The Actuary - Jan/Feb 2020 by Redactive Media Group

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Interview

Investment

Health

Modelling

Craig Turnbull on learning from our professionâ&#x20AC;&#x2122;s past

The role of insurers in the transition to a low-carbon economy

Have we got it wrong on genetically modiďŹ ed food?

What sports rankings could teach us about Solvency II modelling

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Contents January/February 2020

OPTIMISING MODEL PARAMETERS USING BAYESIAN METHODS

Features 14 Interview: Craig Turnbull The author of A History of British Actuarial Thought assesses the profession’s current landscape

18 Investment: A co-ordinated eﬀort Travis Elsum looks at how insurers can hasten the low-carbon transition 20 Health: Top of the crops The EU has been too strict on GM crops, says Nigel Halford

Up Front 4 Editorial Dan Georgescu welcomes in the new decade – and a new editorial tenure 5 President’s comment John Taylor on ‘The Great Risk Transfer’ of recent years 6 IFoA news The latest IFoA news and events 10 After the break Managing a post-hiatus career comeback

COVER: SHUTTERSTOCK / SARAH AULD

12 Connect the dots Ashok Gupta explains how systems thinking can beneﬁt actuaries

22 Health: Critical analysis John Ferguson drills down into critical illness data in East Asia 26 Modelling: Smoothing things over What can models learn from ICC ratings? Steve Mills explains all 28 Modelling: Mind your step Bayesian methods could improve long-term interest forecasts, says Andrew Smith

32 Health and life: Longevity bulletin Matthew Edwards dips into the forthcoming Longevity Bulletin

Did you know you can now read The Actuary magazine on any tablet or Android phone? Click through to read more online, download resources, or share on ssocial media via our links in the app. It’s an exclusive free beneﬁt for our members. Download on the App Store at: www.theactuary.com/ipad V Visit: www.play.google.com

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At The Back 36 School of thought Will technological innovation spell the end of the actuary? Elliott Cox weighs in 37 People/society news The latest news, updates and events 38 Puzzles 40 Inside story Jo Lo on what motivates him to volunteer – and why he’d go back in time to visit the 18th century

31 Regulation: The Italian job Silvia Dell’Acqua shares a snapshot of the profession in Italy

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Additional content including daily news can be found at www.theactuary.com Weekly newsletter: for all the latest actuarial news, features and opinion direct to your inbox, sign up at bit.ly/1MN3bXK JANUARY / FEBRUARY 2020 | THE ACTUARY | 3

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PUBLISHER Redactive Publishing Ltd Level 5, 78 Chamber Street, London, E1 8BL +44 (0)20 7880 6200 PUBLISHING DIRECTOR Anthony Moran MANAGING EDITOR Sharon Maguire +44 (0)20 7880 6246 sharon.maguire@redactive.co.uk A S S I S TA N T E D I T O R Kathryn Manning +44 (0)20 7324 2792 kathryn.manning@redactive.co.uk SUB-EDITOR Kate Bennett NEWS REPORTER Christopher Seekings +44 (0)20 7324 2743 christopher.seekings @redactive.co.uk D I S P L AY SALES theactuary-sales@redactive.co.uk +44 (0)20 7324 2753 RECRUITMENT SALES theactuaryjobs@redactive.co.uk +44 (0)20 7880 6234 ART EDITOR Sarah Auld PICTURE EDITOR Charlie Hedges

EDITOR Dan Georgescu editor@theactuary.com F E AT U R E S E D I T O R S Sharad Bajla, general insurance Stephen Hyams, pensions Paul Malloy, reinsurance, life insurance VS Rajeshwarie, GI Thanuja Krishnaratna, life Contact: features@theactuary.com PEOPLE/SOCIETY NEWS EDITOR social@theactuary.com Kathryn Manning kathryn.manning@redactive.co.uk STUDENT EDITOR Jason Brett student@theactuary.com IFOA EDITOR Kate Pearce +44 (0)207 632 2118 kate.pearce@actuaries.org.uk EDITORIAL ADVISORY PANEL Peter Tompkins (chairman), Chika Aghadiuno, Nico Aspinall, Naomi Burger, Matthew Edwards, Jessica Elkin, Martin Lunnon, Richard Purcell, Sonal Shah, Nick Silver INTERNET The Actuary: www.theactuary.com Institute and Faculty of Actuaries: www.actuaries.org.uk

SENIOR PRODUCTION EXECUTIVE Rachel Young +44 (0)20 7880 6209 rachel.young@redactive.co.uk

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SUBSCRIPTIONS Subscriptions from outside the actuarial profession: UK: £100 per annum. Europe: £130 per annum, rest of the world: £160 per annum. Contact: The Institute and Faculty of Actuaries, 7th floor, Holborn Gate, 326-330 High Holborn, London WC1V 7PP. T +44 (0)20 7632 2100 E kate.pearce@actuaries.org.uk. Students on actuarial courses may join and receive The Actuary as part of their membership. Apply to: Membership Department, The Institute and Faculty of Actuaries, Level 2 Exchange Crescent, 7 Conference Square, Edinburgh EH3 8RA. T +44 (0)131 240 1325 E membership@actuaries.org.uk Changes of address: please notify the membership department. Delivery queries: contact Rachel Young E rachel.young@redactive.co.uk Published by the Institute and Faculty of Actuaries (IFoA) The editor and the IFoA 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, 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. © Institute and Faculty of Actuaries, January/February 2020 All rights reserved ISSN 0960-457X

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4 EDITORIAL_The Actuary JANFEB 2020_The Actuary 4

A new decade Welcome to the 2020s, and my first issue as editor of The Actuary. It is an honour and a pleasure to be here. “Why did you apply for the role?” I am often asked at actuarial (working) parties. Partly, it’s because I have written for and volunteered at the magazine in the past, and found it to be a rewarding experience. I have also contributed to examinations and research, but in terms of being able to speak to our whole profession, this platform is second to none. Sometimes, there is a powerful message that needs to be heard. In this issue, Travis Elsum argues that insurers should support the transition to a low-carbon economy (p18), while professor Nigel Halford introduces us to the differences between GM and gene editing, and asks whether EIOPA’s catch-all terminology achieves a good outcome for food safety and sustainability (p20). There is also no better way to meet interesting people and ask them questions. This month I interview Craig Turnbull, who has had a varied career covering both the cutting edge of modelling and writing about actuarial history (p14). I would like to thank my predecessor Francisco Sebastian for his significant contribution during the past two years. Francisco aimed to make the magazine more global, and I intend to stay on that course. This month, we hear from Silvia Dell’Acqua about actuaries in Italy (p31) and John Ferguson on critical illness experience in Asia (p22). Primarily, though, we are an actuarial magazine, and I do not intend to neglect technical actuarial content. This month, for example, we have Andrew Smith writing about Markov chain Monte Carlo (p28). As always, please write in and tell us what you think of the magazine – or even better, write an article. Enjoy the issue and have a wonderful 2020.

