The Actuary November 2013

“Until we sort out the problems that Greece has, and Spain and Italy get over their difficulties, I don’t think you will be able to say that Europe is recovering”

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NOVEMBER 2013 theactuary.com

Modelling

The magazine off the actuarial i profession proffession i

BeneďŹ ts and challenges of using economic scenario generators

Solvency II Sitting in expert judgment

Life Past pandemics and future risk modelling

Art The Actuary

Mathematics and dramatics from Marcus du Sautoy

November 2013

DARLING: THE PAINFUL TRUTH The former chancellor on economic crises past, present and future p01_nov_cover•gc.indd 1

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NOVEMBER 2013

Contents COVER: SAM KESTEVEN

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26

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“Until such time as we sort out the problems that Greece has, and Spain and Italy get over their difficulties, I don’t think you will be able to say Europe is recovering”

UP FRONT

FEATURES

AT THE BACK

10 IFoA news

18 Interview: Alistair Darling

34 Arts

14 People/society news 16 Industry news 17 SIAS events

OPINION 5

Editorial Actuaries should develop a balanced approach to create a good legacy, says Deepak Jobanputra

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President’s comment David Hare looks at why actuaries should increase their softer skills to guard their route to a seat on the board

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Soapbox Neil Hawkins says embracing modern solutions is the best way for the pensions industry to engage employees with their workplace benefits

33 Book review Louise Pryor on the unsubtle message behind The Bankers’ New Clothes by Anat Admati and Martin Hellwig

MORE CONTENT ONLINE Additional content can be found at www.theactuary.com

Mike Thatcher discovers why the plainspeaking veteran Labour politician remains a hugely influential figure

22 Life: Pandemic perspective Anne-Lise Bagur reviews the history of pandemics and discusses how this can be used for future risk modelling

26 Solvency II: Imperial measures China has been watching European Solvency II with interest, with the aim of reforming its own solvency regime. Cynthia Yuan looks at the red giant’s progress

28 Life: Getting real with ESGs Michael Kim describes the benefits and challenges of using real-world economic scenario generators for life insurance modelling purposes

30 Solvency II: Sitting in judgment...

Dr Joseph Lo, Dr Ed Tredger and Bernadette Hlavka discuss tricks to use and pitfalls to avoid when conducting an expert judgment elicitation meeting

Jeremy Lee interviews Marcus du Sautoy about his X&Y production

36 Puzzles Try the latest cryptic crossword and Mensa puzzles for a chance to win Amazon vouchers

39 Student Jessica Elkin on how growing older and wiser pays off

40 Actuary of the future Obaidur Chowdhury of Hymans Robertson LLP

ONLINE Unit-linked business Peter Caslin argues the increasing complexity of governance of unit-linked funds means actuarial skills are in demand

Hedging pension liabilities Michael Sher looks at the benefits of using hedging strategies in controlling risk

General Insurance News from around the globe

WRITERS OF THE MONTH Jeremy Lee wins a £50 book token for his arts review and interview, courtesy of SIAS

November 2013 • THE ACTUARY www.theactuary.com

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Editorial DEEPAK JOBANPUTRA

Publisher Redactive Media Group 17-18 Britton Street, London EC1M 5TP +44 (0)20 7880 6200 Editor, Redactive finance division Mike Thatcher Publishing director Joanna Marsh Sub-editors Kathryn Manning Caroline Taylor News editor Vivienne Russell +44 (0)20 7324 2788 vivienne.russell@redactive.co.uk Editorial assistant Tania Forrester tania.forrester@redactive.co.uk

Internet The Actuary website: www.theactuary.com SIAS website: www.sias.org.uk IFoA website: www.actuaries.org.uk

Managing editor Sharon Maguire +44 (0)20 7880 6246 sharon.maguire@redactive.co.uk Editor Deepak Jobanputra editor@theactuary.com Editorial team Sarah Bennett, health, international Jeremy Lee, pensions, investment, ERM, banking

Sonal Shah, GI, reinsurance, environment, careers (UK)

Recruitment sales Gill Rock +44 (0)20 7880 6234 gill.rock@redactive.co.uk

Aoife Martin, GI, reinsurance, ERM, Solvency II

Art editor Gene Cornelius

Production executive Rachel Young +44 (0)20 7880 6209 rachel.young@redactive.co.uk

Profession news editor Alison Jiggins +44 (0)20 7632 2172 alison.jiggins@actuaries.org.uk People/society news editor Yvonne Wan social@theactuary.com

Arts page editor arts@theactuary.com SIAS representative Alvin Kissoon

Print Southernprint Ltd

Circulation 24,028 (July 2012 to June 2013)

Challenging assumptions

Helen Lau, GI, reinsurance, environment, careers

Student page editor Jessica Elkin student@theactuary.com

Picture editor Akin Falope

Actuaries should develop a balanced approach to create a good legacy, says Deepak Jobanputra

Richard Purcell Richard Schneider, life, Solvency II, mortality/longevity, modelling and software

Recruitment and display manager Katy Eggleton +44 (0)20 7324 2762 katy.eggleton@redactive.co.uk

Digital sales Richard York +44 (0)20 7324 2787 richard.york@redactive.co.uk

Opinion

Editorial advisory panel Peter Tompkins (chairman), David Campbell, Matthew Edwards, Martin Lunnon, Marjorie Ngwenya, Sherdin Omar, Richard Purcell, Andrew Smith, Nick Silver

Subscriptions For subscriptions from outside the actuarial profession: UK, Eire and Europe: £55 a year/£5 a copy. For the rest of the world: £80 a year/£7.50 a copy. Contact: Alison Jiggins, The Institute and Faculty of Actuaries, Staple Inn, High Holborn, London WC1V 7QT. T +44 (0)20 7632 2100 E alison.jiggins@actuaries.org.uk Students on actuarial science courses at universities may join the Staple Inn Actuarial Society for £6 a year. They will receive The Actuary as part of their membership. Apply to: Membership Department, The Institute and Faculty of Actuaries, Maclaurin House, 18 Dublin Street, Edinburgh EH1 3PP. T +44 (0)131 240 1325 E membership@actuaries.org.uk Changes of address should inform the membership department as above.

For delivery queries, contact: Jane Easterman E jane.easterman@redactive.co.uk Published by the Staple Inn Actuarial Society The editor, The Institute and Faculty of Actuaries and Staple Inn Actuarial Society are not responsible for the opinions put forward in The Actuary. No part of this publication may be reproduced, stored or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the copyright owners. While every effort is made to ensure the accuracy of the content, the publisher and its contributors accept no responsibility for any material contained herein.

Important information for contributors to The Actuary By submitting content for publication you confirm that: (a) You (and/or other named contributors) are the sole author(s) of the content submitted; (b) The content you submit is original and has not previously been published (unless you specifically advise us to the contrary); (c) You haven’t previously licensed the use of the content you submit; (d) So far as you are aware, the content submitted will not infringe any third-party rights, be defamatory or in any way illegal. © SIAS November 2013 All rights reserved ISSN 0960-457X

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At a recent dinner of leading finance specialists I was rather (un)surprised to be described as an oxymoron. When I asked the ‘culprit’ to explain, the response came back as “an actuary that has a personality and can communicate”. I lean towards viewing this as more of a compliment than an insult.

The stereotypical view of actuaries continues to prevail, despite great progress made in this area, not least by the profession’s focus on the introduction of communications as part of the qualification process. As members of the profession we are all ambassadors to the outside world and while the ‘actuary’ label conveys intellect and professionalism it also carries the stigma of introversion. This latter ‘quality’ in itself need not be viewed as a negative trait. I do believe, however, that it is important for actuaries to dispel many of these historic myths.

Our president this month discusses how actuaries must evolve to maintain a leadership position. He states the high intellect required to qualify as an actuary suggests it should not be beyond our reach to develop the areas of soft skills that are increasingly important in the modern working environment. He goes on to mention it wouldn’t require a personality transplant to achieve these skills.

In this issue, we have an interview with the highly respected ex-chancellor, Alistair Darling, covering a range of economic issues. There is reference to the UK government’s ‘Help to Buy’ scheme, which is described

by Darling as likely to lead to another “housing bubble”.

I would recommend reading this month’s review of ‘X&Y’ on our Arts pages, featuring a highly engaging interview with Marcus du Sautoy. I have often reflected on the merits of balance, and blending our left-brained mathematical traits with those of the right-brained creativity said to dominate the Arts.

I hope this leads to some positive discussion on ways to improve our professionalism. We are debtors to our profession and we must aim to improve and create a legacy for the future.

“It should not be beyond our reach to develop the areas of soft skills that are increasingly important”

Deepak Jobanputra editor@theactuary.com

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November 2013 • THE ACTUARY 5 www.theactuary.com

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Opinion President’s comment

David Hare is the president of the Institute and Faculty of Actuaries

DAVID HARE

Paving a path to the boardroom In last month’s column I reflected on how, as actuaries, we need to grasp the initiative in applying our expertise to new sectors and fields before other numerate professionals beat us to it. This month, I extend that to an issue that I know is of concern to some: why is it actuaries no longer seem to dominate the top positions in companies?

When I started working, the career path for an ambitious actuary was well-worn, up the corporate ranks to a seat on the board. A lot has changed since then and actuaries starting out today are unlikely to see such an outcome as a rite of passage. While I don’t have any data to draw upon, anecdotal and personal experience tells me that the number of actuaries who sit on the boards of financial services firms, particularly insurers, is now considerably lower than it was a generation ago. So what does this mean for the ambitious actuary of today?

Over the last 20 years there has been a tsunami of change; products, legislation, globalisation, technology. All have had a notable impact on financial companies, and successful businesses adapted. Today’s senior executives do not seem to be expected to be expert in their employer’s business area, but, rather, in generic business skills. Boards need other qualities and competencies beyond technical know-how.

Emphasis is placed on strategic planning, setting budgets and targets, acting as business ambassadors and communication skills.

In conversation with a senior executive at a large, well-known financial company recently, I asked what they felt was required to be promoted to high-level roles. Interestingly, her view was while some degree of technical competency was expected, personality and leadership skills were more highly valued. A person in possession of all three attributes is therefore a powerful asset and such individuals are considered rare and valuable commodities.

Actuaries who want to get to the top must therefore adapt. Technical expertise is important, but it is not all that is needed.

Personality may not feature highly when listing the attributes of an actuary, but perhaps this should change. Ironically, improved communication skills have aided the understanding of the work actuaries undertake, offering executives with alternative

David Hare looks at why actuaries should increase their softer skills if they intend to guard their route to the board

skills a thorough understanding of the work of the actuarial department without requiring the technical qualifications and regulatory certificates. Business is a competitive space, actuaries need to up their game and acquire a more rounded understanding of the tapestry of skills that contribute to today’s businesses.

Ambitious actuaries should therefore consider what attributes are valued by businesses. For example, here is a list I came across recently of the types of capabilities being looked for: strategic leader, persuasive diplomat, excellent communicator, problem solver, decision maker, competent manager, energetic networker, politically aware and of course technical expert.

Ideally, we would wish to have most, if not all of these traits, but realistically there will be gaps. Considering what qualities we have and which we are lacking and then undertaking training to plug the gaps is not beyond the scope of an actuary.

Achieving this does not require a personality transplant.

If everyone were blessed with technical expertise, personality and leadership skills, such individuals would not be so rare and so valued.

As qualified actuaries we have all passed rigorous qualifications that tested our technical expertise and ability to apply relevant judgment. This took years of study, which we all commit to continue by meeting our annual CPD requirements. It is also possible to study and learn soft skills to acquire high-level communication techniques

for presenting, influencing, negotiating and driving change.

A practical example of how actuaries can demonstrate the attributes relevant to senior roles presents itself with Solvency II. Comprehending the complex nature of the new regime is the first step, but those who aspire to reach the top will also be able to judge how best to communicate the impact on the future business and be able to influence how the business will need to change and adapt. Understanding and relating the risks involved is important, but so too is grasping and communicating the opportunities that changes will provide. Solvency II offers actuaries the ideal opportunity to increase their profile and present the actuarial function in a wider strategic context.

Leadership progression for actuaries is ultimately to the benefit of the whole profession, not just the individual. Networking with representatives of other professionals and across industry sectors – both within the financial world and beyond – is absolutely key to this, both for the individual and for the advancement and continued relevance of actuarial science. By taking ownership of your career progression and pursuing your own self-interest, I believe that you, as members of the IFoA, will serve the wider interests of the actuarial profession as well as setting yourselves up for success. I wish you well! a

“Solvency II offers actuaries the ideal opportunity to increase their profile and present the actuarial function in a wider strategic context”

November 2013 • THE ACTUARY www.theactuary.com

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Opinion Soapbox

NEIL HAWKINS

Modernising the pension message In the UK, employers contribute over £75bn each year into pension schemes – over 5% of GDP. With the introduction of auto-enrolment, this is only set to increase. But despite the size of the industry, are employees engaging with the opportunities they’re being offered? Are the majority just doing the bare minimum while the pension gap widens?

To address these issues, the world of workplace benefits is evolving and now offers a lot more than just pensions. Many employees have access to more flexible ‘platform’ packages which they can tailor to their specific needs and attitudes to saving.

Driving these developments is the changing workplace, new and emerging technologies and, to a large extent, regulation. Autoenrolment hasn’t just changed the rules and started bringing more workers into pension schemes; it’s also led employers to revisit their workplace benefits provisions. In doing so, many have realised a ‘one size fits all’ solution is no longer enough.

