National Report for Norway - some thoughts on the future for the actuary and the actuarial education in Norway. by Erik Falk, Oslo

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1 National Report for Norway - some thoughts on the future for the actuary and the actuarial education in Norway. by Erik Falk, Oslo Summary The employment for the actuary is expanding. The traditional actuarial work place at the insurance companies is developing, and the actuaries also find new fields of employment e.g. in finance. This development is expected to continue, and there are a lot of new challenges for the actuaries. Traditionally the education of actuaries in Norway has been based on a fundament of theoretical statistics and mathematics, but the study is now being revised. The new education model will prepare the future actuaries for their new challenges in a constantly changing world. But despite the new opportunities, maybe the greatest challenge is how to recruit more actuaries to the profession in the future.

2 1 Education 1.1 A brief history In Norway there has been an actuarial study program at the University in Oslo since Until recently the study program has followed the ideas of Erling Sverdrup ( ), the well-respected professor of insurance mathematics with mathematical statistics. During the 50 s and 60 s he first established a modern study program in mathematical statistics at the University of Oslo, and then he developed an actuarial study based on stochastic principles. Sverdrup s basic point of view, that insurance mathematics is a field with close links to mathematical statistics, has been central in the later developments of the study. Risk theory and non life insurance was included in the curriculum in the 70 s. In 1980 there was a thorough revision of the study resulting in the actuarial students taking a five year masters degree in mathematical statistics with a specialisation within insurance mathematics. The most important change of the study program was that the students had to write a thesis corresponding to one-year (full time) work. Another major consequence of the revision was that economics no longer was a compulsory part of the curriculum, neither was computer science, although the students was urged to include some courses of these topics as supplementary curriculum in the optional part of the study. There has been a problem that few students pass the exam every year. The situation has not changed even though the demand for actuaries has only been growing and seems to continue to grow. Some has claimed that it is the high degree of theoretical and fundamental mathematics and statistics in these studies that has caused the lack of new students. However, the decrease of new students is common for most of the fields in mathematics and natural sciences at the University, even though the student mass as a whole has been increasing. 1.2 The future study program in Oslo Under the leadership of Erik Bølviken (professor in insurance mathematics since 1998), the actuarial study is now being revised. Still the philosophy is a curriculum consisting of a fundamental theoretical base preparing the students for their future actuarial work. This also provides a base for more development and enables them to solve more practical tasks on the job. The ideology is that the actuaries not only deal with theoretical issues, but are dynamic problem solvers co-operating and communicating with different units at their working place. Some actuaries will also move towards other tasks than the strictly actuarial, e.g. administration and leadership. Somehow the fundamental base of the study will be changed towards more economics and computer science. The development in financial mathematics over the last 30 years makes it a natural part of the actuarial education. This is not only because it is an integrated part of modern pension savings, but also because this new mathematics is a natural working field for actuaries with their background and knowledge in mathematics and economy.

3 The fundamental base in the traditional actuarial topics, mathematics and statistics, will also change. Traditionally the curriculum in actuarial topics has focused towards the mathematical models, and not so much on how the models reflects the reality, how to estimate the parameters and how to use the models to predict future values or do other calculations. The development in computer science has changed and will continue to change how this working process is done, and must therefore be an important part of the actuarial training. Modern actuarial students need to get more training in the modelling process. This is a process consisting of more than only mathematics; e.g. communication and the ability to abstract and simplify. To acknowledge this part of the work is important, and mathematicians with little or no experience in this field often underestimate how challenging job it is. A lot of this can be learned on the job, but a better fundamental base should be laid at the University. A revision of the actuarial study is also useful because all studies needs to be revised from time to time. New and different categorisations of the field can be made and mutuality between different methods and techniques can be more easily spotted when time passes. The growth in computer science and numerical methods can also make room for new categorisations of the mathematical methods. Computer science will in the future be a more integrated part in the courses in mathematics and statistics as well as the actuarial topics. The future study program will probably include mathematics, statistics and insurance mathematics as well as computer science and economy as compulsory parts of the curriculum. The study will still be a five years study where the students towards the end write a thesis corresponding to one-year (full time) work. There will be space for some supplementary parts where the student can choose from different topics after interest. 1.3 The actuarial education in Bergen From 1997 we also have an actuarial education program at the University in Bergen in addition to the one in Oslo. The study came to life with the economic support of the insurance industry in Bergen that was having problems recruiting new actuaries. Basically the study follows the same ideas as the traditional study program in Oslo with focus on theoretical mathematics and statistics, and as a specialisation of the study in statistics. The actuarial study in Bergen includes some elements of finance and computer science as well. In the future there might be larger differences between the studies after the revision of the study program in Oslo. The average number of new actuaries educated every year is about 2 3 which is a little bit less than in Oslo. In Bergen as well they have seen the decrease of new students in mathematics and natural sciences. In the years of existence the actuarial education in Bergen is considered as a good supplement to the education in Oslo, and a good way to recruit new actuaries in the region. 2 Post-graduate education 2.1 Introduction The actuarial education will always be an issue of discussion among actuaries. The discussion centres around broadness or depth and of what topics to focus, and always ends up with the dilemma that there is not room to include all the desired fields in the