DAN GEORGESCU EDITOR editor@theactuary.com

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J O H N TAY LO R

The Great Risk Transfer

ost actuaries work in industries and organisations that help to protect people against various risks. But will this continue to be true in an age of freedom, choice and individualism? As we enter a new decade, the IFoA is taking stock of the previous decades’ significant shift of actuarial risk from institutions to individuals. Where institutions such as employers, insurers and the state once offered guarantees that protected individuals from longevity and investment risk, these appetites have reduced. As a result, individuals are directly exposed to more actuarial risk than before. We are calling this ‘The Great Risk Transfer’. From one perspective, these choices can be seen as liberating. They give people the freedom to manage their affairs in whatever way they decide. Indeed, this was promoted as a key benefit of the UK government’s ‘freedom and choice’ initiative. The downside, of course, is that it can be difficult for individuals to manage these risks. Mechanisms that enabled ‘pooling’ of risk might no longer be available to individuals, and individuals may lack the expertise to make good decisions. Even as an actuary, I’m acutely aware of how difficult it will be to manage longevity

risk in my retirement, when that could last anywhere between ﬁve and 35 years. (Coming from an area of Scotland with notoriously low life expectancy, maybe I needn’t concern myself too much!) More generally, people’s numeracy, ﬁnancial literacy and understanding of risk is low, and some social groups are better equipped to deal with the risks than others.

programmes, the increasingly granular pricing structures of general insurance, and the prevalence of non-advised decisionmaking among investment customers. On 31 January we launched a call for evidence, open to actuaries and other experts from around the world. We want to gather as much evidence as possible from your experience in your area of work, country or region. We want to understand what is causing the problem, as well as which groups within society are aﬀected and how. We are also interested to learn whether this trend exists on a global scale and, if so, how it diﬀers from the UK experience. Crucially, though, we’re looking for solutions to how the problem can be overcome, and whether there are any barriers to doing so. The aim of this campaign is to gather evidence, convene debates and ultimately engage with policymakers about the innovative ways support can be provided to those who need it most in an increasingly risky world. Find out more about The Great Risk Transfer campaign at bit.ly/37iCmX3

“The institutions that have access to risk expertise are passing risk to a less capable group – individuals”

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This means that some groups, particularly those who are traditionally vulnerable, are disproportionately aﬀected by this trend. This is one of the ironies of The Great Risk Transfer. The institutions that have access to risk expertise are passing risk to a less capable group – individuals. While it’s understandable that institutions want to reduce their exposures, the consequences for individuals can be challenging. So, this year we are launching a thought leadership campaign, The Great Risk Transfer. We’ll be looking at how this trend is manifested in the areas in which actuaries work: the shift from DB to DC pensions, the UK’s burgeoning ‘freedom and choice’ pensions agenda, global health insurance

JOHN TAYLOR is the president of the Institute and Faculty of Actuaries JANUARY/FEBRUARY AUTUMN 2017 2020 | THE ACTUARY | 5

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Upfront News

LIFELONG LEARNING

Proposed new CPD scheme: consultation open We are consulting on a proposed new continuing professional development (CPD) scheme, which is intended to make IFoA requirements easier to fulﬁl and return the focus of CPD to meaningful professional development and learning. The proposals have been produced in response to member feedback on the existing CPD scheme. The simpliﬁed requirements place the same obligations on all members, regardless of membership category (with an exemption for non-practising members and students). Under the proposed scheme, a greater range of activities will count towards the hours-based requirement, allowing members to participate in more varied opportunities, learning about subjects relevant to their current or future role.

Recording and evidencing activities will no longer be required, and non-compliance won’t lead to disciplinary action (except in cases where the Actuaries’ Code has been breached). Instead, the IFoA will focus on supporting members’ professional development in a reﬂective practice discussion. Learning needs and the outcomes of activities will be talked over, and suggestions made as to how members might continue to progress. The proposed new CPD scheme is intended to make CPD a beneﬁt of IFoA membership, a method by which the IFoA helps its members to remain relevant in this ever-evolving, dynamic industry. Review the proposals and share your thoughts before 17 April: www.actuaries.org. uk/cpd-scheme-review-2020

IN BRIEF... Diversity of experience: beneﬁting from role models Members of the IFoA can be inspired by, and gain so much from, each other: mutual support, powerful collaborations, and new and even disruptive thinking. The IFoA wants to celebrate role models within the profession. Actuaries at all stages in their careers have shared their thoughts and experiences to help and inspire others. Discover some of the ways you can learn from them at bit.ly/36woVm1

LIFELONG LEARNING

Benefiting from our CPD co-ordinators’ briefing 2019 Our CPD co-ordinator’s briefing was held on 7 November and attended by representatives from more than 60 employers of our members. It involved presentations on a range of topics, under the theme ‘Lifelong Learning – providing continuous development for our members’, and included a welcome by IFoA president John Taylor. Topics covered an update on the plans for the 2020/2021 CPD Scheme review, a presentation by Dr Helen Wright, chair of the IFoA Lifelong Learning Board, on strategic direction and adapting to your professional needs, and an update about the new Professional Skills Training resources. The presentations were filmed, and the materials are available for members to access on the IFoA website. Log in and you can access them within the CPD co-ordinators’ annual briefing section of the virtual learning environment (bit.ly/2ZZv4ET). CPD can be claimed directly when viewing these presentations. You may also like to use the material to run a group session for colleagues or peers. CPD co-ordinators play a key role in engagement between the IFoA and organisations that employ our members. They receive updates, key information and opportunities, which they share with colleagues. The IFoA maintains a database of all co-ordinators. Not all organisations are represented yet; if you would like to check whether yours is, or to volunteer to act as a co-ordinator for your organisation, contact Debbie Atkins, head of engagement, at debbie.atkins@actuaries.org.uk Find out what others say about the benefits of our CPD Co-ordinators’ Briefing and the benefits of becoming a CPD co-ordinator at bit.ly/2m2zxDI 6 | THE ACTUARY | JANUARY / FEBRUARY 2020

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Annual Report of the Practising Certificates Committee The Annual Report of the Practising Certificates Committee is now available on the IFoA website at bit.ly/2MYbeV9 The report provides an update on the annual review of the Practising Certificates Scheme and includes current statistics and further suggestions for applicants to help their applications go smoothly. The report should be of particular interest to Practising Certificate (PC) holders, and those who plan to become PC holders. Please direct any queries on the report to practising. certs@actuaries.org.uk www.theactuary.com

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Upfront News

PRESIDENTIAL VISIT TO CHINA

Connections with members and stakeholders From 4 December to 12 December 2019, IFoA president-elect Tan Suee Chieh visited Hong Kong, Shenzhen, Shanghai and Beijing. This was Mr Tan’s ﬁrst visit to China in his current role. The IFoA delegation met with various stakeholders, including Ping An Insurance Group, Taiping Life, China Reinsurance, the China Association of Actuaries and the Insurance Asset Management Association of China. At the member events in Beijing and Shanghai, Mr Tan presented awards to new qualiﬁers, volunteers and Sir Edward Johnston Prize

winners. The IFoA and Sunshine Insurance Group jointly hosted the Beijing member event on 12 December 2019. Mr Tan and Jihai Peng, vice president and CFO of Sunshine, co-presented the Sunshine Insurance Scholarships to the top actuarial

student members from the Central University of Finance and Economics and the University of International Business and Economics. The IFoA also held university events at Fudan University in Shanghai and the Central University of Finance and Economics in Beijing, with more than 200 students attending. At Fudan, Mr Tan signed the accreditation agreement on behalf of the IFoA with Fudan University. Fudan is the ﬁrst top multidisciplinary university to be accredited in mainland China. The nine-day visit gave the IFoA’s president-elect and executives an opportunity to engage with stakeholders. To read more information in Mandarin, please visit the IFoA Oﬃcial WeChat at bit.ly/2QSjjfg

Strategic Partner:

IFoA Asia Conference 2020 24–25 June, CCEC Nexus, Kuala Lumpur

Join intellectual thought leaders, senior industry players, opinion formers, academics, actuaries and non-actuaries from across Asia and beyond at this landmark IFoA conference.

Guest of honour:

The Honourable Mr. Lim Guan Eng Finance Minister, Malaysia

bit.ly/asiaconference2020

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JANUARY / FEBRUARY 2020 | THE ACTUARY | 7

27/01/2020 10:46

Upfront News ACTUARIAL PROFESSION S TA N D A R D S

APS X2 – new materials published The IFoA has published a refreshed webpage on Actuarial Profession Standard (APS) X2: Review of Actuarial Work (bit.ly/2Tl25tC) to include a host of resource materials for members, including case studies, vignettes and an APS X2 quiz. The materials have been updated following the conclusion of a post-implementation review of APS X2, which looked at how the standard is working in practice and whether it is eﬀective and achieving its objectives. You can ﬁnd out more about the postimplementation review of APS X2 and access the full suite of materials by visiting the IFoA’s website, or by contacting the Regulation Team at regulation@actuaries.org.uk.