Platform alterations Employees have differing needs and attitudes towards saving. So the flexibility of corporate platforms – offering pensions, ISAs and other investment options through one online service – puts them at the forefront of developments.

Online services are also ideal for hosting helpful tools, financial education and other information.

The aim of platforms is to give people a consolidated view of their planning and an easy way to monitor and manage their savings.

However, flexible new schemes and swathes of newly enrolled members don’t guarantee success.

Taking auto-enrolment as an example, how many employees will pay in more than the minimum required?

Unless members focus on their retirement planning, few are likely to take that extra step. To turn this around, the industry needs to maximise its engagement efforts. The best ways are through clear communication and helping people follow up on their intentions.

Using techniques developed in behavioural finance, we are starting to see schemes adopting the ‘save more tomorrow’ approach where, when their employees join a scheme, they can sign up to automatic future increases in their contribution

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Neil Hawkins says embracing modern solutions is the best way for the pensions industry to engage employees with their workplace benefits levels. These increases will usually tie in with pay rises, making sure members stick to their good intentions and don’t use the extra money for short-term temptations when the time comes.

Whatever a scheme’s benefits, good communication will be key in building the employee engagement needed for a successful benefits package. Traditional pension literature has been a mixed bag, sometimes clear and concise, often complex and impenetrable. But even with well-produced material, how many people take the time to read it?

Online engagement Some pension schemes have made big steps online, finding fresh ways to present information and providing tools and other material to bring the details to life. Online services are convenient too, but research shows that in financial planning what people really want is someone to talk to.

That said, market researchers Mintel found only 17% of people would seek advice from a financial adviser. They are perceived as experts, but expensive – 40% of those surveyed prefer to discuss things with friends and family, and much of this interaction takes place online.

Pensions tend to have limited audience appeal, but the popularity of these sites could be a way to capture hearts and minds. Across all

sectors, people use social media to research products through consumer websites and social networks. Consumers feel they are communicating with people they trust – their friends, families and online peers.

In the workplace benefits market, online pension scheme communities can help overcome many hurdles. Pensions often instil fear but social media lets people ask questions without feeling stupid. Discussion forums, financial education and webinars can all build knowledge, confidence, engage people with their scheme and help them make financial decisions.

Of course, there’s little point using social media solely because it’s in vogue. Providers can give information but not advice, and the risks of following ‘advice’ from a non-qualified person are obvious. Pension scheme moves into social media are understandably being made with caution. They need to be relevant, continually updated, and carefully monitored.

But pensions are a pressing concern, and it’s only by offering a modern solution to this modern problem that employers and providers can truly engage with scheme members.

“Good communication will be key in building the employee engagement needed for a successful benefits package”

Neil Hawkins is financial education director at Friends Life

THE ACTUARY • November 2013 www.theactuary.com

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25/10/2013 17:22

SIAS Annual Dinner Friday 22 November 2013 at 18:45

Come join the masquerade This year, join us in escaping the office and immersing yourself in the glamour and excitement of a masquerade ball. Returning in 2013 to the dazzling Old Billingsgate Market, the SIAS annual dinner promises to be a lavish evening of delicious food, thrilling entertainment and scintillating company.

The evening includes: A Champagne reception A seated three-course dinner Entertainment throughout the meal All-inclusive house wine, beer and soft drinks A live band followed by DJ and disco Photo booth to complement memories of the evening

• • • • • •

Dress code The dress code is black tie. Since the theme is ‘masquerade’, any special effort made in this regard will be appreciated.

Tickets There are an unprecedented 900 tickets available for this year’s event. They are priced as follows: SIAS members: £70 Non-members: £85

Tickets will be sold on a first-come, first-served basis, upon receipt of completed application forms.

Tables are arranged on the basis of groups of five.

If you apply as part of a group of five, you will be seated with the others in your group.

If you apply as part of a group of fewer than five, we will need to combine your group with another in order to arrange seating. As a result, we cannot guarantee immediate acceptance of groups with less than five people – we will need to wait until we can locate a suitable group to seat you with.

Venue Old Billingsgate Market Old Billingsgate Walk London EC3R 6DX

ALL ENQUIRIES and booking should be made through annualdinner@sias.org.uk using the booking form p9_Sias_ball_ad_4•CT.indd 9

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News IFoA NEWS UPDATES FROM THE ACTUARIAL PROFESSION

Upfront Opinion CEO’s comment Derek Cribb looks at why the IFoA must take a world view to benefit the profession’s future

Global relevance Derek Cribb is the chief executive of the Institute and Faculty of Actuaries

I’ve said it before: there is no denying the increasingly global nature of the actuarial world.

An actuary in the UK cannot go about their work in isolation, subject as they are to a wide range of external factors – whether that’s changing international standards and regulation, differing cultural imperatives or a wide range of global competitors.

This is why it is so important for the IFoA to have a prominent role in the global actuarial community. To protect our members’ interests we should not merely be aware of international regulatory changes, we must be at the forefront of new developments. The IFoA should use its experience to influence policy makers and others with impact on actuarial work. It is vital its voice is both heard and respected.

In achieving visibility the efforts of our volunteers are vital. The IFoA is lucky to have volunteers as members and chairs of many of the Groupe Consultatif and International Actuarial Association’s (IAA) committees and decision making bodies, and after two days of meetings at the IAA it would be hard for me to overstate the complexity of our international engagement. The IFoA’s newly reformed International Board, with support from the executive, is responsible for coordinating and disseminating this international activity, ensuring all IFoA actions can be traced back to the overarching corporate strategy. Valued relationships with other national actuarial bodies also enable the IFoA to share knowledge and keep in touch with developments worldwide.

The IFoA cannot and should not hide from the fact that it has a global membership and operates on a global scale. With international issues shaping the nature of actuarial work, the experience, rich history and groundbreaking research that it offers have real value, facilitating the growth and evolution of actuarial science. But it is also important to exercise humility; arrogance offers little benefit. While celebrating the IFoA’s contribution, it is worth recognising what can be learnt from our counterparts around the world. By embracing the wider actuarial world and the IFoA’s role within it, the Royal Charter can be truly fulfilled – to work in the public interest to further actuarial science and shape the future of the profession.

DEREK CRIBB

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ACCESS THE IFoA’S INTERNATIONAL STRATEGY

Darling to speak at Life Conference Edinburgh in November, perhaps not the most enticing destination for sun seekers, but this year it’s a hot destination for those with an interest in the life actuarial sector.

Over the last year the Life Conference Committee and other volunteers have given their time to produce a thought-provoking and entertaining conference programme. There is no particular theme this year, which has given the committee freedom to choose the strongest spectrum of workshop sessions ranging from data visualisation to what the life industry may look like in 2025.

The conference kicks off with Paul Moore; dismissed as head of group regulatory risk at HBOS, and subsequently labelled a whistleblower for speaking out. He will be arguing that control functions must be central to strategy, unhindered by sales culture or fear.

Previous conferences have seen dedicated blocks of soft skills workshops, but recognising that delegates may wish to have flexibility over access to softer skills sessions, we’ve now spread them throughout the conference.

For the final plenary session the committee has managed to secure Alistair Darling, former chancellor of the exchequer during the most turbulent and far-reaching economic crisis the world had seen for 60 years. It will be interesting to hear his thoughts on the current economic situation and prospects for the years ahead.

But it’s not just about plenary and workshop sessions. There is evening entertainment from the Red Hot Chilli Pipers, a gala dinner at the National Museum of Scotland and many great networking opportunities available for the 900-plus delegates attending; this is probably the premier event for professionals interested in life insurance.

We hope those attending the conference look forward to this thought-provoking and insightful event. Those considering attending Life 2014 can receive a 5% discount before 20 November – visit: tinyurl.com/pw7yujz ● See feature, page 18

THE ACTUARY • November 2013 www.theactuary.com

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GIRO: from 1 to 40 years Attending GIRO 40 were 10 of the pioneers who were at the first GIRO Conference in 1974. There were very few actuaries then involved in general insurance, probably no more than 40, and they wanted to get together to arrange joint research and share ideas.

Motor insurance was changing, the old tariff had collapsed, there were insolvencies, the government regulator was embarrassed and there was significant growth. So 24 of them met together in Norwich for two days covering market statistics, profit, supervision, and technical reserves in general insurance.

The meeting was such a success that it was unanimously agreed to repeat it one year later.

Furthermore, volunteers agreed to join working parties to research together and produce papers for the next year. Meetings of GIRO have been held every year since and the number of attendees has grown at an amazing rate, from 24 to 733. It is also interesting, and a compliment to those pioneers, that the culture and format established at GIRO 1 has remained basically the same and also been used in other actuarial disciplines.

From left to right: David Hart, Terry Clarke, Laurence Eagles, Ian Rushton, Hugh Scurfield, Memoria Lewis, Bill Abbott, Paul Grace, John McCutcheon, Harry Reid, John Herrick

New expert standard proposed At the beginning of October we were very pleased to launch a consultation on a proposed new Actuarial Professional Standard (APS X3: Actuary as an Expert) which is designed to assist those of our members instructed as experts in legal proceedings. We have also produced an accompanying detailed Guide.

The aim is to provide some clear principles for work in this area along with some helpful practical guidance for members who might be instructed in this sort of work. The APS and Guide will replace the existing Information and Assistance Note (IAN): ‘The Actuary as an Expert Witness’.

The proposed new standard introduces high-level, principles-based requirements for members instructed as an expert witness or expert advisor in relation to proceedings in the UK, covering not only instructions in relation to civil court cases but also other

ALAMY

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types of proceedings, such as disciplinary hearings and tribunals.

Of course, we recognise that many of our members are based outside of the UK so the detail of the provisions may not be appropriate to apply. However, we propose that those members should be required to follow the spirit of the APS. The draft Guide contains more detailed practical guidance for members and has drawn upon the experience of members of the working party and review group to create material that provides useful assistance to those instructed in legal proceedings or who are considering accepting an instruction to act.

We would encourage you to read the proposals and give us your views by 9 December. A link to an online version of the consultation package and the questionnaire can be found on the IFoA’s website: tinyurl.com/oorubvh.

Host: Anthony Hilton

BOARD EFFECTIVENESS: A PANEL DISCUSSION The non-executive director member interest group presents: Board effectiveness, 11 November, Staple Inn Hall, London.

Chatham House rules apply.

With 20/20 hindsight, commentators on the financial crisis, the BP Deepwater Horizon episode and other corporate disasters point the finger at what they see as ineffective boards.

There is widespread scepticism that board self-assessment of performance is at all rigorous and leads to improvement action.

Hosted by Anthony Hilton of the Evening Standard, (above), the illustrious panel will tackle the following questions: ● How to recognise that a chair may need external help. ● How to choose the right assessment process and assessor for different contexts. ● What are the benefits to an individual NED of a strong assessment process? ● How to sustain a freshness of approach over time.

Panel guests include: Joe MacHale: formerly a nonexecutive director of The Royal Bank of Scotland Group Plc from 2004, throughout the financial crisis until May 2013; Colin Mayer: Said Business School and author of: Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It; Belinda Hudson: consultant, Independent Audit, corporate governance experts Nick Kirkland: CEO, CIO Connect; non executive director, The Children’s Mutual.

This event is free to all members; kindly sponsored by KPMG. For details visit: tinyurl.com/nr3n5or

November 2013 • THE ACTUARY 11 www.theactuary.com

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News IFoA NEWS UPDATES FROM THE IFOA

NEWS IN BRIEF

Does maths education

Information gathering exercise re: APS P1’s conflicts provisions

What’s wrong with maths and financial education in the UK? Do you have any ideas which might help shape a new Worshipful Company of Actuaries research project?

The Worshipful Company of Actuaries (the Company) has a charitable objective of supporting mathematical and financial education in schools and improving school age students’

The new conflicts provisions in APS P1 v.2.0 (tinyurl.com/pzxegbg) have been in place now since July 2013. To understand and assess how these new provisions are working in practice, the IFoA will launch an anonymous information gathering exercise regarding the application of these new provisions. The exercise will be directed at scheme actuaries using the practising certificates renewal process and will begin from 1 January 2014. We will be writing to scheme actuaries in more detail about this exercise shortly.

Conflicts: new guide for employers of actuaries A new guide for employers of actuaries (tinyurl.com/omzsshr) regarding actuaries’ conflicts of interest has recently been published. The guide is designed to assist employers in understanding the obligations that actuaries have as regards identifying and addressing conflicts of interest, as it may be necessary for employers to take these into account when considering their own organisation’s approach to conflicts of interest. If you have any queries on this or any other regulatory issues then please contact the Professional Support Service (tinyurl.com/psadgjl) or email: conflicts@actuaries.org.uk

Is your organisation represented at our CPD co-ordinators’ briefing?

The IFoA is holding its CPD co-ordinators’ briefing session on 20 November at Staple Inn Hall, London from 09.30 to 14.00. David Hare, president, will be chairing the meeting which will be based on “Ramping up our relevance – ensuring we meet members’ varied and evolving needs.” The IFoA would like hear views from as many organisations as possible. If you look after CPD at your firm, please attend this free event. Contact Debbie Atkins: debbie. atkins@actuaries.org.uk

Call for medal and Honorary Fellow nominations Nominations for a Gold or Finlaison medal (tinyurl.com/nes8s4r) and Honorary Fellow (tinyurl.com/ov49guz) status are now open. All members are eligible to put forward a nomination by 18 November.

Please contact lorraine.atherton@ actuaries.org.uk if you have any questions.

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Sarah Mathieson, head of research and knowledge at the IFoA speaks about furthering actuarial science

When we talk about research at the IFoA, what does this actually involve?

