Jumping up the equity ladder

Transcription

Actuary
Published in London by the Staple Inn Actuarial Society
The
www.the-actuary.org.uk
The magazine for The Actuarial Profession
Jan/Feb 2009
Jumping up the
equity ladder
Pension gearing strategies
for the next generation
Careers focus • Soft skills • Understanding liquidity • What now for Generation Y? • Latest jobs
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The
Actuary
Editorial
See page 5 for full details of the
editorial team
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Published by the Staple Inn
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forward in The Actuary.
January/February 2009
The root of all evil?
The New Year has started where the
old one left off — with economic
gloom and a general lack of confidence.
Considering the breadth of the crisis,
it is hard to believe that it stems from
excessive credit and the resulting
illiquidity hangover.
The Actuarial Profession’s Global
Financial Crisis Group is looking at the
impact of — and responses to — the
crisis, with some analysis of the effect on
credit spreads being included in this issue
(starting on page 38).
However, it is also important to look at the causes of the crisis and
the lessons that can be learned.
One contributory factor is the use of models in the construction
of complex asset-backed securities and in the running of financial
institutions. They have taken a good portion of the blame but how
culpable are they?
Anyone using the output from a model should understand what
the model is doing, the key assumptions and the range of results that
could be obtained by using other reasonable (or unreasonable) models
or inputs.
However, understanding is not enough. While modelling can be
used to give an indication of the level of risk being faced, it is vital to
recognise that it is only an indication, best used when combined with
subjective checks.
Models can be unreliable just when they are needed most,
particularly in the tails of distributions. This is also where correlation
can increase dramatically. A failure to appreciate this was responsible
for many of the headaches with asset-backed securities, but there
are wider regulatory implications — if a 1-in-200 year event happens
and all firms have the same business model, then all firms will be
similarly affected.
This suggests that while their misuse is behind much of the current
turmoil, models are not the root of all evil but, perhaps, the love of
models — to the exclusion of common sense — is.
Paul Sweeting
Guest editor
guesteditor@the-actuary.org.uk
© SIAS December 2008
All rights reserved
ISSN 0960-457X
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The
Actuary
Contents
Editorial advisory panel
Peter Tompkins (chairman),
John Batting, William Bennett,
Timothy Bramham, Chris Daykin,
Margaret de Valois, Matthew Edwards,
Nigel Hayes, Martin Lunnon,
Divyaa Mohan, Marjorie Ngwenya,
Claire Ritchie, Andrew Smith,
Chris Sutton, Paul Sweeting,
Matthew Wheatley
News
Editor
E editor@the-actuary.org.uk
10 Profession
Features editor
Tracey Brown
Lane Clark & Peacock LLP,
30 Old Burlington Street,
London W1S 3NN
T +44 (0)20 7432 3071
E features@the-actuary.org.uk
Deputy features editors
Jennifer May
Jean Eu
Adam Jorna
E features@the-actuary.org.uk
Industry news editor
Louisa Lobo
T +44 (0)7719 631 955
E news@the-actuary.org.uk
People/society news editor
Amy Guna
Grant Thornton UK
T +44 (0)7879 453 949
E social@the-actuary.org.uk
Student page editors
Jennifer May
E studentpage@the-actuary.org.uk
Jean Eu
RGA UK, IFC Level 40,
25 Old Broad Street,
London EC2N 1HQ
T +44 (0)20 7448 8255
E studentpage@the-actuary.org.uk
Arts page editors
Matthew Fewster
JPMorgan
125 London Wall
London EC24 5AJ
T +44 (0)20 7777 9707
E arts@the-actuary.org.uk
Finn Clawson
Hewitt Associates
6 More London Place
London SE1 2DA
T +44 (0)20 7939 4435
E arts@the-actuary.org.uk
Puzzles editor
Tom Bratcher
Watson Wyatt Worldwide,
Watson House, London Road,
Reigate, Surrey,
RH2 9PQ
E puzzles@the-actuary.org.uk
Circulation
18,724
(July 2007 to
June 2008)
p34
Daniel Clarke argues that young savers should gear up and
suggests how pension funds could help
Features
26 Career clinic
We put your questions to a special panel
28 The offshore actuary
Anup Kumar introduces the benefits of offshoring
29 Set to outperform
Philip Sturgess argues that the actuarial profession is
well placed to weather the economic storm
30 Effective networking
Will Kintish on how to make networking work for you
32 Polish your communication skills
Juliet Erickson shares her tips for effective communication
36 Staying power
Gary Squires considers how trustees manage covenant
assessment through changing economic times
38 What are your liquidity needs?
Paul Stanworth and Adrian Lawrence consider why
regulatory influences may affect liquidity
40 42 The value of liquidity
16 Education and research
18 Industry
22 People/Society
24 SIAS notices
25 Calendar and events
51 Appointments and moves
Comment
3Editorial
Guest editor, Paul Sweeting looks at the impact
of, and responses to, the credit crisis
6 Letters
In which actuaries discuss swearing, risk
sharing and childcaring
8 Soapbox
Gavin Shreeve looks at the professionalism of
the financial adviser market
45 Book review
Peter Tompkins reviews 100 years of State
Pension
Regulars
44 Student page
Points of view as merger discussions continue
45 Actuary of the Future
Varun Sood of HSBC, Life Insurance
Paul Fulcher and Colin Wilson discuss liquidity premiums in
the valuation of annuity business
46 Puzzles
What now for Generation Y?
48 Arts
Martin Cowie on the plight of a debt-addicted generation
Can you solve our prize puzzle?
Matt and Finn take a sterling trip
More content online
Writer of the month
Web exclusives this month:
David Dullaway is the editorial team’s
choice for this month for his article on
liquidity premiums (www.the-actuary.
org.uk/834591), and receives a £50
book token courtesy of SIAS.
n The benefits of the Financial Assistance Scheme
n Is the role of the liquidity premium overstated?
n The secrets of effective written communications
n How actuarial placements can help recruiters
n The uncertain scope of mortality research
Visit www.the-actuary.org.uk/issue
005_Actuary_0109_Contents.indd 5
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Letters
Your view
Letters to the editor
In which actuaries discuss swearing, risk sharing
and child caring
Letter of the month
Is a 99.5% solvency standard adequate?
The solvency capital requirement under the Solvency II Directive will be
calibrated at a 99.5% level of confidence that the firm’s assets remain
sufficient to meet its liabilities, over a one-year time horizon. Is this
standard strong enough?
Applying simple probability theory, a chance of 1-in-200 that the
firm will become insolvent each year translates into a 10% chance
that the firm will become insolvent at some point during the
first 21 years of the new regime. (This assumes that each year is
independent of other years, which may not be true in practice).
My own view is that this is much too high a chance of insolvency
within a relatively short period. Might it be better to use a 99.9%
level of confidence each year, which would give only a 2%
chance of insolvency during the same 21-year period?
Chris Lewin
30 November 2008
A genius in the making
A recent experience has given me enough
motivation to remain in the office until
11pm to finish the implementation of a
model we are working on… I hope you find
something in it too.
On a weekend break in Granada in the
South of Spain, I recently found myself
sharing a dorm with a London-based
banker. Having broken the ice with the
usual pleasantries about the weather I
braced myself for the inevitable question:
“So what do you do?” As an actuarial
student struggling my way through exams,
I find myself quite often explaining to new
acquaintances what the job is all about, how
it is that I call myself a student yet I work
full time as a ‘consultant’, and the fact that
actuarial science has nothing to do with
bio-chemistry or nuclear physics. Some get
the general idea, while most get their own
ideas. Expecting slightly different from a
banker, I mentioned that I am an actuarial
student and the reaction I got is one I have
never got before — a string of swear words
interspersed with “…right, so how does it
feel to be a genuis!?”
“I’m not a genius”, I protest.
“Yeah, sure — every <swears> actuary I
have met is a <more swears> genius! And there
are some where I work!”
Needless to say, it feels great to be part
of a profession that has such a reputation
6
006+007_Actuary_0109_Letters.ind6 6
among those who know about it — well, I
guess the job satisfaction makes up for the
lousy pay!
Kunj Behari Maheshwari
9 December 2008
Model predictions
I have read Solomon Green’s article “Look
closer” (The Actuary, September 2008),
Geoff Lindey’s letter “The right direction”
(The Actuary, November 2008) and
Michael Johnson’s letter “What future for
actuaries?” (The Actuary, December 2008).
I totally agree with them. As a matter of
fact, I gave a talk along a similar line to
the Actuarial Society of Hong Kong in
April earlier this year and another one to
the China Annual Actuarial Conference
in September.
There are many fundamental reasons as
to what caused this financial crisis: easy
credit, loose regulation, rating agencies.
However, from the technical perspective,
the use of unjustifiable assumptions
in financial modelling, particularly
the indiscriminate use of the normal
assumption, contributed significantly to
the magnitude of this crisis. One can argue
for the need to place certain restrictions
on the use of financial modelling. There
are two kinds of restrictions. The stronger
restriction says that we have no ground
to predict the future with the use of past
data, which amounts to extrapolation, a
technique notoriously known for being
unreliable. If we follow this restriction, all
modellers will go out of business.
The weaker restriction is that, apart
from the assumption that history will
repeat itself and we can use past data
to predict the future, all the other
assumptions we use must be valid and
justifiable. There are many well-known
tests (such as the Anderson-Darling test)
available to justify the use of certain
statistical distributions, particularly the
normal distribution. I would suggest that
the actuarial profession incorporates
these common tests in our education
programmes, and require the practitioners
to justify their modelling by first going
through these or other similar tests. This
is a true case of ‘garbage in, garbage out’.
I really hope the UK profession could lead
the world in making our actuarial work
more robust in this regard.
As an example, some highly
sophisticated mathematical modelling
may give the appearance that risks have
been managed to an almost non-existent
level, only to see the balance sheet crash
to the non-existent level simply because
the market suddenly refuses to follow the
model in use. What happened is perhaps a
1% event, but our wrong model identifies
it as a 0.00001% event. You can pick up
such examples everywhere.
Another example is the required use of
‘mark to model’ in our accounting. When
all the models in use make the same wrong
assumptions such as normal distribution, we
have a case of concentration of risks, which
is what happened in the real world in the
past months.
Peter Luk
14 December 2008
Merger madness
Merci et au revoir to Margaret de Valois. The
Actuary became more charming, amusing
and readable under her editorship.
I wonder what ideas the new editor may
come up with? Perhaps we will revert to
being called FIASCO? We certainly are doing
our best to justify the title with all this fuss
21/1/09 10:38:08
More letters online at www.the-actuary.org.uk/835539
Letters
Your view
Your letters
about the merger.
No doubt it is being done for some
very laudable, albeit self-absorbed and
introspective reasons, but the timing
is lousy.
Hot on the heels of the failure of company
pension schemes and Equitable Life, we have
a global liquidity crisis with financial services
firms uncertain around the risks they are
running. Don’t worry folks! We’re trying to
change our name! Perhaps it is the safest thing
to do in the circumstances?
None of this is news, so why the
rant? Well, it is because the profession
has badgered me by e-mail bombardment
to fill in a survey to tell them what
they already know. In the end, I gave
in and filled it in. Now please can I
have some peace?
If only Margaret could be persuaded to
take over the leadership of the profession,
she may save us from ourselves? I don’t
know what her views are on the merger, nor
indeed on the more pressing issue of the
courgette harvest. Can we be told?
Alan Higham
15 December 2008
What’s in a name?
Obviously the name should be ‘The
Faculty and Institute of Actuaries’. This
preserves the separate historical identities
in union.
Fellows of either body would then be
FFIA. Those who are fellows of both could
be FFIA FFIA.
James Nelson
22 November
Young pretender
When I opened my copy
of The Actuary this month,
my six-month old son
decided that he was desperate
to read it. Perhaps a little
young to sit the exams
yet, but a future actuary in
the making?
Becky Durran
2 December 2008
006+007_Actuary_0109_Letters.ind7 7
Shared risks
The Association of Consulting Actuaries has
believed for some time that better pension
provision for modest to average-paid
employees in the private sector would be
encouraged by changing the law to extend the
possibilities for sharing risks between scheme
members and the sponsoring employer.
During the debate on the 2008 Pensions
Bill, the ACA advocated the amendment
of defined benefit legislation to allow for
conditional indexation schemes — these
could have been made available quickly by
a brief amendment to the 2008 Pensions
Bill. Some medium to large employers with
final salary schemes might have decided to
implement conditional indexed benefits
for future service, rather than switching to
money purchase.
The amendment was simply a stepping
stone to the introduction of other new ways
of risk sharing, such as collective defined
contribution schemes, which required
further development and could be the
subject of future legislative changes. That
the government understood ACA’s wider
objectives was confirmed by the reference
in their consultation response to “the
Association of Consulting Actuaries, whose
tireless advocacy of conditionally indexed
schemes has been a significant factor in
lifting risk sharing up the agenda”.
While the ACA is disappointed that
the government’s response to the recent
risk sharing consultation indicated that
it has decided not to take forward
The editorial team welcomes readers’
letters but reserves the right to edit
them for publication. Please e-mail
us at letters@the-actuary.org.uk
The deadline for receiving letters
for the March issue is Monday
9 February
conditional indexation at the present
time, we will continue to work with
the government to develop other risk
sharing approaches. However, the ACA is
concerned that there appears to be a good
deal of complacency over taking action
to implement new risk sharing options.
Delay in acting and widening design
options can only be harmful in ensuring
quality pension schemes remain on offer
to private sector employees.
The extension of risk sharing options
remains a policy objective of HM
Opposition. The ACA has and will always
put forward its arguments on these
and other issues in non-party political
terms, and it is to be hoped that over the
period ahead a wider consensus can be
developed in support of these reforms.
Parliamentarians need to be convinced
that the best way of extending and
protecting quality private sector pensions
is through opening up new risk sharing
options, rather than by ‘hoping’ the
closure of existing defined benefit schemes
developed under current legislation
will cease.
The need and urgency
for the extension of risk
sharing have been made
even more apparent
by the recent financial
turmoil and the resulting
volatility in DC outcomes
that will follow and,
through the failure to act,
the widening gap between
the pensions being
offered to most public
sector employees as
opposed to those working
in the private sector.
Keith Barton
14 January 2009
7
21/1/09 10:38:33
Soapbox
Gavin Shreeve
Gavin Shreeve looks at the efforts being made to raise the standards
of excellence within the financial adviser market
The height of professionalism
T
he Financial Services Authority’s
(FSA) latest version of its retail
distribution review (RDR) has,
perhaps inevitably given the
strong vested interests involved, generated
considerable heat and column inches over
the vexed and ill-defined divide between
‘advice’ and ‘sales’.
However, no less important, and indeed
integral to this argument, is the issue
of professionalism and, therefore, the
reputation of practitioners at a time when
the esteem of the financial services sector
could not be much lower.
The FSA pulled together a group of
‘professional’ bodies to come up with a set
of proposals to be integrated into the RDR
on how to raise the reputational bar of the
financial adviser. Sales was parked for the
moment in the too-difficult tray.
It did not get off to an auspicious start.
It was accused of being a self-selecting
cabal of vested commercial interests and of
not representing the adviser community.
After several months of negotiation, the
group came up with a proposal to put in
place a structure that includes a standards
board and a code of ethics. Educational
achievement is to be raised a notch, and
advisers may possibly be allowed to add
a practising certificate — maybe even
more than one — to the plethora of
letters they can put next to their names,
simply by paying to belong to a variety
of professional bodies, a dubious practice
dubbed the ‘alphabet soup’.
The deeply cynical consumer cannot be
blamed for suspending judgment. For the
issue is that professionalism, that concept
of combining appropriate skills and
008_Actuary_0109_soapbox.indd 8
knowledge with integrity for the benefit
of the consumer, is not created through
layers of bureaucracy, codes, certificates
and titles. It is a reputation that is built up
over time and through example.
Nonetheless, we live in a world
where form is so often triumphant over
substance and so it was important to
are achieved. The argument is that this
minimum should be at Level 4 of the
Qualifications and Curriculum Authority’s
framework. This is fine, providing Level 4 is
a minimum and not an end in itself.
Continuing professional development
is to become compulsory but the
challenge will be to create a meaningful
ongoing learning
environment that
goes beyond simple
box-ticking.
This is easier said
than done, as most
other professions
where it is required
will note.
There is also a wish, by some, to
introduce practising certificates. They
are superfluous to requirements, a
superficial trapping and an unnecessary
cost, especially as the only ‘document’
of relevance to the adviser is the FSA’s
register of authorised practitioners.
A sensible compromise might be
to create an appropriate print-out or
certificate generated from the FSA’s own
register. That at least would have the merit
of being cheap and credible.
The consultation period will be
instructive, particularly with regard
to costs that, while addressed in the
document, have not been derived from
a full cost-benefit analysis. The real jury
in all this will be the consumer, and that
judgment will take a long time in coming
notwithstanding the new edifice.
» Continuing professional development
is to become compulsory but the
challenge will be to create a meaningful
ongoing learning environment that
goes beyond simple box-ticking
«
ensure that if such a structure was to be
put in place, it at least had to be seen to
have some credibility. That is, in as much
as it was possible, it had to be free of all
vested interests.
Statutory teeth
The ifs School of Finance was instrumental
in ensuring that the putative standards
board be independent. For any of this
to have a jot of acceptability, the main
driving force had to have statutory teeth
— which only the FSA can give it — and
its composition had to be made up of both
industry and non-industry specialists, with
the latter in the majority. The professional
bodies are to be excluded.
This new Independent Professional
Standards Board (IPSB) will, rightly, set the
agenda. It will come up with an appropriate
code of ethics and work with the Financial
Services Skills Council (FSSC) to ensure
certain minimum standards of education
Gavin Shreeve is the chief executive of the ifs School
of Finance
22/1/09 11:35:16
News
Profession
News in brief
Christmas parties to thank volunteers
The presidents held two parties in
December, hosted by Ronnie Bowie, one at
Maclaurin House and one at Staple Inn as
a thank you to all the members, staff and
others who had given up their own time to
benefit the Profession. About 150 attended
the two events.
Solvency II debate
Actuarial aspects of internal models for
Solvency II will be the subject of the
Institute sessional meeting on 23 February
at Staple Inn. The paper will set out a
vision of best practice for 2012 — the
year Solvency II is expected to go live.
