David Hughes, chairman of the Professional Matters Committee of the Actuarial Society of Hong Kong, is a senior executive at a life assurance company based in Hong Kong. He discusses how actuaries are becoming increasingly influential in the insurance world, and beyond.
Can you practise as an actuary in Hong Kong without being a Fellow of the Actuarial Society of Hong Kong?
Hughes: You can do so because it's not a requirement under law; however, that is something we are looking to change. In theory someone could practise without being a member of the Actuarial Society, but in practice people do tend to join. By joining the society you get to meet a lot of other actuaries practising in Hong Kong, so it's a very good way of getting up to speed what the issues are, and networking.
Where does the actuarial come into managing the expectations of policyholders?
The actuarial profession is responsible for managing policyholders' reasonable expectations within companies. For example, when you look at the illustrations and quotations that are required by law in Hong Kong to be put in front of the policyholder, they have to be done with two different growth rates, so you see a lower growth rate and a higher growth rate. There are also all the caveats that are also required by law to be on those documents, which say things like "this is not a lower limit, this is not an upper limit, these are just illustrations and what happens in reality could deviate from that." All these sorts of things go towards setting reasonable expectations.
Are the expectations of policyholders changing?
I think policyholders' reasonable expectations are changing and it's incumbent upon the actuarial profession and the companies selling these products to help reset these expectations. If you ask most investment managers I think the expectation is that investment returns will come down over the medium to long term, to what they have been over the last 20 to 30 years. The important thing is that people remember it's not the absolute return but the relative return that is important. There's no point having 12% returns if inflation is 13%.
With the uncertainty in the markets now, risk management has become increasingly important. What role does the actuary play in this?
Under the Insurance Ordinance there are statutory solvency requirements. Each company will have to hold certain reserves, sufficient cash, and sufficient stocks and bonds to make sure those products are matched sufficiently. That's the job of the actuary. In times of uncertainty actuaries need to pay particular attention and look at various different scenarios. So what you would find is more financial modelling going on, where assumptions are made about equity prices going up or down, bond prices and property prices going up and down, looking at various mixes of those to see how that affects the solvency position of the company. Sometimes what you find is that a company needs to make a decision to move away from a specific asset class if it is particularly exposed.
How is the Actuarial Society promoting the development of the profession?
We have introduced the requirement for continuing professional development upon all qualified actuaries to ensure they keep up to date with what's going on, not just in Hong Kong, but also worldwide as well. What we hope to do at some point is introduce a local examination. That is something that's under consideration.
What does the future hold for the actuarial profession?
I think the influence that actuaries have on corporate finance in large pension funds and large life insurance companies is very significant, probably not that well known outside the industry. I suspect members of the public would be quite surprised at the level of influence and importance of actuaries in insurance companies and pension funds. With increasing regulation and increasing corporate governance requirements, that influence is probably going to increase over time. I predict a bright future for the profession.