The hallmark of any profession is the work its members do. The actuarial profession is different, however, in that being an actuary entails doing things in a certain manner, rather than doing certain things. The actuarial toolbox equips its owner to do an incredible variety of things … successfully.

South African actuaries have excelled in many areas outside the office. Some obtained national or provincial colours for sport, others reached great heights in the arts. Many members are involved in community development initiatives.

In international actuarial circles, the work done by South African actuaries in respect of dread disease is regarded as South Africa’s gift to the actuarial profession.

This page has been created to celebrate the achievements of those South African actuaries who used their actuarial skills to navigate previously uncharted actuarial waters. It demonstrates the versatility and value of the actuarial skills set. We salute these pioneers, hoping that their success will inspire others to break new ground. After all, in the words of Frank Redington, “an actuary who is only an actuary is not an actuary”.

Applying Actuarial Science in Silicon Valley

Fraud was going to kill PayPal.  And no one knew.

It was 2000 and the one-year-old e-commerce company was taking off.  People were getting comfortable transferring money over the Internet, and payment volume was growing exponentially. 

As the newly appointed director of corporate development, one of my first acts was to build a financial model for PayPal. I quickly iterated to refine the model by double clicking on areas where actual results deviated materially from predictions. One of those areas was transaction losses. We understood that fraud was one of the few risks that could quickly sink our company. While the transaction loss rate was gradually ticking up, our superficial analysis suggested that the problem was manageable with loss rates well south of 0.5% of total payment volume.

However, the fraud estimates kept coming in wrong, and the prediction error kept growing. After some investigation, I discovered that we were using a non-matched approach. We were comparing a given month’s losses to the same month’s payment volume to estimate the loss rate. As an actuary, I spotted the similarity to property and casualty insurance: there was a delay between when the payments occurred and when we had the true fraud numbers associated with the same transactions. Our rapid growth rate, coupled with this inherent latency, meant that we were significantly underestimating our loss rates. We had not set up the equivalent of incurred but not reported (IBNR) reserves to cover the true extent of our costs from fraudulent transactions.

After we had this insight, we implemented the chain ladder technique to build cumulative loss distribution functions to get a more precise estimate of the problem.  The findings were astonishing- fraud rates were four times higher than we had previously estimated and growing exponentially.  During the four months between July and October 2000 alone we incurred fraud losses due totaling $5.7 million. If we didn’t act, PayPal faced imminent bankruptcy.

We took quick action to curb the fraud. On the technical side we developed tools to reduce it, including one of the first commercial CAPTCHAS. On the risk management side we built out a team, designed scoring algorithms for every transaction and modeled the data using logisitic regression and neural network models to help prevent fraudulent transactions.  Of course PayPal continued its rocket growth. Today it is the leading global online payment company, with over US$100 billion in annual payment volume, and with annual revenue of over US$4 billion. For me, the experience was a powerful reminder of the value of actuarial training.

Today I work in the venture capital business, and my actuarial skills continue to shape my career.  They help me understand companies, evaluate business models, and make informed investment recommendations. 

One of my favorite companies is Natera, a genetic testing company. They’ve developed a highly accurate chromosomal test to screen embryos for genetic diseases and maximize a couples’ chance of having a healthy child. 

The common approach to genetic screening tests a single hypothesis at a time (e.g. does a given embryo have two or three copies of chromosome 21?). Natera applies a Bayesian approach to the problem of accurately determining the genetic profile of a child’s DNA, by developing a maximum likelihood estimator across all possible hypotheses for the state an embryo.  This allows the company to deliver highly accurate results at a low cost. My actuarial training in statistics helped me understand the advantages of their approach, and Sequoia Capital is now a business partner of Natera.

My work in technology has convinced me that many of us should round out our core actuarial training with applied computer skills.  Indeed, I recently completed a machine learning class at Stanford University.  Mathematics and statistics have long served as foundational elements to many disciplines, including Actuarial Science. In the same way that we are, in part, applied mathematicians, we will increasingly need to add computer science to our toolkit.

My experiences with PayPal and Natera are just two examples of how actuarial skills can be applied across a wide range of non-traditional fields.  A strong sense of fiduciary responsibility and the abilities to solve problems, understand mathematics, and above all, think long-term, are useful in many contexts and provide us with tremendous opportunities to shape our world for the better.

Roelof works with financial services, cloud computing, bioinformatics, consumer internet and mobile companies at Sequoia Capital. Prior to joining Sequoia in 2003, he served as the Chief Financial Officer of PayPal (acquired by EBAY in 2002 for $1.5 Billion). Roelof is a certified actuary (Fellow of the Institute and Faculty of Actuaries and a Fellow of the ASSA), and has a BS in Actuarial Science, Economics, and Statistics from the University of Cape Town and an MBA from the Stanford Graduate School of Business. He can be reached at botha [at] sequoiacap.com. Roelof currently serves on the boards of companies that include Square, Evernote, Eventbrite, Tumblr, and Xoom, and formerly served on the board of YouTube (acquired by Google in 2006 for $1.65 Billion).

Applying Common Sense to Actuarial Employment

In order to explain why and how I formed GAAPS Specialist Actuarial Group, I need to set things in historical context. I formed GAAPS in 1991, and although that may not seem so long ago, it really was a completely different world then for women actuaries. I qualified in 1972 and at that time I was only the nineteenth woman to qualify through the Institute of Actuaries EVER. 

I followed a fairly traditional career path, first in investment and then in life, until 1981, when my first child was born. I became an academic in City Universities Actuarial Department as a way to combine motherhood and actuarial work. Over the years as an academic, I found more work demands placed on me and it was no longer the flexible solution I required. In1991 I completed my PhD and found that it had given me the ability to do word processing and "kick open doors" ( on phoning anyone and saying “Dr”, one is always put through immediately),but not much else. I decided that I wanted more time with my children: since having my first child, I have always been a mummy first and now also a granny.

I contacted the recruiters who were then advertising in The Actuary magazine and, frankly, was not impressed. Most had nothing suitable at my level or offered to "market" me. But as I had such an unusual profile, especially for a senior posting, I could not see how they could maintain confidentiality. I thought I could do better.

I have always believed that the actuarial qualification is a qualification in applied common sense. It also confers an understanding of and long term perspective. I obtained a copy of the NatWest (a major UK banking group still in existence) start-up guide for small businesses and used it as my bible, following up on every paragraph. I have read other such guides since, but don't think any are as good. I also obtained a copy of the Employment Agencies legislation, current at that time, and used the information it required to be held as my template.  My first year's business plan came in within £25 of my estimated profit and my bank manager was astounded, but then he had never met an actuary before. Similarly, in my first six months of operation, I had received two "random" inspections from Government Employment Agency Inspectors. They had never met anyone who had read the relevant legislation before, let alone having a copy of the act hanging on her wall! Again, they had never met an actuary before.

At this stage in my career I was fairly high profile, as I was on the Council of the Institute of Actuaries and had always taken part in voluntary work for the profession as I was a firm believer in the original Institute motto, "Each man is a debtor to his profession".

I decided that I wanted a company that both candidates and clients would feel comfortable using. We still use the strap line "based on a foundation of ethics and experience".  My first advert attracted 60 applicants who previously had been frightened to use an agency because of concerns over confidentiality.

My first placement was in Hong Kong and I haven't looked back.



Dr Geraldine Kaye
Managing Director