA itself has now become an association of associations, the IFAA as a separate section has ceased to exist and the IAA Council has taken over the role of the IFAA Committee, in addition to those functions relating to the organisation of congresses and scientific sections and, more generally, providing services to individual members. All individuals who are full members of those actuarial bodies which are Full Members of the IAA are deemed to be individual members of the IAA.

The first President of the new IAA is Jean Berthon of France, with Catherine Prime of Australia as the President-elect (due to take office in December 1999). The Secretary-General is Yves Guérard of Canada. The new IAA is supported by a strong secretariat in Canada, operated from the offices of the Canadian Institute of Actuaries, under the leadership of Executive Director Nicole Séguin. 

Organisation of the IAA

Under the new constitution, the IAA is governed by a Council to which each member association is entitled to send a delegate who carries the votes of the association, and, if they wish, an alternate, who only carries the association’s vote if the delegate is not present. The Council is expected normally to meet twice a year. The IAA Sections (currently ASTIN and AFIR, but more may be created in future) are also represented on the Council, as are Institutional Members, such as the International Social Security Association (ISSA). Council members are expected to come mandated to express the views of the association which they represent and, if required, cast the votes held by the association. A weighted voting system provides for at least one vote per association, and up to four votes for the largest associations. Financial contributions, on the other hand, are based on numbers of full members in the associations, so that the voting structure strengthens the relative position of smaller associations.

A lot of the work of the IAA Council is carried out by Committees. At present the following Committees have been formed:

- nominations
- audit
- services to individual members
- accreditation
- advice and assistance
- education
- public statements
- employee benefits accounting standards
- insurance accounting standards
- insurance regulation
- social security

In addition, there is an Executive Committee, consisting of the President of the IAA, the Immediate Past President, the President-elect, the Secretary-General and the chairpersons of the Sections and Committees, which will give consideration to the future strategic direction of the organisation, prepare business for the Council meetings and act as a sounding board for the President and Committee chairpersons.

The Nominations Committee has responsibility for bringing forward nominations for the posts of President and President-elect of the IAA and chairpersons of the various Committees. They are also required to develop succession plans in order to ensure linguistic, cultural and geographic diversity among the successive holders of the office of President.

The Audit Committee is responsible to Council and is required to exercise oversight over the prudent financial management of the IAA and its resources.

The Accreditation Committee is responsible for determining whether actuarial associations applying for membership of the IAA meet the criteria, or have made the necessary commitments. With 38 associations now admitted as Full Members, 1 as an Associate Member and 21 as Observers, there are further applications in the pipeline, and a number of other potential members being followed up. The focus of this Committee is likely to change over time to monitoring compliance with fulfilment of commitments and then evolve into a broader role as a professional affairs Committee.

The Public Statements Committee was initially charged with developing guidelines for due process in the event that the IFAA might wish to make a public pronouncement. A first version of the Guidelines was debated at the September 1996 meeting of the IFAA Committee and subsequently approved by postal ballot of members and by the IAA Council. Early in 1997, the IASC Employee Benefits Accounting Standards Sub-committee recommended that the IFAA should make a public pronouncement, in the form of a formal submission to the International Accounting Standards Committee (IASC) on the draft international standard on accounting for employee benefit costs in company accounts (E54). The proposed submission went through due process under the Guidelines and, with no objections having been lodged, was issued to the IASC early in March 1997.

In the light of the experiences gained from making this first public pronouncement, and in order to respond to some of the concerns raised by member associations during the initial process of approving the Guidelines, a revised draft was considered at the April 1997 and approved at the August 1997 meetings of the IFAA Committee. These have been adopted by the Council of the IAA under the new constitution.