EVENTS AND CONFERENCES 24 02 20 Sessional: Impact of E-cigarettes Working Party R O YA L C O L L E G E O F P H Y S I C I A N S , 9 Q U E E N S T, E D I N B U R G H

This sessional meeting will be of direct interest to actuaries and others working in the health and care, life or pensions sectors, or actuaries with an interest in morbidity or mortality.

12 03 20 Data science – How actuaries can optimise usage of data science techniques within their sectors S TA P L E I N N , LO N D O N

APS X4 – Social Security Programmes Actuarial Profession Standard X4 (APS X4) was published on 27 November, along with the feedback paper to the consultation. The standard will take eﬀect on 27 February 2020. APS X4 applies to members carrying out actuarial work in the ﬁnancial analysis of social security programmes outside of the UK Geographic Scope. Members carrying out such work within the UK Geographic Scope must apply the Financial Reporting Council’s Actuarial Statement of Recommended Practice 1 (ASORP 1). APS X4 is available at bit.ly/3aC1OsA ASORP 1 is available at bit.ly/37iPQlG

Consultation on new APS X5 The IFoA is consulting on proposals to withdraw GN30: Compensation for Professional Shortcomings (bit.ly/37IyYV1) and replace it with a new APS implementing broadly the same requirements (bit.ly/2RkEk3y). The proposed APS X5: Compensation for Professional Shortcomings requires members who are principals in organisations that provide actuarial services to external clients to ensure that appropriate arrangements are in place in relation to compensation for loss caused by professional shortcomings. The proposed APS is not designed to impose new obligations on members; rather, it aims to provide clariﬁcation on current requirements and provide consistency. The proposal includes non-mandatory guidance to support APS X5, designed to help members meet their obligations. The consultation will close on 17 February 2020. The consultation package can be found on the IFoA’s website. 8 | THE ACTUARY | JANUARY / FEBRUARY 2020

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This is a working event for delegates to share progress and exchange knowledge about what data science techniques mean for the profession and, most importantly, what we can and should be doing to engage with data science as actuarial professionals.

19 03 20 Board agenda: Why responsible investing, ESG, and climate change matters to pension fund companies

these issues matter and why they have become more relevant in recent years. It will also discuss what this means for NEDs and actuaries when it comes to exercising their responsibilities.

25 03 20 Spring Lecture 2020, Edinburgh – Vicky Pryce A S S E M B LY R O O M S 5 4 G E O R G E S T, E D I N B U R G H

Please join us in Edinburgh for our annual Spring Lecture, presented by Vicky Pryce. Vicky is chief economic adviser and a board member at the Centre for Economics and Business Research, and will present her lecture on ‘What next in economic policy?’

View all of our workshops, seminars, webinars, events, and conferences at www. actuaries.org.uk/event

S TA P L E I N N , LO N D O N

This timely event aims to explain why

QAS

Zamara receives QAS accreditation Congratulations to our most recently accredited organisation, Zamara Actuaries, Administrators & Consultants Limited (Actuarial Division). This is the first accreditation to be awarded in Africa. See below for what the QAS accreditation means to the organisation. “The QAS accreditation represents a huge milestone in our business and reaffirms our commitment to the highest standards of quality in our work. We are immensely proud to be the first actuarial firm in Africa to be accredited. Our clients, employees and regulators can take comfort in knowing that our actuarial division has been independently reviewed and confirmed to comply with our quality standards which uphold best international practices.” – Adil Suleman, head of Zamara Actuaries, Administrators & Consultants Limited (Actuarial Division) For more information about the Quality Assurance Scheme, please contact the QAS team at qas@actuaries.org.uk

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Upfront News

I F O A S T R AT E G Y

Council update

IMAGES: ISTOCK

Council held its second meeting of the 2019/20 sessional year in London on 29 November. The afternoon prior, Council members met to discuss the progress made since our meeting in September towards developing a new strategic direction for the IFoA, focusing on two key areas: The development of our pre-qualification (Associateship) and advanced (Fellowship) curricula, to ensure that these curricula appropriately reflect the evolving profession and market demand Defining the direction in which our international strategy should evolve, and understanding both the requirements and implications of those choices. At our regular meeting, we agreed how each of these strategic imperatives should be taken forward, and how they will take shape in the form of a final Strategic Plan, to be approved at our next formal meeting (5 March 2020) and shared with the membership soon thereafter. On the subject of our Associateship qualification, we looked at a proposal to modernise the assessment and marking of our Associate examinations. This work, which will be led by our Lifelong Learning Board and overseen by our Management Board in the coming months, aims to improve the efficiency of these processes and, in doing so, allow us to refocus resources on the development of our educational and lifelong learning offerings in line with our strategic imperatives. We held our annual review of our Regulation Board, which centred on: the Board’s work towards delivering its outputs as defined in the current regulatory strategy; its current priorities, challenges, and opportunities; and its engagement with www.theactuary.com

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the strategic priorities set by Council. The review covered a number of important topics, including: the Kingman Review and the future of UK actuarial regulation arrangements; the IFoA’s international regulatory strategy; the ongoing review of our Continuous Professional Development Scheme; and the role of regulation in supporting and assisting members, including how we can better promote the value of being a regulated professional. We received an update on ongoing work towards developing a value proposition for our members. We also considered an update from the chair of our Management Board on the work that it has carried out in recent months, and approved the appointment of Trevor Spires, the lay chair of our Audit and Risk Committee, as a lay non-executive member of that Board. We approved two proposals to change our constitutional documents, which intend to help modernise the appeal of the IFoA and streamline its operations. Both of these proposals – broadening the scope of our Aﬃliate membership category, and simplifying the process for appointing Honorary Fellows of the IFoA – will require the approval of our members before they can be implemented. More information on each proposal will be shared with you soon, along with a third proposal (also recently approved) to change requirements around Council members’ tenure on Council. Our next regular meeting will take place on 5 March 2020, with an extraordinary meeting to elect the president-elect of Council for the 2020/21 sessional year taking place the afternoon before. The minutes of our meetings are available at bit.ly/2u1gmx9 and you can contact us at Presidents@Actuaries.org.uk

New IFoA CEO In January, the IFoA welcomed its new chief executive, Stephen Mann. Mann originally qualified as a lawyer, and has worked extensively with the actuarial community throughout a career in financial services. He has been a board director of the Aviva Life business, responsible for strategy, business services and major capital projects. More recently he served as chief executive officer at the Police Mutual Group. Mann has also been chair of Aviva’s With-Profits Committee and UK retail investment business, a non-executive director at ALICO UK and the independent member of the Audit and Risk Committee at The College of Policing. He is a Fellow of the Institute of Directors and the Pensions Management Institute, and a trustee of the Police Arboretum Memorial Trust. You can read a Q&A with Stephen Mann in the March issue of the magazine. JANUARY / FEBRUARY 2020 | THE ACTUARY | 9

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Upfront IFoA

AFTER THE BREAK How to manage a career hiatus and take advantage of the benefits it may bring for your future

n increasing number of us will undergo a career break at some point in our working lives. This can be for numerous reasons – from having children or caring for a family member, to unemployment or taking time oﬀ to travel, 10 | THE ACTUARY | JANUARY / FEBRUARY 2020

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pursue a personal goal or explore a new professional avenue. Whatever the reason or motivation, career breakers of all sorts face similar issues returning to work. Last December, the IFoA partnered with sector-specialist recruiter Ignata to host ‘Your actuarial career: Managing career breaks’. This brought together a panel of experienced industry voices to address the

issues likely to be faced by those returning to work and the businesses hiring them. The event was chaired by Chika Aghadiuno, chair of the IFoA Diversity Advisory Group, with an introduction from Ignata Group CEO Luke Williams OBE. The discussion raised some fascinating insights and ﬁrsthand perspectives from the panel. Here we share some of the highlights. www.theactuary.com

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Rachel Vecht began her

Sarah Mathieson is the

career as a primary school teacher, and founded Educating Matters 18 years ago, during maternity leave. The mother of four is now a leading consultant and speaker, helping organisations become inclusive to the needs of parents.