The meeting is relevant for all actuaries
who plan to work on internal model
implementation for Solvency II, and for
actuaries working in firms that do not plan
to have an internal model. All companies
will have to provide an Own Risk and
Solvency Assessment (ORSA), and the
risk quantification techniques covered in
the paper should form part of the ORSA
process, and the overall risk management
framework of a company. The discussion
will cover life and non-life insurance, and
identify research areas for the profession.
There is no formal registration process for
this event. For more details, please contact
andrea.tsarbos@actuaries.org.uk
Longevity risk and annuity pricing
Longevity risk and annuity pricing within
the Lee-Carter model will be the subject of
this Faculty sessional meeting. Focussing on
the impact of mortality projections upon
financial calculations, the authors, Stephen
Richards and Iain Currie, will highlight
the need for awareness of model risk when
assessing longevity-related liabilities,
especially for annuities and pensions.
The meeting, on 16 February at the Royal
College of Physicians in Edinburgh, will
take the form of a presentation followed
by an open discussion. There is no formal
registration process for this event. Tea will
be served from 4.30pm, and the meeting
will be followed by a drinks reception. For
more details, please contact andrea.tsarbos@
actuaries.org.uk
10
010-014_Actuary_0109_Prof.indd 10
Institute of Actuaries
awards its highest honour
Institute fellow professor Phelim Boyle
was presented with the Institute’s highest
honour, a Gold Medal, at a ceremony in
December. It was the first time in a decade
that the award had been made.
Professor Boyle, based in Canada, received
the medal in recognition of the important
contribution he has made to actuarial science
over more than 30 years. It is only the 13th
Gold Medal that has been awarded since the
inception of the medals in 1919.
Professor Boyle gained an international
reputation for his pioneering work on
options. In 1977, he published one of the
most important financial papers on the
topic, which introduced a pricing method
that is still widely used today. More
recently, he has improved this method
by showing how quasi-random numbers
can outperform random numbers for an
important class of financial problems. He
was also co-inventor of the Asian option.
Professor
Boyle
has held
educational
posts
around the
world and
published
extensively,
contributing
Phelim Boyle, right, receives his
almost
award from Institute president,
100 papers
Nigel Masters
to both
actuarial
and finance journals. He currently holds
the position of professor of finance at
Wilfrid Laurier University in Canada. His
sustained work on the fusion of actuarial
science and modern finance achieved
worldwide recognition when he was
awarded the honour of Financial Engineer
of the Year in 2005.
Mortality research conference
The deadline for submitting abstracts,
papers and posters for Joining Forces on
Mortality and Longevity — a multidisciplinary
conference on research in mortality is 20
February. The conference, a collaboration
between the Profession and the Economic
and Social Research Council, will take place
on 21-22 October at the Royal College of
Physicians in Edinburgh.
The objective of the conference is
to advance research and awareness of
research into mortality, engaging with a
variety of disciplines in order to fill gaps
in existing research and to scope out areas
where further research will add value.
Conference themes:
n What are the drivers for change? (Leader:
Stephen Richards, Richards Consulting)
n How do cohorts differ and why?
(Leader: Professor Carol Jagger, University
of Leicester)
n From populations to individuals
— drilling down to individualised risk
(Leader: Professor Diana Kuh, director of
the MRC Unit for Lifelong Health and
Ageing and of the MRC National Survey of
Health and Development).
Actuaries, academics and medical
research users are invited to submit papers
on these themes. Submissions from PhD
students are particularly welcomed.
Subsidised places will be available for PhD
students and a prize will be offered for the
best paper by a PhD student.
For more details, please visit www.
actuaries.org.uk/members/migs/topical_groups/
mortality_steering or contact claire.marsh@
actuaries.org.uk
New prize for Scottish speakers
Ronnie Sloan FFA has made a donation
to fund a new prize to encourage
participation by recently qualified
members and students at formal
actuarial meetings recognised by the
Profession in Scotland.
The Sloan Prize will be awarded for
the best spoken contribution made
at each meeting, as decided by the
Prize Panel.
The prize was launched at the
Faculty sessional meeting on 19
January. For more details please contact
mairi.macintyre@actuaries.org.uk
22/1/09 13:59:03
Profession
News
• GB2313 EXACTVAL Advert 60x250
More than 800 Scottish students
compete in 2008 maths competition
Hutchesons’ Grammar School in
Glasgow finished ahead of students
from over 200 schools to win the
Enterprising Mathematics in Scotland
competition in November.
Throughout the year, more than
800 students vied for a place in
the finals held at the University of
Strathclyde Jordanhill Campus. The
competition began with local heats,
whittled down to 51 teams of four
students, from 14 to 16 years. In the
final, the teams used various skills to
answer mathematical questions.
The event is sponsored by the
Profession and aims to encourage
an interest in mathematics and
its application in the world beyond
the classroom.
Balerno Community High School
finished second in the final and The
Glasgow Academy came third. The
winning team consisted of Timothy
Heelis, Sandy Nimmo, Sarah Burns and
Ruaridh Moffat-Coutts.
Sandy said he was amazed that his
team finished first in the competition.
He said: “It was really surprising
because we didn’t think we did very
well in the last two rounds, but we
must have done better at the start. It’s
been really enjoyable.”
Organiser Mary Teresa Fyfe said well
over 200 schools from across Scotland
had competed for a place in the final
that tested the students’ maths skills.
She said: “It’s a great competition that
involves teamwork, problem-solving
and mathematics and gives students the
opportunity to meet other children from
various backgrounds. They come from
every corner of Scotland.”
The Profession was represented by
John Hylands, who encouraged the
young mathematics students to consider
a career as an actuary.
16/1/09
External Actuarial Valuations
FREE
PENSIONS
CALENDAR
2009
Our FREE desktop calendar has
each month displayed on a
separate card, the reverse of
which is filled with lots of
useful pensions facts and
figures including:
Timothy Heelis, Sandy Nimmo, Sarah Burns and Ruaridh Moffat-Coutts, of Hutchesons’ Grammar
School, are pictured with Faculty vice-president John Hylands
Book launch marks pensions anniversary
A new book marking the anniversary of
the first payment of the state pension
was launched at Staple Inn on 26
January. The book, 100 Years of State
Pension — Learning from the Past, was
written by Tony Salter, Andrew Bryans,
Colin Redman and Martin Hewitt.
It provides a timely and informative
history of pensions policy, and outlines
the financial, demographic and social
issues that have influenced state pension
legislation and policy development.
A presentation and discussion around
the issues raised in the book will take
place on 16 March at the Royal College
of Physicians in Edinburgh. There is no
formal registration for this event, which
will be followed by a drinks reception.
For more details about the event, please
contact andrea.tsarbos@actuaries.org.uk. To
order a copy of the book, £16.95 + p&p,
please contact publications@actuaries.org.uk
100 Years of State Pension — Learning
from the Past is reviewed on page 45.
• PPF caps and factors, plus
details of the levy calculation
• Historic stats including S148
orders, BSP, RPI & Salary cap
• Useful websites
• Annuity formulae
• Actuarial exam dates
For your FREE copy, just
send an email to
calendar@exactval.co.uk
11
22/1/09 12:17:09
9
News
Profession
News in brief
Book now for Health and Care
This year’s
Health and Care
Conference offers
eight plenary
sessions and
16 workshop
sessions
covering: critical
illness, income
protection,
private medical
insurance and
long-term care.
The keynote speaker is Richard
Simpson MSP, Shadow Public Health
Minister, and corporate philosopher Roger
Steare is among the invited speakers. The
conference will take place in Glasgow
on 13-15 May. For more details, please
visit www.actuaries.org.uk/conf_flyer/
healthcare2009.pdf. To book a place,
please visit www.actuaries.org.uk/members/
transactions/conference_booking
Legal Principles: What Can Go Wrong?
Legal Principles: What Can Go Wrong? is
an interactive one-day workshop to help
actuaries
become more
aware of the
legal principles
that can have
implications
for actuarial
work. The
workshop,
on 19 May at Staple Inn, has been
specially designed for the Profession by the
College of Law. The workshop is aimed at
qualified actuaries looking to gain an insight
into legal matters that affect their work.
Delegate numbers are limited to a maximum
of 20 on each date. For more details, please
visit http://www.actuaries.org.uk/media_centre/
events_folder/ap_events/?a=143431
Actuaries to face investigation
for failing to complete CPD
Complaints of professional misconduct
against 27 actuaries have now been referred,
under the Profession’s disciplinary schemes,
for investigation by the Disciplinary
Investigation Team. The complaints allege
failure by the 27 actuaries to comply
with the requirements of the Profession’s
mandatory Continuing Professional
Development (CPD) scheme as set out
in the CPD Handbook. They are the first
actuaries to face possible disciplinary action
as a result of failing to comply with the
Profession’s CPD scheme.
Membership and certificates manager
Cath Bryson said actuaries need to
understand the importance of completing
their required CPD hours.
“The CPD scheme aims to ensure that
all actuaries develop and maintain the
professional skills they need and ensures
that others can trust that they have done
so,” she said.
“The Profession wants actuaries to
understand that if they don’t comply,
they risk being referred to the disciplinary
scheme and there is the potential for a
finding of misconduct and the imposition
of a disciplinary sanction. A failure
to comply with CPD requirements is
something that we take very seriously.”
Actuaries currently have to undertake
a minimum of 15 hours of CPD a year,
depending on their category. The Profession’s
professional regulation team completes a
monthly audit of Category 1 actuaries (those
who hold practising certificates) and have
begun an audit of Category 2 actuaries (those
who work in one of the areas covered by the
specialist application exam syllabuses). The
audit will check that information provided
by members of the Profession is accurate
and verifiable.
Attending sessional meetings, completing
a course, preparing and delivering learning
to colleagues and preparing material which
is published in the public domain are
examples of CPD activities. The Profession
is also working towards delivering
convenient options, including webinars,
which enable actuaries to take part in an
event from the comfort of their own office.
For more information, please view the CPD
Handbook at www.actuaries.org.uk/__data/
assets/pdf_file/0007/136195/cpd_handbook.pdf
New Information and Assistance
Notes issued — GN24 withdrawn
The Profession has issued two Information
and Assistance Notes (IANs):
The Risks of Derivative Exposures,
authored by the Finance and Investment
Practice Executive Committee, intended
to help actuaries who may encounter
derivatives in the course of their work,
but who have no specialised knowledge of
this area.
The Actuary as an Expert Witness,
authored by the Professional Regulation
Executive Committee, intended to
assist actuaries in the United Kingdom
whenever they are instructed as an expert
in proceedings before Civil courts or other
Tribunals. The IAN replaces GN24: The
Actuary as an Expert Witness, which is
withdrawn with immediate effect.
The IANs are published on the
Profession’s website at www.actuaries.org.
uk/IAN_Derivatives_20090109 and www.
actuaries.org.uk/IAN_ExpertWitness_20090109
City University students awarded SCOR UK actuarial prizes
On 17 November, Chris Daykin, former head of the UK
Government Actuary’s Department, awarded the 2008 SCOR UK
actuarial prizes of £3000 each to Dhruv Haria and Ken Su, both
of City University London.
Dhruv Haria won the property and casualty prize for his
paper Pricing new risks or insurance products in a Bayesian
framework,
and Ken Su
won the
life prize
12
for A pricing analysis
of guaranteed lifetime
withdrawal benefits.
Further details of the SCOR
Actuarial Awards can be
found at www.scor.com/
www/index.php?id=140&L=2
Chris Daykin, right,
awarded the prizes
22/1/09 12:17:34
News
Profession
News in brief
FRC publishes quality framework
The Financial
Reporting
Council (FRC)
has published its
Actuarial Quality
Framework. The
framework has
been prepared
following
consultation
on the FRC’s
discussion
paper,
Promoting actuarial quality,
issued in May 2008, and the Professional
Oversight Board’s accompanying paper,
Monitoring and scrutiny of actuarial work. To
view the framework, please visit www.frc.
org.uk/about/actuarialregulation.cfm
FRC’s priorities for 2009/10
The FRC has re-examined its approach
in response to the effects of the credit
crunch in a
consultation
paper, Draft
Plan 2009/10,
Proposed
Updates to
the Strategic
Framework
and 2009/10
Levy Proposals, outlining its
proposed priorities and funding proposals
for 2009/10. To view the paper, please visit
www.frc.org.uk/about/plans.cfm
New financial services network
A new Knowledge Transfer Network
(KTN) for the financial sector will be
set up in 2009 to facilitate information
sharing and innovation. The governmentfunded Technology Strategy Board plans
to create the KTN as part of its drive to
stimulate business innovation in the UK.
Networks already exist in a wide range
of economic sectors to help businesses
innovate by providing networking and
partnering opportunities and up-to-date
information on markets, technologies
and routes to funding. The financial
services KTN aims to serve as many subsectors as possible, including insurance
and reinsurance, as well as wholesale,
retail, investment and commercial
banking. For more details, please visit
www.innovateuk.org/deliveringinnovation/
knowledgetransfernetworks.ashx
14
Faculty president Ronnie Bowie
celebrates completing his karaoke
contribution at the Momentum
conference in Berlin in December. He
performed the Monkees’ Daydream
Believer. Hiten Nandha shares other
news and highlights from the conference
at www.the-actuary.org.uk/836099
Pigs might fly Spot the actuary
Hiten Nandha reports from Momentum
It’s a cold December morning. I’m sitting in a
room with 280 actuaries looking at a pig I’ve
just drawn, trying to work out what it says
about my mental state. No, I’m not insane
— this was the icebreaker at Momentum 2008,
the renamed Younger Members’ Convention.
The event, aimed at members of the
Profession who have qualified in the past five
years or are close to qualification, included
speakers of actuarial note as well as lawyers,
economists, mortality experts, investment
bankers and soft skills experts.
The conference began with a dinner on
Wednesday. Thursday’s events were kicked off
by the chairman, Chris Venables, with Nigel
Masters, president of the Institute, speaking
on the need for actuaries to be flexible in
adapting to changing environments. Ronnie
Bowie, president of the Faculty, went on to
explain the importance of the use of soft skills
in the development of actuarial careers.
There was light entertainment on
Thursday evening, with karaoke and
Nintendo Wii Olympics featuring running,
swimming and archery.
More than 25 technical seminars were
held over the Thursday and Friday, spanning
various topics within pensions, investment,
life insurance and general insurance.
The convention came to a close on Friday
afternoon with a question and answer
session with the presidents of the Profession.
Chris Venables, outgoing chairman of the
Conference was rightly applauded for a well
organised and stimulating few days.
For the full report on the Momentum
conference, please visit www.the-actuary.org.
uk/836099
Maeve Sherry, chair of the 2008 Life Convention
Organising Committee reviews the event
It was that time of year again, when you
check out your fellow passengers on the
train/plane and try to guess who is heading
your way — sometimes it’s easier than
others to ‘spot the actuary’ on their way to
the highlight of the Life CPD calendar.
All routes were bound for Amsterdam this
year, in a year of firsts: the first time for the
event to be held outside the UK; the first time
actuaries from outside the UK profession were
formally invited (it would be rude not to
extend the invitation to the Dutch Actuarial
Association); and the first time the number of
attendees hit almost 900.
Following a relaxed opening reception on
Sunday evening, delegates were welcomed
with a reminder that we’ve come a long way
in a year, with reference, of course, to the
continuing financial crisis that was inevitably
at the forefront of everyone’s mind. No area
of the life actuarial community could hope to
escape the effects of an almost unprecedented
level of turmoil and this has raised, and
would continue to raise, new challenges and
questions for us all. Recent events have also
highlighted how global the economy has
become, and that we are not insulated here in
the UK from events in the US and elsewhere.
For the full report on the Life convention,
please visit www.the-actuary.org.uk/836113
Highlights from GIRO
The Profession’s GIRO conference took place
in Sorrento in September. Chris Short shares
views and highlights from the conference at
www.the-actuary.org.uk/827757
22/1/09 12:18:15
NAMEREDACTEDNAMR
E
DACT
-
News
Education
Actuarial Profession publishes exam results
The Profession released its exam results for
the September 2008 session in December.
The exams were taken at 133 centres in
59 countries in Europe, Africa, Australia
and the US, as well at sites across the UK,
between 15 and 25 September. There were
6510 students, who sat 10 709 papers.
More than 280 students passed the
exams necessary to qualify as fellows, while
over 250 students completed the required
exams for the class of associate.
Institute of Actuaries president Nigel
Masters congratulated the students on their
performance in the exams, saying that they
could play an important role in the future
financial world in their roles as actuaries.
“Congratulations to all the successful
students, and special congratulations to
those who have qualified to become fellows
or associates. They should be very proud of
achieving their exam passes,” Mr Masters said.
“In these turbulent times, we need the
skills and technical knowledge that these
new actuaries offer to help make sense of
the financial world.”
Department of Mathematics
You’ve analysed the options.
You’ve assessed the risk.
Now go the distance.
A University with a reputation for inspirational teaching and innovative course
delivery through quality distance learning. A Department that’s ranked in
the UK’s top ten. A course accredited by the Faculty and the Institute of
Actuaries, that offers close links with industry. This is one route to professional
qualification that will stand close and detailed analysis.
PGDip Actuarial Science by distance learning
This Postgraduate Diploma provides a first step towards becoming a full
Fellow of the Faculty and Institute of Actuaries. Covering the full CT1-8
syllabus, successful completion of the course offers exemption from the CT1-8
examinations and will allow you to continue study for a Master’s Degree.
The programme is delivered through supported distance learning, cutting-edge
virtual classroom technology and face-to-face tuition through a series of
summer schools.
You will need a 2:1 degree in a maths related subject and strong ambitions
to develop a career as an Actuary.
www.le.ac.uk/goto/actuary
016+017_Actuary_0109_EdNews.indd17 17
17
22/1/09 13:48:59
News
Industry
New Actuarial Discipline
Board to investigate GAD
The Accountancy and Actuarial
Discipline Board (AADB) has launched
an investigation into the way in which
actuaries from the Government Actuaries
Department (GAD) advised the regulators
of Equitable Life.
The AADB is the independent,
investigative and disciplinary body
for accountants and actuaries in the
UK. It is responsible for operating and
administering independent disciplinary
schemes for those professions. This is
its first investigation under the
disciplinary scheme for the Actuarial
Profession. The AADB confines its
investigations to cases that raise important
issues affecting the public interest. The
decision to review the provision of advice
by GAD was taken following a reference
from the Actuarial Profession.