It is intended that public pronouncements of the IAA will normally concentrate on matters relating to actuarial expertise, although it is not precluded that more general matters may also be covered. The process of preparing a public pronouncement should be as open as possible, with all member associations invited to participate if they wish to. The aim is to produce a consensus view, so that all associations will feel able to support it. Some associations may not be able to give formal endorsement, since their constitutions preclude them from making any public pronouncements, unless they receive overwhelming support from their membership, which is unlikely to be achievable in practice, particularly in a limited timeframe. The Guidelines allow for the possibility of a strong minority opinion being registered and set out in an annex to the pronouncement. The pronouncements will be described as formal statements of the IAA, with all the Full and Associate Member associations listed, and a further list given of those associations which participated on the Committee which prepared the statement (and the individual members of the Committee). Due process currently requires a two month period of exposure to member associations, other than in exceptional circumstances, when the President of the IAA could permit a shorter exposure period, but with an absolute minimum of two weeks.

The Advice and Assistance Committee has been established to provide, or act as the conduit for the provision of, advice and assistance, particularly to member associations, associations aspiring to membership and groups trying to establish actuarial education or actuarial associations. The Committee also gives initial consideration to requests for advice from other bodies, such as other international organisations. This might lead to referring the issue to another Committee, or deciding that the IAA cannot assist. They might themselves identify new issues to be addressed by the IAA and act as a rapid response task force, to give the IAA a mechanism for addressing new issues, or references from other bodies, on a timely basis, given the length of time which it takes to establish an entirely new Committee.

The IASC Employee Benefits Accounting Standards Committee was established soon after the start of the IFAA, in response to activity by the IASC in the development of a new international standard on accounting for employee benefit costs in company accounts, to update IAS19. The IASC has been working to complete a series of new international accounting standards by 1998, in the expectation that they will be endorsed by the International Organisation of Securities Commissioners (IOSCO) as the required standards for companies wishing to be quoted on stock exchanges internationally. The sub-committee of the IFAA on IASC Employee Benefits Accounting Standards spent time considering the so-called IASC "points outline" and provided input through attendance of representatives at IASC Steering Committee and Board meetings. When the IASC published an exposure draft (E54) in September 1996, the IFAA sub-committee still had a number of concerns, particularly with regard to the proposed requirement to use corporate bond yields for discounting accrued pension liabilities and the corridor proposal for recognition of actuarial surpluses and deficits. These concerns were developed into a lengthy submission (including extensive Appendices), with detailed analysis and supporting documentation, which was eventually sent to the IASC as a public statement of the IFAA at the beginning of March 1997.

Representatives of the IFAA Sub-committee presented these views at the IASC Consultative Group and Board meetings in April 1997 and were invited to participate in the IASC Steering Committee meeting in June 1997. Further input was provided for the IASC Board meeting in July 1997, including assistance with revised wording for the international accounting standard which the IFAA argued would be acceptable to both accountants and actuaries. The IFAA also offered to develop an international actuarial framework standard, which would provide a structure for national actuarial standards of practice as a basis for compliance with the international accounting standard. The IASC has now published a revised IAS19, which incorporated some changes which made it more acceptable to the IAA, although without accepting the IFAA’s arguments on the rate of discount. The Committee is maintaining a watching brief on how the revised IAS19 operates in practice and will be preparing for the next round of discussions on this or related topics.

An IASC Insurance Accounting Standards Committee has also been established, since high on the list of priorities for the IASC is the production of an insurance accounting standard. The relevant IASC steering committee has been formed and the IFAA was asked to nominate a member. Paul McCrossan, past Chairman of the IFAA, was nominated to take on this role. This IAA Committee has already been very active, including preparing a submission to the IASC on a discussion paper on Accounting for Financial Assets and Financial Liabilities, which was submitted to the IASC in draft form in July 1997 and in final form, after completion of due process, in October 1997. A submission was also made to the IASC on exposure draft E55, concerning Impairment of Assets, and consideration continues to be given to submissions on other exposure drafts and to assisting the IASC with a proposed international accounting standard on discounting.

The Education Committee was initially charged with developing, by 1998, guidelines on an agreed common core syllabus for basic actuarial training, with a view to associations being required to implement them for newly qualified actuaries after 2005. These guidelines have been agreed and approved by the IAA Council. Some flexibility will be allowed to member associations in implementing them, particularly as regards the weight given to different topics, in order to accommodate different traditions, and the greater degree of practice area specialisation inherent in some actuarial qualifications. There is still some work to be done on documenting relevant reading material and literature. Ensuring that the core can be interpreted so as to produce comparable standards in each country is likely to present a challenge, and this will now become one of the tasks of the Accreditation Committee.

