Published in by the Staple Inn Actuarial Society

The www.the-actuary.org.uk ActuaryThe magazine for The Actuarial Profession June 2008

Divine intervention? How God lost his grip on probability

Solvency II impact studies • With-profits estates •G CT reforms • DB pension risk • Latest jobs

001_Actuary_Cover_0608.indd 1 20/5/08 15:32:03 The Actuary

See page 5 for full details of the editorial team Incisive Financial Publishing Editorial 32-34 Broadwick Street, London W1A 2HG June 2008 T +44 (0)20 7316 9000

Publisher Philip Harding T +44 (0)20 7316 9393 E [email protected] For politics’ sake? Recruitment advertising manager Hazell Cockle The editor of Vanity Fair magazine made the discusses with-profits estates in the light of FSA T +44 (0)20 7316 9493 following comment this month: “It can fairly principles; and Matthew Little looks at how E [email protected] be said that politics brings out the worst in recent changes to CGT could impact the life Designer people, and at times simply the worst people”. assurance industry. Nicky Brown A few individuals aside, I am not sure that Elsewhere, Andrew Slater and Con Keating this statement is true. However, it made me assess the risks, costs and security of voluntary Sub-editors wonder how much politics adds to our working defined benefit pensions, and our cover feature David Whittam Ann Ives lives? Does it in fact cause people to take their is Chris Lewin’s fascinating review of Thomas eye off the ball and do things that defeat the Gataker’s writings, which challenged divine Production manager objective of obtaining a balance between intervention in the outcome of events and Matt Parle T +44 (0)20 7316 9766 professionalism and commercialism? helped to pave the way for probability theory. E [email protected] Anyone who watched The Apprentice’s Online this month, there are exclusive Jenny Celerier being given her long-overdue features from Mike Brockman, reviewing the Group editor-in-chief marching orders by Alan Sugar will have seen fourth UK Bodily Injury Awards Study, and Anthony Gould first-hand how far playing politics gets you in Simon Sheaf, who discusses best practice for Group publishing director the boardroom. But neither is being ignorant insurance company rate monitoring systems. Derek Peck of office politics a viable option. Can you be aware of the politics without being involved? Reader survey Print and distribution Benham Goodhead Print Ltd., Oxon Or is the knowledge of it enough to deem you Thank you to all those who completed our to be playing the game? online reader survey. We have had an excellent Subscriptions There is currently a large amount of response and a review of your feedback and For subscriptions from outside the energy, emotion and expense being dedicated results is due for publication in the July issue. actuarial profession: UK, Eire, and Europe: £50 a year/£5.00 a copy. to the potential merger of the Institute and For the rest of the world: £75 a Faculty. I suspect that this game is detracting The stylish actuary year/£7.50 a copy. Please contact: from the day job, and so may not be Finally, thank you to everyone who contacted Maria Lyons The Actuarial Profession, Napier beneficial, unless of course the merger goes us about actuaries and their style. Matt and Finn House, 4 Worcester St, Oxford ahead, and then we can view this investment continue the fashion theme this month with OX1 2AW as justly made. some light-hearted advice for gentlemen actuaries T +44(0)1865 268236 Now democracy only works if a large dressing for the office. They are also due to attend E [email protected] enough number of people, with a cross- a special event at the London Fashion and Textile Students on actuarial science courses section of views, put a cross on the ballot Museum to celebrate style in the city. Surely this at universities may join the Staple paper. As a general rule, people vote if they makes them two of the most stylish actuaries in Inn Actuarial Society for £6 a year. feel that there is something to be gained the UK? Photos to follow, I promise. They will receive The Actuary as part of their membership. Apply from registering their view. In the case of to: Membership Department, The the merger, the majority of people that I Margaret de Valois Actuarial Profession, Maclaurin have spoken to (and I have spoken to many) Editor House, 18 Dublin Street, Edinburgh have been members of the Faculty who are editor@the- EH1 3PP. T +44 (0)131 240 1325 passionately against the merger. In fact, only actuary.org.uk E [email protected] 53% of the 137 Faculty members attending a special meeting on 16 April voted to cancel Changes of address should be made known to the membership the proposed in-principle election. Everyone department at the same address. else who has expressed a view to me has said that they don’t care whether the Institute and Internet Faculty merge or not. The Actuary website: www.the-actuary.org.uk On this basis, and subject to the usual SIAS website: www.sias.org.uk caveats that I apply to my actuarial predictions, Actuarial Profession website: I think that the merger proposals will not reach www.actuaries.org.uk a vote. The Profession is sensible in its decision Published by the Staple Inn to gauge members’ feelings towards a merger Actuarial Society before holding an election. This way, it will save the cost and administrative time of running an The editor, the Faculty of Actuaries, election that results in absolutely no action. the Institute of Actuaries and the Staple Inn Actuarial Society are not responsible for the opinions put Issue themes forward in The Actuary. Our technical theme for this edition

