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Comments (28)

Dec 29, 2020 - 10:45pm

Uh, yeah, your entire expertise is valued. You be surprised how many covering analysts actually have very little understanding about actuarial stuff, very terrifying that they telling investors whether prudential is better than metlife as a stock to own. From an investor standpoint tho, it's never going to be super complex technical actuarial stuff, but I think your product knowledge and the technical underpinning on pricing / reserving / capital requirement for those products are invaluable. 

Your way in is networking. Have a top insurance stock pick, write it up with a financial model attached in your info interview / networking email reach outs. CFA can help but only if you got 2 levels passed imo, so priority is to get the job first. Actuarial designations don't really matter either. 

Instagram: @dickthesellsider | Substack: dicktoad.substack.com

Dec 30, 2020 - 7:21am

Thanks for the prompt reply, how would you recommend me networking in a lockdown situation like this?

I added some analysts (mostly senior analysts and associates) on LinkedIn but should I message them randomly with a stock pick attachment on LinkedIn?

I have seen a position available recently, I'm worried about lack of valuation/research experience compared to other research background / IB candidates, any recommendations to my application in order to get an interview?

Dec 30, 2020 - 10:01am

Lockdown or not, LinkedIn is a decent way to reach out to ppl to talk to. Yes, attach the write-up, the stock write-up is your only way to alleviate concern about valuation / research experience.

Instagram: @dickthesellsider | Substack: dicktoad.substack.com

Dec 29, 2020 - 11:49pm

Would echo everything said above. Would add that networking really is incredibly important for a seat in a more niche space like life insurance (probably any sector tbh) given the teams are generally smaller and have less turnover (most are just an analyst and an associate with some having a senior analyst, a junior analyst and an associate).
 

Create alerts for any opening that pops up for a seat and apply ASAP. Likely they'll already have candidates lined up who are already in a research seat and are plug and play or are outside in industry and have networked already - the posting may even just be a formality for the candidate they're hiring. Either case, networking should help you understand who you want to work for and for when they end up hiring, for them to think of you as the lead candidate.

Dec 30, 2020 - 5:02am

Thanks for the prompt reply, how would you recommend me networking in a lockdown situation like this?

I added some analysts (mostly senior analysts and associates) on LinkedIn but should I message them randomly? Also, do you mean like the aforementioned, attaching a stock pick file on LinkedIn?

I have seen a position available recently, I'm worried about lack of valuation/research experience compared to other research background / IB candidates, any recommendations to my application in order to get an interview?

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Dec 30, 2020 - 8:08am

How long have you been an actuary for? What product set are you focusing on? If you're not yet licensed as an actuary and looking to move, probably too early. Similarly, if the product you've focused on isn't really a traditional Life or Annuity product (thinking something like accident insurance or anything considered supplemental benefits), your value as an industry hire is possibly less as it's just not the most relevant underwriting experience for analyzing the public lifecos which are bigger balance sheet heavy businesses given the L&A biz. If you are licensed / have experience in the right product suite, I'd suggest waiting until the second week of January and reach out to analysts that you have a connection to I.e. went to the same school as you / have other warm intros. Reaching out now's somewhat pointless as everyone's on vacation and in the 1st week of jan, working on getting out an outlook note.

Dec 30, 2020 - 8:31am

I completed all the exams, priced life ins products (term, IL) for 2 years and currently working on capital modelling (SCR-EU regulation)/ risk assessment of the company (different type of investments, LTMs). So, hopefully they are still quite relevant.

I'm worried about lack of valuation/research experience compared to other research / IB people. Should I be spending some time reading on valuation methods and practise writing some stock picks while I still have some time? Or read as many ER reports in the insurance sectors as possible?

Dec 31, 2020 - 7:39pm

Yes and yes to your last two comments. I am not in industry yet, but have been getting interviews due to my extensive efforts.

Find a company, do a write up/recommendation. You'll need a full model for this to support and you should also distill it down into a PowerPoint if you have time.