The enquiry will focus on advice given
on behalf of GAD to prudential regulators
between December 1990 and April 2001.
It will review the conduct of individual
actuaries only, so as to determine whether
there is evidence of misconduct on the part
of the individuals involved.
Disciplinary complaints filed following
an AADB investigation are heard by an
independent Tribunal which will normally
sit in public. Where the Tribunal upholds
a complaint, the sanctions which it can
impose include an unlimited fine, exclusion
from membership of the Actuarial Profession
and withdrawal of practising certificates or
licenses.
Japanese insurers seek merger
Three of Japan’s largest insurers
— Mitsui Sumitomo Insurance Group
Holdings, Aioi Insurance and Nissay
Dowa General Insurance — are in
talks to merge, according to the
International Herald Tribune.
If successful, the merger would
create the largest general insurance
firm in Japan with an estimated 33%
of the Japanese general insurance
market. Tokio Marine Holdings is
currently the country’s largest non-life
insurer with a 27% market share.
In October, unlisted insurer Yamato
Life Insurance filed for bankruptcy
protection with nearly $3bn in debt,
as the financial market turmoil
battered its investments, making it
the first Japanese financial institution
to fall victim to the global credit crisis.
Marsh sounds alarm on
corporate fraud protection
A sharp rise in the number of UK companies
buying fraud insurance protection is
expected, as the world economy continues
to deteriorate, according to insurance
broker Marsh. The number of insurance
claim notifications relating to fraud is also
expected to grow in 2009.
Dean White, a director in Marsh’s
Financial and Professional Practice, said:
“Reported fraud cases in the UK were up
15% on last year but this probably masks the
true picture. As a result, many of our clients
are increasing their levels of fraud insurance
protection and expanding their coverage to
include computer and data-related fraud.”
Good risk management is vital in
understanding and addressing the threats
posed by corporate fraud and may mean the
difference between survival and failure for
many enterprises. Marsh’s recommended
actions for vulnerable companies include:
n Vigilance: look out for increasing levels
of employee stress or out-of-character
behaviour patterns
n Controls: ensure segregation of duties in
high risk areas; enforce holidays and the
handover of work
n CV check: if hiring new staff take up
references and check qualifications
n Security: ensure that exit procedures
are robust and that both physical access
to premises and computer access are
appropriately limited or removed
n Staff ‘buy-in’: Ensure that a comprehensive
whistle-blowing policy is in place; encourage
staff to raise concerns about malpractice and
create an open working environment.
Equitable Life halts sale
Equitable Life, the troubled mutual
insurer, has announced that the sale of its
£6.8bn with-profits fund is on hold — due
partly to the current economic climate.
The company put itself up for sale in March
2008 after arranging a £4.6bn transfer of its
annuities business to Canada Life and a £1.7bn
transfer of with-profits business to Prudential.
Equitable says that the sale’s objective
was to establish whether third parties could
offer improved prospects for Equitable
Life’s remaining policyholders by way of
lower costs or greater expense certainty.
Vanni Treves, Equitable Life’s chairman,
said: “Having carried out this important
test of our options for improving prospects
for our policyholders, we will now focus on
a stable and secure run-off of the Society.”
18
018+019_Actuary_0109_IndNews.ind18 18
22/1/09 13:51:48
Industry
Aon fined £5.25m
by Financial
Services Authority
The Financial Services Authority (FSA)
has fined broker Aon £5.25m for failings
in its risk management systems between
January 2005 and September 2007.
These failings arose principally out of its
aviation and energy sectors, in relation
to business in certain non-UK, high-risk
jurisdictions. They led to a number of
potentially inappropriate payments being
made to third parties in certain non-UK
high-risk jurisdictions.
In a press release, Aon commented:
“Since becoming aware of these issues,
Aon Limited and its current senior
management have been determined to
remedy their relevant systems and controls
to guard against such problems happening
again in the future.
“Working with the FSA and other
regulatory authorities, Aon has
significantly strengthened and enhanced
its controls around the usage of third
parties, including:
n Implementation of a robust global anticorruption compliance programme
n Risk-based procedures to review
all existing and proposed third-party
relationships
n A globally implemented third party
policy controlling and restricting the use of
overseas third parties, particularly those in
high-risk jurisdictions.”
Despite the fine, the FSA lauded Aon’s
efforts in addressing the problem saying:
“The pro-active determination of Aon
Limited’s current senior management to
identify past issues and improve the firm’s
systems and controls in this area is a model
of best practice that other firms may wish
to adopt.”
News
ACA survey finds more than 90% of
small business DB schemes closed
The ACA’s survey into pension trends
in firms with 250 or fewer employees,
published in early January, has
found that 91% of defined benefit
schemes in the sector are closed
to new entrants and half are also
closed to future accrual. Worryingly,
savings into defined contribution
schemes in the sector are much the
same as in 1996, when the ACA’s
series of surveys started. As a result,
given markedly lower investment
returns and recognition of longevity
improvements since then, pension
outcomes for employees in small
firms are likely to worsen significantly
in the years ahead. Firms’ concerns
over the affordability of autoenrolment are threatening existing
schemes, with high opt-out levels also
predicted from 2012.
Commenting on the survey report,
ACA chairman, Keith Barton, said:
“Pensions in smaller firms are
struggling to survive in hostile
economic conditions. Most defined
benefit schemes are in this sector but
the vast majority — 91% — are now
closed to new employees and half to
future accrual for existing members.
This can be no surprise, given the
significant increases in the cost of
running such schemes, courtesy of
lower investment returns, increasing
life-spans and extra regulatory
requirements. However, it is striking
that, just 12 years ago, our survey
that year found 82% of defined
benefit schemes were then still open
to new entrants.
“Just as worrying is the levellingdown of defined contribution
schemes that has already taken
place. We found 30% of ‘traditional’
trust-based schemes run by smaller
firms are now closed, replaced in
Keith Barton
many cases by more lightly regulated
contract-based schemes, with lower
contributions.
“At a time when contributions into
defined contribution schemes need
to rise to offset the impact of lower
investment returns and longevity
improvements, it is dismal news
that contributions remain pretty flat
— much the same as they were in
1996, when we started this series of
surveys. Indeed, combined employer
and employee contributions amongst
the smallest firms, employing 50 or
fewer staff, are generally below 8%
of earnings.
“The result of this is that the pension
outcomes today and into the future are
looking increasingly inadequate. We
need some serious new incentives to
encourage higher levels of corporate
and employee pension saving to
levels well above 8% of earnings —
realistically a figure of at least double
that is needed to provide anything like
a comfortable retirement. This is going
to be a real challenge given the fiscal
tightening likely in the period ahead,
but it has to be addressed.”
AIG disposal programme in play
Munich Re has acquired the Hartford Steam
Boiler (HSB) Group from stricken global
insurance group AIG. HSB is a provider of
equipment breakdown and engineered lines
of insurance and reinsurance. Under the
terms of the transaction, Munich Re will
acquire 100% of the outstanding shares of
018+019_Actuary_0109_IndNews.ind19 19
HSB Group for $742m in cash and assume
$76m of outstanding HSB capital securities.
Early in December, AIG had announced the
sale of its AIG Private Bank subsidiary to Aabar
Investments for $254m. The bank provides
services for high net worth individuals in
Europe, Asia and the Middle East.
19
22/1/09 13:52:09
News
Industry
From the world of general insurance
US sub-prime mortgage crisis
Analysts at Advisen predicted in midNovember that the aggregate losses arising
from the credit crisis in respect of the
directors’ and officers’ liability (D&O) and
errors and omissions liability (E&O) would
amount to $9.6bn. They predicted that
this would lead to substantial premium
rating increases in these classes by the
end of 2009, while E&O losses could be
expected to impact mainly on mortgage
brokers and mortgage lenders. The D&O
losses, which could constitute more than
60% of the total, include claims in relation
to securities class action suits, securities
fraud suits arising from regulators and
losses from bankruptcies.
AIG retains clients
American International Group (AIG)
claims to have retained most of its clients
at renewals since the company was bailed
out by the US government. This was
disclosed when they announced third
quarter losses of $24.5bn. They further
announced that they had negotiated an
increase in the available aid package to
$150bn, from the original $85bn loan.
The loan had been reduced to $60bn,
which AIG intends to repay in 2009, but
other forms of aid, such as the establishment
of a new entity to relieve AIG of up to
$70bn of ‘toxic’ mortgage assets, had been
negotiated with the US Treasury.
The new entity is understood to
have taken over $53.4bn of such assets
by early December. AIG has also sold
some fairly significant assets, with
For more general
insurance news
More news on the following items
can be found on the website:
n Solvency II
n Other regulatory developments
n Prompt and proper notification
of claims
n Piracy problems
n Marine and aviation
premium rates
n Motor insurance
n Ronald Ferguson court case
n Job cuts at Aon
n Climate change
n Large losses
Visit www.the-actuary.org.uk/
category/news/industry
20
020_Actuary_0109_GenNews.indd 20
AIG Private Banking going to Aaber
Investments in Abu Dhabi for around
$250m and HSB Group (including Hartford
Steam Boiler Insurance) going to Munich
Re for $742m.
Hiscox accuses banks
Robert Hiscox, chairman of the Hiscox
Insurance group, has accused the banking
industry of doing unparalleled harm to
the world economy. His company had
identified various opportunities arising
from the problems and the consequent
premium rating increases. As a result,
Hiscox had decided to increase the
capacity on their Lloyd’s syndicate 33 to
£750m in 2009 — they had previously
intended to reduce capacity to something
like £550m.
Rating agencies credibility challenge
Ludger Arnoldussen, a member of the
board at Munich Re, has challenged
the credibility of the rating agencies,
suggesting that they should incorporate
other information, such as the credit
default swap spread and the quality of
management into their measure of security
of insurers. His comments were made at
the East Asian Insurance Congress, in light
of the financial crisis.
Asbestos and pollution development
The High Court in London has announced
its decision in relation to the test cases to
remove confusion on the trigger date for
mesothelioma claims under employers’
liability policies. In effect, this decision has
upheld the status quo and undermined
the attempt by a small group of run-off
insurers to avoid liabilities. The decision was
based on the theory that it was assumed
that injury takes place five years before it is
possible to diagnose mesothelioma, based
on recent medical evidence. The judge
gave leave to appeal, and this is likely to be
taken up to the House of Lords. Meanwhile
mesothelioma claims are likely to be further
delayed while the legal wrangling continues.
Another High Court decision, in midNovember, related to the Downs v Defra
case, in which the plaintiff produced
evidence that people exposed to cropspraying chemicals suffered harm to their
health. The Court found in favour of the
plaintiff, potentially opening the possibility
of a flood of pesticide liability claims against
the government (for its failure to protect
people in the countryside), farmers and
others involved in the spraying process. It is
believed that insurers will aim to obtain a
decision on whether the spraying process is
categorised as pollution, in order to ascertain
whether they have protection from pollution
exclusions under general liability policies.
Credit guarantee
Following a widespread withdrawal
of private sector credit insurance, the
UK government put forward a proposal
in the pre-budget statement to fill the
vacuum for small to medium-sized
enterprises, using the Export Credit
Guarantee Department. This move reflects
a statement by the Organisation for
Economic Co-operation and Development
that credit guarantors play a central role in
reinforcing economic stability.
Terrorism
The terrorist attacks in Mumbai at the end
of November are likely to cost property
insurers between $300m and $600m, and
are also likely to lead to strengthening
of premium rates for terrorism risks
in India. The claims should include a
total loss for the Taj Mahal Hotel, and
are shared amongst a relatively small
number of insurers. Event cancellation
losses, including those arising from the
abandonment of the English cricket team’s
one-day international series, are also likely
to arise.
22/1/09 12:22:07
The
Actuary
Spoilt for choice
Visit the-actuary.org.uk for a better selection
The Actuary’s website is choc-full of features for you
to enjoy. And with more exclusive content than ever,
you can afford to indulge at your leisure.
Pick and mix news, comment, fun stuff and features,
choose from the choicest jobs or find your favourite
selections in the extensive archive.
Exclusive content this month...
Is the role of the liquidity premium overstated?
(David Dullaway the-actuary.org.uk/834591)
The uncertain scope of mortality research
(David Metz the-actuary.org.uk/835556)
The benefits of the Financial Assistance Scheme
(Clare McGruer the-actuary.org.uk/835581)
Whatever you’re looking for, there’s bound
to be something that takes your fancy.
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(Robert Ashton the-actuary.org.uk/835630)
(Mark Heller/Roger Massey the-actuary.org.uk/835937)
22/1/09 13:43:40
News
People/Society
More than just an actuary
In a nutshell, it builds
a mathematical model
to represent juggling
patterns, and utilises
number theory and topology to create
operations that transform one ‘jugglable’
pattern into another. My thesis specialised
on patterns with multiple hands,
generalised so that the hands could also be
‘juggled’. The most memorable part for me
was proving the validity of new patterns by
actually juggling them.
Left: Parit Jakhria
juggling in
Brussels
Parit Jakhria, head of quantitative
research at PMG, Prudential also turns out
to be an obsessive juggler, and has taught
the skill to many of his colleagues. Back in
university he wrote his Master’s thesis on
The Mathematics of Juggling, and he hasn’t
taken a strictly ‘non-juggling’ holiday for
over five years (the closest being a trip to
Mount Kilimanjaro, where he juggled at the
summit, and Snowdon, which he climbed
while juggling all the way).
What made you take up juggling?
I inadvertently stumbled upon the Juggling
Society practice session beneath my halls
of residence at Warwick University more
than seven years ago. Having always been
fascinated by the circus as a child but never
having had an opportunity to try, I decided
to give it a go. Much to my amazement, I
realised that I had a knack for juggling and
circus art. I was completely hooked.
Tell us about the mathematics of juggling
and your thesis
What is the most number of objects that
you have juggled?
A ‘qualify’ is defined as throwing and
catching every object at least twice. I
have qualified 7 balls and rings, and hope
to qualify 8 rings soon (currently at 15
catches!)
What were your juggling highlights
for 2008?
I have spent a considerable amount
of holiday and weekends at juggling
conventions and made a lot of progress
on my goals of 6, 7 and 8-ring juggling
and balancing this year. I was also invited
to judge the Dutch National Juggling
Championships in May.
Climb every mountain
Three years ago the Faculty began its 150th
anniversary celebrations. These included
many academic, social and cultural events
but it was also thought appropriate to add
a sporting dimension. A challenge was
therefore set in 2006 to get an actuary to the
top of each of the 284 Munros in Scotland.
A Munro is a Scottish mountain more than
3000ft in height and the pastime is called
‘Munro bagging’. Many actuaries took
part and most Munros were climbed. Dave
Duncan was particularly active, although
nobody climbed more than Colin Ledlie,
with 14 in one day.
On 31 October 2008, Allan Martin
completed the ascent of his 284th and last
Munro as part of the Faculty celebration.
Allan runs his own consultancy business
providing actuarial and trusteeship services.
This is reputedly ideal for taking advantage
of favourable weather and going walkabout.
Mobile phone reception is apparently
surprisingly good at 3000ft, although wind
noise and RAF training can occasionally
make it difficult.
As you will see from the photo below, Allan
chose a very special last Munro, Sgurr Dearg,
the ‘Inaccessible Pinnacle’ on the Isle of Skye.
The mountains of Skye are spectacular and are
made of volcanic gabbro rock. The Pinnacle
is also the most difficult Munro, requiring an
experienced guide, some rock climbing skills
and a head for heights.
What are your next goals/challenges?
I want to focus on a combination of
juggling and balance, for example
juggling rings with a pole balanced on my
forehead, whilst simultaneously balancing
on a walking globe. I also wish to juggle
up Mt Kilimanjaro some day...
Sponsored actuarial bike ride
Help raise money for the British Stroke
Association and work off some of those
Christmas pounds.
Actuaries (and their friends) are invited
by the Worshipful Company of Actuaries
to support a sponsored bike ride in London
on Sunday 31 May 2009. The Senior
Warden of the Actuaries’ Company, Adrian
Waddingham, will lead a party of 150
actuaries on the ride to raise funds primarily
for the Stroke Association, and also for the
charities supported by the Company.
The Thames Bridges bike ride is organised
by the Stroke Association and the course is
approximately 33 miles long, from Tower
Bridge to Hampton Court, crossing many
22
022+023_Actuary_0109_People.indd22 22
of the Thames bridges en route. It is an
excellent ride, with cyclists visiting parts of
London they have not seen before. The ride
will end with a picnic in Hurst Park, near to
Hampton Court.
If you would like to participate,
and raise sponsorship, your contribution
would be much appreciated. The
Worshipful Company of Actuaries is
hoping to see many teams from
actuarial employers. Can you raise a
team in your firm?
Application forms are available from
Susan George at the Worshipful Company of
Actuaries susan.george@barnett-waddingham.
co.uk Tel: +44 (0)20 7776 2200.
22/1/09 12:25:19
For people moves, see page 50
SIAS Event
Greeting new actuaries
Review by Taha Ahmad
Late summer is always a special moment for
employers, with new graduates, fresh talent
and new expectations. The Welcome Drinks
on 30 September celebrated this and gave new
members of the profession the opportunity
to visit Staple Inn, and hear about the
latest Actuarial Education Strategy and the
profession in general.
The hall filled up quickly with everyone
enjoying themselves, meeting fellow
professionals, making friends and sharing
their experiences as new starters.
Amanda Prest, honorary secretary of SIAS,
kicked off the evening with a warm speech to
welcome the new graduates to SIAS. She gave
an explanation of its role as a student and
regional society, the type of events organised
and how everybody could get involved.
Following the welcome speech, Georgina
Warren, a staff actuary of the profession and
secretary to the Education Committee gave
a presentation on Work-Based Skills (WBS).
She explained how students could gain
many important skills in key areas such as
the technical application of actuarial skills,
communication, management and judgment.
Trevor Watkins, head of education and
CPD, gave a presentation on ‘Qualifying as an
Actuary’. He reported on what the profession
is trying to achieve, and also talked about
the need to maintain standards and equip
actuaries in the best possible way, while trying
to reduce the time taken to qualify.
Following the presentations, the SIAS
Committee arranged a well-deserved buffet.
Three comedians took to the stage in front
of the assembled new graduates. Although
known as a difficult crowd, everyone enjoyed
the banter of the comedy school performers
and were soon in fits of giggles! There was
even a volunteer from the audience as
Shamim Ashraf took the stage to participate.
