Enterprise Risk Management
Society of Actuaries offers its first new credential
since its founding in 1949
By Michael J. Moody, MBA, ARM
The past 12 months have seen an explosion of activity regarding enterprise risk management (ERM) in general and more specifically with ERM educational offerings. Among other things, the Risk and Insurance Management Society (RIMS) introduced its Risk Maturity Model, developed several ERM-specific seminars, and included a separate ERM educational track at its annual conference. And several other organizations have begun offering ERM educational programs. However, it’s the recent announcement by the Society of Actuaries (SOA) that has created the most attention.
On August 1, 2007, the SOA issued a press release announcing that it would be offering the first accredited ERM program. According to the SOA, the Chartered Enterprise Risk Analyst (CERA) reflects the most rigorous enterprise risk management training available today. The Society goes on to point out that the CERA can be earned by risk professionals who complete “a rigorous curriculum encompassing the most comprehensive demonstration of enterprise risk management available.”
Raising the bar
This is a most important step for the SOA. The Society has clearly taken the initiative in the ERM educational arena and is moving quickly to establish itself as the “best-in-class” of the current educational endeavors. And lest anyone should confuse this effort with just another credential program, this is the first new professional credential that the SOA has done in nearly 60 years. In fact, this marks the first credential since it established the original Fellow of the Society of Actuaries (FSA) and Associate of the Society of Actuaries (ASA) when the SOA was formed in 1949.
Over the past few years, the SOA has watched enterprise risk management gain stature in the financial services industry. And in response to this increased emphasis, it began an annual conference on ERM. Over the last couple of years, the program has been expanded beyond the financial service industries and now includes sessions on most industry segments. The SOA now believes that since the rating agencies have gotten involved, there is little reason for any corporation to ignore ERM.
The Society has also noted that there have been several checkpoints that have driven the interest in ERM. Among the more important of these are:
• Greater transparency
• Financial disclosures with more strict reporting and control requirements
• Security and technology issues
• Business continuity and disaster preparedness in a post-9/11 world
• Regulatory compliance
• Globalization in a continuously competitive environment.
Coupled with the focus from the rating agencies, ERM now becomes an important management tool. As a result, the SOA believes that ERM offers “a framework for effectively managing uncertainty, responding to risk and harnessing opportunities as they arise.”
The CERA curriculum was developed to meet current and future market needs. The SOA says the breadth of knowledge imparted through this credential will provide CERAs and their employers with a broad understanding of risk management and the ability to apply that knowledge to any risk-bearing enterprise. According to the SOA, the CERA requires successfully completing five exams, an e-learning module and Validation by Educational Experience for Economics, as well as participation in an Associate Professional Course. Included in the curriculum are topics such as probability, financial mathematics, financial economics, micro and macroeconomics, construction of actuarial models, financial reporting and operational risks, and advanced finance and enterprise risk management.
The curriculum was designed to help prepare for leadership in the identification, measurement and management of risks within complex enterprises. In addition to insurance and benefit organizations, actuaries are increasingly working in the broader financial services market as well as energy, transportation, manufacturing and health care industries.
According to the SOA, the CERA credential reflects the actuary’s evolution “from centuries of helping the world understand risks to today’s broader risk management and leadership positions.” As new roles in ERM continue to grow, actuaries are becoming leaders in the practice, which takes a 360-degree view of an organization’s risk profile. They note that CERAs are trained to apply both qualitative and quantitative insights to risk management and, thus, are qualified for such positions as risk analyst, risk manager, and chief risk officer.
The ball is in their court
Completing the CERA curriculum takes an estimated three to four years, and successful candidates will also become Associates of the Society of Actuaries. Some 87 professionals have signed up to earn the CERA credential. In addition, the SOA Board of Governors will name a number of CERAs. In June, the Board approved making the CERA credential available to a select group of current members of the SOA who have demonstrated actuarial expertise and substantial experience in the field of ERM, without requiring them to complete the normal examination requirements. Each has previously earned the ASA or FSA designations through the rigorous credentialing process.
The Board determined that there would be two pathways for such existing members to become CERAs. The first group consists of thought leaders who have either performed ERM at a senior level or advanced the actuarial profession within the ERM field. Additionally, they may be individuals with significant visibility in the ERM field or who have made substantial contributions to the practice of ERM and are offered the credential without any further requirements. The second group is made up of experienced practitioners in the field of ERM, who will need to submit an application and resume, in addition to participating in a two-day seminar, to receive the CERA credential.
Several SOA members have pioneered the CERA efforts within the SOA. One of those members is Sim Segal, FSA, CERA, MAA, a managing director in Aon’s Global Risk Consulting Group, where he leads Aon’s ERM service offerings for the Americas. Segal is a long-time supporter of ERM and says, “The CERA credential marks a new breed of risk professional.”
He points out, “Enterprise risk management is just basic actuarial science, which is now being applied in all industries.” He says that ERM is no longer just for insurance companies or banks, since every business has a diverse set of risks, and executives are now looking for ways to manage them on an integrated basis. As a result, he says, “there are a lot of ponds we can play in.” At their core, he says, actuaries are all about measuring and managing risks. “We are able to look at risks holistically and quantify their impact on the corporate strategic plan and key metrics. This provides the risk-to-value linkage, turning risk into opportunity.” *