Look up online various DCF examples. Time value of money etc. "Multiple Expansion" has a good site with DCF examples and walk through. But you'll find plenty on the internet.

Be familiar and able to do comps (comparable companies) analysis as well. Feel free to DM as well. Happy to help with networking too. You have the right approach, which has worked for me as well.

Go all the way

Dec 30, 2020 - 10:11am

In that case, would think you have the product skillset to be positioned well for the sell-side. Getting smart on insurance valuation would be the next logical step. For that, if you can get your hands on a primer, that'd be optimal. Otherwise, some topics to think about understanding (assuming US based) would be GAAP vs Stat accounting, seasonality in products / sales, how stocks trade on p/e + p/bv ex aoci + p/fcf metrics, strategic positioning in sector / between companies, any recent / upcoming regulations and their impacts, how to think about capitalizations & how insurers use capital, etc.  Be able to model an income statement of an insurer and know what are and aren't reasonable assumptions. When you're comfortable with all of that is when it would make sense to start applying for roles. 

Dec 30, 2020 - 5:28pm

I am EU based, very much agreed on the parts you mentioned to be prepared for ER interview, what actually got me interested into ER (while my job mainly focusing on SCR and strategic decisions around it) is really the point you mentioned "how to think about capitalizations & how insurers use capital", etc.  

While I have read quite a number of ER reports, I understand the opportunities and risks parts easily, but always skip the valuation part to their final target prices.  "Be able to model an income statement of an insurer" is fairly complex and a larger insurer different parts of business, where could I learn about modelling these to produce valuations? Are the 4 valuation methods generally applicable and using SOTP to form a valuation for companies? Should I try writing up stock pick after learning these modelling skills before any applications?

Dec 30, 2020 - 10:55am

A bit of a different path, but you could also look into insurance solutions type roles at the larger asset managers (Carlyle, KKR, Apollo, BlackRock). They are looking for this type of expertise, and you could use your interest in markets to help drive investment decisions for various insurers rather than determining whether each insurer is a good investment. Just thought this might be worth throwing in if you are looking for a new career path. 

Dec 30, 2020 - 11:47am

Not in ER, but was an actuary before IB. Had a buddy who went into ER covering insurance after being in an actuarial field.

I think the technical skills are valued, and you'll have a better understanding of the balance sheet (particularly on the reserving front).

Path of least resistance is probably an MBA (not sure thats the answer you wanted to hear), but it sets you up for some good recruiting opportunities. I've heard of mixed results from actuaries with CFAs. In my experience, its pretty hard to move away on your own from the liability side once you're there. Happy to answer any follow ups

Dec 30, 2020 - 12:41pm

Interesting, I have seen the other way round (IB->Act). How many years were you in Actuary before IB? How did you find the transition, do you need to start all over again or you are in Insurance sector and do you like IB? What are the + and - that keeps you away from Act -> IB?

I am actually very rarely on the liability side... mostly on pricing and capital/risk (haven't done reserving before).

Definitely not doing MBA at this stage due to the costs and time but CFA is much more accessible.

Dec 30, 2020 - 3:01pm

I think moving between the two (IB and Act) is just rare in both directions. Was in actuarial for around 5 years before making the switch to RX IB via business school. Regarding "starting over," I guess the short answer is that yes, you have to start over, with the following caveats: you make a lot more money and you generally have more responsibility both internally and externally. As a result, it doesn't really feel like you're starting over.

The two fields are hard to compare; I left one gig truthfully saying "it's not you it's me." Realize you know this, but for the benefit of the group, the pros of work as an actuary:

  • You make fine money, although not as good as IB or ER (everyone on this board will tell you it's shit though)
  • Low stress / huge amount of time off
  • Go home at 5-6 almost every day (when I worked in insurance, I think I took my laptop home once)
    • Caveat that this isn't true for actuarial consulting
  • Mathematically challenging work (depends on your function, but actuarial models are much more rigorous than IB or ER)

In my opinion, the downside to all of this is that actuaries are fairly siloed, and the models get boring after awhile.