As a new member of SIAS I found the
evening really enlightening and believe that
events like these help everyone to feel more
integrated with the profession. Thank you to
everyone for making it such a successful night!
SIAS Event
Welcome to the circus
Review by Clara Hughes
On 14 November 2008, the Brewery stepped
back into a by-gone era to host ‘Carnivale de
Mystique’, the SIAS annual supper. Attendees
included over 500 actuaries, and guests from
the Profession, The Actuary and a lion.
The evening began with cocktails and
a champagne reception. A magician and
jugglers were on hand to perform to the
crowds. As the throng moved upstairs for
dinner, clowns appeared at every table,
with guests donning fluorescent wigs, top
hats and red noses. The food and wine were
Births
■ Rob Wallace (Punter Southall) and his
wife Abby (Mercer) are pleased to announce
the birth of their daughter. Lucy Rose
Wallace was born on 23 November 2008.
Deaths
■ Arthur Charles Black died on 4 January
2009, aged 88. He became a fellow of the
Institute in 1953.
■ Thomas Joseph Geoghegan died on
11 September 2008, aged 61. He became
a fellow of the Institute in 1972 and an
affiliate of the Faculty in 1991.
022+023_Actuary_0109_People.indd23 23
News
People/Society
exceptional, with all courses sourced from
local seasonal produce.
Through dinner, thunderous music
accompanied the lithe figure of a
■ Max Lacroix died recently, aged 95. He
became an Honorary fellow of the Institute
in 1980 and an Honorary fellow of the
Faculty in 1991. An obituary will appear in
a forthcoming issue of The Actuary.
■ Alan Ernest Tinckler died recently,
aged 89. He became a fellow of the
Institute in 1957.
■ Frank D S Waterton died on 13 February
Institute in 1937.
GASS annual dinner
The Glasgow Actuarial Student Society’s
(GASS) annual dinner took place on Thursday
20 November in The Park Inn, Glasgow for
80 actuaries and students. As is tradition for
the dinner, all 12 new students embarking on
their actuarial careers were introduced to GASS
in the form of a speech written by their work
mentors and read out by the president David
Cumming (KPMG), although the accuracy
of the information in the speeches was
questionable to say the least.
The night ended with a magician
entertaining the guests with some ‘mobile’
magic. Thanks to all the attendees, and
thanks also to Jacqui Wardrope (Pearl) and
Rachel Rafferty (Mercer) for organising a great
evening.
GASS will
be holding
further events
in 2009
so please
contact your
GASS rep
for more
information.
contortionist; jugglers were luminescent in
the darkness; and the ringmaster poked fun
at a few sorry victims. However, nothing
prepared folks for the act that followed. Heads
turned as a cheeky Northerner in red trousers
hammered a nail up his nose, swiftly followed
by a screwdriver and proceeded to swallow a
2ft sword.
After dinner, Lady Luck wove her way
through the dancing masses, reading
fortunes, and several stalls allowed the ladies
and gentlemen to try their hand at shooting
and hoop-la.
To see photos of the event captured
by SIAS’s very own happy-snapping
photographer visit www.flickr.com/photos/
lehudd/sets/72157610450542705
Institute in 1980.
Marriages
■ Burcin Arkut (Legal & General) married
Evrim Koksal (Watson Wyatt) in Istanbul,
Turkey, on 24 October 2008.
■ Kevin Comerford (AIG) from Waterford,
Ireland married Ivanilza Alves de Oliveira
from Sao Paulo, Brazil, in Limerick, Ireland
on 12 December 2008.
Please send details of births, deaths and marriages to
■ Johannes Weers died on 26 November
announcements@the-actuary.org.uk
23
22/1/09 12:25:53
Monday 9 February
Replicating Portfolios
Staple Inn Hall,
5:30pm for 6pm
Thursday 19 February
Ceilidh
Cecil Sharp House
2 Regents Park Road
London
NW1 7AY
Tuesday 3rd March
Some Specifics about Generic
Standards
Staple Inn Hall,
5:30pm for 6pm
Thursday 29 January
Poker Tournament
Loose Cannon Club,
13-16 Allhallows Lane,
London
EC4R 3UL
6.30pm to 1am
Programme Event
Martin Muir and Vanessa Leung will be discussing
the applications of replicating portfolios in today’s
insurance industry.
As well as explaining the technique and typical
applications, they will discuss some of the practical
difficulties and how these can be overcome. This
talk will cover:
n An introduction to replicating portfolios
n Applications and limitations
n Dealing with the practical implementation
difficulties and getting a good fit
n Case studies.
There will be no paper for this meeting. There
is no need to register for this event in advance. A
buffet supper will be provided at the Cittie of Yorke
after the meeting.
SIAS Social Event
So, you thought Salsa was good fun last year? Well,
see if you can get your dancing shoes on again for
a floor-filled night of Ceilidh. Let the band whisk
you away to the far Scottish highlands.
This night promises to be so much fun you
could potentially dance your socks off! There will
be plenty of food and drink to replenish your
energy so all you need to do is come along with
comfortable shoes and a big smile.
There is no need for any previous dance
experience for you to attend. All the dances are
explained beforehand and there is a caller on hand
to shout out the right moves at the right time to
help keep you on course.
For those of you who are slightly shy, SIAS will
be providing welcome drinks to help loosen your
feet, so there is no excuse to miss out.
The venue has a bar and there will be a finger
buffet served during the evening.
Tickets: £10 for SIAS members, £12 for nonSIAS members.
To reserve your tickets please e-mail Nilantheny
Christie nilantheny.christie@aig.com
Please note that we will allocate places on a
first-come, first-served basis so be sure to reserve
quickly to avoid disappointment.
Programme Event
By the end of next year you won’t have to comply
with any of the Board for Actuarial Standard’s
adopted Guidance Notes, as they will all have been
replaced by the new Technical Actuarial Standards
(TASs). Development of the three Generic TASs (on
data, modelling and reporting) is well under way
— do you know what they will cover and how they
will affect your work?
Louise Pryor, director of the BAS, will lead a
discussion of some of the points to emerge from
the recent consultations.
There is no need to register for this event in
advance. A buffet supper will be provided at the
Cittie of Yorke after the meeting.
SIAS Social Event — SOLD OUT - SOLD OUT — SOLD OUT — SOLD OUT
The poker is now sold out subject to payments
being received.
Please e-mail James.Williamson@BarnettWaddingham.co.uk to see if any late spaces
become available.
Tickets: £20 for SIAS members, £25 for nonSIAS members.
The main event will kick off at 6.30pm with
beginners’ tuition starting at 6pm. The game
will be Texas Hold‘em, no-limit poker played for
chips with cash prizes for those who make it to
the final table.
For anyone unlucky enough to be knocked
out early, the dealers will be on hand organising
separate side games for the whole evening.
The venue has a bar, and buffet food will
be served during the evening (included in the
ticket price).
For details of events, visit www.sias.org.uk
24
024_Actuary_0109_SIAS.indd 24
22/1/09 13:53:14
Calendar
Events
Events
Actuarial Profession
Tuesday 3 February
Debate: Pension reform
and personal accounts
after the credit crunch
Staple Inn Hall, London
Finance and investment
Nomura, 25 Bank Street,
London E14
actuaries, Oxford
Friday 6 February
One-day seminar: Using
strategic concepts
Monday 16 February
Faculty sessional meeting:
Longevity risk and annuity
pricing within the LeeCarter model, Royal College
of Physicians, Edinburgh
Thursday 5 February
Two-day Fellowship
Course in Professionalism
for newly qualified
actuaries, Bristol
Monday 9 February
One-day event:
Professionalism event for
experienced actuaries,
London
Tuesday 17 February
Open Forum Re-run:
Behavioural aspects of risk
and finance, Royal College
of Physicians, Edinburgh
Thursday 5 February
Evening seminar: The
future of shorting and
stock lending. Subject:
Thursday 12 February
Two-day Fellowship
Course in Professionalism
for newly qualified
Monday 23 February
Institute sessional
meeting: Internal model
approval for Solvency II
Event listings
To list your events in The Actuary, please
e-mail calendar@the-actuary.org.uk
Association of
Consulting Actuaries
Thursday 5 to Friday 6
February
ACA 2009 Members’
conference, Hilton London
Gatwick Airport
National Association
of Pension Funds
Tuesday 3 February
Training course: An
introduction to trusteeship
Pensions Trust, Leeds
Thursday 5 February
Meeting: HR Pensions
Connection, NAPF,
Westminster
Tuesday 10 to Thursday
12 February
Training course:
Trusteeship for today’s
DB trustees, NAPF,
Westminster
Tuesday 24 February
Training course: DC
trusteeship essentials
NAPF, Westminster
Pensions Management
Institute
Wednesday 4 February
PMI Annual dinner,
Sheraton Park Lane Hotel,
London
for 9.00am, Edinburgh
PMI Technical seminar:
Best practice for the
secretary to trustees,
Mayfair conference centre,
London
Monday 23 February
Evening meeting: Turning
the trustee governance
ideal into reality, 5.00pm
for 5.30pm, Location: TBC,
London
PMI Administration
seminar: The key to
success, Park Plaza
Victoria, London
Staple Inn Actuarial
Society
Monday 9 February
SIAS meeting: Replicating
portfolios, Staple Inn Hall,
London
Society of Pension
Consultants
Thursday 5 February
Breakfast meeting:
De-risking pension funds –
mortality/buyout, 8.30am
Monday 9 February
Half-day event:
Roundtable, 8.30am for
9.00am, Edinburgh
Worshipful Company
of Actuaries
Tuesday 24 February
Livery Lecture, Staple Inn
Hall, London
For a full listing of society contacts please go to www.the-actuary.org.uk/eventscontacts
www.hazellcarr.com
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We work with insurers, consultancies and regulatory bodies, assisting in all manner of actuarial projects, and
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available at short notice, on flexible contracts, with no minimum term. To find out how Hazell Carr can help, call
Jethro Green on 0118 951 3907.
025_Actuary_0109_Calendar.indd 25
25
22/1/09 14:19:06
Careers
Q&A
Career clinic
We put your careers questions to a
special panel assembled by The Actuary
Nigel Masters is
president of the
Institute of Actuaries
James Ridd is
executive consultant,
Goodman Masson
Trevor Watkins is
head of learning,
Faculty and Institute
of Actuaries
Geraldine Kaye is
managing director at
GAAPS Actuarial
Are the needs of actuarial employers
changing?
Trevor Watkins (TW): The basic requirements
— of strong numeracy skills and a love of
mathematics and its applications remain
unchanged. However, it seems to me that the
focus of the job of an actuary has shifted. It
is no longer about building models or doing
hard sums in darkened rooms but more about
interpreting and explaining the calculations to
stakeholders. These skills are based on having
more business awareness of clients’ needs and
more communication skills, so that those who
make decisions on the back of the outcomes
understand the assumptions made and the
implications of the outcomes proposed.
There is also much more reliance on
understanding of professionalism and its
implications for actuaries. In the wake of
the credit crunch there is likely to be more
regulation of the financial services sector
and a greater need for actuaries to balance
client and public responsibilities.
I’ve always worked in pensions — how easy
is it to move into another practice area?
Geraldine Kaye (GK): As an actuary, you’ll
know that there is always supply and
demand at play. When there are plenty of
suitably qualified candidates in a particular
niche then you must ask yourself why they
need you. If you can answer that question
satisfactorily then you will be able to move.
At a time when demand exceeds supply you
no longer have to be better than perfect. At
all times highlight those specific qualities
in your CV that make you attractive for the
position to which you are applying. The
above comments are true for all disciplines,
not just pensions.
What is the role of communication
and business skills compared with
numerical skills?
Nigel Masters (NM): Numerical skill is the
core of the actuary’s technical base but
for anyone wishing to progress beyond
a relatively junior level, communication
and business skills are essential. Too often
I meet perfectly competent actuaries that
get stuck in mid-career because they cannot
escape from their technical roots. And to
be clear I would include language skills
26
026_027_Actuary_0109_Careers.ind26 26
in communication and I would include
personality traits such as energy, enthusiasm
and flexibility in business skills for those
who really want to succeed.
How can I improve my recruitment
chances in the current economic climate?
James Ridd (JR): Jobs are still there despite
the current climate but companies are
looking for higher quality candidates — so
ensure that you keep a detailed up-to-date
CV that sells all your experience, so when
the right opportunity presents itself you
are ready to be the first to apply. In this
changing market ‘softer skills’ are becoming
increasingly important, so work on how
best to demonstrate these at interview,
and with thorough company research you
will immediately improve your chances of
obtaining employment.
How do you see the role of the actuary
changing over the next few years?
NM: While the current economic downturn
may make recruitment a little slower, it will
also reinforce the need to consider the risks
inherent in financial products in a very broad
way. People will look not just at the types of
risks but how risks combine in downturns
and how risks develop over time. These are
core actuarial skills and employers will want
to recruit actuaries to bring this insight. And
this is not just employers in the traditional
finance industry but all employers that have
long-term risky projects that need to show a
financial return.
What level of support can I expect from
my professional body if I choose to work
in a non-traditional field?
TW: The qualification process is intended to
prepare actuaries who are ‘fit for purpose’,
which implies that the content of the syllabus
and the skills generated in the workplace in
our work-based skills requirement need to be
appropriate for those actuaries who move into
non-traditional fields. In practice this is easier
said than done because it takes time to change
the syllabus and there is always more pressure
to add in new topics — but less pressure to
take things out. The syllabus needs to remain
the same size otherwise qualification times
will lengthen.
20/1/09 10:32:02
Q&A
Actuarial jobs start on page 51
The Member Interest Groups (MIGs)
set up in the new structure offer the
opportunity for groups with a common
interest in a particular non-traditional field
to gain support from the Profession in
developing their interest in their field.
What level of support can I reasonably
expect from my employer?
JR: It is well known that there is a shortage
of actuaries in the UK and most employers
will prefer to retain their own staff rather
than having to hire to replace them.
Employees should, therefore, expect fairly
significant support from their employers.
Given the current economic climate your
employer should be conscious that you
will have concerns about what 2009 will
hold, and they should therefore be keeping
you informed with internal developments.
You should expect clarity on your current
position, and what is expected from you in
order to make progress with your career, as
well as getting an indication of the level of
support you will receive.
Should I escape the downturn with a
Middle East move?
GK: Any move involves push and pull. While
026_027_Actuary_0109_Careers.ind27 27
recession may provide the push, you must
be very careful where the pull takes you. The
work culture and lifestyle in the Middle East
is very different to the West and while it may
suit some, it won’t suit others. There are real
opportunities to expand your experience,
however, in practice, making a move requires
research and planning, so you should consider
your goals both in the short and long-term.
Do you think actuaries will continue to
transfer between different geographies in
the current climate?
GK: Actuarial skills travel well. The
actuarial qualification is one of the truly
international qualifications that allows
people to move relatively easily across
geographic regions. I can see no reason
why the financial climate should affect
this. You still need to demonstrate your
motivation for moving to a particular
country and the value you can offer
relative to a local candidate. Even though
many say languages aren’t important,
I still believe that you need to be able
to go and buy your own ice-cream! In
terms of settling and fitting into a new
environment, the local language or at least
a willingness to learn it, is advantageous.
Careers
I’m thinking about working towards the
Associate qualification. What benefits/
disadvantages does this qualification offer
when compared with Fellowship?
TW: The Associate qualification is for a
generalist actuary who wants to work in
broader fields within the financial services
sector. Those completing the exams for
this qualification (the core technical and
core application levels) will have good
numeracy skills coupled with economics,
financial economics and financial reporting
knowledge on top of what is usually a 2:i
or first class honours degree in a numerate
subject from a high-quality university. Such
people should be sought-after by employers.
A developmental career path would be into
general management perhaps by coupling
the Associate qualification with an MBA. We
are offering a route to Associate involving
specialist study of risk management [ST9]
instead of contingencies [CT5] from 2010.
Career clinic
If you would like to submit a careersrelated question to be answered
in a future edition, please e-mail
careerclinic@the-actuary.org.uk
27
20/1/09 10:32:22
Recruitment
Outsourcing
The offshore actuary
Anup Kumar introduces the offshore actuary as a global solution
that will help to drive quality across the profession
The Indian connection
Anup Kumar is head
of actuarial services
for Patni Computer
Systems
T
he actuarial labour market, like any
other, is subject to laws of supply
and demand. Developing economies,
increased regulation, and a world
awash with rapidly changing risk profiles
means that, globally, demand for actuaries is
on the increase, from many different sources.
At a time of increased demand, a reliable
supply of actuarial professionals is all the
more important, yet a survey commissioned
by the Actuarial Profession indicated that
less than 2% of the brightest and best
mathematics graduates had considered an
actuarial career (www.actuaries.org.uk/__data/
assets/pdf_file/0011/139583/fac_add_2008.pdf).
According to the 2008 survey, of those who
do begin an actuarial career in the UK, only
half manage to successfully pass their exams
to become qualified actuaries.
The problem is not just confined to
the UK. According to the UK Actuarial
Profession, 38% of members are based
overseas and recent press reports have
suggested that markets in Ireland, Europe,
the US, Malaysia, Australia and South Africa
all report similar shortages.
While individual actuaries are being spoilt
for choice when it comes to job opportunities,
their potential employers, like many other
financial businesses, are searching globally to
find the talent they need. Early figures suggest
that the offshore actuarial market will be
worth some $6.5bn by 2015.
The International Actuarial Association
says that 30% of new actuarial graduates
are coming from developing economies,
signalling not only a growing demand from
new emerging markets, but also a potential
new source of actuarial talent.
28
028_Actuary_0109_Kumar.indd 28
Following its development as an IT and
business process outsourcing powerhouse,
India has emerged as a prime location for
outsourcing talent. At present, while the
total number of actuaries available in India
is not yet significant, approximately 2000
candidates enrol with the Actuarial Society
of India as students every year (www.rediff.
com/cms/print.jsp?docpath=//money/2007/
mar/21spec.htm).
By adopting the offshore model,
organisations that need actuarial services
can access the skills they need, refocus their
existing qualified staff on higher value activity,
and make huge savings in the process.
The model analyses the various stages
within an actuarial process and places
them into a hierarchy: at the bottom are
simple skills that do not need the constant
attention of a qualified actuary, and at the
top are those that do merit close scrutiny.