The IFoA’s five-year strategy published in 2011 included a reinvigoration of the Learned Society through “advancing all matters relevant to actuarial science”. The IFoA’s research is about developing our subject, within both traditional actuarial fields and newer areas, to ensure that actuarial science continues to remain relevant and sustainable in the long term.

Central to research at the IFoA is the 70-odd working parties and their 600-700 volunteers, who are researching topics ranging from genetics to risk culture, as well as a range of research projects that the IFoA commissions from third parties. Research projects also often involve partnering with other organisations. For example, we are about to embark on a project with the highly-respected Institute of Fiscal Studies.

How is the IFoA’s research used and accessed?

The outlets that our members are probably most familiar with are the sessional meeting programme, the IFoA’s residential conferences and other thought leadership events. They provide members with CPD opportunities but also offer a forum to discuss and develop the subject further. All sessional meeting papers, conference papers and many other research papers are stored on our website. Sessional meetings are also filmed and can be viewed online for free, wherever you are in the world (offering CPD). See: tinyurl.com/q3ed7do Some research can find its way into one of our two journals – the British Actuarial Journal (BAJ) and Annals of Actuarial Science (AAS) – which IFoA members can access for free (tinyurl.com/7ldtz9t).

The IFoA also uses its research to support its public interest role through informing public policy development. The IFoA advocates evidence-based policy making. We use our intellectual capital of research outputs and analysis to provide that evidence. Examples of this include referencing our research in consultation responses to government and regulators, as well as using it at meetings with civil servants and politicians.

THE ACTUARY • November 2013 www.theactuary.com

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add up today? understanding of financial and mathematical concepts and practice. As part of fulfilling this objective, the Company and its Charitable Trust are looking for new projects which will start when the current Royal Society Fellowship (researching how maths teaching and assessment can be structured to improve general thinking abilities) draws to a close in two years’ time. The

search is now on for ideas, if you have any suggestions for what you think should change, please email tim.birse@btinternet.com. The Company’s Education Committee will then go on to explore the most promising ideas and consider how best to make a difference.

For further information on the major projects supported by the Charitable Trust visit:

EVENTS AND CONFERENCES 2013

tinyurl.com/pq3q839

What is the role of the research and knowledge team?

Our team help to make some of this happen through project managing the commissioned research, supporting the sessional meeting process and managing the production of the journals. We also work with the Awards Committee and manage most of the IFoA’s prizes and awards, which celebrate success and excellence in our actuarial community. Kay Henderson (research programme manager), John Anderson (research project manager), Chiara McCormack (research project manager), Lorraine Atherton (research and knowledge assistant) have all joined the team recently.

As well as dissemination through events and publications, our librarians, David Hood and David Raymont, offer a comprehensive information service for the development of new research. Kevin McIver (research relationship manager) is also developing relationships with the wider actuarial research community, particularly with universities, to support the exchange of ideas and sustain the development of actuarial science together. The team also supports the Actuarial Research Centre (ARC), which was set up as a joint initiative between the IFoA and the Scottish Financial Risk Academy (SFRA) to support a small number of actuarial science PhD studentships.

What’s happening in the team over the coming months?

An exciting development will be the establishment of the new Research and Thought Leadership Board (RTLB), which will provide a single focal point for research across the IFoA. After recruiting two PhD students into the ARC last year, we also hope to have two or three new students commence their studies at the ARC over the coming months. Towards the end of the year, the IFoA will also be opening an exhibition at the Royal Society in London on longevity, the impact that the work of Royal Society Fellows has had on life expectancy and the role of actuaries in measuring longevity.

How can members and other people get involved?

If you have completed some research, consider presenting at a sessional meeting, which also includes publication of your research in the BAJ. The AAS also welcomes submissions as a peer-reviewed journal.

Join or set up a working party at: tinyurl.com/d2q3pbq From time to time, we require volunteers for review panels for the commissioned research projects and new members for the journal editorial teams. Most of these opportunities can be undertaken from anywhere in the world so don’t be put off if you are not UK-based. If you would like to find out more or be kept up to date via our research e-newsletter, please email research@actuaries.org.uk

Sessional research event: Investigating risk reporting practices in the global insurance industry 18 November For more information visit: tinyurl.com/pnzpsfu

Masterclass series: Beating the competition whatever the size 21 November Pitching against much bigger, better-known competitors often feels like an exercise in futility. But paradoxically, the bigger guys are the easiest to beat – if you approach the pitch the right way.

The session will include a number of topics, among them the warning – “No one got fired for hiring IBM”; Profound misconceptions that cause you to lose; and the two-part process – remedy your weakness and exploit theirs along with many more. For details go to: tinyurl. com/odxpy7u

CPD networking event on risk and capital management 27 November This session is aimed at showing an unconventional view of the weakness and uncertainty of well accepted financial models and to offer methods and strategies for dealing with them. The discussion focuses the implications for creating new models, as might be done in a Solvency II, ICA+ or capital management project.

For more information go to: tinyurl.com/q9jghtg

Momentum 2013 4-6 December The Momentum Conference is aimed at newly and recently qualified actuaries from all practice areas. The programme will cover a range of technical sessions, debates, Masterclasses and much more, with great networking opportunities throughout. For details go to: bit.ly/17uU87l

Networking event: resource and environment open forum 11 December Climate change, limits to growth, responsible investment.

This is a great opportunity to meet actuaries with an interest in environmental issues, and to contribute to the development of the strategy of the Resource and Environment Board, recently launched by the IFoA. For more information go to: tinyurl.com/oskqam2

Current highlights in pensions seminars 14 November – Glasgow 26 November – London This year we have a collaboration running through the seminars, covering highlights from this year’s Pensions Conference as well as current issues in the pensions sector. For details go to: bit.ly/1duZwI1

November 2013 • THE ACTUARY 13 www.theactuary.com

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News People & Society

If you have any newsworthy items for these pages please email social@theactuary.com

Inter-esting tournament

By Mark Gorman

On a beautiful sunny day in August, the SIAS 2013 five-a-side tournament took place at Goals Wimbledon. With pitches booked, referees in place and an enthusiastic group of the actuarial community kitted up and ready to go, hopes were high for a successful tournament.

The event was split into group stages and then a knock-out competition. The group stages kicked off at a frenzied pace, with all teams keen to get a good start. Following this, a gulf began to emerge in class, ability and fitness between the different teams – with the author in particular displaying very few of these much-needed characteristics!

The knock-out competition followed after a much-needed rest period. The pace of this competition was notably more pedestrian as the

effects of the sun, fatigue and the previous night’s escapades came to the fore. That did not, however, detract from the quality of some of the football played.

The four teams making it through to the semi-finals were PSG (Punter Southall), P-Dubz (PwC), Inter Greats (PwC) and RSA. Inter Greats and P-Dubz prevailed in what were hotly contested games, both winning by a single goal.

The all-PWC final saw some skilful football played, with neither team willing to play in a defensive style – pleasing the onlookers. It was a tight game too, but Inter Greats closed out a much deserved 3-2 victory – living up to their team name. Many thanks to all the players and Goals Wimbledon for making the day such a success.

Coasting to victory Walk raises £35,000

GAD donations make a difference

By Demot Grenham As well as providing actuarial advice to the Rwandan Social Security Board (RSSB), the staff at the Government Actuary’s Department (GAD) have recently donated clothing to the University Central Hospital of Kigali and to an orphanage in Burundi.

The children at the orphanage study for UK GSCEs at the King’s School, Burundi, and about a quarter go on to study A-levels. This is particularly impressive given that English is not widely spoken in Burundi.

The initiative came from RSSB actuary Laura Llewellyn-Jones (pictured with staff from the hospital), who asked Dermot Grenham and Joanne McDaid from GAD if they could bring an extra suitcase or two of clothes donated by GAD staff on their next trip. Having seen the poverty in Rwanda, and knowing about the situation in Burundi, they were very happy to help out.

For details of the King’s School please visit: bit.ly/1atrEHU For details of the Burundi project, see bit.ly/19QLqvV

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Charles Cowling, master of the Worshipful Company of Actuaries, and a group of friends and fellow actuaries successfully completed a charity walk from Robin Hood’s Bay in North Yorkshire to St Bees on the Cumbrian Coast.

They finished the coast-to-coast walk made famous by Alfred Wainwright – albeit in the opposite direction to the traditional west-to east route. All in all, 15 walkers, varying in age from 11 to 69, completed the full two weeks with another 62 actuaries and friends joining the walk for one or more stages, all raising money for a number of very deserving charities.

In particular, nearly 40 colleagues from JLT joined Charles for two challenging stages – and some excellent team-building – in Yorkshire and Cumbria.

In between dramatic cliff walks at both Robin Hood’s Bay and St Bees, the intrepid actuaries enjoyed the delights of the Little Beck Wood Nature Reserve, the wild remoteness of the North York Moors, the demanding Cleveland Hills, the lovely Swaledale valley, the boggy Nine Standards Rigg over the Pennines and the spectacular views offered by a number of Lakeland peaks. Kidsty Pike, Helvellyn (with the precipitous Striding Edge) and Haystacks, as well as the beauty of Haweswater, Ullswater and Ennerdale Water

and the ‘secret valley’ of Nannycatch were also on route. Other delights included the steam trains on the North Yorkshire Moors Railway and Settle-Carlisle Line, a chocolate factory, a slate mine, beautiful churches and castles, as well as numerous excellent pubs and hostelries, where many fine pints of ale were consumed.

No actuaries were injured or lost (permanently) during the walk, although some were attacked by an aggressive herd of cows and bullocks at one point, and several managed to go astray at various times during the two weeks – the benefits of GPS technology were particularly welcome on one summit as the clouds descended and all visibility was lost.

In general, the weather was excellent and the walkers had just one day affected by rain – and a couple of hours of drizzle.

After two weeks walking nearly 200 miles, climbing the equivalent height of Everest in the process, the party arrived at its final destination.

With a mixture of emotions, pebbles that had been carried faithfully across England from Robin Hood’s Bay were tossed into the sea at St Bees and the party adjourned for champagne celebrations. A great adventure had been completed, friendships made and cemented and, best of all, £35,000 raised for some excellent causes.

THE ACTUARY • November 2013 www.theactuary.com

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Phiatus award winner named

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Obituary

By Derek Newton Ronnie Sloan has been awarded the 2013 Phiatus Award for his exceptional contribution to charitable activities during the year. He was presented with the award by Charles Cowling, master of the Worshipful Company of Actuaries, at the Company’s dinner in July (see report in the October issue of The Actuary).

Ronnie’s award reflects not just one but 30 years of charity-related activity as fund-raiser, organiser, administrator and donor, including: ● Running 33 marathons around the world between 1982 and 2003, dressed as a tartan superman and personally raising £225,000 in sponsorship for the Children 1st charity. ● Organising an Old Crocks rugby tournament between 1986 and 1997, and in 2008, raising £1,000 each year for The Murrayfield Centenary Fund for Injured Players.

● Chairing an appeal in 1991 that raised the

£200,000 to restore Edinburgh Academical’s historic rugby club pavilion at Raeburn Place. ● Acting for 25 years as a trustee – and since 2009 as chairman – of Scottish Sports Aid Trust, a charity that has provided over £2m in grants to 4,000 Scottish youngsters in 35 different sports. ● Raising £1,700 in 2012 by running the 15-mile Seven Hills of Edinburgh Challenge as a tartan superman (see The Actuary, August 2012).

Ronnie has also supported the Faculty of Actuaries Charitable Trust, through which in 2009 he endowed the Sloan Prize.

But the award is not an epitaph to his charity work and on 29 September he ran the Loch Ness ‘Monster’ Marathon in support of Scottish Sports Aid and would welcome sponsorship.

Visit www.justgiving.com/ronniesloan70

Back where it all began Andrew O’Brien’s 12-in-12 marathon challenge: part three When we last left Andrew (see The Actuary, September 2013) he was headed to Uganda for his third marathon. The Ugandan Bush Marathon is over 42km along dirt tracks littered with rocks and pot holes in an isolated rural setting on the outskirts of the town of Kiwoko.

For Andrew, Kiwoko was where it all began.

He was so inspired after his visit to the Kiwoko hospital compound last year that he vowed to run 12 marathons in 12 months to raise money and awareness for The Isis Foundation.

After the race, Andrew said: “This has been my toughest marathon so far, but it has been fantastic to come back to Kiwoko hospital. It has been a privilege to feel part of it and my friends at Kiwoko will forever hold a special place in my heart.”

Andrew’s next race was the Berlin marathon, one of the largest and fastest road races in the world, starting and finishing at the iconic Brandenburg Gate and passing a whole host of fascinating landmarks

along the way. Andrew said: “Running under cool and sunny skies was great after my punishing summer races and the atmosphere was electric. The course was as flat and forgiving as promised and the world record was smashed, much to the delight of the crowds.”

Andrew has just completed his fifth marathon in the US and is making the most of the free massages, food and beer. The Hartford Marathon is well known for its scenery, with several miles run along the Connecticut, New England’s largest river, in Riverfront Park.

Andrew remains upbeat about his challenge. “Yoga has helped me keep any serious injuries at bay so far and I feel well prepared. Hopefully, I’ll rebound quickly enough to train between races, although I need to listen to my body and be cautious about running to exhaustion.”

To donate, visit www.justgiving. com/ISIS12in12 and for updates visit www.12in12forisis.com

Through the gate to success Maria van Beek would like to say thank you to those at Legal & General, Friends Life and everyone else who supported her first marathon in Berlin on 29 September, helping her to raise money for Arthritis Research UK. Maria finished the marathon in two hours and 45 minutes, behind the new world record of 2:03:23 set by Winston Kipsang. Winston’s advice to those who got closer to him at the after-run party that evening than during the race? “Train harder!”