In contrast, I think IB/ER have a greater focus on strategy and put more emphasis on the business side. You spend time thinking about why a business is or isn't successful. People also care a lot more about your analysis, and so you get a lot more exposure to senior management. As an actuary, I never really got to listen to a CEO talk about their strategy in a face-to-face setting. The hours are a huge downside and it's a much more stressful job, but I haven't looked back.

Regarding switching, I knew a handful of actuaries who wanted to move to IB or ER, but couldn't, even with the CFA. That's sort of what I meant with the term "liability side" (at an insurance company, you're working directly with the liabilities rather asset selection). This would include pricing and reserving, and while Capital/risk and ALM touch the asset side, they're still fairly liability focused. Correct me if I'm wrong, but even as an investment actuary, you're working on quantitative risk management like fair value calcs, EC, duration/convexity matching, or maybe evaluating sector correlation for the bond portfolio. The point is just that actuaries are focused on very different aspects even when working with assets because the business problems are mainly related to the liabilities.

Ultimately, when I tried to recruit out of actuarial, I ran into the issue of people not really understanding what I did, or how it would apply to the role I was applying for. I'll defer to others, but I'd imagine this would hold true even in insurance ER. I'm not trying to force the idea of an MBA down your throat, but I really have watched a lot of people try to recruit out of actuarial for years before they just gave up and went to grad school of some kind.

Dec 31, 2020 - 4:32pm

I think what we need to realize first is that insurance in Finance isn't like biotech where you really need the advanced degree type of industry-specific knowledge. Your actuary background may help, but the valuation of insurance isn't primarily driven by the liability side. You would really need to demonstrate your ability to understand the space overall, in addition to your background skillsets.

That said, your actuary background will stand out for people in the insurance sector. I know a few IB MDs at top BBs covering insurance with actuary background. There should be at least a handful of people out there who would be willing to have coffee chats with you. CFA may help, but only so far as helping you understand corporate financials. I would probably focus more on developing and communicating your insights into the space.

Dec 31, 2020 - 4:40pm

Thanks for your view. Could you provide more specific advices on developing insights please? Do you suggest performing valuation, writing stock pitches and attach them to these seniors during "virtual" coffee chat/LinkedIn?

Dec 31, 2020 - 5:05pm

Honestly curious, but why do you say valuation isn't driven by the liability side? Insurance company assets aren't really operating because its mainly a bond portfolio.

Would think valuation would be driven by 1) your ability to write new business (i.e. your operating assets) 2) the value of business that you've written (i.e. the liability side). Does the value of 1) just completely outweigh 2)?

Dec 31, 2020 - 7:55pm

Hi, from my experience, I was working at "free assets" section of an insurer, hence there's no requirement to back any liabilities on that. The choices of the free assets are basically anything ranging from real estate, credit, structured finance, equity, PE even... and I would've thought valuation of these assets would contribute part of the value of the company but not sure if this is part of what he meant.

Jan 2, 2021 - 2:36pm

Let me clarify, I meant to point out that one's technical understanding of an insurance product (part of liability side) alone does not get you to understand the whole insurance model, especially the equity valuation where ER focuses on. I'm not saying it doesn't matter, but when he talks to wall street people, their question #1 will be whether he THINKS he gets it just because he was an actuary. 

Jan 1, 2021 - 1:58pm

Whether you use the skills or not, it gives you a lot credibility. I knew a fellow analyst who worked in industry for a couple of years before getting into ER. I never thought that this gave him any particularly unique insights, but it still impressed the clients. They felt like they were getting the real scoop by talking with someone who had worked in the industry.

I don't know the insurance industry, but worst case scenario, you will still get a lot of credibility regardless of whether the background actually helps or not.

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