IFoA’s head of research and knowledge. Over the course of her professional life to date, she has taken two career breaks – once to travel the world and then again for maternity leave. She has also returned to work after redundancy.

What kind of practices are employers putting in place to make the return to work more pleasant?

What are the practical considerations for actuaries while they’re on a break?

Informal mentoring – if you come back to work and are partnered with someone who has been through the same things, that can give you the support and conﬁdence you need. It’s also hugely valuable to set up internal networks for colleagues who share similar experiences. Finally, don’t forget to provide support and guidance for line managers. It’s not just the company’s culture or beneﬁts or policies in principle that matter, it’s how they’re expressed through the person you report to. How can a line manager understand what it is to have an autistic child or care for an elderly relative? Employers need to give them the tools to be able to have those inclusive conversations.

Your membership of the IFoA – make sure that your contact details are kept up to date on your proﬁle. There are also subscription fees and CPD to consider. The IFoA has reduced-rate subscriptions for people below a certain income level and there are full or partial CPD exemptions available depending on your circumstances, so be sure to check the IFoA website. There’s a helpful page on career breaks covering the practical and regulatory aspects.

ILLUSTRATION: WWW.FREEPIK.COM

What are the beneﬁts for employers? When someone’s given an opportunity to come back into the business through, say, a returnship programme, they show incredible loyalty. I’ve spoken to many people who’ve turned down headhunters and pay rises as a result of the empathy and understanding shown by their employer. www.theactuary.com

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How can you maintain up-to-date knowledge while you’re away from the profession? While I was on maternity leave, I used my ‘Keeping in Touch’ days to keep up a couple of my positions on various boards and committees to maintain my professional networks. Volunteering for the IFoA is another way to maintain your network, as well as giving you an opportunity to learn new skills. There are case studies on the IFoA website that demonstrate how people have used volunteering to help them get back into work.

Emily McGuire is an investment consultant, a partner at Aon and a mother of two. She has been instrumental in pioneering a ‘returnship’ programme for recruitment – designed to help career breakers of all kinds reintegrate into the workplace. What is a returnship? A returnship is a tailored programme that helps you regain the experience and conﬁdence you need to get back to work – like an an internship, or an extended on-boarding process.

Lee Faulkner is a ﬁnancial wellbeing actuary at First Actuarial and an IFoA council member. Since starting his actuarial career in pensions in the mid-1980s, he has worked in Spain, Mexico, Argentina and Hong Kong, and also took a ﬁve-year break from the actuarial profession while he ran his own online education business.

What advice would you give someone planning a career break?

How can organisations help career breakers get that confidence back? I found that a lot of people in the investment industry didn’t feel that they could be a parent and have a career at the same time. Things have moved on massively during the past few years in terms of flexible working and the technology that makes that possible, but we need to talk about it more. It’s the culture within organisations that really makes a difference. For instance, it’s key for people who have taken shared parental leave to be visible. If you can’t see examples within an organisation, it’s very difficult for the culture to change.

Consider what you will gain from the break and how you’ll communicate that to an interviewer after you return. What did you learn? How could you apply it? The response to me moving in my career has generally been positive.

What kind of issues have you encountered during the hiring process? Actuaries may not be very good at appreciating skill sets that they themselves don’t have, and can view other experiences as inferior or ‘ﬂaky’. This leads to mirror-image recruiting, and is dangerous for the survival of our profession. It can be diﬃcult to combat such short-term thinking, which typically values recent technical experience more highly than wider, less conventional skill sets.

IGNATA A sector specialist recruiter, Ignata believes the profession needs to be more agile to change, meaning those responsible for hiring need to be open to diversity of thought. Ignata has a strong commitment to promoting diversity and inclusion and, through its partnership with the IFoA, is working to break down preconceived thought and bias within hiring processes. ignata.com

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Upfront News

CONNECT the dots The Financial Systems Thinking Innovation Centre, or FinSTIC, launches this month. But what is systems thinking, and how can it help actuaries? Ashok Gupta explains

ne dark night, a policeman finds a drunk on his knees searching for his keys under a lamppost. The drunk explains that he lost the keys on the other side of the street, but is searching under the lamppost because “that’s where the light is”. We all operate in silos – whether that’s a department, a business or an industry sector. Inside our silo, the light is bright and we have good visibility. Outside the silo, it’s darker, and visibility is poor – so it is easier to find solutions and identify risks inside our own silo than it is to find those from outside.

However, our silos do not operate in isolation. They form part of a network, connected to other organisations, suppliers, customers and governmental bodies, such as regulators. In an increasingly connected world, understanding the linkages between our silo and others is essential if we are to manage exogenous risks, develop sustainable organisations and products, and implement effective policy solutions. Organisations operate in a complex, crowded, integrated and rapidly changing world, resulting in many emerging risks, some difficult to mitigate and others difficult to spot. Consequently, it is easier for us to look for solutions within our own silos –

but are we searching for our keys on the wrong side of the street? Systems thinking may help.

What is systems thinking? Donella Meadows, for many the doyenne of systems thinking, deﬁned a system as “an interconnected set of elements coherently organised in a way that achieves something”. It comprises those elements, interconnections and a function (or purpose). A company is a system; so is a tree, a factory or an economy. However, our world consists of systems embedded within other systems. While a company is itself a system, it also resides within an industry system, which in turn resides

Podcasts Listen to FinSTIC podcasts covering a broad range of topics around systems thinking. Learn about how systems thinking has been applied by Chika Aghadiuno and Neil Cantle to implement a new emerging process at Aviva, and how Professor Doyne Farmer at iNET has used agent-based modelling to assess the impact of Solvency II on catastrophe insurance.

“Systems thinking is an important part of the 21st century actuarial toolkit. We believe it oﬀers a fresh perspective on traditional actuarial challenges that lets us engage constructively with the increasing complexity we see around us, rather than see it as a barrier to achieving our goals” www.theactuary.com

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Upfront News

within a national economic system. Systems thinking is a holistic, multidisciplinary approach to analysing systems, focusing on the way elements interrelate and how systems work over time within the context of larger systems. It can be used to analyse a business or a sector, such as insurance, investment, wealth management or pensions. By focusing upon the interrelationships, you can gain insights.

How can we use systems thinking? The use of systems thinking in finance is still quite limited; regulatory bodies used it to try and understand what happened to international banking in the aftermath of the global financial crisis. It is increasingly being used to manage risk, create sustainable, resilient companies and develop policy. For example, policy solutions derived predominantly through political negotiation and compromise run the risk of failing to achieve the desired outcome, or of resulting in unintended consequences. One study reviewing pressures in the defined benefits pensions sector used systems thinking to identify that the principals (members and employers) have been largely disenfranchised, and that fees extracted by agents (fund managers, advisors, etc) are considerably in excess of the value provided. Levels of risk to scheme members can be concealed if investment and liability risks are not appropriately integrated with rapidly increasing levels of covenant risk. This study has led to pension scheme consolidation being adopted as government policy. While conducting a review of long-term investment by life insurers and pension funds, a senior civil servant commented: “Everyone within the system is acting in a completely rational way based on their mandates or objectives, but the system as a whole is not delivering what it should.” This is true of many of our financial systems. www.theactuary.com

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The insights provided through the application of systems analysis can lead to profound, beneficial solutions. However, given that systems evolve over many years, often in an amorphous way, those seeking ‘silver bullet’ solutions may be disappointed. The IFoA has set up FinSTIC to promote the development of systems thinking work within the financial sector. A significant number of actuaries are already applying systems thinking in their existing work; FinSTIC will act as a forum where they can share thinking, promote their work and network with likeminded practitioners. Given that systems analysis is inherently multidisciplinary, FinSTIC will be open to non-actuaries and will link with academics, businesses, regulatory and other non-profit organisations that are interested in producing more effective financial systems. In this way we can work with and learn from other professionals, and generate more opportunity for actuaries to apply their analytical skills and judgment. It will also act as a source of learning for actuaries new to systems thinking. I would encourage people to get involved. You can sign up (via LinkedIn), engage and contribute. If you are aware of a piece of systems work or application, you can write a case study or support a blog. If you have something of particular interest and want to record a podcast, come and talk to us. Through their analytical skills and multidisciplinary training, actuaries can develop appropriate interventions and help ensure financial systems operate effectively. There are ASHOK GUPTA significant is chair of FinSTIC career opportunities for actuaries to get involved in this – tell your friends and colleagues.