SHUTTERSTOCK

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Monica Allanach Died 14 September 2013, aged 92 Monica Allanach was blessed with many talents and she used them to the full to give o outstanding service to the actuarial profession.

She was educated at Wimbledon High School and joined the Prudential Assurance Company in 1938 as an actuarial trainee.

Women had been admitted to the Institute since 1920, but when Monica qualified in 1951, the total number of female actuaries had only risen to 11. In 1970, she was appointed deputy actuary at the Prudential and became the first woman to reach management level at the firm. Promotion to actuary came in 1974, a position Monica held until her retirement in 1981.

The need to encourage more women to join the profession was raised at the Institute’s AGM in 1953. Monica then initiated discussions with Pat Merriman and other female actuaries.

It was agreed that informal opportunities for female actuarial students to meet might be helpful. From this emerged the first ‘Tea Party’ and such gatherings continued for 30 years. A lady actuaries’ dining society was also formed.

After being a tutor and then examiner for the Institute, Monica became the first woman to be elected to Council (1968), later serving as honorary secretary and vice-president. All this was accompanied by assiduous work on numerous Institute committees and by service as chairman of the Legislation Committee of the Life Offices Association. Even after retiring from the Prudential, Monica was a member of the Worshipful Company of Actuaries and, in the footsteps of her grandfather, became a Freeman of the City of London in 1981.

Those who had the privilege of knowing Monica will remember her with respect and gratitude for her example of competence and thoroughness in her professional work and the kindness she showed to others.

Written by Derek Fellows For a fuller version of this obituary, please visit bit.ly/1h7IiTL We would be delighted to hear from you if you have any newsworthy items for these pages. Please contact Yvonne Wan at social@theactuary.com

November 2013 • THE ACTUARY www.theactuary.com

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News Industry news@theactuary.com

Government to tighten medical checks on whiplash claims Independent medical panels will review whiplash insurance claims to ensure only genuine cases receive payouts, justice secretary Chris Grayling has announced The change, to take effect next year, was included in a package of government measures to reduce the costs of running a car.

Fraudulent whiplash claims, in which people lie about or exaggerate the medical consequences of car accidents, have helped drive up the cost of motor insurance premiums. According to insurers, false claims cost them more than £2bn in payouts and lead to an average premium increase of £90 for drivers.

Each whiplash compensation payout costs an average of £2,400 insurers say, with an additional £2,000 in legal costs.

Grayling said it was not right that people who cheat the insurance system get away with it while forcing up the price for everyone else.

“So we are now going after whiplash fraudsters and will keep on driving premiums down,” he said.

The government said it would work quickly with experts to set up independent medical panels. This will include a scheme for accrediting medical experts who can assess whiplash injuries, as well as measures to enhance the reporting process and carry out spot checks.

For more on this story, visit bit.ly/1gI5qKO

Solvency II to take effect at start of 2016 The European Commission has announced that it will postpone the application date of the Solvency II Directive to 1 January 2016 The Commission said it was not possible to publish Omnibus II, the legislation underpinning the regulations, before 1 January 2014, the date when Solvency II is currently scheduled to start to apply.

The European Parliament, Council and Commission’s failure to agree the legislation had caused repeated delays. But Commissioner Michel Barnier said an agreement between the parties was now “within reach”.

He said: “I have always wanted rapid implementation of Solvency II. But the currently planned date is simply no longer tenable.

“We have therefore proposed this postponement in order to avoid any legal uncertainty, especially for undertakings and supervisory authorities; we have done this only after obtaining assurance from the Council and the Parliament that they would not further change this new application date of Solvency II.” Insurance Europe said it appreciated the clarity provided by the European Commission but warned it left insurers with little time to prepare.

Director general Michaela Koller said: “The timetable will be very challenging for insurers and supervisors and will likely lead to a significant increase in costs for the industry in preparing for and complying with the new regime.”

For more on this story, visit bit.ly/1bAukXe

MORE BREAKING NEWS ONLINE Visit www.theactuary.com for up-to-date news and to register for weekly news alerts

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Whitehall seeks LGPS advice Actuarial firms have been invited to bid for work advising the government on how to secure ‘vital’ administrative savings in the management of town hall pensions. Successful bidders would be expected to have experience of pension fund management and to provide a robust cost-benefit analysis on when the potential savings could be delivered across 89 different Local Government Pension Scheme fund administrators. bit.ly/17gRjby

PRA consults on Solvency II The Prudential Regulation Authority is seeking views on how it plans to implement and interpret European Solvency II regulations and what it expects insurance firms to do to prepare.

“Many of the guidelines represent good practice in conformity with existing rules and should not present an additional burden for firms,” the PRA said. Its consultation closes on November 15. bit.ly/1a9qTc9

Private firms to maintain public pension rights Contractors who take over public services will be required to continue offering public sector pensions to transferring staff, the Treasury has announced.

The government has updated its Fair Deal guidance, which since 1999 has mandated that staff outsourced from government be offered private pension schemes “broadly comparable” to those they used to pay into in the public sector. bit.ly/16veHS1

High Court ruling clears way for TPR action on pension liberation fraud A High Court judge has ruled the legal status of nine so-called liberation vehicles are ‘occupational pension schemes’ paving the way for The Pensions Regulator (TPR) to take action.

Andrew Warwick-Thompson, TPR’s executive director for defined contribution, welcomed the legal clarity provided by the ruling. He said: “This means that a number of powers are available to [TPR] in respect of such schemes, and the market should not doubt we will continue to take action against schemes where there is evidence of misuse of members’ pots.”

Pensions liberation allows people to access a portion of their pension or lump sum before the age of 55. However, some practices are fraudulent, keeping people ignorant of the fees involved and tax consequences.

In May, police carried out a series of raids on organisations accused of involvement in liberation schemes. Subsequently, the High Court was asked to determine the legal status of these schemes.

For more on this story, visit bit.ly/1acU4ao

‘Brave up’ to higher autoenrolment contributions The 8% contribution benchmark for autoenrolment pensions is not enough to deliver a decent retirement income and there is a need to “brave up” up to pushing it higher, the National Association of Pension Funds chief executive has argued.

Addressing the NAPF’s annual conference in Manchester in October, Joanne Segars said the 8% contribution rate was a good place to start but it needed to increase by up to seven percentage points to ensure life in retirement was adequate.

“There aren’t many of us who think that the 8% contribution is enough to deliver a decent pension,” Segars told delegates. “Now we are going to have to brave up to this issue, as 12% or 15% are more commonly seen as being the right kinds of benchmarks.”

However, her comments drew criticism from the CBI. Neil Carberry, director of employment and skills at the business lobby, said: “The Pensions Commission chose 8% for a reason.

Any suggestion of a change, just a year into the roll-out and before the vast majority of firms are involved at all, is deeply misguided. State mandated minimum contributions must be affordable for all companies and workers.”

For more on this story, visit bit.ly/H426JN

THE ACTUARY • November 2013 www.theactuary.com

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TUESDAY 19 NOVEMBER

PROGRAMME EVENT

Financial repression – Is it inevitable and what will it mean for savers and investors?

The presentation is aimed at a cross-disciplinary audience and requires no prior knowledge. It will be accessible for students and junior actuaries who are encouraged to join us to discuss this key topic for the future investment outlook for our clients, and will be a great introduction to some of the current problems facing the financial industry today.

Presented by Paul Fulcher and the Financial repression working party

Financial repression refers to government measures to artificially depress interest rates in order to reduce the burden of debtors, at the expense of creditors, and is typically associated with negative real yields, as seen today.

Staple Inn Hall, High Holborn, London WC1V 7QJ 5.30pm

The financial repression working party will present on historic precedents for governments using financial repression to liquidate their debt.

We will then examine the current economic situation and debate: • Why buy assets with negative real yields – are pension funds and insurers overly influenced by regulation?

• Has the main impact of unconventional monetary policies, such as QE and funding-for-lending, been to repress retail savings – and is this a good thing?

• Are savers unfairly paying for the past excesses of borrowers – or are low interest rates necessary to redistribute the baby-boomer’s wealth to a younger generation?

• Cock-up or conspiracy – is this a deliberate strategy, or the result of an accidental interaction of monetary policy and regulation?

Refreshments will be served from 5.30pm and the talk will start promptly at 6pm. There is no need to register in advance for this meeting and non-members are welcome.

TUESDAY 3 DECEMBER

Extending the critical path Presented by the Critical illness working party Staple Inn Hall, High Holborn, London WC1V 7QJ 5.30pm

PROGRAMME EVENT

Critical illness cover is a mainstay of the UK health insurance marketplace. Credible insured experience continues to emerge for the major conditions but this does not help us to understand the minor conditions, changes in definitions over time or socio-economic variations in experience.

To examine these issues the working party has obtained a substantial dataset of NHS hospital episode records.

In this paper we present the analysis of this dataset and the implications for pricing critical illness cover. Although it is written for actuaries who are just starting to price critical illness cover for the first time, we believe that experienced pricing actuaries will find its conclusions interesting. Inspired by the 2006 SIAS paper Exploring the critical path, we hope that the paper is a fitting continuation of the long tradition of seminal SIAS papers on critical illness pricing.

The paper will be available on the SIAS website closer to the date of the talk, www.sias.org.uk.

Refreshments will be served from 5.30pm and the talk will start promptly at 6pm. There is no need to register in advance for this meeting and non-members are welcome.

MORE EVENTS ONLINE For details of events, visit www.sias.org.uk

SIAS IS ON TWITTER! Follow us on @SIAScommittee for latest news on meetings, socials and more!

SIAS IS ON FACEBOOK! Check out the SIAS Facebook page for photos from the latest social events

November 2013 • THE ACTUARY www.theactuary.com

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On my agenda features@theactuary.com

Alistair Darling was the chancellor who dared to talk honestly about the financial crisis. It’s five years on from the bank bailout, but the veteran Labour politician is still keen to point out painful economic truths.

Mike Thatcher reports

Back in August 2008, Alistair

Darling caused a stir when he told the Guardian that Britain was facing “arguably the worst” economic downturn in 60 years. It turned out to be true, but the then chancellor of the exchequer still found the “forces of hell” unleashed on him – and much of the opprobrium came from his own side.

Gordon Brown, already under huge strain as prime minister, was not keen on his next-door neighbour going off-message. The result was a weekend of fraught conversations between Numbers 10 and 11, and allegations of anti-Darling press briefings – apparently orchestrated by Brown’s spinner-in-chief Damian McBride.

Five years on and Darling insists there are no regrets.

Speaking to The Actuary in his remarkably uncluttered Westminster office, the veteran Labour politician says he had a responsibility to warn the public of what was coming.

“If you are the chancellor, you have a difficult task because with everything you say you are very conscious that you can have a profound effect in terms of spooking the markets. But I was looking at the numbers every day and the situation was getting worse.”

Darling says he was just stating the “blindingly obvious”, and was surprised at the reaction. But, in many respects, the fallout from the interview was the start of a tumultuous

period in UK and global economic history. Having already been forced to nationalise Northern Rock (in February 2008) he then faced a series of unprecedented events.

On 15 September 2008, Lehman Brothers filed for bankruptcy. The following month, the US Congress approved a $700bn bank bailout, three Icelandic banks collapsed and the UK government was forced to rescue the Royal Bank of Scotland, Lloyds TSB and HBOS. Darling is generally considered to have had a good ‘war’.

Despite the financial turmoil, he remained a calm and reassuring presence. Previously mocked for being “dull and grey” in cabinet posts ranging from Work & Pensions to Transport, Scotland and Trade & Industry, he won plaudits at the Treasury for his ability to steer a steady course as global economic winds battered the UK. He was resolute when he needed to be, famously refusing US Treasury Secretary Hank Paulson’s proposal that Barclays should buy Lehman Brothers. And, despite McBride’s best efforts, he managed to fend off Brown’s attempts to oust him as chancellor and install Ed Balls.

Subsequently, of course, Labour itself has been ousted from government and Darling has stood down from the shadow cabinet. He spends much of his time now opposing Scottish independence as chairman of the ‘Better Together’ campaign.

But he still takes a strong interest in economic matters – at home and abroad – and will be outlining his analysis at the Institute and Faculty of Actuaries’ Life conference in Edinburgh on 10-12 November.

So, does the ex-chancellor think that, with the UK economy recovering, Europe retreating to the inside pages

IF TRUTH

BE TOLD 18

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SAM KESTEVEN

25/10/2013 14:00

“Until we sort out the problems that Greece has, and Spain and Italy get over their difficulties, I don’t think you will be able to say that Europe is recovering”

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and the US out of shutdown, we can relax and look forward to the return of the good times? Unsurprisingly, the answer to this is a resounding “no”.

Darling points to the high level of youth unemployment in the UK and the lack of a “feel-good factor”. He also warns of the persistent “black clouds” over Europe.

“Until such time as we sort out the problems that Greece has, that Spain and Italy get over their difficulties, I don’t think you will be able to say that Europe is recovering. And that is a big thing for the UK, because half of what we sell in goods and services goes there.”

He suggests that UK and US banks are now better capitalised and better run, but there is less confidence about their counterparts in Europe. Darling remembers a degree of schadenfreude from European governments when RBS collapsed, but points out that Germany’s Landesbanken were caught out even earlier by investing in US subprime securities.

“I think there is a genuine fear that if you get bank failures in Greece, it will feed back into some of the European banks.

