The banking industry and actuaries: closing the gaps

Actuaries can solve just about any financial problem. With a robust skill set that enables them to dissect any financial system to its most fundamental form, their strength lies in an ability to translate financial systems into a set of risk components without using predefined methodologies. This capacity to leverage actuarial first principles while mathematically quantifying and managing risk is just one of the many reasons why actuaries bring value to banking.

When Francis Truong, ACIA, enrolled in the actuarial mathematics program at Université du Québec à Montréal in 2010 it was for one simple reason: his love of math and the early realization that (despite his family’s pressure) being a dentist wasn’t for him. Following the advice of his college vocational counsellor, Francis began his journey on the path to becoming an actuary.

Fast forward three years later and he was graduating with a fuller but somewhat incomplete picture of what actuaries did. “I understood what the traditional roles were, however, the idea of non-traditional practice was much more obscure,” reflects Francis. “I knew they existed but saw few examples. I figured non-traditional roles were just an ultra-niche market of insurance coverage. For instance, covering the losses when a basketball stadium gives a 1M$ prize to a spectator who successfully sinks a full-court shot.”

Like many young actuaries Francis’ career started as a pension analyst but what he really wanted to do was price financial risk in an insurance setting.

After five years, working with both actuaries and other professionals, Francis took the next step towards his dream of becoming a “non-traditional” actuary – a path not without its own challenges.

Barriers to entry

“In 2015, I saw a job opening with the credit risk management team at Laurentian Bank Financial Group. After connecting with the HR hiring manager I was told to prepare for the interview by looking into the Basel framework, credit risk allowance, and SQL.”

Despite being advanced in his path to ACIA/ASA requirements, Francis remembers feeling completely out of his depth. Nevertheless, figuring he could relate his actuarial background to banking topics and determined to pursue his interest in risk management he went to the interview. Spoiler: it worked!

Despite Francis’ luck, and more and more actuaries joining the banking field, barriers to entry remain commonplace.

Renée Couture, FCIA, recalls some of the difficulties she encountered entering the finance sector: “Many jobs outside of traditional practices don’t list the actuarial science degree as a qualification. This meant using my own judgement and applying for opportunities that listed ‘administrative degree or equivalent’.”

Instances like these have chronically limited actuaries from accessing opportunities in emerging areas. “It is important that employers and recruiters are made aware of the value actuaries bring, but furthermore that actuaries have the support they need to feel confident entering these new spaces,” says Renée.

But as good as actuaries are at analyzing risks, they must also be willing to take them. Now Executive Director of ONE-T, Renée humorously recounts how she landed a job at Canada Post. “In my introduction letter I made the point of recommending they hire an actuary and why. Actuaries have a breadth of knowledge to offer, half the battle is potential employers knowing that.”

Crossing over

Francis’ and Renée’s stories are among many examples of actuaries who, having made the leap from traditional to emerging, are utilizing their cross-over expertise to expand the conventional role of actuaries.

Working in areas such as IFRS 9, the Basel Framework, and data management for observed credit losses, Francis now applies actuarial concepts in a nontraditional fashion to solve banking problems.

He explains: “For the first two, I use my skills to assess a products’ potential exposure to losses by using actuarial components to break down the various risk factors. While for the latter, I got to expand my knowledge of data management for modeling purposes; applying the same methods used in actuarial valuation exercises to improve data collection regarding default events.”

The transferability of actuarial skills in banking is undeniable. However, knowing how to translate technical ideas from insurance to banking isn’t always enough to ensure a smooth transition.

“It is important that employers and recruiters are made aware of the value actuaries bring, but furthermore that actuaries have the support they need to feel confident entering these new spaces,”

Renée Couture, FCIA

Marking our place

With traditional banking models under increasing threat, the demand for actuarial expertise is growing. Actuaries need to be aware of how they can leverage their knowledge and skills. Those already working in the sector can help by highlighting the overlaps between core banking concepts and core insurance concepts. While many actuaries have the analytical know-how to be successful in banking, what often lacks is the support and public awareness to get there.

As the nature of actuarial work continues to evolve Francis reminds his peers to stay adept. “A very diverse body of financial professionals will be your next colleagues. Learn from them, but more importantly, make sure they can learn from you.”

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