FINANCIAL SYSTEMS THINKING INNOVATION CENTRE What is systems thinking? Systems thinking is a holistic multidisciplinary approach to understanding systems, focusing on the links between components in a system. When we understand agent-agent and agent-principle dynamics and their potential impacts on stocks and ﬂows, we gain insights into the resilience of systems and how they can be made more eﬀective.

Who is FinSTIC for? The Resource and Environment Board wants actuaries to take the lead in adopting systems thinking approaches, becoming professional advisers with greater awareness of the systemic impacts of their work, and of the impact of system dynamics on their clients and employers. FinSTIC was established to aid this.

What is the aim? To discuss, debate and collaborate on the application of systems thinking To connect and work with other partner organisations to further understanding of this important ﬁeld To discover more information and resources on the subject of systems thinking.

What are the goals? To provide a community that enables participation, collaboration, discussion and debate between systems thinking practitioners and those interested in the ﬁeld To identify, support and collaborate on projects that address common shared defects within and of the ﬁnancial sector To identify partner organisations with whom members of FinSTIC can collaborate and engage, to further our systems thinking knowledge and practice To enable members of the community to participate in the future evolution of FinSTIC, suggesting projects and collaborating on key activities

More information and resources For further information and details on podcasts, case studies, blogs and further reading, visit bit.ly/35R9IL5 JANUARY / FEBRUARY 2020 | THE ACTUARY | 13

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PHOTOS: RICHARD GLEED

Features Interview

Dan Georgescu talks to Craig Turnbull about his career so far, including lessons for the future that can be drawn from the study of actuarial history 14 | THE ACTUARY | JANUARY / FEBRUARY 2020

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Features Interview

raig Turnbull has held senior industry positions in global consulting, software and asset management businesses, and has particular interest and experience in risk, capital, valuation and investment. He is the author of the 2017 book A History of British Actuarial Thought. I meet him in London, where we discuss changes to the actuarial profession, lessons to be learned from its history, and how we should embrace the challenges on the horizon.

An actuarial career Turnbull originally planned to pursue a scientific career, but changed his mind as a teenager – in part due to an awareness that scientific theories never seemed to last forever; he didn’t want to learn about things that were going to turn out to be wrong. With hindsight, he now recognises that this is exactly what might have made such a career deeply interesting, and that this is even truer of actuarial thinking over time. In any case, he is pleased to be working in “a profession of learned experts”. Turnbull went on to study mathematics, statistics and finance at university. He believes his skills lie in being able to understand the actuarial problem in front of him and identify the mathematical solution that has a reasonable prospect of solving it. He is modest about his career achievements, noting that “most of the first 20 years of professional life should probably be considered an apprenticeship”. He spent 15 of those years at Barrie & Hibbert, and reflects on the range of experiences he benefited from during that period. When Turnbull joined, it was a small company employing four other people, but eventually became a global leader in its field. This gave Turnbull the opportunity to work closely with talented senior people early in his career, to experience living overseas for a period, and to be part of the process of growing a business and selling it on to new owners (Moody’s). Turnbull now spends his time running a consultancy business and researching his own interests. Part of this research is making its way into a planned second book about the lessons actuarial work can draw

JANUARY JANUAR JAN UARY UAR Y //FEBRUARY FEBRUA FEB RUARY RUA RY 202 20200 | THE AC ACTUA ACTUARY TUARY TUA RY | 15

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“Transparency is going to be key to maintaining public trust in the actuarial profession in the future”

from the philosophy of science. He also volunteers for the profession, with his volunteer work including chairing the IFoA’s Equity Release Mortgages Working Party.

Learning from the past Researching A History of British Actuarial Thought gave Turnbull an appreciation of the lessons that can be learned from our past. “A lot of actuarial work deals with the long term,” he says. “It is easy to underestimate how different the long term will be to today. An awareness of history helps mitigate that natural human failing.” He adds that the history of the actuarial world is full of very smart people, and that many of their insights are timeless. When asked for the key lesson he drew from his research, he quips: “Most good ideas are simple and old!” An example of this might be found in the topical area of asset illiquidity premia. One might have previously assumed that the actuarial argument for investing the assets backing illiquid liabilities in illiquid assets so as to access illiquidity premia was a fairly contemporary idea. However, it is expressed, fully formed, in Arthur Bailey’s 1862 paper in the Journal of the Institute of Actuaries, ‘On the Principles on which the Funds of Life Assurance Societies should be Invested’. Reflecting on the changes to the industry since he started out, Turnbull identifies four key themes that are shaping the profession today:

Option pricing models Should option pricing models such as Black-Scholes be used, even when some of the assumptions behind them do not hold for assets which are not traded? Turnbull notes that assumptions of ideal conditions do not really hold for any asset, so what we are really talking about is a difference in degree, rather than a difference in kind. Ultimately, good models can provide powerful insight. Options appear all over the financial landscape, and the Black-Scholes option pricing framework is valuable for understanding the nature of those options. That also applies to the options embedded in illiquid assets, though of course we are departing further from the idealised conditions of the theory. “Does that mean the formula will deliver the right answer to us on a plate without us engaging our minds?” he asks. “Fortunately for us, it does not. The work of actuaries and other financial professionals is to explain the departures made from the solution to a theoretical problem, to make it applicable to the practical situation.”

Solvency II 1 Many of the traditional fields of actuarial application are in a state of managed decline, and so the interest in wider fields has naturally continued to grow during the past 20 years. 2 The low interest rate environment has profound implications for the financial management of actuarial financial institutions. 3 The digital and internet revolutions and the increasing availability of data provide actuaries with new tools to answer complex and interesting questions within the actuarial professional domain. At the same time, the technology may, in the longer term, presage the increasing commoditisation and de-professionalisation of some our activities. 4 Across society, a reduced willingness to trust professionals and their judgments has resulted in a drive to increase the objectivity of actuarial modelling and increase the explicit linkage of expert judgment to those models. New actuaries entering the profession will need to “understand the nature of these trends and embrace the implications and opportunities that they will give rise to in the coming decades”. He also advises them to “be prepared to take risks that will allow you to do what you are good at”. 16 | THE ACTUARY | JANUARY / FEBRUARY 2020

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We turn to Solvency II, and whether it gets the principles of capital modelling right. Two of its key original aims included moving towards a market-consistent valuation balance sheet, and from a rules-based to a principles-based capital requirements assessment approach. In Turnbull’s opinion, neither of these objectives have quite been achieved to the extent that would have been hoped. This is possibly because policymakers’ appetite for those objectives has weakened since the global ﬁnancial crisis of 2007-8. If Turnbull could make one radical reform to Solvency II, it would be to change the internal model approval process so that, instead of approval from the regulator being required through a private submission process, the model would be made publicly available to such a level of detail that actuarial peers could form an informed view of whether the model and its assumptions were reasonable. This would alleviate the burden on the regulator, and help to circumvent the game of second-guessing what the regulator wants. In the past, this type of approach was sometimes referred to as ‘freedom with publicity’. As Turnbull says, “Transparency is going to be key to maintaining public trust in the actuarial profession in the future and to (internally and externally) assuring the quality of our expert judgments. We need to embrace it.” www.theactuary.com

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FREE YOUR MIND. FIND FRESH IDEAS. p17_ACT.JanFeb20.indd 17

Old thinking sticks with the tried and tested. Free thinking unlocks new horizons. Think value for money solutions. Think stability and agility, backed by an impartial partnership with a leading independent UK professional services consultancy. Itâ&#x20AC;&#x2122;s time. Set your business free.