I also think that some of the southern European banks are very exposed to their own sovereign debt.”

For the UK economic recovery, it’s “too early to break out the flags”, he suggests. Particularly worrying is chancellor George Osborne’s aim to achieve a budget surplus by the end of the next parliament. Darling questions whether this is credible, given the current low level of growth, or desirable in terms of the impact on the economic and social

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fabric of the country. “Is it credible to say you’re going to take 20% out of the police budget this parliament and next?

At what point do people say ‘hold on a minute, you know there’s a problem here’?”

Darling thinks the surplus suggestion is a political aspiration rather than a target based on economic reality.

He’s equally dismissive of Help to Buy, the coalition’s ‘big idea’ to help potential house buyers purchase a property with deposits as low as 5%, and suggests the £12bn programme is likely to cause another housing bubble.

“My worry is that if you put more cheap money into a market where there is the same number of houses, there is an inevitable result. It’s elementary economics.”

This has strong echoes of Northern Rock’s demise, he believes. “Remember back in 1997, after Northern Rock, everybody said that this should never happen again – ‘How dare people borrow money at 95% loan-to-value? This is ridiculous. We must stop it.’ Here we are six years later and the government is actually sponsoring the scheme making these things possible.”

Darling says he has concerns that rising house prices will encourage households to take on further debt. The Bank of England is likely to start raising interest rates from 2016 and this could be a “considerable burden” on individuals.

But if Help to Buy is simply political posturing by his successor at Number 11, then isn’t Ed Miliband’s proposal to freeze energy prices a similar vote-chasing ruse?

Darling, despite his previous rebellious tendencies and

SAM KESTEVEN

25/10/2013 14:01

On my agenda features@theactuary.com

“I don’t think it’s anti-business to be saying that if the market isn’t working, it’s the government’s duty to make it work. It’s one of life’s mysteries how energy prices only go one way”

the freedom of the backbenches, offers a staunch defence of the Labour leader’s proposal.

“I don’t think it’s anti-business to be saying that if the market isn’t working, it’s the government’s duty to make it work. It’s one of life’s mysteries how [energy] prices only go one way.”

Darling admits that his views have been coloured by the frustration of dealing with Ofgem, the energy regulator, when he was in government. He dismisses the argument that power companies need to put up prices to fund their investments – and compares the electricity market with that of the banks pre-crash.

“The investment record of the electricity companies is not great. When was the last time that a large power station was completed?” he says.

He denies that he is anti-privatisation – pointing out that Labour privatised National Air Traffic Services and considered selling off Royal Mail. More recently, the coalition has succeeded in privatising Royal Mail, although Darling claims that it has been sold “very cheaply”.

“I have long believed that you need a mix of public and private. The key is to make sure that you have got a sufficiently robust regulatory regime so the public interest is looked after.”

However, he does question the contracts agreed for some deals under the Private Finance Initiative, many of which were signed during Labour’s term in office. There are issues with financial transparency, he says, and additional user charges, such as for car parking in hospitals.

“We need to take a long, hard look about what is genuinely on and off balance sheet. Some of these deals – especially the older ones – don’t look so great at the moment. At Edinburgh Royal Infirmary, you don’t want to be visiting people for too long or you’ll get cleaned out in the car park.”

There is one area where Darling agrees with the actions of his successor, and that is the appointment of Mark Carney as the governor of the Bank of England. Carney is the first non-British governor at Threadneedle Street, and was personally recruited by Osborne.

“Right from the time that his name was mooted, I’ve been a supporter of his,” Darling declares. ‘I used to work with him when we were in government and I was very impressed. If I had been around, I’d have been knocking on his door as well.”

He welcomes Carney’s use of “forward guidance” to give more confidence as to future policy, particularly concerning interest rates. The Bank has said that rates will remain at 0.5% until the unemployment rate falls

to 7% or below. There are a few conditions or “knockouts” to this promise, but it allows people to make more informed decisions.

“Forward guidance is perfectly sensible. I don’t think it’s any bad thing for a central bank to be saying ‘If things carry on the way we think they are going to carry on, this is what you can expect’. Indeed, if you look at the long history, when people say ‘What did Britain lack?’, it was stability, and part of stability is knowing what the price of lending is going to be.”

As well as political consensus on Carney and forward guidance, Darling says the parties should be able to reach agreement on how to respond to an ageing population. It’s disappointing, he notes, that attempts to achieve this before the last election fell apart amid much acrimony.

“The real political problem is to what extent we are prepared to forego our spending now or our inheritance in order to pay for older people. It’s quite simple really – you either pay for it by more taxation of the working population now or you say to people ‘You’re going to have to make a greater contribution yourselves’.”

For someone who has been out of front-line politics for three years, Darling is a very visible presence. Aside from his high-profile role in the independence referendum, he writes regular pieces for national newspapers and is often quoted on the issues of the day, such as the High Speed 2 rail line (he’s against), universal credit (he fears it will be impossible to implement) and quantitative easing (he thinks it’s run its course).

Darling is usually heard with great respect on both sides of the House of Commons and, in September, he came 17th in the Daily Telegraph’s list of the Top 100 Influential Left-wingers. So, once the independence referendum vote takes place next September, can we expect to see him back in the shadow cabinet?

On this issue, however, he is less than forthcoming. “In the days immediately following [the independence vote], I will decide what I am going to do, which will include whether I stand again and, if I stand again, whether I want to come back to the front bench.” a

November 2013 • THE ACTUARY www.theactuary.com

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25/10/2013 14:01

PANDEMIC PERSPECTIVE Anne-Lise Bagur reviews the history of pandemics and considers how the information can be used for future risk modelling

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Life Pandemics features@theactuary.com

1910

1930

1940

1950

1960

1957 ASIAN FLU

1968 HONGKONG FLU

1918 SPANISH FLU

SUTTERSTOCK / CRAIG ZADUCK

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Modelling pandemics The World Health Organization (WHO) issued its first pandemic preparedness guidance in 1999, which has been revised twice in 2005 and 2009. In June 2013, the WHO announced that a four-phase alert system including interpandemic and post-pandemic levels would soon replace its six-phase system. Most of the current pandemic reinsurance treaties structured as catastrophe excess of loss refer to the current six-phase alert system in their trigger definitions, and the new version is likely to disrupt this modus operandi.

Alternatively, other covers of pandemic risk

Figure 1: Most fatal recorded catastrophes for various types of event 12 10 8 6 4 2

ese flu flo od s WW 2 As i a n Ho flu n Ch g-Ko ern ng ob fl yl d u isa AID ste S( r cu mu l. s 9/1 inc 1 e1 98 2)

hin

ish

WW 1

0 an

Humanity faced three worldwide pandemics in the 20th century: the Spanish flu, the Asian flu (1957-1958) and the Hong Kong flu (1968-1969). Each of these outbreaks affected approximately a third of the global population. In each case, the vigorous attack rate was due to the lack of human immunity to a new strain of an influenza virus, born from a genetic mutation in an animal virus, making it capable of spreading to the human population.

In the 21st century, the population has already faced three alarming outbreaks, which were fortunately contained due to the absence of two major factors: effective human-to-human transmission and high lethality. The 2005 H5N1 avian flu and the 2013 H7N9 bird flu presented terrible mortality rates among the infected human population – 60% in 2005 and 32% in 2013 as at June 2013 – but their mode of transmission was essentially bird-to-human. Conversely, the 2009 swine flu infected people from 21 countries in just a few weeks but, as it was an H1N1 strain, its lethality was limited due to previous exposure (1918-1943) and an immunisation programme in 1976.

Exposures to pandemics are therefore clearly important to insurers, not least because pandemic risk represents a significant regulatory capital consideration. Under the European Union’s Solvency II standard formula, the solvency capital requirement (SCR) for life catastrophe risk is 1.5 per mille times the total death capital at risk based on a 200-year return period pandemic scenario.

1980

However, according to historical data, pandemics are large enough to destabilise the insurance market more than once every 200 years, with three global pandemics recorded in each of the last three centuries.

This suggests that the majority of people working in the insurance industry today are likely to face at least one pandemic during their careers.

Insurers should be aware that now is the time to anticipate and educate themselves on pandemic risk, and begin to model it.

Sp

A plague of pandemics

1970

1C

Did you know that, in the space of just a few months, the 1918-1919 Spanish flu killed five to 10 million people?

Nearly 100 years later, pandemic risk remains the most important mortality exposure for the insurance industry and is placed above other forms of catastrophic event including natural catastrophes, nuclear explosions, and terrorism.

193

PANDEMICS TIMELINE

1920

Source: Author’s own

Death toll estimations range (in millions)

Global population at the time (in billions)

1990

2000

2010

2020

2005 H5N1 ‘AVIAN’ FLU

2009 ‘SWINE’ FLU

2013 H7N9 ‘BIRD’ FLU

could be aggregate excess of loss where the attachment point is an annual total amount of loss or cat bonds where the trigger is an increase in mortality rates as reported by an official source such as the Centers for Disease Control and Prevention (CDC) in the US. To price these covers, the most sensitive parameter is also the hardest to calibrate – the excess mortality rate or the mortality ratio among the infected population. This is because it is difficult to deduce from historical data. Mortality risk, in the case of a pandemic, hugely depends on the age of those infected, thus the parameter is more likely to be a mortality table rather than a unique rate. To a lesser extent, mortality risk also seems to be correlated with socioeconomic status and pre-existent chronic diseases but not gender.

Since the Spanish flu in 1918, the discovery of antibiotics in the 1930s and the progression of vaccination campaigns in the 1950s helped to reduce the fatality of seasonal influenza epidemics as well as the two later pandemics (1957-1958 and 19681969). And since the end of the 1990s, most developed countries have completed their preparedness plan for pandemics at the request of the WHO. These plans include emergency measures to slow the spread of a flu outbreak such as closure of public transport and schools, and strategies to optimise medical care such as vaccination programmes and monitoring. These measures are believed to significantly mitigate the impact of a pandemic, though only a few countries have quantified the impact of such measures.

The good news is that, even if the insurance market seems largely ill-prepared, the national preparedness plans can help in model calibration. They tend to include results of local epidemiologist studies on the expected consequences of a future pandemic, including the number of deaths and hospitalisations. A good example of this is the French preparedness plan which

November 2013 • THE ACTUARY www.theactuary.com

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Life Pandemics features@theactuary.com

2,500

300

500,000

20,000

2,000

250

1,500

200

1,000

150

5000

50

400,000 15,000 300,000 10,000

200,000

5,000

100,000 0

0

0 Spanish flu

Asian flu

Hong-Kong flu

Deaths in country B

25,000

Deaths in country B

600,000

Deaths in country A

Deaths in country A

Figures 2 and 3: Number of deaths during the 1985-2009 seasonal influenza epidemics in two similar countries

0 1985

1990

1995

2000

2005 Sources: CépiDC and THL

Case study 1: Number of deaths during the 20th century pandemics in two similar countries. Country B is not modelled (no as-if scenarios are available). Among the modelled countries, country A presents similarities with country B. Parameters of country A can help in calibrating parameters for country B.

12,000 10,000 8,000 6,000 4,000 2,000 0

60% 50% 40% 30% 20% 10% 0

1 Y pandemics

3Y pandemics

Reduction by modelling 3-year pandemics

Expected number of deaths

Figure 4: Impact of modelled length of event on expected annual number of deaths

Reduction Source: Aon Benfield

Case study 2: Pandemic risk is modelled twice on the same insurance portfolio using the ReMetrica dynamic financial analysis tool, rather than a commercial catastrophe model, as the length of event can be parameterised in the ReMetrica model.

The first modelling considers events bound into a calendar year.

The second modelling considers events in three waves, with a distribution of lethality over three years (35%; 50%; 15%). The results above represent the annual number of deaths recorded from 01/01 to 31/12.

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the time, would lead to an over-estimation of reinsurance cost and the required solvency capital.

Historical data show that pandemics tend to last longer in some countries than in others. This is partially explained by their geographical situation (for example, latitude, size, frontier neighbours).

Therefore, even if convenient, insurers should resist the temptation of considering their exposures in a modelled country, when their portfolio is actually exposed in a non-modelled country.

Transparency

Also, insurers modelling pandemic risks should consider the high capital requirements for life and health catastrophe risks that Solvency II standard formula includes as-if scenarios of the Spanish flu. The demands. It may be advisable to consider plan comprises very useful data from the building a partial internal model but bear in Institute National de Veille Sanitaire (INVS), mind the regulator’s approbation the French national institute of health requirement on detailed documentation monitoring, pertaining to associated and validation. hospitalisation and mortality rates per age Conclusion band. And all national plans are filed by the Pandemics are not only theoretical events WHO and are available for free on the causing the largest modelled losses for life WHO website. and health insurance. They are real But not all countries have ready-made as-if scenarios. In the case where the exposure for an phenomena with a frequency at once high enough for us to get prepared for the next insurance portfolio is from a non-modelled one, and so low that historical statistics are country, the best approach is to calibrate not enough to calibrate a model precisely. parameters using a country that has similar As commercial cat models currently historical pandemics and seasonal flu present several weaknesses, including epidemics. Some commercial life catastrophe limited geographical scope, lack of flexibility models have recently been released in the and lack of transparency, therefore it is market, providing loss estimations per return essential to have a correct level of expertise period for insurance portfolios within their and utilise the results from epidemiologist geographical scopes. However, as their geographical scopes are partial, exposures can researches to monitor exposure, appreciate reinsurance options or build an still exist for a non-modelled country. internal model. a

Length of the event Another major aspect in pandemic modelling is Acknowledgements: The author would like to length of event. Unlike natural catastrophes thank Irfan Akhtar and Marc Beckers for their which are instantaneous events, pandemics comments and contributions to this article last several months, not to say a few years. And they occur in distinct waves, which tend to be stronger during the winter periods. This means ANNE-LISE BAGUR is an actuary at Aon the events are likely to cross calendar Benfield, specialising in boundaries, and it has many consequences for life, accident and health, modelling pandemic risks. and in Solvency II Applying 100 percent of the total expected loss on a single calendar year, rather than spreading the estimated loss accordingly to the length of the event and its strength over

THE ACTUARY • November 2013 www.theactuary.com

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Solvency II China features@theactuary.com

Imperial measures China has been watching European Solvency II with interest, with the aim of reforming its own solvency regime. Cynthia Yuan looks at the red giant’s progress European Solvency II has been a ‘sensation’ for the insurance industry during the past five years. It has opened eyes, extended horizons and founded a grander playground for insurers. It deployed business areas beyond the traditional actuarial reserving and pricing, and engaged areas such as corporate governance, risk management and business management, inspiring better risk-managed companies.