4 ordinary education. The actuaries have the last decades entered many new professional areas, and the world is also continuously changing. Obviously there is a constantly growing need for post-graduate education. 2.2 The Norwegian Actuarial Society The post-graduate actuarial education in Norway is mostly administered by The Norwegian Actuarial Society. Almost all actuaries in the insurance business and the majority of actuaries elsewhere are members of the Society. The Society is rather small (218 members (including 25 pensioners)), and possesses modest resources to administer any significant post-graduate education by its own. Nonetheless the Society manages to arrange 3-4 post-graduate seminars or courses every year. Most of the actuaries are situated in Oslo, and this makes it easier to make this kind of arrangements. The post-graduation is not on a compulsory basis, but the seminars arranged by the Society are very popular among the members, and participants on a seminar are not unusual. These seminars cover a wide variety of life / non-life insurance, financial risk, legislation and other topics relevant for the working actuary. From 2001 the Society also arrange an Actuarial Day in connection with the yearly meeting; a day with different actuarial seminars and some international guests. The first Actuarial Day was a great success with over 100 participants. Traditionally, most of the work in the Society is done voluntary by the members and often with coverage of the Society s expenses from the employers. Although, in the recent years we have started to hire office services for some of the paper work. The Society will have a lot of challenges in the future, including the post-graduate education work, and we are moving towards a more professional organisation where more of the paper work is paid for, and where more of the expenses is covered by the Society Post-graduate education outside The Norwegian Actuarial Society In addition to the seminars arranged by the Society, some of the actuaries do postgraduate education by their own by following different courses. These courses can be in mathematics, statistics and insurance mathematics at the University, but more often it is courses in insurance, economy, finance and legislation arranged by other institutions. The rapid developments, both in actuarial techniques as well as new products and new working fields will result in the need for the continuous professional development of actuaries. There has been some work within the Society to formalise a post-graduate education scheme, but such a scheme within strict frames has been looked upon as controversial by a lot of the members, and will probably not be established in the near future. Anyway, post-graduate education is considered important among the actuaries, and the Society will probably have to direct more focus on this issue in the future, e.g. to give guidelines of the available courses. 3 The future of the profession 3.1. New job opportunities, but lack of actuaries