The lower the level of activities that
are identified, the flatter the pyramid of
this hierarchy will become. Simple tasks
such as data collation and input, re-pricing,
and even reserving can be quickly offshored
to locations such as India, where the
labour rates for actuaries are far lower than
in the UK.
The offshore actuary
Lower level activities define much of the
day of these offshore actuaries. Actuarial
skills are classified as knowledge process
outsourcing (KPO) and are put to use on a
range of activities from data collection and
cleansing, to the application of modelling,
reserving and many other tasks. The
offshoring model complements existing
staff within an organisation, freeing them
up to work on higher value projects such as
predictive modelling.
The application of this offshore model has
been anticipated by many in the profession. In
a recent speech, the new Institute of Actuaries
president, Nigel Masters said: “Production
of material goods has, for many decades,
been moving to the cheapest effective labour
markets. Now, the service industries and the
professional skills are also moving.”
Communication with new offshore
providers will need to be carefully managed
and it is important to ensure the finished
output is sent back to a client for their
own actuarial professional to sign off.
Training engines that can deliver the core
competencies are critical. Within the
Indian context, this has already begun as
universities work alongside commercial
organisations to deliver graduates capable of
taking on actuarial work.
The most likely impact for those actuaries
in countries such as the UK and the US, who
have led the way with offshore outsourcing,
will be an expectation to move further up
the value chain themselves and onto projects
that can deliver more to the business. This
has already been seen with technology and IT
outsourcing, where the remaining ‘in-house’
personnel have been reassigned to developing
entirely new strategies, exploiting new
technologies and aligning technology with
the business more closely.
For actuaries, this presents a unique
opportunity. Recent failures in the banking
world and the credit crunch have led many
to recognise the value of actuarial skills
— risk analysis, stochastic modelling and
robust provisioning — all of which will be
demanded at a faster pace by the on-shore
teams who outsource the more rudimentary
work elsewhere. This small army of offshore
actuaries that develops will push those
closer to domestic markets further up the
value chain.
If you would like to comment on this article, please
e-mail editor@the-actuary.org.uk
19/1/09 14:19:40
Turn to page 51 for the latest vacancies
Careers
Market outlook
Set to outperform?
Phillip Sturgess argues that the actuarial profession is well
placed to weather the economic storm
Phillip Sturgess is a
commercial actuary
at Lucida and a
member of the
Actuarial Profession’s
careers committee
T
here was gloomy news from the
Chartered Institute of Personnel and
Development at the end of 2008 — a
further 600 000 jobs will be lost in the
UK in 2009. One thing we can say for certain
is that not all of those will be actuaries, but
maybe our small membership and specialised
skills leave us well placed to weather the
storm. This article gives a few personal views
on how the year might pan out.
We can’t escape redundancies altogether.
Some of our actuarial colleagues at banks
have already lost their jobs and there may be
more to follow. The banks won’t be looking
to take on many additional staff in the short
term, and some insurers and consultancies
currently have recruitment freezes in place.
This may leave a surplus of actuaries looking
for jobs in the first half of 2009. However,
individuals tend to be wary about changing
jobs in periods of uncertainty, so the supply
of candidates may also drop off, perhaps
offsetting the fall in demand. The first
quarter is traditionally a busy period for
recruitment, but this predicted fall in both
supply and demand make this less likely to
be the case in 2009.
Further consolidation in the insurance and
financial services sectors during the coming
year could lead to more actuarial job losses.
However, consolidation efficiencies are largely
generated in other functions, or at senior
management level, so the actuarial job losses
aren’t likely to be that widespread. Insurers
recognise the important role played by
actuaries in various aspects of their business
and will want to hold onto that expertise
029_Actuary_0109_Sturgess.indd 29
where possible. Given the long-term nature
of insurance businesses, many actuaries ought
to be relatively recession-proof. Working
in a highly capitalised industry helps, but
even an insolvent insurer would need to be
run off over a number of years. Unlike other
industries, the doors don’t shut immediately.
Despite the recent turmoil, demand for
actuaries appears to be robust. Regulatory
change is helping create jobs, as insurers
need additional resources to prepare for
Solvency II and IFRS Phase II. These are
regulatory-change driven roles within
insurance companies but, even without
these changes, the events of 2008 suggest
that there may be scope for more scrutiny
and monitoring from the Financial Services
Authority (FSA). This is likely to generate
jobs at the FSA and create demand for extra
actuaries to move into regulation.
Greater demand
Pension funds continue to need actuarial
advice for ongoing valuations, but there
might be even greater demand from merger
and acquisition activity in various industries.
As insolvency threatens more companies,
there is greater potential for advice around
pension scheme wind-up or benefit changes
to help prevent employers ending up at that
point. There may also be additional work
around investment consulting and hedging
strategies to try to limit future losses.
Some of the Big Four companies actively
strengthened their pensions practices in
2008 and may continue to do so into 2009 if
demand continues.
The events of 2008 have highlighted
the need for adequate risk management.
The profession’s credentials in this area
leave it ideally placed to strengthen the
risk management functions at insurers and
other financial institutions in this period of
renewed focus. In his presidential address,
Nigel Masters commented that employers
in wider fields are starting to recognise the
value of actuarial skills, so maybe 2009 will
be our opportunity to broaden our horizons.
This could be true not only in terms of
employers but in the geographical sense
as well. Nigel Masters also commented
on the globalisation of professional
services, including actuarial services, in
his presidential address. Outsourcing of
actuarial roles has already begun at insurers
and consultancies. If this trend continues,
there will be more opportunities for
actuaries to spend time working outside of
the UK next year.
Although this period of uncertainty leaves
potential for a slow start to the year and the
possibility of further casualties, it also presents
opportunities for the profession as a whole
to flourish. What’s more, when we get to the
graduate recruitment season, there could be
a supply of high calibre numerate graduates,
who might previously have searched for
jobs in banks or other sectors, now looking
towards the Actuarial Profession. In my view,
it seems likely that the actuarial job market
will outperform others in 2009.
29
20/1/09 10:33:09
Personal development
Networking
Effective networking
Will Kintish gives some sound advice on how to
make networking work for you
N
Will Kintish is a coach
on effective and
confident networking.
He has worked with
the Bank of England,
Ernst & Young and
HSBC, in addition to
industry names such
as Watson Wyatt and
Lane Clark & Peacock
etworking is essential to career
and business success but few of
us are naturals and actuaries are
no different.
In today’s highly competitive world,
being a confident and effective networker
can set you apart from the crowd. You
become more visible, feel more in control
and can create greater business opportunities
compared to other professionals. However,
people generally find this aspect of their
working lives somewhat of a challenge.
Getting started
The core skill we need to be an effective
networker is to ask the right questions.
Wouldn’t life be so easy if we simply went
to an event and asked: “Are your present
advisers any good and, if not, would you
like to appoint us?” Unfortunately it takes a
little more subtlety than that. Asking a crude
question such as the one above will never
win you a piece of business — ever.
Professional advisers are particularly
uncomfortable with business development
in general and selling in particular. It’s not a
secure arena, not at all like being in your own
office giving advice and offering expertise.
When you go out looking for new business
there is always the possibility of failure and
being rejected. However, more staff, from
trainees upwards, are being encouraged to ‘be
out there’ networking.
Networking is simply building
relationships — it isn’t selling in the normal
sense. In fact, the two don’t mix — they’re
like oil and water. We network to spot
potential opportunities and meet later to
explore ideas. You sell yourself, not the firm.
Always remember you are an ambassador for
your own brand.
Help, do not sell
Not everyone can sell. If you don’t like
it, feel unenthusiastic and uncomfortable
doing it and most of the time look for every
opportunity to stay away from it, then
my strong advice is to avoid it. Simply ask
questions to find out if someone has an
issue they can’t handle or are using other
firms they’re not happy with. This then
becomes a potential opportunity to offer help
and advice, and subsequently adds value.
30
030_031_Actuary_0109_Kintish.ind30 30
Helping, rather than selling, makes it so
much easier in the mind of the reluctant
business developer.
The emphasis should be on ‘interested’
rather than ‘interesting’. Encourage others to
talk about themselves, show genuine interest
and be a good listener. You become extremely
interesting when you become interested.
When you meet someone who is happy to
talk about their business, and they are open
and forthright, there is no reason not to
determine the relationship they have with
their present advisers. When it’s a business
event, that is the reason why they are there
— looking for various opportunities.
When you feel you have built up some
rapport and empathy with the other person
and feel comfortable in their presence, then
you can explore this potential business
relationship. However, it is still not the time
to ask the question: “Will you change your
actuarial advisers to us, please?”
The 10 questions
Here are 10 questions to consider:
Do you mind me asking? After asking
the person about their business or
career you will be able to gauge the level
of their reactions. Start in a gentle manner,
if you feel the question might be sensitive
or you’re not sure what sort of response
you’ll get, always start with a ‘permissionasking’ question.
1
2
Who do you use at the moment? Be
very careful with your reaction when
you hear the answer. It is not what you say
but what your body language says. If you
believe the company they are using has staff
of dubious reputation, never criticise the
opposition, don’t even imply criticism.
Instead, use, “Yes, we know of them,” and
maybe add, “They have a good reputation.”
Do not be too generous with your praise.
3
How long have you been with
them? You need to ascertain early
on whether or not they have just
changed to their present advisers or if
they’ve been with them a long time. If
it is the latter, there is every chance the
present incumbent may be coming up to
retirement — a big potential opportunity.
19/1/09 14:34:16
View more careers advice at www.the-actuary.org.uk
Networking Personal development
4
What made you choose them? or
What criteria did you use to appoint
them? Never just ask “Why?”, as it is often
a challenging question unless asked in a
very gentle tone. It will be useful to know
whether the advisers were in place when
the person you’re chatting with joined the
company, or whether the person in question
appointed them.
5
What sort of services do they provide?
or What do you use them for? This
question is asked if it is likely that they use a
firm offering a number of different services.
You may also ask a supplementary question
at this point, such as: “Are they the only
company you use for that service?”
Fish — don’t harpoon
At this mid-point it may sound as if I am
asking you to walk around with a mental
clipboard and a series of prescriptive
questions. I suppose in a way I am but it has
to be a gentle exploration with lots of time
for answers, rather than an interrogation
under a strong spotlight.
We all know that it is not what you say, it
is the way that you say it. You’re just fishing,
and fishing is a delicate sport.
6
How often do you see them? This
will give you a rough indication of the
number of transactions they do.
7
Where are they based? If it is a
company you haven’t heard of, or it
has numerous offices, this could be useful
information. If their adviser isn’t local and
you are, and if they aren’t fully happy, this
can work in your favour.
8
How do you find them? This is one
of the most important questions you’ll
be asking at any business event. This is an
open question giving your partner a wide
range of answers. Please don’t ask, “Are
they any good?” or “What could they do
better?” Even the latter question suggests
that the person you’re talking to isn’t fully
happy with their present incumbent. This
key question should be asked in a matterof-fact manner.
Watch the person’s reactions very
030_031_Actuary_0109_Kintish.ind31 31
carefully as you’re listening for their
response. Unless you meet an accomplished
actor, people can’t lie with their body
language or with the tone of their voice. For
example, if someone responds by raising
their eyebrows, this will tell you a great
deal about the relationship. If they say, “We
think they’re superb”, don’t simply excuse
yourself and find someone else to talk to.
Ask, “Why do you say that exactly?” or
“What specifically do they do well?”
When people are satisfied be pleased for
them and say so. As long as you behave in a
respectful manner and build rapport, you are
setting yourself up to ‘sit on the subs bench’.
Things change all the time; companies change
hands, people move on and their personal
circumstances change. If you have made a
good impression and keep in touch every so
often, you have every chance of picking up a
new client in the future.
Networking isn’t a quick fix and if you’re
a member of the Impatience Society this
activity isn’t for you. At this point, you may
want to know who they work with there;
they could be a useful addition to your own
team one day.
If you get a neutral or negative reply, take
care with your next question. Even if they
really complain and grumble about their
present advisers, don’t agree with them.
Condemning the opposition does neither
party nor your profession any good. When
people want to have a good moan, just
listen and then start to ask one of the two
final questions below.
9
If there’s one thing you’d like them
to do differently — not better, that
implies criticism on your part — what
might it be?
10
What are you looking for from
your actuary? This question takes
the personalities out of the equation, which
can do no harm at all.
By way of a bonus question consider
asking: “If you were telling someone
else about the service you are presently
getting, what would you be saying?”
You are de-personalising the question by
asking it in this way.
The follow-up
If you find someone isn’t happy with their
existing advisers or they need some help,
what do you do next? That’s for another
day, another article.
In short, you need to follow up. Why?
If they’ve said they’re not happy with their
present advisers, the chances are they are
going to change one day.
31
19/1/09 14:33:44
Soft skills
Communication
Polish your communication skills
Juliet Erickson shares her tips for effective communication
to help you stand out from the crowd
Juliet Erickson is
an international
communication
coach and author
of The Art of
Persuasion and
Nine Ways to Walk
Around A Boulder.
She is also married
to an actuary
I
n my career as a communication
coach, I have seen many actuaries in
action. They have all demonstrated
strong intellectual, mathematical and
problem-solving skills. However, rarely did
they stand out as strong communicators.
At a time when there is pressure to
be relevant to clients, employers and
employees, it is essential to be effective
in this area. Being smart or clever is the
minimum expectation. Your ability to
differentiate yourself, or your firm, win
business and manage relationships, will rest
on your ability to communicate well.
What are the most important tips for you
to consider right now?
Become a subject matter expert on
your listeners
The more insight you have on your listeners,
the greater your chances of success. What
can you learn about them beforehand and
how well do you listen at the meeting?
Actuaries tend to be analytical by nature,
more comfortable with and interested in the
technical detail, rather than how the detail will
be understood and received by their listeners.
Of course content is important. However,
consider how your preparation would
change if you knew:
n The level of understanding your audience
has about your subject
n The barriers they have to accepting what
32
032_Actuary_0109_Erickson.indd 32
you have to say
n Who supports your idea, who is against it,
and why
n The key decision-maker’s priorities and
concerns related to your subject
n What they like about the subject or
anything you should avoid talking about.
Time spent understanding the audience
before preparing the content will cut
preparation time and improve effectiveness.
Approach your meetings and
presentations as conversations, rather
than monologues
This takes more preparation than you might
think. Your intention is to involve the
listener in the discussion or presentation. In
a conversation, there is more likely to be a
balance between talking and listening.
As subject matter experts, there is often a
tendency to bombard the listener with too
much technical information and detail, talk
too much or dive right into the content. This
is affectionately known as the ‘data-dump’.
The most frequent feedback from audiences
is that presentations came alive only during
the question and answer session. At that
point, speakers became more dynamic and
addressed the audience’s concerns. Many
analytic presenters prefer questions because
this makes them think and shows where they
can add value. However, their presentation
blocks audience participation with too much
technical detail or content. So if you structure
your meeting to prompt interaction, then you
can move more readily to a dialogue.
Become more flexible in your
communication ‘style’
We are all comfortable with our own signature
communication ‘style’. By that, I mean we all
have a certain preference for the way we do
things, most of the time. Don’t be that person
who stops getting invited to meetings, or
plays a small part in important presentations
because you can’t connect with the audience.
Think of those behaviours that are ‘typical’
of you. Whatever your style, whether it is
quiet, outspoken, cheerfully sociable or laid
back, you’ll most certainly get on better with
someone whose style matches or fits your
own. What happens when a client, boss or coworker whom you need to convince, persuade
or influence has a different style from yours?
Instead of jarring with someone whose
style is very different, you can work with
them, know what to expect from them and
respond in ways they will understand and
connect with.
Make rehearsal a habit
Boring — I know we have heard this over
and over again — however, I cannot reinforce
this enough. The best communicators in the
world are the most diligent at rehearsing. I
promise that the time you spend here is worth
it. Analytical people in general find rehearsals
boring. Perhaps in their mind they have solved
the problem in their presentation so, therefore,
the job is done. Convincing the audience is
not usually considered part of the solution.
For important meetings:
n Rehearse at least three times
n Plan your rehearsal ahead of the meeting
n Rehearse conversations too.
Ask a friend or colleague to watch you,
or role play with you — mirrors alone are
weird and they give bad feedback. If possible,
create an environment that is similar enough
to the place you will be presenting or
meeting. Be sure to rehearse questions and
answers and remember that your audience
can usually tell when you haven’t rehearsed.
Time and energy spent on improving
your communication is an investment that
will return benefits to your professional and
personal life. So get started.
19/1/09 14:26:03
Pensions
Gearing
Daniel Clarke argues that young savers should gear up and suggests how
pension funds could help
A
s a 28-year-old who expects to
retire well after the age of 60, I
would like to invest approximately
500% of my current defined
contribution retirement pot in risky assets.
I’m not an excessive risk-taker. I just want to
diversify my exposure over my working life,
and to do that I need to gear up when young.
The simple logic of gearing
Traditional advice for members of defined
contribution pension schemes counsels
an investment strategy of 100% equities
and other risky, return-seeking assets until
around 10 years before retirement, followed
by a gradual shift to bonds and cash.
Following such a strategy, my market
exposure would be quite small in my 20s
and 30s when my retirement pot would be
small, and unexpected market performance
wouldn’t substantially affect my pension at
retirement. However, in my 40s and 50s, my
retirement pot and market exposure would
most likely be much larger, leaving them
more at risk. The bulk of my exposure to
market risk would be over a 15-year period
in my 40s and 50s, by which time I would
have accumulated large funds to invest in
risky assets (see Figure 1).
If I’m going to expose my retirement
savings to a certain amount of risk over
my lifetime, why not spread out my risktaking a little by taking more risk when I’m
young and less when I’m old? In principle,
I should fully diversify my exposure to
market risk over my working life. Due to the
34
034+035_Actuary_0109_Clarke.indd34 34
Mortgages
There is already a financial product that
allows the young to gear up and diversify
exposure over time — it is called a mortgage.
Having purchased a house with a small
deposit and large mortgage, a young
homeowner can enjoy significant exposure
to the housing market over a long period of
time, despite low initial assets. This initial
gearing up is risky – a house price fall of 10%
could wipe out the entire downpayment
– but is supported by conventional wisdom.
By buying houses on credit, young
homeowners are doing a good job of
diversifying their exposure to the housing
market between time periods. Unfortunately,
as an investment strategy it is still quite
risky. By putting all their hopes on one large
lumpy asset, they are typically not doing a
good job of diversifying (see Figure 2).