Many have exerted time and resources to facelift their Enterprise Risk Management (ERM) framework. A lot of good practices have been set that are now industry standard.

Consensus has been formed about the basics of good risk management and governance, and internal models have changed management views on risks. No matter what will happen, these changes are here to stay and are irreversible.

However, the implementation of Solvency II

26

is far from slick. Although this risk-based, forward-looking, and balance-sheet-focused regime means well, the introduction of higher required capital and excessive volatility has eroded the confidence in the reformation.

Is this because actuarial theories are too good to be true and cannot fully conform to reality? Or because it is too difficult to truly quantify the risks, which, in a vast and uncontrollable world, actually takes more art than science to grasp?

The Chinese insurance market has been watching European Solvency II closely. Its regulator, the Chinese Insurance Regulatory Commission (CIRC), has launched its own battle to reform its solvency regime. Instead of deriving regulations from scratch, CIRC is trying to understand the rationale behind the European rules and adopting practices that are apt for its own market. For example, Solvency II has the advantage of observing

International Association of Insurance Supervisors core principles, which is useful for the Chinese market.

CIRC has already issued a solvencyreforming framework. It has 13 working parties to help with setting the finer details.

The first phase includes six working parties focusing on testing the solvency status of companies between the current regime and the Solvency II or risk-based capital regime if implemented. It also sets out to calculate the risk measures for life insurance risks, non-life insurance risks and market risks.

The second phase includes the other seven working parties, which cover other risks, correlations, dynamic solvency tests, classification of funds, own-risk assessment, liquidity risks, disclosure requirement and group regulation.

Already, Solvency II has caused much debate and controversy among Chinese

THE ACTUARY • November 2013 www.theactuary.com

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scholars, governors, insurers and consultants.

All of them have vocalised the need to balance the implementation of the proposed regime in the rapidly growing and emerging Chinese insurance market. Balancing this on such a large scale will be challenging.

Reviewing European Solvency II so far, there are themes the Chinese can learn from.

It is costly Solvency II has cost billions of euros so far.

This is simply not affordable for Chinese insurers. Some even say that risk management is a luxury. For an emerging market like China, there has to be a balance between what is needed and what it can do without.

To work efficiently, the Chinese regulator needs to grasp the key concepts of ERM and limit its power within a certain scope. Some compliance regulations can be good, but may not be a necessity if the company or the market is still growing and shaping itself.

It is complicated Despite being able to cast new light on risks, the internal model has faced a lot of criticism on issues like being too complicated and not being able to provide consistent measures.

The consensus in China has decided not to enforce companies to use the internal model for Pillar I capital requirement but has encouraged companies to use the internal model in Pillar II requirement.

It is volatile The mark-to-market principle has introduced excessive volatility in the capital calculation especially for long-term life products. The

Institutional characteristics

Unified supervision Emerging markets Risk–oriented and value Quantitative capital requirement

Qualitative capital requirement

Market discipline mechanism

Regulatory element

Regulatory infrastucture

Solvency management

European market is still trying to find a way to balance the precise measure of risks and the unwelcome volatility. There are similar concerns in the Chinese market causing some actuaries to use the old statutory method to calculate reserves for the Chinese solvency regime rather than adopting the suggested mark-to-market principle.

It is confining The current Chinese market’s insurance premium volume increases by 10% to 20% each year and product structures are relatively simple. Comparing this to a mature market, the risk appetite of insurers, policyholders and investors in China is high.

It is therefore unjustified to demand high capital requirements because the net cashflow and investment is expected to be positive for years.

In order to learn from these, the Chinese insurance market should consider the following when forming its own Solvency II regime: ● Simplicity is best. Currently the market is still using a formula approach for capturing the capital requirement. While this is not ideal under the proposed regime, it may not be so bad for non-key risks.

● Solvency regulation forms a part of the whole policyholder protection system, which includes the Chinese insurance default fund, government support to certain state-owned insurers, and rating agencies. The level of regulation should consider the entirety of the protection offered by other measures. ● A good solvency regulation system should promote good risk management technologies.

Although the market argues that these solvency requirements are just a minimum requirement and market participants do as they wish. However, if a solvency regulation can encourage risk management technology it would promote good competitiveness of the whole market. ● The Chinese solvency regime should balance the different stakeholders’ needs, including, but not restricted to policyholders. ● The Chinese regulator should put a regulation down for now and review every three to five years ‘given the current speed of market changes’ rather than imposing a full requirement now.

Despite the controversy, European Solvency II has reformed the framework of risk and capital regulation significantly. The whole insurance world has changed since the first directive was issued. China is no exception. The whole landscape of solvency regulation has changed.

From a Chinese prospective, it is hoped that the European Solvency II regime can touch ground soon and be implemented smoothly. This would set good working examples for the rest of the world.

Chinese total insurance assets have reached 7.9bn CNY (£800m). China needs to rise to the challenge of a more complicated market. a

CYNTHIA YUAN is an assistant general manager of actuarial and risk management for China Re Group

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Life Modelling features@theactuary.com

Michael Kim describes the benefits and challenges of using realworld economic scenario generators (ESGs) for life insurance modelling purposes

GET

REAL ESG S

WITH 28

Solvency II is expected to come into effect in January 2016, and insurers who are not already doing so will be required to calculate a Solvency Capital Requirement (SCR). This is, in a nutshell, an answer to a ‘what-if’ question, namely, given the current mix of assets and liabilities, how much of a loss would be incurred if a 1-in-200 adverse event were to happen in the next 12 months?

The internal model approach to answering this question involves generating a set of scenarios to represent possible states of the world, and revaluing the balance sheet under each. This is where ‘real-world’ economic scenario generators (ESGs) come in. From here, they can be used to gain insight into other risk management type questions. For example, if an alternative hedging or risk management method were to be implemented, how much residual risk would remain? Having a set of scenarios also gives us a means to assess how extreme a given stress scenario is, and help to identify which of the worst-case scenarios is most likely to cause the current business plan to become unviable. This is the so-called reverse-stress testing.

In contrast to real-world ESGs, we have the so-called risk-neutral ESGs, which are typically used to perform a market-consistent valuation of liabilities both in the base balance sheet and the stressed scenarios.

Calculation of all components of the

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MICHAEL KIM is a manager at Mazars and has experience of investment strategy and reporting

Solvency II balance sheet therefore requires a combination of real-world and risk-neutral scenarios. There are a number of companies that have developed, for insurance usage, commercial ESG software with both realworld and risk-neutral capabilities.

consequently, they are not market-consistent.

In particular, real-world scenarios are usually not ‘arbitrage-free’.

exist altogether. Actuarial judgment may be required which clearly presents parameter risk. The other issue is more operational – it often takes a long time to calibrate ESG Operational issues models. Life insurers are increasingly Using real-world ESGs to enable the calculation required to generate a large numbers of of SCRs arguably offers a more accurate means scenario sets. In a survey of 15 firms, the Real-world ESG basics of risk modelling than other existing methods, majority of firms have reported to generate How does a real-world ESG go about such as stress testing. Insurers using the hundreds of scenario sets, covering multiple mimicking the behaviour of economic methodology should be able to better currencies, within a one-year period. Given variables? The first step starts with so-called understand and manage the risks they are that most scenario sets require their own ‘stylised facts’. Stylised facts are insights based carrying in their business. Internal model calibrations, it quickly becomes obvious how on empirical evidence of how those economic usage under Solvency II is conditional upon a onerous this can be. variables have behaved in the past. These number of regulatory requirements being Pushing a large number of ESG scenarios could include statements like: satisfied, and real-world ESGs in particular through actuarial models can be time● Equity return distributions are not carry a number of issues to be aware of. consuming, and the results may not be symmetric and exhibit fat tails Real-world ESGs are subjective as they available soon enough to be really useful. A ● Changes in salary inflation usually follow depend on the choice of stylised facts and number of shortcuts have been taken. These changes in price inflation with a lag model parameterisation. Simplistically include variance reduction techniques, which ● Implied volatilities reflected in option prices speaking, the output of real-world ESGs may be result in a lower number of scenarios being are in excess of realised return volatility likened to a type of economic forecast. How required for the same level of accuracy, and exhibited by equities can the users of ESG output place trust in proxy liability modelling. In the latter case, ● Correlations between different economic them? Would actuaries who run ESG models be instead of performing full-scale calculation of time series are higher during periods of stress just as susceptible to psychological liabilities for each scenario, one selects a The choice of appropriate stylised facts idiosyncrasies that have been detailed by the reduced number of scenarios, and fits a curve depends on the required timescale of the field of behavioural finance? There are mainly to the liabilities based on these. scenarios, for example, one-year or multitwo defences to this. The first is the Even with these and other shortcuts, year. In the case of one-year, certain stylised implementation of a robust validation process, reporting time will need to be further facts are not relevant, such as the existence of which may involve checking goodness of fit, compressed and managers will need results long-term mean reversion. quality of tail dependency and back-testing, sooner to make timely business decisions. If Joint behaviour of economic variables is a and benchmarking, where this information is risk-based processes supported by ESGs are to particularly important part of real-world available. The second is to ensure an become deeply embedded into life insurance ESGs. For a one-year period, the simplest appropriate governance structure which companies’ business-as-usual processes, it is approach is to set a correlation matrix to monitors and challenges the output of ESGs probable that more insurers will look to adopt impose joint behaviour. A correlation matrix, and also drives continual development of ESGs. grid computing or a cloud-based solution. however, has to meet stringent mathematical The aspect of calibration brings its own Alternatively, they may look to ESG providers to conditions. Many participants use copulas, challenges. The obvious one is lack of help to provide an end-to-end solution. which can have good mathematical sufficient data. Life insurers tend to have ESGs originally started off as academic tractability and desirable characteristics long-dated policies and may want to generate research and found mainstream application. under extreme scenarios, where economic long-dated scenarios, but often, certain There is now a large industry built around variables have been observed to show more variables do not have sufficiently long enough ESGs. The use of ESGs in the life insurance correlated behaviour than under more history (for 1-in-200 year event, we would industry is expected to increase due to a normal circumstances. need 200 years’ worth of data) or may not confluence of change in the regulatory For the purpose of projecting scenarios landscape and life insurers’ pressing across multi-year periods, the wellneed to manage risk better in order known Wilkie model and TY model adopt Waterfall structure in TY model to improve resilience and a waterfall-like structure between shareholder return.

Price inflation different parameters to define narrowly While there are limitations – and how a given economic variable influences some even argue that the misuse of other economic variables, hence ESG-based models within the Salary inflation UK bonds establishing dependency between them. banking industry contributed to the The diagram (right) shows a simplistic credit crunch – they are an Cash representation of the waterfall structure indispensable tool for meeting new in TY, with price inflation as the regulations, as well as for risk UK equities underlying variable. management. This relies on the Because real-world ESGs are based on existence of a robust governance Index linked Overseas equities stylised facts, they are not directly framework to provide oversight and Source: YH Yakoubov – bit.ly/17IfN7V determined by market prices and drive their continual development. a

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Solvency II Regulatory features@theactuary.com

Sitting in judgment...

Actuary: What’s your one in 200?

Underwriter: Last year’s loss ratio Actuary: How do you picture a bad year?

Underwriter: Front page news Actuary: What would surprise you?

Underwriter: Claims Actuary: Do you have any idea how my T-copula will look based on that information?

Underwriter: Get out.

Dr Joseph Lo, Dr Ed Tredger and Bernadette Hlavka discuss the tricks and possible pitfalls when conducting a successful expert judgment elicitation meeting 30

While this may not be exactly the way your last expert judgment elicitation meeting went, it hints at the fact that often actuaries don’t always know how best to ask for probabilistic information and the experts being examined know even less on how to provide it.

The elicitation process is critically important, interesting and well within the scope of actuaries. As actuaries in the London market, who engage with such processes on a regular basis, we ambitiously embarked on a project to come up with a best practice approach. Reading through large amounts of material and drawing from our own experience we soon realised that this is an area that needs substantial specific research, possibly with the help of an industry working party, spanning over several years. Nevertheless, during our investigations we found some fundamental ideas that should be considered when beginning an elicitation process.

THE ACTUARY • November 2013 www.theactuary.com

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Left to right: DR JOSEPH LO is head of actuarial research and development at Aspen, a global insurance and reinsurance company. DR ED TREDGER works in pricing and capital modelling for UMACS, a London market actuarial consultancy.