5 The need for actuaries in Norway is steadily growing. Both in the insurance industry and in related activities there is a demand for the knowledge represented by actuaries (key word is price for uncertainty). The future is therefore full of challenges, with new exciting working fields for the actuary. Even in the typical actuarial jobs the content of the job has somewhat changed. The actuarial formulas for calculations are today more or less common property through computer systems, while development, understanding and communication gets more important. The lack of actuaries can lead to other professions (e.g. economists, lawyers and engineers) taking over our tasks, and the role of the actuary might be reduced to a pure technician. Over the last couple of years, there seems to have been a tendency towards fewer and larger insurance companies in Norway. This slightly reduces the number of actuarial jobs in the insurance companies, and we see the tendency that more actuaries seek for other jobs than in the insurance business (and other jobs within the insurance business). The new education model will make the actuary better trained for a greater range of jobs. The deep knowledge in mathematics will give an advantage compared to many with economical background in typical financial institutions. This background might also give us competitive advantages for many jobs in computer science. 3.2 The actuary consultants Traditionally there have only been a few consulting actuaries in Norway, working mainly with pension funds and IT-systems. The latest years we have observed an increasing number, and we expect the number of consulting actuaries to grow even more in the future. The demand for actuarial calculations in connection with reporting and international standards has led to new areas of employment for the actuary consultant, and it seems as if these areas are still spreading. As the actuarial field grows and the demand for expertise in new products and special calculations or know-how gets more rapid, even companies with employed actuaries might now and then have the need for actuary consultants. The actuary consultant can in some situations have a free position and integrity, that would be impossible if he was employed with the company. Even here the consultant business is increasing. To some extent the actuary consultants explore new ground and create new business finding new areas where there is a need for the actuarial expertise. The increase of actuary consultants is a challenge for the actuaries. The communication skills get more important, because the clients are often not so experienced in insurance. For the actuary consultants it is not enough just to do the calculations right, but they also have to communicate the results in an understandable way. Trust and faith between the consultant and the client becomes essential features. And all these factors must influence the actuarial training and education. 3.3 Actuaries in finance Until now most Norwegian actuaries have been focused on the liability side of the balance sheet, but here as in other parts of the world, we have a growing number of actuaries beginning to study the asset side, even though the number so far has been

6 limited. Obviously this is a field where the actuarial qualifications in mathematics, statistics and handling of risk will be useful. Hopefully we will have valuable supplementary contributions to the other professions working with these questions. The arrangement of the AFIR2000 colloquium in Tromsø was an inspiring experience for the Norwegian actuaries and set the focus on actuaries as problem solvers in financial risk. The number of actuaries working in this field in Norway will probably continue to grow in the future. 3.4 Internationalisation Internationality will be a more and more important feature in the future. Even though Norway is not a member of the EU, we are a member of EEA, which implies that the insurance industry must follow the EU regulations, and we are more and more a part of the international community. There will be an increasing number of foreign companies in the market, and the Norwegian companies will direct more of their efforts to foreign countries. This will inevitably lead to an internationalisation of the Norwegian actuaries. It gets more important to gain knowledge of actuarial practice in other parts of the world e.g. adjustment to international reporting standards. Language skills get more important, and the Norwegian actuaries will also to some extent have to compete with the actuaries from other countries e.g. in the consultant business. 3.5 The Petroleum Fund When it comes to specific issues for the actuaries to work with in the future, the ageing problem is one of special importance. The mortality rates have been (and might still be) decreasing and the number of aged people per number of working people will increase. This is a common problem in a lot of countries, but one aspect makes this special in Norway. The earnings from our oil reservoirs make us a very wealthy country and the money is gathered in a separate Petroleum Fund. How this Petroleum Fund shall be managed is a frequently discussed political question. But there is an agreement to regard most of it as reserve for future pension costs. The social security system in Norway today is on a collective basis. The Petroleum Fund is administered by the government on the behalf of the community, but there are political forces wanting to split greater parts of it into individual units and let them be administered by private companies / insurance companies. Such a change of system will mean an explosion of the pension marked and a huge challenge for both the actuaries as well as the industry as a whole. 4 Actuaries in Norway Quo Vadis? At the beginning of a new millennium it is natural to ask oneself the question: How is the future for the actuary in Norway? And as experts in calculating and predicting the future, we might be the right ones to ask. Probably most actuaries in Norway would be rather optimistic in their answer: The future has no limits. The tasks and the opportunities are more varied and challenging than ever. Still, the actuarial expertise is highly acknowledged by the insurance companies, and the demand for the actuarial expertise is increasing both inside the insurance industry and outside. But we are too few. One of our most important challenges is to work with the recruitment. If not, the tragic scenario is that the actuary in Norway will be one of the extinct species (in the

7 latest 15 years the net growth of members in The Norwegian Actuarial Society is 6 persons). To succeed in that manner we have to focus more on the fields where we are experts; professional mathematicians and risk managers in insurance and finance with good practical insight. The new education model is a great leap in the right direction. We also have to work on the information part. Communication skills are more and more important also for the actuaries. We have to get publicity and our voices must be heard both by the young students looking for the right profession to choose, but also in our companies and working places and in the society as a whole. And of course we must set high standards to the quality of our own work and professional conduct. In this century like in the previous professionalism and know-how are the key factors in securing actuarial influence in insurance and finance.