Negative equity
One challenge when selling a geared
product to an individual is how to manage
credit risk. When a loan is backed by
collateral, default can be costly for the
lender if the market value of the collateral is
below the market value of outstanding debt
repayments. Where the asset is a property,
such a scenario is termed negative equity
and the lender would make a loss if the
borrower defaulted on their repayments.
Fortunately, financial assets are much
cheaper to trade than property and so a
geared retirement product could effectively
eliminate the possibility of negative equity
by automatically reducing a saver’s gearing
if asset prices fell too far. In addition, a
saver might wish to put a cap on gearing.
For example, capping the equity exposure
at £2 for every £1 of funds invested would
Figure 1: Units of equity exposure over time
Lifestyle
Fully diversified
Diversified, maximum gearing of 200%
Units of equity exposure
Daniel Clarke
is currently a
doctoral candidate
in economics and
part-time lecturer in
actuarial science at
Oxford University.
compounding nature of investment returns,
this would mean holding the same number
of units of a portfolio or index in each year.
I could improve on a traditional lifestyle
investment option by purchasing a portfolio
of risky assets when young, by borrowing
to fund the purchase. Over my working life
I would then pay off the debt, eventually
owning the asset portfolio outright. By
diversifying my risk-taking over time, I
could reduce the variance of my pension
without affecting the mean.
In a recent paper, two Yale University
professors, Ian Ayres and Barry Nalebuff,
demonstrate this using historic equity
market data (Life-cycle investing and
leverage: buying stock on margin can reduce
retirement risk, available at www.tinyurl.
com/6o3jv4). In one of their calculations,
they use UK Index data from 1937,
compounding with the FTSE All-Share from
1962, to compare a strategy of 100% equity
investment with a strategy that takes a
similar amount of equity risk but tries to
spread out exposure over time, subject to
a maximum gearing level of 200%. Their
simulations show that investors following
the geared strategy increase the mean of
their pension by 24%, while reducing the
standard deviation by 5%.
20
25
30
35
40
Age
45
50
55
60
65
20/1/09 10:29:24
Search pensions jobs at www.jobs.the-actuary.org.uk
Pensions
Gearing
Intergenerational lending
mean that funds would only be fully wiped
out by a sudden fall in the equity market
of one half. Gradual falls would not fully
wipe out assets as any equity fall would
lead to a more than proportionate decrease
in equity exposure.
One possible concern is that a cap on
gearing would induce some degree of pro-
cyclicality in exposure to risk, with a more
than proportionate decrease in exposure
after poor performance. This could cause
market instability if all young investors were
forced to sell risky assets at exactly the same
time. However, negative effects could be
avoided if exposure was flexible in the event
of substantial market movements.
Figure 2: Mortgages versus defined contribution pensions
Does the product allow the individual to:
Typical defined contribution lifestyle plan
Diversify over time?
Diversify over assets?
Partial
Yes
Home purchase with mortgage
Yes
No
Hypothetical geared plan
Yes
Yes
Figure 3: Example of flexible gearing through
intergenerational lending
Initial assets
Target equities
Younger member
Older member
Total pension fund
£50 000
£400 000
£450 000
200%
50%
Notional equities
£100 000
£200 000
£300 000
Notional bonds
-£50 000
£200 000
£150 000
Equity return (+20%)
+£20 000
+£40 000
+£60 000
Bond return (+10%)
-£5000
+£20 000
+£15 000
Borrowing fee (1%)
-£500
+£500
0
Total return
+£14 500
+£60 500
+£75 000
End period assets
£64 500
£460 500
£525 000
034+035_Actuary_0109_Clarke.indd35 35
Pension funds could gear up and unwind
indexed positions quickly and cheaply on
behalf of their young members by buying
and selling forward contracts on indices.
Moreover, young members could gear up
in a more flexible way if older members of
the same scheme were willing to lend them
assets to invest in risky assets. The pension
fund would have to monitor gearing levels
of younger members to protect against
credit risk but otherwise this solution
could be cheap and allow flexibility in
investment strategies.
For example, suppose a 60-year-old has
a fund of £400 000 and wishes to invest
£200 000 in an equity fund and the rest
in an index-linked bond fund. A younger
member has a fund of £50 000 and wishes
to invest £100 000 in the same equity
fund. The pension fund could invest
£300 000 in the equity fund and
£150 000 in the bond fund and then share
the gains as per each member’s investment
strategy. In the scenario outlined in
Figure 3, the younger member has made
a bigger gain than from a strategy limited
at 100% equity exposure. Meanwhile, the
older member has made an extra £500 by
lending equities to the younger member.
Market turmoil
With the effects of the credit crunch
and house price bubble still being felt,
now may seem to be an inopportune time
for actuaries to be making the case for
young savers to gear up. However, viewed
as a long-term endeavour, the arguments
are compelling.
The mortgage remains a popular
product, in spite of recent events. Geared
retirement savings products have the
potential to help savers with low initial
assets provide for a comfortable retirement
while reducing lifetime risk. UK actuaries
are well placed to make the case for these
products, and to take a lead in design
and implementation. I look forward to
purchasing one soon, and increasing my
expected pension by 24%.
35
20/1/09 10:29:56
Pensions
Company longevity
Staying power
Gary Squires comments on company longevity, or the lack of it,
and its impact on pension scheme funding
T
Gary Squires is a
partner and leads
the pensions
advisory team at
Zolfo Cooper Europe
he high-profile demise of highly
successful, long-established
institutions, such as Lehman
Brothers and Bear Stearns, and
difficulties faced by others such as AIG
and HBOS, has dominated headlines as we
head towards a global recession. They are
a stark reminder that the idea of enduring
corporate success is an illusion and pension
schemes are not immune to the effects of
the boom-and-bust cycle.
The analysis of current and likely future
financial performance of sponsoring
employers is a vital component of the
assessment of employer covenant.
We have looked at the fortunes of the
companies making up the FTSE 100 in
December 1988 and December 2008 and
it shows that there are few companies for
which the past 20 years has been a story of
steady, uninterrupted success. The results
show that success is transitory and that strong
performance is subject to ebb and flow.
Of the 100 companies comprising the
index at the end of 1988, only 33 remain.
Of the other 67 companies, 15 were either
acquired by, or merged with, another
current FTSE 100 company, 42 were taken
private or acquired by a non-FTSE 100
company, three have been demoted, four
broken up and three ceased trading (British
& Commonwealth Holdings, Maxwell
Communications and Woolworths).
Of the 33 companies that remain, 16
have outperformed the market in the past
decade. Arguably, therefore, only 16% of
the companies making up the FTSE 100 in
December 1988 can be considered to have
experienced some sort of lasting success.
These findings are interesting, but what
relevance do they have for defined benefit
pension scheme trustees?
Risk of complacency
Employer covenant is a function of
the employer’s ability to pay scheme
contributions and make good scheme
deficits, coupled with its willingness to pay.
The covenant significantly weakens if the
employer is trading poorly, suffering losses
and absorbing cash. When covenant is weak,
trustees must attempt to obtain a measure of
protection for the scheme’s liabilities, often
in the form of guarantees or security.
There is a risk of complacency for both
trustees and management of companies
that are currently trading strongly. Trustees
may assume that they need take no action
on protection for pension scheme liabilities
due to the appearance of continued success
of the sponsoring employer. Current strong
trading and an implied strong covenant is
not necessarily an indicator of continued
success. We have seen that long-term
Table 1: Fate of companies on FTSE 100 at December 1988
Demoted
3%
Acquired/merged
42%
Acquired/
merged
with another
company on
index
15%
Still on index
33%
Broken up
4%
Ceased trading
3%
36
036+037_Actuary_0109_Squires.ind36 36
22/1/09 13:55:48
For more features, visit www.the-actuary.org.uk/issue
corporate success over periods of 20 years is
an illusion. These timeframes are short-term
compared to the average remaining life of a
defined benefit scheme of 60 to 70 years.
It is important for trustees to act prudently,
even when covenant is strong. Ironically,
the time for trustees to act on obtaining
protection is when the company is healthy
and, therefore, when it is most able to pay
— because, as we have seen, the good times
won’t last forever. When employers are in
serious financial difficulties, it may already
be too late to obtain additional funding for
the scheme, as it is at times like this when the
ability to pay is lessened. Cash is scarce, assets
become impaired, other creditors scramble for
security, and company guarantees may not be
worth the paper they’re printed on.
If there is a degree of complacency
from trustees and management, perceived
corporate and covenant strength can also be
adversely affected by other drivers identified
in our analysis of the FTSE 100 changes.
For example, a corporate transaction,
such as a merger or acquisition, may not
adversely impact trading but may have
implications for covenant. Acquisitions
may be highly leveraged, which may result
in more of the company’s cash flows being
needed for payments of interest and capital
and potentially less available for the funding
of pension liabilities. Also, the unsecured
pension ‘creditor’ falls further down the
payment priority pecking order if a high
level of secured debt is introduced to the
balance sheet.
Different priorities
New (possibly overseas) owners or venture
capitalist backers may be less willing to
pay for pension liabilities. They may
have different investment priorities from
existing management, and funding for non-
Table 2: Performance of ‘FTSE 33’ companies against index
1998 to 2008
Underperform
14
Outperform
16
Neutral
3
Performance against index over 10 years (1998-2008) of the 33 companies that have
remained on the FTSE 100 since 1998
036+037_Actuary_0109_Squires.ind37 37
Pensions
Company longevity
operational or non-capital purposes, such as
pension funding, may be constrained.
There are also more intangible effects
— for example, trustees may rely on past
good relations with management and
management intentions in lieu of say, a
formal guarantee for pension liabilities.
Existing management teams may be
changed or replaced by an acquisition or
merger, rendering gentlemen’s agreements
of little worth.
In conclusion, the employer covenant
assessment is an increasingly important
responsibility for trustees. This can be
both a challenging and complex exercise,
especially as we have seen that the illusion
of continued corporate strength can lead
to complacency, and result in missed
opportunities to obtain protection for
scheme funding.
Independent advice is an increasingly
essential part of the covenant assessment
process, as advisers can take an objective
view of the sponsoring employer, provide
advice on negotiating protection measures
and implement monitoring procedures to
flag warning signs to trustees in a timely and
appropriate manner, allowing trustees to act
to protect the scheme’s interests.
37
22/1/09 13:56:13
Financial crisis
Liquidity
What are your liquidity needs?
Paul Stanworth and Adrian Lawrence consider why regulatory influences may lead to
inconsistencies between the liquidity of firms’ assets and liabilities
T
Paul Stanworth is
managing director,
Bank of America
Merrill Lynch
Adrian Lawrence
is head of onshore
product governance,
Barclays Global
Investors
he current crisis has highlighted
that inconsistencies exist between
the liquidity of assets and liabilities
for different types of financial firms.
In this article, we consider the regulatory
influences that may lead to this.
Firstly, we consider the liquidity
of the liabilities as how predictable
customer withdrawals are, and how much
optionality a customer has to withdraw
cash early; similarly, the liquidity of assets
as the cost of liquidating assets to meet
customer requirements.
Then we investigate the pattern of
balance sheet liquidity by ranking the
assets and liabilities. The recent poor
financial conditions have demonstrated
that asset liquidity can change dramatically
and very quickly — it is not a stable metric.
Similarly, recent runs on banks show that
customers exercising their options to
withdraw funds can rise significantly in
stressed situations.
For the purposes of this article though,
we consider liquidity as ‘high’, ‘medium’
or ‘low’ (assuming normal conditions).
‘High’ liquidity for liabilities means
customers can quickly and cheaply cash in
their policy or account. Similarly for assets,
‘high’ means that firms themselves can
quickly and cheaply convert their assets
into cash.
Balance sheets
For banks, the main funding customers
(depositors) have very little penalty on
withdrawals, so the liquidity of banks’
liabilities is ‘high’. The typical exposure to
assets held by banks is described in Table 1.
Overall, banks have ‘low’ asset liquidity.
For insurers, the three key business lines
and their liability liquidity are:
n Annuities: Low
No real optionality for policyholders and
the incidence of mortality is relatively
predictable; even if customers do die
unexpectedly, this does not usually trigger a
cash flow strain.
n With-profits savings: Medium
There is optionality for policyholders to
withdraw early but with a penalty, and
the incidence of withdrawal is relatively
predictable. Also, in the absence of
surrender guarantees, the values paid
are broadly under the control of the life
company.
n Unit-linked contracts: Medium to high
There is optionality for policyholders to
withdraw with fairly fixed penalties. Also,
for the most illiquid asset types such as
real estate, there are often provisions to
defer redemption.
The typical exposure to assets held by
these three key business classes is described
in Figure 1.
Table 1: Financial firms’ typical asset liquidity
Traded equities
Traded bonds
Global Financial Crisis Group
This is the first of three articles this
month from the Actuarial Profession’s
Global Financial Crisis Group. On page
40, Paul Fulcher and Colin Wilson
consider the impact of the financial
crisis on liquidity premiums and, in
a web exclusive, David Dullaway
argues that the role of the liquidity
premium in market-consistent
annuity valuation may be distorted
by current economic factors. Visit
38
038+039_Actuary_0109_Stanworth.i38 38
Asset
liquidity
Banks’
exposure
Unit-linked
offices’
exposure
Annuity
providers’
exposure
With-profits’
exposure
High
Very low
High
Very low
High
High
High
High
High
High
Medium
Medium
High
Very low
High
Private equity
Low
High
None
None
Low
Private debt/
loans
Low
Very high
None
Very low
Very low
Low to medium
Very high
None
Very low
None
Structured
investments
Low
High
Low
Very low
Very low
Physical
commodities
Low to medium
Low
Low
None
Very low
Medium
High
Low
None
Low
High
Very high
Low
Low
Medium
Variable
High
Low
Low
Low
Low
High
Medium to high
Medium to high
Property
Mortgages
FX
Derivatives
Cash
Average liquidity
19/1/09 14:50:17
For more features, visit www.the-actuary.org.uk
Financial crisis
Liquidity
Arguably, the existing stock of
illiquid assets in the economy is not
currently being held most efficiently. If a
reallocation of liquidity was possible, it
would be beneficial to both the banking
and insurance industries. The former
would benefit by a reduction in liquidity
stress and the latter by an increase in
investment return as compensation for
liquidity foregone.
Regulatory influences
Banks have a role in the financial system
to take deposits from customers and then
lend into the economy. To support this role,
central banks exist as lender of last resort, in
addition to the clearing role of the interbank lending market.
For savings, insurers warehouse wealth
and invest these savings in the economy.
In this respect they have a similar, but
longer-term role compared to banks. The
key differences are that they have no lender
of last resort, or a similar inter-firm lending
market to clear liquidity.
In addition to the central bank role,
the key Financial Services Authority (FSA)
insurer constraints on liquidity are:
n Permitted link liquidity requirements
— the readily realisable rule. While the
wording has been made more vague, it has
not been removed
Figure 1 : Bank and insurance company balance sheet
liquidity compared
Liability
liquidity
Asset
liquidity
High
High
Unit-linked
Banks
With-profits
Unit-linked
Annuities
With-profits
Annuities
Low
Low
n Assets that are not listed are typically
treated less favourably in the admissibility
and valuation rules.
For banks, despite some FSA shortterm liquidity requirements, they can
and do invest in very high proportions of
illiquid assets.
Given the current lending crisis and the
potential efficiency gains for the economy,
shifting more illiquid assets from the UK
banking sector to the insurance sector may
be a more sensible allocation of available
capital. As part of the FSA’s reaction to the
crisis, it may be timely to also consider the
appropriateness of constraints on insurer’s
liquidity and create a more level playing
field between financial institutions.
Banks
038+039_Actuary_0109_Stanworth.i39 39
39
19/1/09 14:49:40
Financial crisis
Liquidity premiums
The value of liquidity
Paul Fulcher and Colin Wilson discuss the rationale for including liquidity
premiums in the valuation of annuity business
liabilities, although in December 2008,
news came that the MCEV principles are
under review.
What is the ‘liquidity premium’?
Paul Fulcher is a
managing director
in the risk advisory
team at UBS
Investment Bank
Colin Wilson is a
senior consultant at
specialist financial
risk consultant
Barrie & Hibbert
U
nder the regulatory peak, life
insurers are required to make a
deduction in the valuation rate
of interest for that part of the
yield representing compensation for
default risk. In the past, this has been
done by reference to historic default
rates, typically stressed for prudence. The
resulting discount rate typically exceeds
the government bond rate, the difference
being attributed to a ‘liquidity premium’.
Calculations under the European Embedded
Value (EEV) methodology typically use a
similar approach.
The credit crunch has made this
approach problematic and even
controversial. Even stressed historic
default rates are significantly less than the
spreads now available on corporate bonds.
Consequently, the mark-to-market losses
on insurers’ bond portfolios have been
largely offset by similar reductions in the
reported value of liabilities.
In October 2008, the Financial Times
opined that “life assurers should not
be using rising yields on corporate
bonds to reduce estimates of their
future liabilities. The higher yields...
represent a higher risk of default and added
potential costs”. However, a later article
suggested that “the markets are utterly
divorced from fundamental value or risks
of defaults”.
In contrast, both Solvency II and
Market Consistent Embedded Value
(MCEV), as currently construed, would
require annuity liabilities to be discounted
at the same swap rate as other more liquid
40
040+41_Actuary_0109_Fulcher.indd40 40
The spread on corporate bonds over
the liquid risk-free rate (for example,
government bonds) represents
compensation for several different factors:
A Expected default losses
B Unexpected default risk, such as default
and recovery rate risk
C Mark-to-market risk, such as the risk of a
fall in the market price of the bond
D Liquidity risk, such as the risk of not
finding a ready buyer at the theoretical
market price.
Investors concerned with the realisable
value of their investment in the short-term
require compensation for all these risks.
However, investors who can hold bonds
to maturity need compensation only for
A and B. Such investors can enjoy the
premiums for C and D, and we refer to these
collectively as a ‘liquidity premium’.
The traditional method for credit
deductions only allowed directly for
expected default losses, albeit measured
on a prudent basis. The Financial Services
Authority (FSA), in its September 2008
Insurance Sector Briefing, observed that
insurers should allow for both expected
losses and the risk of unexpected losses,
although they subsequently deferred any
recommendations until later this year.
Market evidence
In current dislocated markets, there
is strong evidence that there are high
premiums for liquidity. Indeed, the crisis
arose from a liquidity crunch. The high
premiums attached to long-dated illiquid
bonds are the flip side of the 0% yield
on one-month US dollar Treasury bills
auctioned in early December.