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Features Investment

A CO-ORDINATED

EFFORT

What role could insurers play in the muchneeded transition to a low-carbon economy? Travis Elsum investigates

Last year was a watershed in the climate change narrative – the UK parliament declared a climate emergency, schoolchildren marched en masse and devastating wildfires raged across multiple countries. The enormity of the challenge we face, and the grave consequences of any failure to arrest it, sunk in. Global annual CO2 emissions need to halve by the end of this decade and then reach net-zero by 2050 in order to limit the increase in global average temperatures to 1.5°C. Conversely, though, emissions have increased by 4% since the Paris Agreement was struck in 2015 – and are showing no sign of falling. For every year of delay the bar is raised, with deeper net negative emissions required in the future. The climate change problem is so pervasive and complex that it will not be solved by one person or breakthrough technology. Halting it will require an almost complete rewiring of the global economy – a co-ordinated effort from governments, experts and organisations across sectors. Long-term investors such as insurers, pension funds and other financial companies have a major role to play. Their actions can influence whether sustainable technologies will supplant fossil fuels.

Supporting the transition to a low-carbon economy sits squarely within the corporate social responsibility of insurers and other financial companies. It is no longer enough to solely exist to create shareholder value – companies are increasingly expected to play a more beneficent role in society. Similarly, employees are less likely to connect with the traditional goals of churning out ever more widgets. They are searching for something more – to make a difference. Last year, the Business Roundtable released a statement on the purpose of a corporation (bit.ly/2GhLhMo) – signed by

ILLUSTRATION: IKONIMAGES

Reasons for supporting the transition

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Features Investment

almost 200 US companies – which commits to supporting a wider range of stakeholders and adopting sustainable practices. While a degree of scepticism is healthy, many insurers are already practising these principles. L&G’s CEO Nigel Wilson, for example, has championed and embedded inclusive capitalism, whereby shareholder value is generated through products, initiatives and investments that also have broader social and environmental benefits. There is another, perhaps more compelling reason to support the transition – the bottom line. Addressing climate change will drive unprecedented rates of change in the energy, transportation and food sectors, potentially stranding billions of pounds’ worth of assets. Insurers that do not engage will be poorly equipped to manage risks and seize opportunities. It is the equivalent of investing in Kodak film during the rise of the digital camera. Bank of England governor Mark Carney has been vocal in warning companies about the significant financial consequences of not paying heed to transition risks. Actuaries will play an essential role in helping insurers and other financial companies better understand these risks.

Engage and influence Insurers, pension funds and other financial companies own or manage trillions of pounds of assets. They can use these to engage with and influence companies on climate change. Forming coalitions can further increase their influence. The Climate Action 100+ group (bit.ly/2Pqy8WU) is a notable example, representing more than 370 investors with over US$35trn assets under management. The group aims to influence the largest corporate emitters to align with the objectives of the Paris Agreement. It has

their coverage of coal projects, while 35 insurers and reinsurers have adopted coal divestment policies. Swiss Re achieved the top score on restricting insurance and divestment. These initiatives appear to be having an eﬀect, or at least provoking a reaction, with Australian prime minister Scott Morrison – who, as Treasurer of Australia, brought a lump of coal into parliament – reportedly exploring ways to ban such practices. Wider divestment strategies are more complex. Divesting from emissionsintensive sectors can reduce the timezero emissions intensity of a portfolio, but may not recognise and support companies that plan to transition to a lowcarbon business model. Further, insurers and pension funds may be reluctant to tilt towards green investments due to concerns around impacts on tracking error and diversiﬁcation. Actuaries are well placed to help insurers and pension funds consider forward-looking climate-related factors in asset allocation decisions using scenario analysis.

“Insurers can support a smoother transition by investing in sustainable infrastructure, inﬂuencing heavy emitters and, if necessary, divesting”

How to support the transition Insurers can support a smoother transition by investing in sustainable infrastructure, influencing heavy emitters and, if necessary, divesting. They can also offer and promote new sustainable products. Direct investments Insurers can use their own assets to invest directly in sustainable infrastructure and technology. The lengthy investment horizons and typically stable payoff associated with these assets are well suited to long-term investors. Several insurers have set ambitious targets for sustainable investments. AXA is targeting €24bn of green investments by 2023, including infrastructure and real estate. Aviva has already invested £3bn in low-carbon infrastructure since 2015, exceeding its own target two years early. www.theactuary.com

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successfully co-filed a number of climatedriven shareholder resolutions. The level of climate change engagement varies significantly across the sector. An InfluenceMap report (bit.ly/35qxNJj) on asset managers found that Allianz, AXA, L&G and UBS led on climate engagement, while large US-based managers trailed. In particular, BlackRock voted against 89% of climate-driven resolutions. There may ultimately be a limit to the power of investors to influence heavy emitters, especially in the US. The US Securities and Exchange Commission set a precedent by granting ExxonMobil’s request to block a climate change-related shareholder resolution on the grounds that it amounted to micromanagement. Divestment Divesting or restricting services can be effective where engagement fails and for investments that are inherently incompatible with the Paris Agreement, such as new coal mines and coal-fired power stations. Divestment adversely impacts the valuations and funding costs of target companies. General insurers and reinsurers can further affect the viability of new projects through the restriction of cover. The 2019 Unfriend Coal scorecard found that reinsurers representing almost 50% of the market have either ended or limited

New products Demand for sustainable investments has driven a surge in the growth of investment funds that consider environmental, social and governance (ESG) factors. This is set to continue as campaigns such as Make My Money Matter (bit.ly/35sfB1I) encourage people to invest their pension sustainably. Investors’ ESG preferences are likely to become stronger and more nuanced over time, creating demand for a wider range of ESG funds. For example, some investors may opt for a portfolio aligned with the Paris Agreement, while others may seek to exclude fossil fuel investments altogether. Innovative solutions will also TRAVIS ELSUM be needed to help is group internal individuals ﬁnance model controller at and insure new Legal & General. zero-carbon technology at home. A wealth of opportunities will be available as insurers embrace this decisive decade. JANUARY/ FEBRUARY 2020 | THE ACTUARY | 19

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Features Health

Has the EU got it wrong on genetically modified and gene edited crops? Nigel Halford investigates

THE CROPS

he genetic modification of plants is not a new technology: the first genetically modified (GM) plant was reported in 1984, the first commercial GM variety (a tomato with improved shelf-life) was launched in 1994, and the first major GM commodity crops were in the field in 1996. ‘Genetically modified’ refers to a plant whose genome, comprising several tens of thousands of genes, has been changed by the artificial insertion of an additional gene or small number of genes. Moving single genes into a plant cannot be done via conventional breeding, and genetic modification also allows plant breeders to use genes from any source in nature – or even genes that have been made in a test tube. Since the mid-1990s, the use of GM crops by farmers around the world has risen rapidly, and by 2018 they were cultivated on more than 190m hectares, or about 12% of global crop land. Genetic modification is now a well-established technique in plant breeding, and GM crops have had an excellent safety record through a generation of consumption. GM cotton and soybean varieties have become so popular with farmers that approximately 80% of these crops are now GM. In contrast, the area of GM crop cultivation in the EU has hovered around the 100,000 hectare mark since the 1990s – a tiny fraction of the global total. That is not 20 | THE ACTUARY | JANUARY / FEBRUARY 2020

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to say that the EU does not use GM crops: in the ﬁrst 12 weeks of the 2018-2019 marketing year, for example, the EU imported more than 2.8m tonnes of soybeans, almost all supplied by countries that cultivate predominantly GM varieties. These soybeans would almost certainly have been used for animal feed; indeed, EU animal feed production has been heavily

dependent on imported GM crop products since the early 2000s.