© SIAS June 2008 is insurance. Phil Vermeulen and Jeev All rights reserved Muthulingam update us on the Solvency ISSN 0960-457X II quantitative impact studies; David Forfar

www.the-actuary.org.uk June 2008 

003_Actuary_Editorial_0608.indd 3 21/5/08 10:28:36 The Actuary

Editorial advisory panel Peter Tompkins (chairman), John Batting, Timothy Bramham, Chris Daykin, Matthew Edwards, Gerard Contents Francis, Nigel Hayes, Martin Lunnon, Andrew Smith, Chris Sutton, Paul Sweeting, Matthew Wheatley June 2008

Editor Margaret de Valois HSBC Actuaries and Ltd, News Level 16, 8 Canada Square, London E14 5HQ 12 Profession T +44 (0)20 7991 3165 F +44 (0)20 7991 4646 E [email protected] 18 Education and research Features editors 20 Industry Tracey Brown T +44 (0)7970 230 892 E [email protected] 24 People

Marjorie Ngwenya Swiss Re Life & Health, 25 Society 30 St Mary Axe, London EC3A 8EP 26 SIAS notices T +44 (0)20 7933 3163 E [email protected] 27 Calendar and events Industry news editor Louisa Lobo p37 50 Appointments and moves T +44 (0)7719 631 955 E [email protected]

People/society news editor Comment Amy Guna Features Grant Thornton UK 3 Editorial T +44 (0)7879 453 949 28 Doubting Thomas E [email protected] Margaret de Valois questions the value of Chris Lewin reviews the writings of Thomas Gataker playing politics Student page editors who questioned the role of God in the outcome of Jennifer May events and paved the way for probability theory Hewitt Associates, 6 Presidential address 6 More London Place, Nick Dumbreck issues a final rallying call London SE1 2DA 30 From consultation to implementation towards Profession merger T +44 (0)20 7939 4000 Phil Vermeulen and Jeev Muthulingam chart the E [email protected] 8 Letters progress of the Solvency II quantitative impact studies Jean Eu In which actuaries discuss open minds, open RGA UK, IFC Level 40, debate and open shops 25 Old Broad Street, 32 Simplifying CGT London EC2N 1HQ T +44 (0)20 7448 8255 Matthew Little assesses the impact of recent changes 10 Soapbox E [email protected] to CGT on the life insurance industry Roger Mattingly charts the rise of inflation

Arts page editors Matthew Fewster 34 Where’s the incentive? Regulars JPMorgan Con Keating and Andrew Slater look at the costs, 125 London Wall London EC24 5AJ risks and security of defined benefit pensions 44 Student page T +44 (0)20 7777 9707 Guest editor Matthew Pinkney issues a well- E [email protected] 37 Peak performance reasoned justification for exam failure Finn Clawson How to get the most out of your graduate employees Hewitt Associates 46 Puzzles 6 More London Place More brainteasers to test your mettle London SE1 2DA 40 Ringing the changes T +44 (0)20 7939 4435 E [email protected] Clive Weber considers recent changes to debt 48 Arts regulations in relation to occupational pension schemes Matt and Finn give Trinny and Susannah a run Puzzles editor Rakhee Raja for their money Xafinity Consulting Ltd, 42 A matter of principle Xafinity House, David Forfar asks whether the build-up and use of 51 Appointments 42-62 Greyfriars Road, 26 pages of the latest actuarial jobs Reading RG1 1NN with-profit estates falls in line with FSA principles E [email protected] More features online Writer of the month The following features can be found exclusively on The Chris Lewin is the editorial team’s Circulation Actuary website this month: choice for June for his article on 17,570 n Mike Brockman assesses the implications of the fourth Thomas Gataker and receives a £50 (July 2006 to June 2007) UK Bodily Injuries Study book n Simon Sheaf explains the features of the best rate token monitoring systems for insurers. courtesy Visit www.the-actuary.org.uk/category/features of SIAS.