BERNADETTE HLAVKA is a senior manager within the risk management team of Tokio Millennium Re (UK)

Current state of play The extent to which expert judgment is relied upon in the London market can hardly be over-estimated. Many pricing models use judgments made by underwriters. The very fabric of capital models depends on eliciting probabilistic assessments from experts with actuaries left to hang their hats on the results.

Expert judgments are increasingly subjected to systematic examination within Solvency II and Lloyd’s has recently published a report on the cognitive aspects of risk perception.

Without motivated experts who understand the impact of their inputs and facilitators who know how to get the best from their experts, we risk the credibility of actuarial work being seriously undermined. Luckily for actuaries, much of the groundwork has been done in other professions. One example is weather forecasting, which has a long history in providing judgmental probabilistic forecasts.

As early as 1906, Earnest Cooke in Western Australia proposed adding judgmental weights to weather forecasts to indicate confidence. Other areas that actuaries can learn from include medical diagnostics, civil engineering, intelligence analysis and new product markets.

Key ingredients There is a wealth of academic literature from a wide range of fields, but few are better starting points than the seminal book Uncertain Judgements: Eliciting Experts’ Probabilities by Tony O’Hagan et al. Actuaries can find the most important literature covered here.

However, techniques gained from other disciplines require tailoring to the specific needs of our particular industry and market.

While we consider a working party will be instrumental to provide robust conclusions, we offer some preliminary ideas.

1. Putting yourself in the expert’s shoes Understanding is often the beginning of communication. In the case of actuaries, we should remember that experts don’t often think in terms of one in 200, frequency and severity versus aggregated results, or go to bed at night with a historical list of claims re-based to the next accident year. To make the point with an example, ask yourself how you would answer the question – what is the 90th percentile cashflow counts greater than £50 you might incur in a month? We would have no clue, even though we might be considered experts in this area.

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Actuaries need to be well prepared for elicitation meetings and anticipate questions in advance. Coming equipped with claims history and high-level analyses can vastly improve the quality of results. In particular, actual versus expected analyses are helpful for improving judgmental skills. Finally, we note that there can be a tension between an actuary getting to the best estimate and the experts having their eyes on their capital allocation, bonus, or even portfolio make-up.

2. Psychological insights There is a widely reported tendency for the respondent to exhibit anchoring (a tendency not to move from some baseline, for example a business plan or last year’s estimate) and biases. Actuaries should be aware of these and other psychological traits and ask questions accordingly. Questions should be specific, draw on the experts’ field of expertise, and not encourage bias. For example: “You have been in the market for 20 years. What is the worst result you have seen so far?”, rather than jumping to “What do you think is the one in 200?”.

3. Real-time feedback In appropriate situations, providing real-time feedback is a powerful way of speeding up the validation cycle. Being able to show the impact of the opinion straight away, rather than going back into a dark room and producing some results a week later, can help people understand the impact of their decision, helping subsequent buy-in on what you are trying to do. The result of this is greater ownership, understanding and confidence of the expert in the actuarial models.

Making use of modelling software such as R, together with a readily available template document such as SHELF from Sheffield University, one can apply interactive elicitation in the real world. Upon the user keying in their judgments (for example, one in 10, one in 200 for frequency and severity), this approach can fit dozens of distributions and run tens of thousands of simulations involving maximum lines and reinsurance structures in a couple of seconds. It can present value at risk (VaR) and tail value at risk (TVaR) statistics, and gross and net results back to the user.

4. An annual cycle A distinctive feature of actuarial work is to revisit assessments year-on-year. What we have come up with now will feed into next year’s

process and the year after that. The first exercise is already setting the long-term results. This doesn’t mean that the expert cannot change his opinion. In fact, an expert’s opinion should be open to revisions as more information emerges. They are justified in changing their opinion in the face of an ever-changing risk environment. However, the actuary and the experts need to be aware of the short-term and long-term implications of the current year’s judgment. Given the propensity for anchoring, prior judgments may limit the effectiveness of future elicitations.

These above points are aimed at encouraging discussion and reflection rather than supplying best practice. Actuaries need to draw from state of the art research, yet avoid alienating our experts who we rely upon so heavily.

The future To a large extent, the future relies on actuaries rising to the challenge and equipping members with the skills and vocabulary needed to obtain and use expert judgment effectively. While this will always be a work in progress, there are several things the actuarial profession can do now to enable actuaries to play a more visible role.

Actuarial training and research programmes often do not focus on facilitating expert judgment elicitation. For example, our CA3 communications exam is only half true to its name: we only formally train and test on how to convey actuarial results, but not to facilitate good communication from our experts.

Empirical research on eliciting expert opinions in the actuarial context is inconclusive. The actuary of the future will be multi-disciplinary, bringing together mathematics, psychology and potentially the social sciences.

An expert opinion elicitation working party would be a useful next step forward. It could examine and define research questions more carefully. It could also consider the educational side to prepare actuaries to more effectively facilitate elicitation of expert opinions. a The authors would like to thank Richard Barke for contributing to the project and Ajay Chhabra for useful discussions. A GIRO working party on eliciting expert probabilities in general insurance is being set up and will be seeking volunteer members. For details, visit the IFoA’s volunteer webpage at www.actuaries.org.uk/members/ pages/volunteer-vacancies

November 2013 • THE ACTUARY 31 www.theactuary.com

28/10/2013 13:06

BOOK REVIEW

The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It by Anat Admati & Martin Hellwig PUBLISHER Princeton University Press ISBN-10: 0691156840 ISBN-13: 978-0691156842 RRP £19.95

“If banks were more highly capitalised, they would be less likely to fail, and there’s no good reason why they shouldn’t be” It is fairly obvious from the title of this book that it’s not going to be full of praise for bankers. That would be an understatement. A persistent theme throughout the book is that bankers mislead the rest of us about what’s involved in banking and basic financial concepts. But the main message is even simpler than that – if banks were more highly capitalised, they would be less likely to fail, and, importantly, there’s no good reason why they shouldn’t be. It’s not a subtle message on the face of it, and you might wonder whether it’s enough for a whole book. It is, for two reasons.

First, a surprisingly large part of the book is taken up with a very clear explanation of what capital is and how it works. There’s a simple example – Kate, who borrows money in order to buy a house – which is gradually elaborated on to illustrate a range of different concepts, including leverage, guarantees and return on equity.

This performs the useful function of bringing us back to

KOBAL

p33_nov_book_review•km.indd 33

basics: capital (or equity) is the excess of assets over liabilities; it really is as simple as that. Well, only slightly more complicated – it’s what the excess of assets over liabilities would be if the accounts were realistic.

The book does a reasonable job of pointing out that different accounting treatments can radically affect the answer.

Second, there’s a lot of emphasis on debunking the argument that banks are different, and that the usual rules don’t apply to them. This is where the book’s title comes from. It’s this second aspect that is, in my view, the more important part of the book; it’s also, unfortunately, weaker than it should have been.

The authors take the overall line that banks aren’t really different from any other company. High levels of leverage may produce high rates of return, but they also mean higher risk. More capital means a bigger buffer. It’s really not rocket science. The problem is

that the villains of this piece, the bankers, dress it up as if it is rocket science, and confuse what’s going on as they do so. For example, the authors point out that bankers talk about holding capital: “Apple and Wal-Mart are not said to ‘hold’ their equity. This is not a silly quibble about words. The language confusion creates mental confusion about what capital does and does not do.”

This is, on the whole, an effective line of argument, and has strong resonances. It would be even more effective if the authors took some of the bankers’ positions a bit more seriously, and went into more detail about why they think that way rather than simply pointing out how misleading some of their statements are. After all, there are some bankers both smart and honest, so presumably there’s some intellectual backing to their reasoning. It would have been good for that to be exposed and subjected to rigorous analysis.

But the book’s emphasis on the basic similarity of banks to other enterprises is important. So often, in many different contexts, we hear the cry from vested interests “but you don’t understand, we’re different because…” Nearly always this precedes a plea for special treatment – not only are they different, but different in a way that makes life harder. We should distrust this line of argument. Exceptional treatment requires exceptional justification. Exceptions introduce complexity, which results in unintended consequences. That’s not to say that exceptional treatment is never the right thing, but if the whole edifice becomes so intricate that it’s incredibly difficult to explain to a slightly sceptical intelligent lay person, there’s a definite suspicion that it’s built on sand.

There’s another way of looking at this. Banks are indeed a special case: they are a major source of systemic risk in the global financial system. They should therefore be at least as safe as non-banks, and should be capitalised at least as highly. This isn’t an argument that’s often heard from within the banking community, or indeed elsewhere, which is why this book is important. Even with the recent proposals for tougher capital requirements on banks, we aren’t seeing proposals for capital levels of 20% to 30% of total assets, which is what the book recommends. Now that’s something to think about. ● Louise Pryor is an independent consultant specialising in model use and development

MORE ONLINE Latest reviews at www.theactuary.com/ opinion

November 2013 • THE ACTUARY www.theactuary.com

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25/10/2013 15:20

arts@theactuary.com

Arts

Jeremy Lee reviews X&Y, the latest production from Marcus du Sautoy, where mathematics meets dramatics

A MULTIPLE OF SUMS “They explore the concepts of zero, infinity, irrational numbers, imaginary numbers and the fourth dimension” One of the most common responses on hearing that you have a degree in mathematics is something along the lines of “you must be really good at times tables”. While this may be true – except, in my case, not the 7s or 8s – I normally respond with “my degree is in mathematics, not arithmetic”. The distinction is fundamental, but lost on many.

As Marcus du Sautoy says, it’s like the difference between learning Shakespeare and learning to write.

As holder of the Charles Simonyi Chair in the Public Understanding of Science at the University of Oxford, it is du Sautoy’s task to promote a true understanding of science to the masses and to elevate the awareness of mathematics above functional arithmetic. I first became aware of him while watching The Story of Maths, a series shown on BBC Four in 2008.

While relatively niche in both subject matter and broadcasting channel, it was well received among the ‘mathmos’ that I know.

It is, however, his partnerships with popular comedians Alan Davies and Dara Ó Briain that may have brought him directly into mainstream consciousness. But brainteasers and puzzles are a long way from abstract mathematical concepts.

In creating X&Y, du Sautoy and fellow mathematician and protagonist Victoria Gould, attempt to bring the abstract to the people through the medium of theatre. Respectively portraying variables X and Y, they explore the

34

Marcus du Sautoy, (right) and Victoria Gould (left) bring the abstract to people through the medium of theatre concepts of zero, infinity, irrational numbers, imaginary numbers and the fourth dimension.

X reveres the beauty of mathematical theory and chases infinity, while Y is the challenging and wittier voice of the limited and inelegant real world. For example, while in theory you can keep cutting a sphere in half, resulting in ever smaller segments, in practice you can’t do this with an orange.

As X and Y journey around their minimalist world for 75 minutes, there are moments of humour, and successful characterisation of both variables leads to some poignant moments as they discuss singularities and the finiteness of time. However, be warned as there is a lot of maths. A lot. From the first interaction, a rapid algebraic duel quickly sorts the mathematicians from the boys: “Factorise!” “Differentiate!” It was like being haunted by my university

interviews. And it’s not just algebra and calculus: geometry, topology, logic and even thermodynamics are used with abandon.

This level of technical language makes for an awesome experience. Readers of The Actuary who have previously trodden a mathematical path, may find X&Y to be a whistle-stop trip down a steep (and perhaps rather dusty) memory lane. But non-mathematicians may find themselves lost in the jargon.

The final message is clear though: maths is like theatre. Both have limitations in physical space, and both have unbounded potential in the human mind. But if X = maths and Y = theatre, does that make X&Y any more than the sum of its parts or is it just a well-staged maths lecture? Perhaps, as a mathematician, I have been guilty of not seeing the poetic wood for the iambic pentameterised trees.

THE ACTUARY • November 2013 www.theactuary.com

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25/10/2013 17:21

At the back Arts

“N “Numeracy is the grammar and an essential tool but mathematics is about the stories you can tell with those numbers” Marcus du Sautoy reveals the inspiration on for X&Y, his influences es and plans for the future ture Would you describe X&Y as maths or theatre? Where does science stop and art begin?

X&Y is first and foremost a piece of theatre.

But it is theatre with a mathematical structure at its heart. The two disciplines share much in common. They are both about creating abstract worlds with internal rules that are explored through the narrative of proof or performance. I hope the piece will reveal that both mathematics and theatre provide languages to explore big ideas like ‘What is the shape of the universe?’ or ‘Does infinity exist?’. We too often talk about this divide between art and science, ‘The Two Cultures’. My belief is that this is a false dichotomy. In X&Y, there is no line which marks the crossing from science to art.

How would you like the audience to be affected by watching X&Y? As a piece of theatre, it is important that the audience care about the characters X and Y. They are on a journey in which their initial antagonism towards each other’s world views is replaced by a recognition that, to make progress, they need each other’s perspectives on the universe. The dialogue is infused with mathematical ideas, but it is not necessary to be a mathematician to appreciate the piece.

The maths is almost like a poetic language they speak. Many of the mathematical ideas are brought to life through the clowning that X and Y do so that the audience can see the maths before their eyes.

What was the appeal of maths and science to you as a child?

Mathematics is the only subject where, once you have proved something, it is true for ever.

I love the permanence of it, the fact that you are getting to eternal truths of the universe.

Mathematics is the study of pattern. It is very creative. I think that creative aspect appealed to my artistic sensibilities.

BENJAMIN EALOVEGA / SARAH AINSLIE

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● Leonhard Euler, Swiss mathematician of the 18th century. A true polymath mathematician. ● Madhava of Sangamagrama, a 14th century mathematician from Kerala, who d discovered ideas of the c calculus before Newton a and Leibniz.

