Opinion

The Market Relevance of the Actuarial Profession

by Donald F. Mango and Thomas Struppeck

Sholom Feldblum's opinion piece in the August 2000 issue of The Actuarial Review questions the market relevance of the new joint Exams 3 and 4 (Actuarial Models and Actuarial Modeling). Feldblum expresses concern that the difficulty and apparent irrelevance of these exams will drive students to alternative careers. We will first address four specific points Mr. Feldblum raises. Then we will discuss what we believe is the core issue: not whether our current process drives away candidates; not even our process at all; but the market relevance of our exam content and hence our profession.

Specific Points from Mr. Feldblum's Article

1. "The skilled college graduate from Harvard or Yale, from Stanford or Princeton, adept in mathematics and eager to join our global economy, has a choice. Three CFA exams give practical investment expertise and a secure job at over $100,000 a year, with much advancement potential."

This is an unfair comparison. The CFA designation is too easy to obtain to be in itself highly valued by the job market. It is also secondary to actual work experience in setting salary levels. Many CFA designees are stock analysts, whose value to their firm is their industry reputation in providing investment advice. Others are fund managers, whose compensation is tied to the performance of their funds. To suggest that the CFA designation on its own confers such status and job security in the volatile investment world is, at best, somewhat misleading.

2. "The first four actuarial exams teach esoteric statistics that most employers deem unrelated to the job."

Exams 3 and 4 teach the fundamentals of the "actuarial approach," unique to our profession. We both have worked with financial engineers and capital market quantitative professionals, at firms such as Centre, RiskMetrics, and Goldman Sachs, who expressed great interest in learning these actuarial techniques.

3. "Our advanced modeling and simulation exams—with study time and pass ratios out of proportion to work requirements and financial rewards—lead the best students elsewhere."

What leads students away? Study requirements, pass ratios, or difficulty? Every profession puts up barriers to entry. If the goal isn't difficult to attain, it is typically not highly valued—the two are inextricably bound together. Perhaps the CAS can be more open about the nature of the difficulties, but reducing the difficulty would devalue the designation. That is not in the best interest of the membership nor (paradoxically) of the students. They work hard towards designation because it is so valuable. But its market value is to some extent a result of the difficulty. Making it easier would make it less valuable for current and future members alike.

4. "I meet hundreds of students [who ask]: should we continue in the actuarial career path, or should we take the CFA exams? What can I answer them?"

Mathematically inclined students considering actuarial careers must first ask, "Insurance, yes or no?" No variations in exam order or question style can disguise the content. If your interests lie in the capital markets, please look elsewhere.

Inherent Conflict of Interest?

Student opinions about exams are important, but we mustn't ignore the opinion of the major stakeholders in this process: the employers. The actuarial designation program amounts to protracted, company-sponsored graduate work. University-based graduate students must pay for their education. Who pays for actuarial education? Our employers do.

Study time and exam fees are nontrivial expenses. How many employers feel they are getting their educational money's worth from their actuarial investments? The CAS's recent CEO survey suggests we may not like the answer. As Mark Jones, a CAS actuarial student, put it in his September 19, 2000, CASNET posting, "Our purpose is to make money for our employers. If we can't equate the exam system back to that goal then there is no point."

Members have a stake in the exams' staying difficult—maintaining the value of the designation. But are our interests at odds with those of our employers? Is our rigorous training a net benefit to our employers, after recognizing the costs? How relevant is the material we teach ourselves? How much feedback do we solicit from our employers? Where does "independence" end and "indifference" begin?

Progressive, a leading automobile insurer, employs university-educated statisticians—not actuaries—to develop their classification plans. This illustrates the point: professional relevance is first and foremost a marketplace issue. Whether we think our exams and designations are relevant is immaterial. The marketplace decides.

Potential changes to the exam process—fewer exams, easier to pass exams, or no exams—are immaterial in comparison to a more fundamental concern: the relevance of our exam content—whether the skills employers want are available more cheaply elsewhere. That will determine the future of the actuarial profession.

Editor's Note: The Actuarial Review would like to hear from those members who hold CFA designations. Please send your comments to the CAS Office or send them by e-mail to esmith@casact.org.