Actuaries are boring.
My life as an actuary…
One of my favorite interview question that throws applicants at our shop into all kinds of hissy fits is:
“What do you think you will be doing every day once you start working at our firm. You walk in the door on day one in the morning and then what? ”
After asking this question for over two decades here is the answer that I would have crafted with perfect hindsight. I think the answer is important because I come across a mixed bag of romanticism associated with our field. That and the fascination with supposedly large bank accounts we acquire over the years from our practice. Both myths need to be corrected before we run of the local truth in advertising statutes.
Numbers and Data.
The common theme in my life work wise has been numbers and data. If there is one thing that I can count on when I look towards the future as an actuary it would be doing something with numbers and data.
There is a reason for that. As a rule we are good with numbers. Not equations or theories or proofs. Just numbers. Although in the course of our education we end up studying hundreds of equations, theorems and proofs in the end it boils downs to numbers. We pick this profession because we are good with them. We enjoy our work because we enjoy working with them.
Our is not the only profession with a stranglehold on numbers. There are many others but we specialize in distant numbers. Numbers that are in the future or numbers that have not been realized as yet. The biggest problem with the future is that it is uncertain. Although actuaries are not magicians or palm readers they understand uncertainty (supposedly better than the general population). They are trained to evaluate uncertain future events and their financial impact.
Data though is a completely separate story. It needs to be reviewed, cleaned and tested. Sometime its unreliability only becomes visible when you finish running your models. Quite often you have to chase the client for it and engagements get delayed because data is not in the right format or is missing crucial elements. Sometimes the information you need does not exist and you literally have to pick up the pieces from the floor. Very similar to putting a puzzle or a broken vase together, but a lot less fun.
Unlike models and numbers, data is generally not exciting. Yet it forms the foundation for actuarial work and is commonly used as a filtering tool by firms. If you can survive a few months of servicing data with grace, you have the discipline and the persistency required to pass the exams. As an outsider you will not be faulted if you assume that we bore candidates to death with data in the first few months and only bring out the exciting stuff once they have proven that they have safe hands or they have given up and left.
While the same candidate testing model works very well on Sales and Trading floors and Investment Banking internships, starting actuarial compensation doesn’t compare well with Wall Street and Fleet Street salaries. There is also something to be said for the operating environment. Markets are exciting and interesting and making money off a trade feeds you with instant gratification. That excitement brushes off traders and trading floors. And you don’t have to wait long for the payoff. The most extended investment banking mandates also close within a year.
Data, on the other hand is boring and sometimes, unfortunately, so are actuaries. There, I have finally said it (don’t hold it against me).
But let me qualify that statement. There is a reason for that boredom. While a short term move on half a billion dollar position may generate a 51% return on invested capital , an actuary will not get excited by the trade, the move or the return. Our exams, our curriculum, our education, our work and our peers train us from day one to take the long view. Shorter term focus is something that we don’t enjoy, we actually find it (looking for the right word), “boring”.
So the challenge in actuarial recruiting is to find candidate that do not cause a phase shift or temporal mismatch. If you combine the long view supervisor with the short view intern you are courting disaster, chaos, wrap drive instability and occasionally heartache.
On Building Models.
You could possibly ask, “But what about models? Don’t you build models?” Occasionally yes when something new comes along. However in the traditional actuarial consulting world a large number of models and frameworks have already been built and tested. While there are opportunities to tweak and improve things, in most instances you take client data, feed it to the model, review the results and write your actuarial opinion. If you are senior and experienced enough you may tweak the model. If you have just started you are consigned to the gloom associated with chasing and cleaning data.
The non-traditional side is different. Here all you have is first principles, incomplete data sets and non-functional models. Enterprise risk, portfolio management, capital allocation, solvency and emerging markets are five areas where there is still a great deal of model building work going on (Risk in Emerging Markets – a friendly conversation). But once again you get to the model building part after you have proven your ability to handle data with true respect. If you don’t survive that phase, you won’t see models being built, only models at work.
My first two years as a fresh actuarial hire were focused on working with employee benefits data, tweaking and running the valuation system to calculate defined benefit liabilities for employee benefit plans. The question we had to answer dealt with how much money was needed today by our clients to fund promises made for future benefits. Our benefit valuation work (Benefit valuation a simple example) relied heavily on commutation functions (Introduction to Commutation Functions). It sounds exciting but in practice it meant reviewing trust deeds and rules (legal documents) and changing a few lines of code in the valuation software to run the right benefit structure. The actuarial opinions were no different. Rather than code we changed benefit annexures, plan details, numerical disclosures, client names and addresses.
I was the one that got away. I escaped at the end of my second year to the systems and implementation consulting world because I couldn’t see myself doing benefits valuation for the rest of my life. The phase mismatch on our desk between layers of management would have lead to an implosion and a core meltdown if I had stayed. My temporal focus was out of alignment with the rest of the floor.
But the journey that followed led to a completely different version of the actuarial world. If the first two years were a mix of black, white and grey, the next twenty were in high definition color and stereo sound.
It was work that still revolved around data, numbers and models but with pit stops at Fleet Street, Broadway (ask me about it nicely over a cup of coffee and I will tell you everything about it), Pacific ocean beaches, Back office startups, exotic valuation opinions (involving a few choice exotic locations), torn cartilages, 9 different ways to limp home, technology policy and governance in the developing world, wholesale corruption of young minds and African safaris.
Sometimes all it takes to change your frame of reference (and your temporal focus) is the right choice of words.
Like I said, Actuaries are boring.
Jawwad Ahmed Farid is a Fellow Society of Actuaries and the founder of FinanceTrainingCourse.com