One approach to seek to quantify
the market compensation required for
default risk is to look at the spread on
credit default swap (CDS) contracts.
A corporate bond hedged by a CDS is
not risk-free — and certainly subject
to significant liquidity risk and price
volatility. However, the ‘basis’ between
the CDS premium and the spread on a
corresponding corporate bond is typically
close to zero.
Figure 1 shows the premium for the
liquid iTraxx CDS index over the past three
years and the spread over swaps for a closely
corresponding bond index — we see a
strong negative basis in 2008, evidence of a
high residual liquidity premium.
Other market evidence of high liquidity
premiums includes:
n Rises in typical bid-offer spreads from
6bps for iBoxx Sterling corporate bonds
in the first half of 2007 to over 40bps in
October 2008
n The attractive premiums paid on collateral
funding trades, where insurers essentially
rent their liquidity to a bank.
Figure 1: Comparison of bond and CDS indices
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See also: page 38 and www.the-actuary.org.uk/834591
However, this does suggest one change
to the current approach for valuing annuity
business under Peak 1 and EEV — the use of
a liquidity premium in valuing the liabilities
need not necessarily depend on the actual
assets held.
Figure 2: Average A-rated credit spread decomposition
(1970 onwards calibration)
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Decomposition of credit spreads
The FSA drew life assurers’ attention to the
model developed by the Bank of England.
This is an example of a structural
credit model that attempts to decompose
corporate bond spreads. These models
do not directly quantify the liquidity
premium, but rather quantify the market
premium required to compensate for
expected and unexpected default risks
(A and B above), leaving a residual
premium that can be attributed to liquidity
and other factors.
Figure 2 shows a decomposition of
A-rated corporate bond spreads relative to
gilts over time from a model developed by
one of the authors. This shows that while
expected defaults and credit risk premiums
have risen (from 27bps in June 2007 to
221bps in September 2008), liquidity
premiums have also risen sharply over the
period (from 64 to 175bps). Hence around
40% of the spread widening on corporate
bonds in the credit crunch represents
widening liquidity premiums rather than
credit premiums, consistent with the 30%
to 70% range suggested by the Bank of
England model during 2008.
These models are not without their
issues. For example, in the Bank of England
model, the residual premium on Sterling
investment grade bonds fell from 155bps at
30 September 2008 to a negative premium
038+039_Actuary_0109_Fulcher.ind41 41
9ZX
%,
BVg
%-
?jc
%-
HZe
%-
of -9bps on 10 October, before rising to
118bps by the end of October. This is
due to the use of equity market volatility
to quantify credit default risk — on
10 October equity markets fell 10% with
corresponding spikes in volatility, while
credit markets were largely unaffected.
Nevertheless, structural models provide a
valuable new tool for actuaries to quantify
liquidity premiums, and also strong
evidence of their existence.
Does inclusion of a liquidity premium in
valuations violate market consistency?
The recent market dislocations may give
pause in the march to market consistency.
However, we would still, to misquote
Churchill, argue that market consistency is
the worst form of valuation, except for all
the other forms that have been tried.
The use of liquidity premiums in liability
valuations does, as stated, have the impact
of absorbing at least some of the mark-tomarket losses on assets within liabilities.
However, we do not believe that it
violates market consistency. Indeed, the
theoretical replicating portfolio for annuity
liabilities would be a portfolio of totally
credit risk-free but highly illiquid assets,
and while such an asset does not exist in
the real world the use of a discount rate
incorporating a liquidity premium may be
the best proxy.
There is strong evidence for the existence of a
premium for both liquidity and mark-to-market
risk, particularly in current distressed markets.
Annuity liabilities are highly illiquid, and
even in a market-consistent framework such
as Solvency II, should be valued allowing for
the associated liquidity premium.
However, insurers will need to develop
more sophisticated methods to quantify
liquidity premiums than just reliance on
historic default statistics.
Further articles from the Profession’s Global Financial
Crisis group can be seen on page 36 and online at
Further reading
n Presentations at the Open
Forum on Liquidity Premia,
November 2008: www.actuaries.
org.uk/knowledge/publications/
conferences/open_forum_
liquidity_premia_in_the_current_
environment
n Credit Derivatives by the
Derivatives Working Party,
presented to Faculty in January
2007: www.actuaries.org.uk/__
data/assets/pdf_file/0004/27445/
credit_derivatives_20060126.pdf
n Decomposing corporate bond
spreads by Webber and Churn,
Bank of England Quarterly Bulletin
2007 Q4: www.bankofengland.
co.uk/publications/quarterlybulletin/
qb070403.pdf
n Decomposing credit spreads by
Churm and Panigirtzoglou, Bank of
England Working Paper no. 253: www.
bankofengland.co.uk/publications/
workingpapers/wp253.pdf
41
19/1/09 14:29:12
Economics
Generation Y
What now for Generation Y?
Martin Cowie examines the effect that the financial crisis will have on a
debt-addicted generation of young adults
Martin Cowie is a
senior consultant
within the life
insurance division
of the actuarial and
insurance solutions
practice of Deloitte.
His views are his
own and do not
represent those of
Deloitte
T
he existing financial crisis will only
be resolved by a group of people
who are more concerned about the
contents of their iPods. Changing
demographics is a primary driver for
economic patterns influencing spending and
wealth accumulation. The solution to the
current financial turmoil lies with its silent
victims. What happens over the course of the
next five years is dependent on the response
of a generation already addicted to debt.
Throughout the Second World War, UK
birth rates collapsed and then dramatically
increased immediately following the end of
the war. The temporarily dampened birth
rates resulted in a population wave that
rippled through time leaving three distinct
post-war generations in its wake:
n The Baby Boomers (born between 1946
and 1960) — children of those who served
during WWII and currently at the peak of
their social influence.
n Generation X (born between 1960 and
1975) — those born during a recession.
Generation X is often referred to as the
‘trapped generation’.
n Generation Y (those born between 1975 and
1990) — children of the Baby Boomers and
who are becoming today’s junior managers.
Relative size of the generations is a
subjective measure and dependent on how
each is defined. However, some suggest that
42
042+043_Actuary_0109Cowie.indd 42
Generation Y is as large as the Baby Boomers,
with Generation X being as little as just 20% of
the Baby Boomer population. The relative mass
of each generation provides social impetus
and influence on commerce and politics.
The competing gravity of the two largest
generations, coupled with Generation X’s
renowned cynicism, will result in the rapid
change of focus from the Baby Boomers to
move almost directly to Generation Y.
Social influence
Individuals are influenced by the economic
and social climate throughout their lifetime.
These influences impact a person’s attitude
to employment, relationships and personal
finances. To understand Generation Y, and
in comparison to the Baby Boomers, it is
important to consider the environment in
which each generation matures.
Figure 1 shows summary economic data
from the end of WWII over the period 1947
to 2007. The following comments can be
made about the UK during that time:
n Household and national wealth has
increased considerably over the past 60 years.
n There have been three distinct recessions:
the early 1970s, the late 1980s and
finally the late 1990s. Associated with
each recession are marked increases in
interest rates, inflation and lagged spikes
in unemployment, all contributing to
challenging social and economic conditions.
n Baby Boomers and Generation X, in
particular, have been affected by periods of
uncertain economic activity at critical lifestyle
development ages (ages 18-25). It is this
that is attributed to Generation X’s cynical
outlook. On the other hand, Generation Y
has grown up during an exceptional period
of low interest rates and cost inflation with
unprecedented asset price inflation.
In addition, social influences have shaped
each generation, and this has never been
more evident than with Generation Y.
The popularity of two full-time employed
parents has resulted in the UK’s increased
wealth being concentrated in ever-smaller
families. Generation Y has enjoyed
privileged access to a parental financial
safety net on a scale not seen before.
It is this combination of historical
economic events, social evolution and
inopportune timing that now means
Generation Y will become the silent
victims of the credit crunch. There are
fundamental differences in attitudes
between the Baby Boomers and Generation
Y, which offer the Baby Boomers the
potential to undermine the long-term
financial stability of the UK economy.
Generation Y is a group of young adults
whose financial attitudes are forged out of
cheap debt and easy credit. It also considers
debt in relation to historically low level
interest rates, and struggles to translate its
borrowings into an economic environment
witnessed by its parents. As mentioned,
Generation Y has access to safeguards
and ‘a lender of last resort’. Given this,
it is not surprising that a recent building
society survey indicates the vast majority of
Figure 1: Economic context of each generation
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19/1/09 14:39:00
For more features, visit www.the-actuary.org.uk
Economics
Generation Y
Generation Y who have access to credit, are
indeed in personal debt. These conditions
encourage a culture of reckless borrowing,
and it is this attitude to debt that may
have helped fuel unsustainable increases
in consumption when considered against a
more pessimistic economic outlook.
Too little, too late
Generation Y is ill-equipped to understand
the extent of the current financial turmoil
and its potential implications. The Financial
Services Authority’s response to widespread
financial illiteracy will prove too little, too
late, with the Money Guidance Pathfinder
only in pilot stage and little other initiatives
for public education. This financial illiteracy,
coupled with extensive borrowing, leaves
Generation Y particularly exposed to a
recession that it is unable to articulate, as it
does not occupy sufficiently senior roles in
the public or private sectors.
The Baby Boomers will also be exposed to
the aftermath of the credit crunch and strive
to protect their own financial wellbeing.
Dramatic falls in the stock market have
eroded the value of savings and pensions
held by Baby Boomers and for some this
has happened at a pivotal moment in
which they move to a position of asset
decumulation. Other assets held outside
financial institutions, most notably property,
have suffered a fall in value after years
of high growth. Arguably, and ironically,
growth in property value has been fuelled by
Generation Y’s determination to own their
first homes, financed through high borrowing
ratios. In contrast to Generation Y’s position
of weakness, their parents enjoy a position of
dominance, allowing them to take steps to
avert the erosion of their personal wealth.
Any fiscal policy, to avert recession or
otherwise, is subject to public checks and
controls. These controls can be of several
forms: parliamentary oversight, independent
watchdogs, preservation of political capital
or general public interest via the media. It
is worth noting that all sources of current
oversight are led by members of the Baby
Boomer generation, simply through their
seniority in management roles. Generation
Y is further hampered by two factors: means
of communication and political apathy.
042+043_Actuary_0109Cowie.indd 43
Generation Y interacts with the world in a
different fashion from the Baby Boomers. It
depends on new means of communication
(social networking, the internet and mobile
telecommunications) and is less reliant
on traditional means of communication
(print and television). Generation Y is
more cynical towards politicians and less
inclined to vote, again through growing up
in a period of prosperity, and not polarised
by historical political events. The two
characteristics coupled together have the
potential result that Generation Y’s views are
not heard or represented by government.
The dilemma is clear: Baby Boomers
must strive to limit the potential economic
downside, and in doing so will protect
their existing assets, without inadvertently
burdening Generation Y with unmanageable
levels of debt and compromising longterm economic recovery. A careful balance
must be struck to allow some asset price
bubbles to deflate and establish sustainable
long-term growth whilst preventing a deep
recession. The Baby Boomers must resist the
temptation to protect their own short-term
interests at the expense of Generation Y in
the presence of a lack of oversight. It may
be that an already overstretched Generation
Y is left footing the bill to any planned
rescue package following Baby-Boomer-led
initiatives to maintain current asset prices.
The response of the UK authorities to the
current financial crisis is to increase public
borrowing to fund existing spending levels.
The actuarial profession is in a pre-eminent
position to quantify and understand the
long-term implications of debt financing
with respect to ageing generations.
Furthermore, this long-term perspective is
of paramount importance as the balance
of benefactors is likely to straddle the
working lifetimes of the Baby Boomers and
their retirement. Generational financial
development is a pillar of treating customers
fairly, which must be extended well beyond
the customers of an insurance company.
Further information
n A political think-tank, Reform,
labelled Generation Y as the IPOD
Generation (Insecure, Pressurised,
Over-taxed and Debt-ridden).
www.reform.co.uk
n A report by the Skipton Building
Society found that 73% of people
under the age of 35 in Yorkshire
have some form of debt, with the
average person owing £8477 and
their biggest monthly expense on
average, other than rent or mortgage
payment, was servicing debt. www.
skipton.com/press_office/publicity_
campaigns/the_tiswas_generation/
newsRelease.aspx
n Generation X was labelled by a
novel of the same title by Douglas
Coupland, which charts the lives
of three young Californians who
withdraw from mainstream society.
A cursory mention of Generation Y
as the forthcoming generation gives
Generation Y its label.
43
19/1/09 14:39:34
Student page
Jen & Jean
Jen and Jean discover what a Faculty and Institute
merger will mean for actuarial students
Points of view
From 2010, CA3 will become a
two-day course. In 2009, students
will have the choice between
the course and the current
written exam. So how do the two
compare? Go to www.the-actuary.
org.uk/832788 to find out.
While studying, your main priority is to get
through your exams. Whether a student with
the Faculty or the Institute, we sit the same
exams, are marked by the same examiners
and struggle to succeed in the same way.
So why should we care if the Faculty and
Institute merge? Katie Lowe of Mercer and Joe
du Toit of Friends First Group explain the two
sides of this important debate.
Jen and Jean
Katie Lowe
the Joint Council. The proposed merged body
would have one smaller body, the Senate,
allowing decisions to be taken more speedily
and efficiently.
Feedback also suggests that the outside
world is confused by their being two
actuarial bodies in the UK. A merger would
allow us to have a stronger ‘brand’ and
potentially higher influence.
These practical arguments may not alleviate
the concerns felt by many members, that
history and traditions will somehow be
lost if the Faculty and Institute merge. As
a member of the Faculty, I am extremely
proud of its history but I do not believe
that history is lost because an organisation
changes. A merged body will have the
history of both the Faculty and Institute,
and both Councils are making significant
efforts to ensure that the achievements and
traditions of both will be honoured.
There is also concern that the high levels
of involvement in the profession of Scottish
actuaries will be eroded. To prevent this, the
proposed structure will include a Scottish
Council, well represented on the Senate,
which will provide a focus for Scottish
actuaries to continue the existing vibrant
community and pursue actuarial activities.
In summary, the immediate impact on
you will be limited, but longer term you
will benefit from being a member of a more
efficient professional body which can respond
quickly to changes.
The merger goals are achievable at lower
cost by voluntary membership transfer.
Students who have chosen the Institute over
the Faculty, and had the choice of transferring
to the Faculty at any time, would have their
initial choice, and current choice to remain
in the Institute, overruled by the merger. Had
this been fully disclosed, the outcome of the
Institute’s in-principle vote might have been
rather different.
Trends toward enhanced Scottish
devolution necessitate a Scottish actuarial
body. For example, Spanish Catalonia, having
devolved government, has an independent
actuarial body in full membership of the
GC. The token ‘Scottish Council’ will carry
less clout than, for instance, the Chartered
Accountants who have an independent
Scottish body.
The merger provides for a ‘Scottish Council’
but no ‘English Council’. Why should
‘Scottish Council’ members influence matters
relating solely to England, while the rest has
to defer to ‘Scottish Council’ on solely Scottish
matters (the West-Lothian question)?
The Faculty’s consultation survey secured
less than the requisite two-thirds majority for
merger on agreed terms, yet both Councils
continue to press on.
Concerned Faculty and Institute members
established FIDELIS to restore balance to
the merger debate. Members from three
continents include former Faculty presidents
and former vice-presidents of both the Faculty
and Institute.
The name FIDELIS is derived from the
Faculty motto ad finem fidelis – faithful to the
end – and signifies that members are faithful
to the continued existence of both the Faculty
and Institute as the world’s first actuarial
bodies from which many others have sprung.
For more information on the merger, see
www.actuaries.org.uk/members/merger_discussion
and www.fidelisdefence.com.
Before I joined the Faculty Council last year,
like many others, I was concerned about a loss
of traditions and heritage. However, as I have
learnt more about the proposals and the status
quo, I have become convinced that a merger is
the best way forward for the Profession.
The vision of both existing Councils is to
create a more efficient, dynamic and forwardlooking profession to better serve its members.
Although the profession is effectively run
as one body in most respects, including all
finances, member support services and events,
the governance is cumbersome. The Councils
of both organisations meet separately and
then jointly, with many decisions and
discussions undertaken by the 57 members of
Joe du Toit
Students’ actuarial careers still lie ahead. So,
whatever affects fellows is of even greater
concern to us. Independent local bodies are
the trend, for instance, South African and
Irish actuaries gradually ‘de-merging’ from
their UK parent bodies, while strengthening
co-operation in the International Actuarial
Association. The merger would halve the
UK’s representation where globalisation
plays out: IAA and Groupe Consultatif (GC).
The Faculty continues to attract students
despite joint examinations and easy transfer
to the Institute. Had students “cared for the
merger”, Faculty student intake would have
trickled to insignificance, and students would
have transferred to the Institute.
The merger proposal entails Institute
closure, her members shoved into the Faculty,
and the latter’s Charter amended – based on
technical motivation to base the merged body
on the Faculty Charter.
44
CA3 IS CHANGING
044_Actuary_0108_Student.indd 44
20/1/09 10:36:37
People
AOTF
Could Varun Sood of HSBC have come from a galaxy far, far away?
Or is he just an Actuary of the Future?
Varun Sood
Success is about winning the war, not every
battle (especially true for an actuarial career).
Music System and my new iPhone.
Global actuarial function, HSBC,
life insurance.
What’s your best attribute?
Honesty — I got it from my Dad.
Spend time with friends, playing games on
my Xbox and squash.
Date entered Profession
And your worst habit?
Tell us something unusual about yourself
November 2007.
I am stupidly honest.
Describe yourself in three words
Independent, noble and global.
What is most likely to irritate you
about others?
What’s the best thing about your job?
When people start speaking and commenting
before listening.
Lately, I’m fascinated with the universe as a
whole. I spend lots of time thinking about its
underlying forces, the reason for its, and our,
existence, and whether or not we are alone
in the universe. Probably due to too much
exposure to Star Wars.
The team I work with. It is based across two
continents, yet works seamlessly.
Alternative career?
And the worst?
I would dedicate my life to astronomy and
the search for extraterrestrial life.
Employer and area of work
Cut — copy — paste.
Tell us your formula for success
How do you relax away from the office?
Who would you most like to be stuck in
a lift with?