How did we get into this situation?

The EU GM approval process is based on Food and Feed Regulation (EC) No 1829/2003 and Regulation (EU) No 503/2013, drawing on Directive (EC) No 2001/18, which defines a genetically modified organism (GMO) as an organism in which the genetic material has been altered in a way that does not occur naturally. The authorisation procedure comprises risk assessment by the European Food Safety Authority (EFSA)’s GMO Panel and risk management by the European Commission. Once EFSA has issued its opinion, the European Commission makes a draft decision that is then voted on by the Standing Committee on Plants, Animals, Food and Feed (PAFF). The representatives on PAFF are not scientists, and the qualified majority voting system means that

By 2018, GM crops were cultivated on more than 190m hectares of land worldwide

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ILLUSTRATION: ISTOCK

Features Health GENETIC MODIFICATION

Results in a plant that contains an additional gene in its genome; this gene can be sourced from anywhere in nature, or synthesised in a test tube. GM plants have been used commercially since 1994

CHEMICAL OR RADIATION MUTAGENESIS

Result in plants with tens of thousands of mutations induced at random positions in the genome. Thousands of seeds are treated and the resulting plants screened for useful traits. Used in plant breeding since the 1950s

GENE EDITING

Results in a plant with a single mutation in a target gene. The ﬁrst gene edited crop plant was approved for commercial use in Canada in 2014

proposals can be blocked relatively easily. As a result, only two GM crop varieties have been authorised for cultivation within the EU to date. The first is a GM maize (MON 810) that carries an insect-resistance trait, which was authorised in 1998 and has been cultivated ever since, predominantly in Spain. The second is the Amflora potato, which produces a type of starch that has improved performance in some industrial processes. Amflora was authorised for cultivation in 2010 but is no longer available because its maker has withdrawn from crop biotechnology in Europe. Meanwhile, new GM crop varieties are being developed elsewhere that benefit from herbicide tolerance, insect resistance, disease resistance, drought tolerance, improved shelf life, reduced bruising, better nutritional properties and storage characteristics, and even improved food safety. Many of these traits make the crop more resilient, less likely to fail, and less likely to suffer loss of value due to, for example, a late season weed infestation and contamination of the product with weed seeds. This means peace of mind for the farmer and the farmer’s insurer. The EU is lagging behind: no GM crops are being developed specifically for European conditions or the European market, while the agricultural biotech industry is focused on obtaining consent for import of more GM crop products into the EU (difficult but not impossible to obtain) rather than for cultivation within the EU (close to impossible to obtain). GM was not the last gene-related revolution to sweep through plant breeding. The next was gene (or genome) editing, which is already in full swing. Gene editing is an umbrella term for several techniques that make targeted changes (mutations) to an organism’s DNA. The best known of these techniques is CRISPR, but there are several others. In the simplest use of the technology, a gene is knocked out, although other more complex applications continue to be developed. It is different from GM in that, by www.theactuary.com

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the end of the process, a gene edited plant has a mutation in its DNA – but does not contain any additional genes. Mutagenesis is not novel: it occurs naturally, of course, and since the 1950s scientists have used chemical and radiation treatments to induce mutations in crop plants. The diﬀerence between these older techniques and gene editing is that tens of thousands of mutations are induced in each plant, and the mutations occur in random positions. Thousands of seeds are treated and the plants that result are screened for

CONCLUSIONS The ECJ ruling on gene edited crops cannot be allowed to be the basis of the EU’s or UK’s policy. If it is, there will be no investment in gene editing techniques for crop improvement, the competitiveness of the EU and UK plant breeding industry will fall even further behind, and there will be a loss of scientists who want to work with the latest techniques. My own team is using gene editing to reduce the potential for acrylamide, a carcinogenic processing contaminant, to form in wheat-based foods. This should be of interest to actuaries working in life and health ﬁelds. If the current regulatory situation prevails, it is highly unlikely that the products of that research could ever be brought to market. As we are already seeing with GM crops, therefore, the EU’s position is actually hampering eﬀorts to improve food safety. CRISPR and related gene editing tools are precise, easy-to-use techniques that will transform plant breeding and other sectors of the biomedical sciences. This will happen around the world regardless of what the EU and UK decide to do. The EU and UK should recognise that fact and work towards policy alignment with other countries, based on sound science.

useful changes. Varieties carrying mutations induced by chemical or radiation mutagenesis had been in use for decades when EU GMO regulations were being drawn up. They are clearly GMOs as deﬁned by Directive 2001/18, but were granted a ‘Mutagenesis Exemption’ (Annex IB of Directive 2001/18), meaning that they do not have to go through the GM risk assessment process before cultivation and marketing.

To exempt or not to exempt? There has been much debate within the EU over whether gene edited plants should be considered GM or not. This is the wrong question: gene edited plants are clearly GMOs according to the EU’s broad deﬁnition. The correct question is: should gene edited plants get the same exemption from the GM risk assessment process as plants produced by chemical or radiation mutagenesis? For scientists, the answer is yes, because making a single mutation in a target gene is clearly no riskier than introducing tens of thousands of random mutations. Unfortunately, in July 2018 the European Court of Justice (ECJ) came to a diﬀerent conclusion. The ECJ was issuing an opinion (Opinion Case C-528/16) on proceedings brought by Confédération Paysanne, a French farmers’ union, and others, who sought an annulment of the ‘Mutagenesis Exemption’. The judges rejected an annulment but stated that the exemption did not apply to organisms obtained by gene editing. The EU still has no formal policy on gene edited crops, and the ECJ judgment represents the legal position. In contrast, the US Department of Agriculture has stated PROFESSOR it will not regulate NIGEL gene edited crops at HALFORDORD all unless a plant pest is a principal is involved. The basic research scientist in application of editing the Plant Sciences to knock out a gene Department of will also be Rothamsted unregulated in Research Argentina, Brazil, Canada, Chile, Colombia, Australia, Israel and Japan, and many other countries are developing similar policies. JANUARY/ FEBRUARY 2020 | THE ACTUARY | 21

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Features Health

CRITICAL

John Ferguson looks at the critical illness experience in Asia and what insurance claims tell us about future trends in the area

en Re has been conducting surveys of critical illness for nearly 30 years. The first study looked at experience from 1990-1994 and analysed 4,600 claims. The most recent study, covering experience from 2012-2015, involved analysing more than 1.2m claims, reflecting the large growth in critical illness products in Asia. In total, 39 companies participated, from Hong Kong, Singapore, Malaysia and China. The survey focused mostly on traditional acceleration critical illness products – acceleration meaning that the benefit is paid either on death or on earlier diagnosis of a critical illness.

ILLUSTRATION: IKON IMAGES

ANALYSIS

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Sum assured

Figure 1 shows the average sum assured (denominated in US$ for comparison), by issue year.

Claim by disease type

Figure 3 shows the percentage of claims by disease for males, together with how each disease ranks in terms of frequency of claim. Note that that not all products cover the same causes.