Actuaries often deal with known unknowns. Did you consider a career as an actuary?

I knew that I wanted to be a research mathematician, creating new mathematics.

What I do is motivated not by utility but beauty. I am hopeless if there are any numbers involved! I like my mathematics abstract and involving X and Ys rather than real data.

What are the key challenges you face in trying to improve the public understanding of science? Does this include financial literacy?

I am keen to impress on people that there is a difference between numeracy and mathematics. Numeracy is the grammar and an essential tool, but mathematics is about the stories you tell with those numbers.

Having a good mathematical mind is clearly key to financial literacy, but I am concerned about the drift in education to motivate the learning of mathematics as a tool, rather than celebrating mathematics for its own sake. We don’t study Shakespeare in school because it helps us to write better letters.

Which five mathematicians or scientists, dead or alive, would you invite to your dream dinner party? ● Évariste Galois, French revolutionary and

mathematician. Discovered group theory, the language of symmetry. He was killed in a duel, aged 20. ● Bernhard Riemann, German mathematician of the 19th century.

Discovered the key to exploring primes and took us into hyperspace. ● Georg Cantor, German mathematician of the 19th century. Discovered that there wasn’t just one infinity but an infinity of infinities, some bigger than others.

Which is the more W e ffective way of eff ccommunicating o maths: te teaming up with m a man-of-the-people A la Davies or brain-box Alan D a Ó Briain?

Dara Both are fantastic to work Bot with and very smart. Alan like likes to play the fool, but he is extremely ex clever.

The director of the Horizon programme we filmed together, Alan and Marcus Go Forth and Multiply, was constantly frustrated at how quickly Alan got ideas of four-dimensional space, prime numbers and infinity. I am constantly amazed at Dara’s performance on The School of Hard Sums.

He never sees the questions in advance, yet is able to crack the problems live on camera.

I’m also impressed by how well our guest comedians do. I think comedy creates a mind that is good at lateral thinking, and that is a strong skill when it comes to puzzle solving.

It is great that projects like The School of Hard Sums are providing ways to bring mathematics to more diverse audiences. It is very much the spirit of what the Science Museum is trying to do by producing X&Y, using theatre to showcase science as part of the cultural landscape.

What other projects do you have coming up?

I have just started writing a new book called What We Cannot Know. It explores the limits of how much science and mathematics can tell us. Are there things that, by their very nature, will also be beyond our knowledge?

The project grew out of many of the ideas that are at the heart of X&Y.

X&Y A new tour of the production is being planned for 2014 at science festivals and in theatres. Dates will be confirmed in the new year.

November 2013 • THE ACTUARY 35 www.theactuary.com

28/10/2013 13:07

Nylfia is an actuary who solves and sets cryptic crosswords created especially for The Actuary

At the back Coffee break puzzles@theactuary.com

Puzzles

— RD SWO CROS IZE PR E PUZZL

For a chance to win a £25 Amazon voucher, please email your crossword solution to: puzzles@theactuary.com by Monday 18 November

—

IT’S WHO YOU KNOW THAT COUNTS In the actuarial world there are quite a few familiar names that you come across again and again.

Within this grid we have listed just five of them. The aim of this crossword is to identify and list them.

Across 1 Expose to public as part of will in West London (8) 5 Can’t play a piano so has short time out? (6) 10 He designed formula for expenditure allocation without profit after expenses deemed true (7) 2

1

11 Country cook guillotined

by Institute (7) 12 Money found in vault (4) 13 Very strong because it’s Japanese wrestler – one for all (10) 15 Modify tower in row going west (8) 17 Gable built due to escapade led by Charlie (5)

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18 Deity perceived through laudanum entrancement (5) 20 Spoke, for example, of a torrid affair premier messed-up (8) 23 Work augmenting food in Lincolnshire (10) 25 Bean curd processed out for Principal (4) 27 Turkish man from east, very loud, with close interest (7) 6

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28 Bridge that goes by Channel? (7) 29 Trader in textiles has car brought to Queen (6) 30 Newton reneged shockingly to produce emotions (8)

Down 1 Knight of Provence has unusual black boots (2,4) 2 Organ in ear causes solver to dribble audibly (7) 3 Achilles part in legend? (4) 4 It’s a matter of chance to follow destiny (5) 6 Disorderly elements from Italian society involved (10) 7 Normal panda lost head and ate in – bamboo (7) 8 An officer gets into kiss from bird (7) 9 Put in other words, remainder devoured by destitute maiden (8) 14 Shortness of evidence about confused 9s (10) 16 One of five herein has understanding with tight hold (4,4) 18 Neologism for system of managing risk following latest technology introduction (3,4) 19 Dream of building created to please (4,3) 21 Voice heard full and loud, “Don’t mess with our Dicky” (7) 22 Ponting took constant run after speculative effort (6) 24 Stardust, collected from extremes of Algol Five, delivered to home (5) 26 Thoroughfare in Lausanne avoiding central area (4)

THE ACTUARY • November 2013 www.theactuary.com

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25/10/2013 14:12

HAVE YOU GOT WHAT IT TAKES? For information on IQ testing in your area, visit www.mensa.org.uk

R W D O A U A P I N H C Y H E

Clock A

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N A P S R

S E G I

A MENSE PRIZ E PUZZL

Chess changes Mensa puzzle 567

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A knight is positioned on the shaded square of this chessboard. Move the knight to each square once only, collecting letters to spell out four six-letter islands. What are they?

For a chance to win a £25 Amazon voucher, email your solution to puzzle 564 to: puzzles@theactuary.com by Monday 18 November

TERMS AND CONDITIONS The prize will be awarded for the first correct entry drawn at random from those received before the closing date. The winner’s name will be announced in the next edition.

Please note, the puzzle editor’s decision is final and no correspondence will be entered into. We reserve the right to feature the winner’s name in The Actuary.

Your details will not be passed to any third party in connection with this draw.

Quizical quotes 68 Mensa puzzle 568

Bridge puzzle 38 Oh dear! If only...

A quote by Eleanor Roosevelt has been split up into groups. Rearrange the groups to form the quote.

What should it say?

How many times have you thought … if only I had done such and such.

Well, here is another one!

AKE ANM ENT FEE FER HOU IOR LIN NEC NOO ONS TYO URC WIT YOU

♠7 ♥A875 ♦AKQJ3 ♣A42

N W

Secret symbols Mensa puzzle 569

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Which symbol should replace the question mark to continue the sequence?

Clock B

On the clock Mensa puzzle 570 Clock A was correct at midnight. From that moment it began to lose two and a half minutes per hour. The clock stopped two hours ago showing clock B. The clock runs for less than 24 hours.

What is the correct time now?

SHUTTERSTOCK

p36_38_nov_puzzles•gc.indd 37

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Bridge puzzle provided by David Lampert

November 2013 • THE ACTUARY www.theactuary.com

37

25/10/2013 14:12

At the back Student student@theactuary.com

Student Jessica Elkin outlines why she, as an actuary, feels birthdays should be avoided on the whole, but how being older and wiser pays in the end

A D J U ST I N G FOR EXPERIENCE Terrible things, birthdays. Evil. They creep up on you. They say that life happens while you’re busy making other plans – I’d correct that to read that birthdays happen while your head is turned elsewhere. Insidious and sinister, they are.

Of course, I say this as a grumpy old walnut. You readers may be spring chickens, full of youth and vigour. Please forgive the malaise of this month’s student page. This is my birthday month, you see, and they’re getting less and less welcome each year.

I can’t deny that being a trainee actuary makes birthdays a little harder, thinking about old age and death in pensions and life insurance. Looking at the actuarial tables provides me with evidence that my chance of dying this year is higher than it was last year.

Now there’s the proof of the wickedness of birthdays – wiping us all out one by one, like smudges on a whiteboard...

The icing on the cake Oh very well. There are some upsides.

Good wishes and obligatory smiles in your direction, and the occasional present.

Neighbours can’t begrudge you a noisy vice-ridden party, and you are morally obliged to eat as much cake as you can cram into your face. Plus, looking at a graph of mortality rates allows me to celebrate being over the accident hump – I survived my teens! That deserves a pat on the back.

I can’t sustain my moral outrage at the existence of birthdays any longer, truth be

PHIL WRIGGLESWORTH

p39_NOV_student–KM.indd 39

told. Only, this is that time of year I think, “It’s been x years since I started university, and y years since I graduated, and z years since I started training as an actuary.” And while the latter point is somewhat welcome, as it’s a chance to realise how far I’ve come and how much I’ve learnt, there is also a visceral panic regarding the time flying by.

So, assuming that differentiating wisdom with respect to time gives a positive value, I think it would be appropriate for me to divulge some of my accumulated insight to those of you who might be new to the trade.

Gravitating to gravitas Firstly, and I think this has been a common theme of mine, don’t forget to study. It’s a good idea to set up good habits early on

and reap the rewards of early nights and regular breaks as exams approach. It is obvious, of course, but that doesn’t mean you will do it.

Secondly, don’t study too much. Actually, that’s not what I mean. I mean, don’t think that you need 100% to pass actuarial exams.

Everyone panics after their first exams because they feel they haven’t gone well, but it’s partly because we were all so used to having to get high marks in exams throughout school and (to a lesser extent) university.

Thirdly, use the resources around you.

Hopefully you’re employed by a company that gives ample study support and allows you to order in assignment marking and attend tutorials. But you’ll also be surrounded by a wealth of people who have been there and done that, and while they may not remember all of the annuity equations, they are usually happy to help where they can.

Actuaries are nice like that. Don’t be too proud to admit you need help. This goes for work stuff as well – you’re new, so you’re not expected to know everything.

The time to ask questions A few months ago I wrote a column on work-based skills, and I had a few responses from people telling me it made them feel guilty. Good! Don’t forget to keep this up.

A kind soul in my team has set up a workbased skills club so that the students can sit down together and go through some of the tasks in an organised, methodical fashion before the next set of exams get in the way. He’s also a fantastic baker and beer-maker. But I digress.

Getting your head down at work is obviously good for showing your dedication to your chosen profession.

However, you should make the most of what will probably be the least busy time in your career and get to know your colleagues. Forge social connections. This is not only fun, but it will make working more pleasant, and it will even be good for your career as it will improve communications and working relationships.

Finally, when you’re a few years in, don’t forget to adopt a world-weary tone and patronise as many people as you can. I think you’ve earned that right. a

November 2013 • THE ACTUARY 39 www.theactuary.com

25/10/2013 14:13

At the back Appointments

SPONSORED BY

peoplemoves@theactuary.com

Moves Aon Hewitt has announced it has appointed Stuart McKinnon (above) as a principal consultant in its global investment consulting practice, based in London.

McKinnon has over 17 years of experience in the field of investment management. He joins Aon Hewitt after five years with Lane Clark & Peacock (LCP).

Prior to working at LCP, McKinnon was with Close Wealth Management, latterly as co-head of its

investment team and with Threadneedle Investment Management, where he worked both on the fixed interest desk and in its risk management department.

McKinnon has a degree in economics from Durham University, a postgraduate diploma in actuarial science from Heriot-Watt University, and qualified as a Fellow of the Institute and Faculty of Actuaries in 1995.

Pacific Life Re has announced the promotion of Paul Lewis (top right) to the new role of chief pricing officer. He will join the executive committee reporting

High Finance Group Specialist Actuarial Recruiters since 2002 to the CEO with overall responsibility for pricing in the UK and overseas markets.

Lewis has been with Pacific Life Re since 2007.

Julian Leigh (below) became head actuary at S.A. Meacock & Company in October.

Our Values:

$PMMBCPSBUJPO $PNQFUJUJWFOFTT &OUSFQSFOFVSJBM TQJSJU *OUFHSJUZ 1SBHNBUJTN www.highfinancegroup.co.uk

OBAIDUR (OBI) CHOWDHURY Hymans Robertson LLP.

If you could learn one random skill, what would you learn? I’d learn to fly a plane.

How would your best friend describe you?

Favourite Excel function? Cell – a quick

Cool, calm and ELECTRIC.

reference tool has helped me many times.

What’s your most treasured possession?

What motivates you? Philosophy of Kaizen

How do you relax away from the office?

My biceps.

and competition.

A good workout in the gym.

What would be your personal motto?

Alternative career choice?

Employer and area of work

You only get smarter by playing a smarter opponent.

“The first rule of marketing is...”

“Buy low, sell high.”

Name five dream guests to invite to your dinner party?

Bill Clinton, Alex Ferguson, the Duchess of Cambridge, Beyoncé, Adriana Lima.

What’s your most ‘actuarial’ habit?

Modelling.

40

ACTUARY OF THE FUTURE

I’d like to be an actor.

Tell us something unusual about yourself I am one of eight brothers and one sister. We couldn’t be more different – lecturer (Sociology), economist, dentist, doctor, auditor, actuary, finance analyst, and two students.

Greatest risk you have ever taken?

Developing my first property.

If you could go back in history, who would you like to meet? Ramesses II, longest ruling Pharaoh (aka Ramesses The Great).

What are the top three things you would like to achieve in your lifetime?

1. Qualify as an actuary 2. Become a property tycoon 3. Build my dream home

If you ruled the world, what would you change first?

I would introduce global tax.

Do you know an actuary destined for greatness?

You can nominate an Actuary of the Future by emailing

aotf@theactuary.com

THE ACTUARY • November 2013 www.theactuary.com

p40_nov_AOTF_peop•gc.indd 40

29/10/2013 09:12