Anne Hathaway — because she is gorgeous.
Favourite book//gadget?
If you would like to nominate someone for Actuary of
The Kite Runner, Khalid Hosseni. My new Bose
the Future, please e-mail AOTF@the-actuary.org.uk
Book review: 100 Years of State Pension
Peter Tompkins reviews 100 years of
State Pension by Tony Salter, Andrew
Bryans, Colin Redman and Martin Hewitt
This timely tome celebrates the actual
milestone of 1 January 1909, with the
associated inevitable post office queues
forming on the starting day. The initial
pension was a means-tested state support,
and this excellent book charts the conflicting
tensions over the century between those
advocating reward for thrift and those
supporting relief from poverty.
In the 1950s and 1960s, the
Conservatives seemed to lean towards the
State’s role being in means-tested poverty
relief, whereas today the roles may be
reversed, with siren voices warning Labour
of the dangers for incentives to private
provision if means-tested entitlement is
likely to become the norm.
Generally, the book takes a
dispassionate look at policies of all parties,
although it is difficult to leave entirely
behind the current rhetoric, such as the
assertion that we are currently “seeing a
045_Actuary_0109_AOTF.indd 45
shift from State to private provision”.
An idea it may be but I suggest the
evidence currently does not support
such a conclusion.
I have long wished for a book that
told the tale of pension provision in the
UK from, as it were, the 1908 cradle to
the 21st century grave. This is that book.
Drawing on a wealth of experience the
four authors collect together virtually
anything you want to know and set it
in its socio-political context.
The sub-title of the book ‘Learning
from the Past’ comes through page
after page when the consequences of
actions proposed or rejected in the
past are discussed with contemporary
comments. For example, a writer
from the 1980s warns that
“ideological objectives… will create
problems for a future generation of
the retired”. Plus ca change.
This book, wisely sponsored by
the Actuarial Profession, should
grace the shelf of everyone
interested in State pensions policy.
45
20/1/09 10:35:28
Sponsored by
Puzzles
Coffee break
Jan/Feb Prize Puzzle
Mental blocks
Grids one and two show two different messages that have been scrambled in very different ways. When unscrambled, both messages
spell out instructions for the calculation of particular numbers. For a chance to win a £50 Amazon voucher, courtesy of puzzles sponsor High
Finance, please e-mail your name, company and the two numbers to prizepuzzle@the-actuary.org.uk by 16 February 2009. The solution to
this puzzle, and the identity of the winner, will be published in a later edition.
Grid one
H T H H I R E I
T V E T T R I B
Y T H E U M T S
F L E L E U T W
I G T Y F S O U
L
P
N
D
R
P I L
O T Y
F M U
O E E
E V I
Grid two
H T
P O
B E
H S
Z V
W
E
V
N
K
O X
T O
U S
C X
I V
R
L
E
C
I
Terms and conditions
The winner will be selected as the first correct entry drawn at random
from entries received by the closing date. The winner’s name will
be announced in a future edition. Please note that the puzzles
editor’s decision is final and no correspondence will be entered into.
We reserve the right to feature the winner’s name and a photo (if
supplied) in a future edition of The Actuary. Your details will not be
passed to any third party in connection with this draw.
Puzzle 417 Clockwatching
The Caulataria Institute of Technophobia (CaulTech for short) has a 24hour digital display clock designed to make visitors long for the days of
clockwork, and generally it succeeds admirably. The red face tells the
time with perfect precision, but its display is scrambled: each number
it should display is consistently represented by a different number (so
that, for example, if it ever displayed 22:55 — which it never actually
does — the correct time might be 44 minutes past midnight or eleven
o’ clock in the morning, but not five minutes to twelve).
The blue face is scrambled in the same way and with the same
code, but it displays the exact time in the province of Western
Caulataria, which lies some distance to the west and is an actuarially
precise number of minutes behind the time at CaulTech.
Yesterday the red face displayed 53:56 as the blue face was
displaying 38:44; later that day the red face displayed 39:70 while the
blue face displayed 30:38. So if the blue face is currently displaying
32:26, then what time is it at CaulTech?
J C
U X
B Y
J I
G U
hf strip.indd 1
46
046_047_Actuary_Puzzles_1208.ind46 46
T E
O O
C Z
O U
D U
Puzzle 418 Spheres within spheres
Four identical spheres are contained within a larger sphere. These spheres
do not overlap but otherwise are as large as possible (so that they form a
regular tetrahedron touching the boundary of the larger sphere).
What proportion of the larger sphere is contained within one of the
smaller spheres?
What would be the proportion if instead of four spheres in a tetrahedron
inside the sphere you had six spheres arranged in a regular octahedron?
Or eight spheres arranged in a cube?
Puzzle 419 Plus twos
Find pairs of words matching the
descriptions listed below, so that
the second word can be formed
by adding two new letters to the
first word without rearrangement.
Example: uncooked/shellfish
Answer: raw/prawn
1 Relating to eyes/ambiguous
2 Road surface/nut
3 Song/intensely disliked
4 Speared/turned white
5 Passionate/birds
6 Nut/bird
Highfinance Actuarial
Facing a Career Puzzle? Call for the Solution
S G
D O
F N
O Y
Z E
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Cord/bird
Ruminant/colouring agent
Habitual failure/crustacean
Flower/victors
Hurry/discipline
Track/uneven
Spy/colourful display
Approximate/urban area
Unsullied/colour
Hormone/offensive
Unswerving/turning force
Capuchin/capuchin
Aircraft/aircraft
Bird/bird
Mark Dainty (Director)
High Finance Ltd.
www.highfinance.co.uk
0207 337 8800
2/4/08 10:18:49
22/1/09 15:37:01
Puzzles
Coffee break
Solutions for December 2008
Puzzle 414
Millions solution
Start at one, and keep counting! What
is the one millionth number:
■ That does not contain an 8?
1 793 661
■ That does not contain a 7?
1 893 661
■ That does not contain either an 8 or a 7?
3 641 100
■ That contains a 1?
1 531 440
■ That contains a 1 but does not
contain an 8?
2 619 626
Puzzle 415
A thousandfold solution
Take a (very large and very, very
thin) square piece of paper and fold
it in half, left edge on to right edge,
then in half again, bottom edge onto
top to leave a smaller square.
Repeat these steps four times, for
a total of 10 folds. Now cut the paper
in half twice, from left to right and
top to bottom (you will need a good
pair of scissors). How many pieces of
paper do you end up with?
How about if you made the same
folds on a fresh piece of paper but
then cut diagonally from the top left
corner to the bottom right corner?
Answer: For the first two cuts: folding
the paper as described divides the
paper into a 32 by 32 grid of squares
with the folds as internal borders. Each
of these 1024 squares is then divided
into four pieces by the cuts in a grid
pattern, so the paper ends up with 32
horizontal and 32 vertical straight cuts.
This leads to 33x33=1089 pieces.
For the diagonal cut: we have
the same 32 by 32 grid formed by
folding. Observe that, during the
folding, all four corners of the paper
move onto the top right hand corner
and stay there.
Also observe that, when the
paper is folded up and cut, all of the
squares of the 32 by 32 grid will have
a diagonal cut on them, with the
diagonal cut moving in a different
direction on any two edgewise
adjacent squares.
This implies that there must be a
square lattice of cuts formed lying
along the diagonals of the grid: it is a
straightforward counting exercise to
show that there are a total of 545
separate pieces.
046_047_Actuary_Puzzles_1208.ind47 47
Puzzle 413
Christmas crossword solution
The squares with a pudding revealed a traditional season’s greeting of: ‘Io, Saturnalia’
— from the Roman festival of Saturnalia which was celebrated from 17 to 23 December.
1
E
S
N
9
2
T
A
U
C
E
L
R
Y
I
D A R N
E
K
E
E A
F
N
O
C
Y A
H
T
E
O
E
S
Puzzle 416
P
C
N
M
O T
S
S
I
T
N
I
P
R
C
H
E R
D
O
A
L
N
O
L
L
7
L
I
L
E
D
O
L
R
E
R
A
L
C
E
A
F
I
I
N
E
S
S
E
P
R
D A N
S
D
G
C
N
A
A
T
G
I
6
R
G
A
I
R
D
L
5
T
A
T
A
S
S
G
G
E
C
S
K
N
O
O S
E
A
T
R
O
U
I
N
N
E
O
R
S
H
H E H E
E
R
C
T
8
Y
S
K
4
E
E
O
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H
H
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I
3
E
L
S
S
L
E
A
D
It loses converts solution
‘It loses converts’ is the result of entering Lost in Translation into automatic
translation software and then translating back into English.
20 other famous film titles have undergone the same process one or more times
— can you work out, or guess, what they are?
■ Well, it is false and it is scurvy: The
Good, the Bad and the Ugly
■ The conveyed tram beseeched:
A Streetcar Named Desire
■ 3rd terminal bitter experience:
Close Encounters of the Third Kind
■ Important matter of force of loop:
two turns: The Lord of the Rings: The
Two Towers
■ Clean the eternal daylight of
the inside: Eternal Sunshine of the
Spotless Mind
■ The secrecy trail and Halley zone:
Harry Potter and the Chamber
of Secrets
■ Hold the first role the combat:
Star Wars
■ Change the modified surface angel:
Angels With Dirty Faces
■ The man who drew drapery from
freedom: The Man Who Shot Liberty
Valance
■ Separated, the weather is hot, love
you: Some Like It Hot
■ Or, a thousand artistic one of the
brother: O Brother, Where Art Thou
■ Commotion in generosity: Mutiny
on the Bounty
■ Peacefully shear in the section
before western: All Quiet on the
Western Front
■ Sharp party (clue: into French):
Spirited Away
■ Favourable truth:
An Inconvenient Truth
■ That suspect generally:
The Usual Suspects
■ It records little: Minority Report
■ Inner part and pleasant advanced
parts: Kind Hearts and Coronets
■ Make-up with cheeks of mill:
Moulin Rouge
■ Turns of the table:
Matrix Revolutions
2009 January/February
47
22/1/09 15:14:55
Arts
Matt & Finn
A Sterling trip!
Given the plight of the pound, holidaying in the UK is back in vogue,
so Matt and Finn set out their cultural jaunts for Q1 2009
Recommended event
Up Helly Aa
For 24 hours, at the end
of January, the town of
Lerwick in the Shetlands
celebrates its Viking roots.
Up Helly Aa is more than
just an excuse for a bonfire
and a booze-up. It’s very
much a celebration of the
Shetland Islands, and is a
stunning spectacle.
On the evening of Up
Helly Aa Day, over 800
heavily-disguised men
— no women I’m afraid,
the Vikings hadn’t quite embraced sexual
equality — take to the streets, torch (and
flagon) in hand. This amazing, blazing
procession makes its way over to a mock
dragon ship, where the men circle the
vessel in a slow-motion Catherine wheel
of fire, before hurling the torches on deck.
As the inferno takes hold, destroying
four months of painstaking work by the
galley builders, the crowd serenades the
ship with a stirring rendition of ‘The
Norseman’s Home’.
The ingredients in the Up Helly echo pagan
Norse rituals — fire, feasting, and fancy dress!
Discover your inner Viking.
www.uphellyaa.org/
Words by the Water
Theatre by the Lake in Keswick, Cumbria
is the stage for the Words by the Water
literature festival. For 10 days (27 February
to 8 March 2009), writers and readers get
together to share the pleasure of books,
poems, words and ideas.
The outskirts of Keswick, a pretty
little town in the Lake District, next to
48
048_Actuary_0109_Arts.indd 48
The Great Spitalfields
Pancake Race
Derwentwater is the idyllic venue for
a full programme of talks, workshops,
book launches and special exhibitions.
The festival brings together the best
contemporary writers and thinkers to share
their thoughts. Guest speakers include
Melvyn Bragg, Michael Buerk, Polly Toynbee
and Kate Adie, to name just a few.
For those wanting a break from the
festival, the location is perfectly placed to
enjoy the tranquillity and beauty of the
Lake District.
www.wayswithwords.co.uk/festivals/cumbria-11
Take an extended lunch break on Shrove
Tuesday and head to the Old Truman
Brewery in Brick Lane for the Great
Spitalfields Pancake Race. To enter the
relay race you will need a team of four
people and your own frying pan, pancakes
will be distributed at the start of the race.
The winners will receive a beautifully
engraved frying pan, and there are plenty
of scrumptious pancakes for all entrants.
The heats start at 12.30pm.
Client entertaining
Magdalen, London
Despite the name conjuring up images of
a Parisian bistro, the menu at Magdalen
leans more towards traditional British
dishes. The potted crab and roast pheasant
are a delight. The staff were unobtrusive,
whilst the lighting and the background
chatter created a great atmosphere. You
can even order the wine by the crate,
although I’m not sure that one will quite
make it through expenses though...
Cambridge Science Festival
Donning out specs and white coats in
March, we plan to head off to Cambridge
for the annual science festival. The
festival runs from 10 to 20 March and
features lectures, exhibitions and a
weekend of hands-on activities.
The patron of the festival is none other
than the ‘thinking man’s crumpet’ Carol
Vorderman, who will formally open the
event. I’m yet to confirm whether you
can challenge Carol to a game of the
numbers round on Countdown.
The busiest period of the festival
is Science Saturday and Sunday
with more than 90 separate
events aimed at making science fun
and accessible to kids. Visitors will
have the opportunity to design and
construct a rocket car, bottle their
genes and build an AM radio, along
with many other activities.
Some of Doctor Who’s classic
monsters, along with replicas
of characters from the new
series, will be descending on the
University. There will also be an
accompanying talk by Dr Paul Parsons,
explaining the science behind the hit
BBC series.
www.admin.cam.ac.uk/offices/communications/
community/science/
Matt and Finn welcome your comments
and contributions. Please e-mail
arts@the-actuary.org.uk
19/1/09 14:52:07
© P & Co. Ltd
. 2009
THREE PEAKS
CHALLENGE
TO RAISE FUNDS TO BEAT DISEASE AND DISABILITY
PADDINGTON
CLIMBS AGAIN!
11 & 12 JULY 2009
VBEN NEVIS V SCAFELL VSNOWDON
Teams of 4 – 6 summit
the highest mountains
in Scotland, England
and Wales with the
charity’s mascot
Paddington Bear.
£195 team registration fee. Minimum sponsorship £2,000 per team.
Managed by
For further information and an application form
www.actionforcharity.co.uk
raising funds for
0845 408 2698
events@actionforcharity.co.uk
The Three Peaks Challenge is managed by Action for Charity on behalf of Action Medical Research.
49
3 049_Actuary_0109.indd
peaks 2009.indd 1
Registered Charity No. 208701 and SC039284
22/1/09
6/11/08 13:45:00
13:27:00
Appointments
People moves
chief actuary, and
has joined the Board
of Just Retirement
(Holdings) plc.
Gary Bown
Guy Vanner
AKG Actuaries & Consultants, has announced the board appointments of Gary Bown as chairman and senior actuary,
and Guy Vanner as managing director. Mr Bown joined AKG in
1998, becoming a director in 2006. Mr Vanner, formerly communications director, has been with AKG since 1992.
Watson Wyatt has
announced the appointment of Paul
Nevin, previously
head of global equity derivatives for
the UK, Ireland and
Africa at CALYON
(Credit Agricole Investment Bank). Mr
Nevin has joined
Watson Wyatt’s
client consulting
team as a senior
investment consultant. He is based in
London and has 13
years’ investment
banking experience
in structured products and solutions.
His previous roles
include positions
at BNP Paribas
and HSBC.
Buck Consultants
has announced the
appointment of
Bobby Riddaway
as a senior investment consultant.
Mr Riddaway
previously worked
for HSBC for eight
years, helping to
build and develop
their ALM capabilities, and latterly as
head of investment
strategy. Most
recently he spent
three years
at Hewitt.
He will continue to
lead Guernsey-based
BWCI.
Shayne Deighton
has joined Just
Retirement as group
Watson Wyatt has
appointed Kate
Angell as a senior
consultant. Ms Angell has more than
10 years’ experience
in non-life actuarial work and joins
Watson Wyatt from
Grant Thornton,
where she was a
senior consultant
in their non-life
actuarial practice. At
Watson Wyatt she
will apply her considerable expertise
to a variety of client
assignments and she
will play a role in
the ongoing growth
and development of
the practice.
Forward features
in The Actuary
The Actuary team has finalised the
magazine’s feature themes for 2009
and welcomes contributions for these
topic areas from members, or from
contacts in and around the profession.
You will find a list of themes for the
next few months below, along with
the deadline dates for submission
of articles. If you would like to
contribute, please contact Tracey
Brown at features@the-actuary.org.
uk with your suggestions.
Please note that these themes are
not exclusive and the aim is for a
strong variety of articles. If you have a
burning topic you’d like to write about,
please let us know.
April 2009 (Published 26 March,
deadline 9 Feb)
n Mortgages/housing market
n Healthcare
n Reinsurance
n GI/Solvency II
May 2009 (Published 30 April,
deadline 16 March)
n Pensions
n Longevity
n Actuarial history
Gerry Budd has
been announced as
a founding director
of HealthFund, a new
entrant to the health
insurance market.
June 2009 (Published 28 May,
deadline 13 April)
n Risk
n Investment
n Strategies
n Investment fund management
Abelica Global has
announced that
Stephen Ainsworth has been
elected chairman
of its Council. Mr
Ainsworth succeeds
Dominique Piermay
who held the role
for the past four
years. Mr Ainsworth is a senior
partner at BWCI,
the organisation’s
member firm in the
Channel Islands.
Shamit Biswas
Shamit Biswas has joined Axiom Consulting Limited as chief actuary from
Lloyd’s, where he was chief analyst. Mr
Biswas joined Lloyd’s in 2006 from PwC
where he was associate director with
responsibility for providing actuarial
advice to non-life participants across
the Lloyd’s and London Markets and to
commercial insurers.
July 2009 (Published 25 June,
deadline 11 May)
n International recruitment
n Environment
n Capital/Solvency II
Have you moved?
Please send news of moves,
promotions, retirements and
appointments to peoplemoves@
the-actuary.org.uk
London UK Wide France Europe South Africa Asia Pacific Australia
●
●
●
●
●
●
Your World With GAAPS
www.gaaps.com
50
050_Actuary_0109_PeopleMoves.ind50 50
+44 (0)20 7397 6200
22/1/09 13:57:48

Jumping up the equity ladder

Transcription

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