The core syllabus is intended to define an agreed minimum level of actuarial education which is necessary for full members of an association of actuaries which is a genuine professional actuarial body and hence eligible to be a Full Member Association of the IAA. It is hoped that it will also in due course facilitate mutual recognition on an international basis of a certain level of qualification. Full mutual recognition at the qualified level will probably only be achievable for the foreseeable future on a bilateral basis between associations, or under regional agreements such as that within the Groupe Consultatif in the EU.

Links with other bodies

The leadership of the IFAA worked had to develop contacts with a number of other relevant organisations at the international level. The International Association of Insurance Supervisors (IAIS) was itself in the process of establishing its role, and has recently set up a permanent secretariat in Basel alongside the Bank of International Settlements. A session on the role of the actuary was held at the IAIS Annual Meeting in Sydney in September 1997, and contacts have been followed up. An Insurance Regulation Committee has been established and this will be liaising closely with the IAIS Technical Committee in the development of common international standards of insurance supervision, including a common approach to recognition of the role of the actuary.

The International Social Security Association (ISSA) has long enjoyed formal relations with the IAA. As it moves to embrace a wider concept of social security, including associated private sector vehicles, and seeks to develop a global debate on the issues surrounding pension reform, opportunities clearly exist for the IAA to become involved in the dialogue. A Social Security Committee (set up in August 1997) is charged with taking this relationship forward, and, in particular, with working with the ISSA to develop a standard of practice for social security actuaries.

In view of the IASC objective to develop accounting standards to satisfy the needs of IOSCO for a "single passport" for stock exchange quotation, initial contacts were established by the IFAA with IOSCO itself. Apart from making IOSCO aware directly of the actuarial profession’s concerns over the revised accounting standard for employee benefit costs, it will be important to try to raise awareness at IOSCO of the role of actuaries in the investment practice area (including the management of derivatives) and the application of actuarial techniques to other types of financial institution.

The World Trade Organisation (WTO) and the United National Conference on Trade and Development (UNCTAD) are concerned with international provision of professional services, including co-ordination of qualifications and removing barriers to cross-border activity. Although their current interest is primarily with the larger professions, such as accountants and lawyers, they are interested in the progress that has been made with the actuarial profession on common syllabus guidelines and mutual recognition.

Looking to the future

The future of the profession at the international level is now under the direct control of the actuarial associations. However, it will be important to continue to place an appropriate degree of emphasis on the individual actuaries who make up the world actuarial community. The Committee on Services to Individual Members will be bringing forward proposals to strengthen the IAA’s role in this area, and it is hoped that new sections may be established, for example in the life insurance field and to deal with pensions and social security matters. It is hoped that the new structure may provide the impetus and the opportunity for further expansion and deepening of the IAA’s programme of activities for individuals’ continuing professional development.

Actuaries are thought to be the first profession to have organised itself truly on a global basis, with a common code of conduct, the elements of internationally agreed qualification standards, an international voice and the possibility of developing international standards of practice (at least in framework form). It is hoped that this will facilitate the process of recognition of the profession, especially in countries where proper recognition has not yet been achieved.

It is too early to tell what other opportunities may arise. In its three years of existence the IFAA rapidly expanded its role well beyond the scope which could have been envisaged at the time of its founding, and the new IAA will take this momentum forward. It appears that the establishment of the IFAA was not a moment too early. The IAA really came of age at the time of its centenary with the switch in focus represented by the formation of the IFAA. With the recent constitutional changes within the IAA, this professional emphasis is now at the centre of the profession’s international activities, without neglecting the interests of individual actuaries in congresses and colloquia, and in pushing forward the boundaries of actuarial science. One way and another, the actuarial profession is now on course for strong development at the international level.

Chris Daykin
Past Chairman, IFAA                                                 London, August 1998

Annex A

International Congresses of Actuaries

ASTIN Colloquia

AFIR Colloquia