FIGURE 1: Average sum assured (US$) by issue year FIGURE 3: Claim causes by market and disease type – males

80,000 70,000

CHINA

HONG KONG MALAYSIA SINGAPORE

47.3% 1

56.9% 1

38.7% 1

45.2% 1

50,000

Cancer

16.1% 2

9.3% 3

19.1% 2

25.2% 2

40,000

Heart attack

0.1% 25

9.9% 2

2.0% 8

2.5% 7

30,000

Angioplasty and related procedures

6.2% 4

1.2% 9

8.5% 3

3.2% 5

20,000

Accidental death

11.6% 3

7.0% 4

7.7% 4

6.8% 3

10,000

Stroke Coronary artery bypass graft

2.2% 8

1.8% 6

4.8% 5

3.7% 4

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

60,000

Other serious artery disease

0.1% 27

2.6% 5

4.7% 6

3.1% 6

Chronic kidney failure

3.3% 5

1.8% 8

4.7% 6

1.9% 8

CHINA

Suicide

0.5% 16

1.8% 6

0.7% 11

0.8% 11

Sudden death

2.9% 6

0.4% 15

0.2% 25

0.2% 21

Possible suicide

2.3% 7

0.5% 12

1.4% 9

0.3% 16

Heart valve surgery

0.6% 14

1.0% 10

0.9% 10

1.2% 9

Sudden death – cardiac

1.1% 9

0.1% 24

0.6% 13

0.2% 20

Liver failure

0.9% 10

0.4% 13

0.7% 12

0.4% 15

Parkinson’s disease

0.1% 31

0.2% 22

0.3% 19

KEY:

HONG KONG

MALAYSIA

SINGAPORE

Even in developed Asian markets such as Singapore and Hong Kong, the average sum assured is not particularly large compared with regions such as the UK or Australia. It’s also worth noting that the average sum assured in China has increased six times in just 15 years, from a fraction under US$3,000 to just under US$18,000. One can also see a large increase in sum assured since 2011 in Hong Kong. Much of this can be attributed to cross-border sales – for example, people from mainland China may purchase cover in Hong Kong, where it is cheaper and the currency is freely convertible. 2

Claims declinature rates

Declinature rates are the proportion of claims submitted by customers that are rejected. Figure 2 looks at claims declinature rates by claim type and by market. Claims for major diseases are more likely to be rejected than death claims, but the highest declinature rate is for claims for minor diseases, such as pre-cancerous carcinoma in situ. We also found that declinature rates varied signiﬁcantly by company, and did not appear to relate to company size.

93.8%

93.4%

92.6%

94.0%

TOP 20

98.4%

97.1%

97.6%

98.3%

We note that cancer is by far the most common claim cause, followed by heart attack and heart-related procedures (such as angioplasty or coronary artery bypass surgery). Accidental death claims are significant in China and Malaysia but less so in Singapore and Hong Kong. We examined the accidental deaths in more detail and noted that the first and second policy years had significantly worse experience. Suicide would normally be excluded in the first one or two policy years, so it may be that these accidents are undetected suicides. We looked into accidental death claims where the cause may be associated with suicide, including ‘falling from a great height’, ‘accidental drowning’ and ‘gas poisoning’. Drilling down at this level for the Chinese market data seemed to suggest that many of these extra accidental deaths could be due to suicide. FIGURE 4: Claim causes by market and disease type – females

CHINA FIGURE 2: Claim declinature rates by market and type of claim 40%

30%

20%

1.1% 10

TOP 10

HONG KONG MALAYSIA SINGAPORE

Cancer

73.6% 1

83.4% 1

79.0% 1

82.9% 1

Stroke

7.7% 2

3.4% 2

5.3% 2

4.9% 2

Chronic kidney failure

2.4% 5

0.8% 8

3.4% 3

1.8% 4

Heart attack

4.9% 3

1.1% 6

2.7% 4

3.5% 3

CIS of breast

0.1% 24

2.0% 3

0.0% 61

0.0% 31

Accidental death

2.5% 4

0.5% 9

2.6% 5

1.0% 5

CIS of cervix

0.2% 17

1.8% 4

0.0% 61

0.0% 48

Angioplasty and related procedures

0.0% 36

1.4% 5

0.5% 7

0.4% 12

Coronary artery bypass graft

0.9% 8

0.1% 21

0.8% 6

0.3% 13

Heart valve surgery

0.7% 9

0.4% 11

0.4% 10

0.6% 6

Sudden death

1.1% 6

0.0% 49

0.0% 39

0.0% 48

Other serious artery disease

0.0% 39

0.3% 14

0.5% 7

0.4% 11

Possible suicide

0.9% 7

0.1% 23

0.4% 11

0.1% 17

Parkinson’s disease

0.1% 29

0.1% 25

0.3% 14

0.6% 7

Suicide

0.5% 11

1.0% 7

0.2% 17

0.5% 10

10%

0 CHINA KEY:

DEATH CLAIM

HONG KONG MAJOR DISEASE CLAIM

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22-24 critical illness_The Actuary JANFEB 2020_The Actuary 23

SINGAPORE

TOP 10

95.3%

95.9%

95.6%

96.8%

MINOR DISEASE CLAIM

TOP 20

98.4%

98.2%

98.1%

99.0%

JANUARY / FEBRUARY 2020 | THE ACTUARY | 23

27/01/2020 10:52

Features Health

Claim causes for females (shown in Figure 4) are dominated by cancer in all four markets. The second most common claim cause, stroke, accounts for less than one tenth of claims. Claims from heart attack and heart-related diseases are less important than for males. This is partly because most exposure still comes from women under the age of 50. We would expect to see more claims from these causes over time as the insured female population ages. 4

Female cancer claims

We looked at a breakdown of female cancer claims in more detail (Figure 5), since this is the dominant claim reason. FIGURE 5: Cancer claims by sites for diﬀerent markets – females 100% 90% 80% 70%

since thyroid cancer is not a particularly common cancer elsewhere. Figure 6 (below left) shows the large increase in female thyroid cancer during the past decade in China. This was also seen in Korea a few years previously (not shown in the figure). The cause does not appear to be related to diet, lifestyle or any particular genetic factors, and the increase may actually be due to improved diagnostic technology in China, where screening can be included as an employment benefit. Studies show that thyroid cancer, in particular papillary carcinoma of the thyroid, could have a 10-30% prevalence in the Asian population, even at younger adult ages. However, the great majority of these will not have any symptoms, as the cancer remains small and slow-growing, and may even disappear. A sufferer could live to an old age and die of other causes, never knowing that they had thyroid cancer. Since the standardised disease definition used in China currently does not exclude the very small papillary carcinomas, improved diagnosis has driven the increase in thyroid cancer claims.

60%

5 50% 40% 30% 20% 10% 0 CHINA KEY:

HONG KONG

NASOPHARYNGEAL

COLORECTAL BREAST

LYMPHOMA

SINGAPORE

OESOPHAGUS AND STOMACH

LIVER AND BILE

UTERUS

MALAYSIA

OVARY

PANCREAS

KIDNEY

MULTIPLE MYELOMA

LUNG

BRAIN

BONE

THYROID

LEUKAEMIA

Body mass index (BMI)

For the first time in this survey, we received information from companies that enabled us to calculate claim rates by BMI band (Figure 7). There is a clear upward trend, starting from the lowest BMI band. We also looked at the effect of BMI on different diseases. For cancer, the highest BMI band had incidence rates 50% higher than the lowest band. Differences were even more marked for cardiovascular diseases. For stroke, the highest BMI category was 170% higher than the lowest, while for heart attack the difference was around 300%. FIGURE 7: Age standardised claim rates (per thousand) by BMI

OTHER 7.00 6.00

Breast cancer is the most common type of cancer in each of the four markets, making up more than 40% of cancer claims. In China, thyroid cancer is the second most common cancer in females. This is surprising,

5.00 4.00 3.00 2.00

FIGURE 6: Trend in thyroid cancer claims rates (per thousand) for females

1.00

28-30

27-28

26-27

25-26

24-25

23-24

21-23

19-21

17-18

0.50

18-19

0.60

0.40 KEY:

0.30 0.20 0.10

KEY:

CHINA

HONG KONG

MALAYSIA

SINGAPORE

24 | THE ACTUARY | JANUARY / FEBRUARY 2020

22-24 critical illness_The Actuary JANFEB 2020_The Actuary 24

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

FEMALE

MALE

JOHN FERGUSON is life/health regional chief actuary, Shanghai at Gen Re. He would like to thank Dr Jianbo Xiang and Ryan Tian for managing the survey.

This article highlighted some of the findings from Gen Re’s 2012-2015 critical illness survey. While we have been able to show common trends and differences at a market level, there will be significant variation within each market, at a company level, which we did not have space to explore in this feature. www.theactuary.com

27/01/2020 10:52

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