www.the-actuary.org.uk June 2008 

005_Actuary_Contents0608.indd 5 21/5/08 11:58:14 Comment Nick Dumbreck

In his farewell column as Institute president, Nick Dumbreck issues a fi nal rallying call towards profession merger and beyond A last word

or my fi nal column for The Actuary, name — many other institutions have been serve a one-year term. As I near the end of my I had intended to avoid writing about able to do this. time in the hot seat, two years seems to have the proposed Faculty/Institute merger But if it comes to a choice between gone remarkably quickly. There is a risk that — partly because of timing (a lot will respecting the past and creating the future, shortening the presidential term will lead to happenF in the time between the copy deadline to borrow the title of Stewart Ritchie’s some loss of continuity — a risk that is only and the publication date) but also to limit presidential address, we surely have to give partially mitigated by having a more formal the risk of overkill. But it’s such an important priority to the future. role for the president elect. issue that I couldn’t resist having another go at Against this, the president’s job is a putting the case for the merger. Younger generation demanding and time-consuming one, and The actuarial profession looks set to The future of the profession is of greatest retaining a two-year term may unduly face major challenges in the coming years, importance to the younger members — it’s restrict the fi eld of candidates. It is for this as some of our traditional strongholds their careers that are at stake. Yet much of the latter reason that I remain in favour of the decline and we fi ght to establish our reaction so far has come from actuaries born proposed change — but the arguments are credentials in new areas. Muddling through before 1945. fi nely balanced. with an unwieldy governance structure While they are of course entitled to have and a confused public image isn’t going their say, it would be extremely unfortunate …and fi nally to work. if apathy towards the merger proposal among The massive, widespread and continuing To give ourselves the best chance of some sections of the membership led to an losses resulting from the sub-prime lending success, we need to be a streamlined, outcome which was not representative of the binge in the United States have pointed cohesive body whose role and objectives wishes of the profession’s members as to serious weaknesses in risk management are clear to the outside world. This is why a whole. in the fi nancial sector. Faculty and Institute Councils have both In his excellent decided overwhelmingly that merger is the As I near the end of my time in article in the best option. » January/February the hot seat, two years seems to 2008 edition Time to talk of this magazine Consultation with members is an important have gone remarkably quickly « (see www.the-actuary. part of the process. There have been org.uk/688894), suggestions that the consultation is being So, please do take this seriously. Take time John Greenway MP suggested that actuaries rushed, and that members should be given an to read about the proposals, let us know your had a major part to play in addressing opportunity to consider other options. I have views at consultation meetings or via the web- these shortcomings by bringing a more no problem with this but let’s not prolong based discussion board, and please use your rigorous approach to the assessment and the process unnecessarily. vote when the time comes. quantifi cation of risks, and by ensuring We cannot afford to put other important Another concern of both Faculty and that boards of directors are aware of the full matters on hold indefi nitely while we make Institute members is what happens if range of risks to which businesses up our minds. My experience to date of Scotland becomes independent. This is are exposed. consultation meetings is that members specifi cally catered for in the merger structure This is a huge opportunity for the do not take long to grasp the serious by having a Scottish Council, which has a profession, and one which we must shortcomings of the alternative structures dual function: to ensure that actuaries in grasp. An outstanding discussion at the put forward so far. This doesn’t mean that Scotland are well served by local activities; Institute sessional meeting on this topic the current merger proposal is the only and to liaise with the Scottish Government. on 28 April highlighted not only how possible way forward but any alternative The Scottish Council would certainly much progress has already been made in can only proceed if both Councils are assume a higher profile if Scotland were this area but also how much more remains prepared to support it. This effectively limits to secede from the to be done. the range of options to those that would lead but its role wouldn’t need to change This will be a challenge for the risk to genuine and worthwhile simplifi cation of fundamentally. And it surely makes sense management executive committee and the the current structure. to optimise the profession’s structure for new presidents to take forward. Areas of concern with the merger things as they are now, rather than as they It has been an honour to be Institute arrangements proposed by Councils include might be. president, and a great pleasure to share the loss of the profession’s heritage and the name One feature of the merger proposal that leadership of the UK profession with Stewart of the merged body. I see no reason why we has attracted some comment — particularly Ritchie. I wish Nigel Masters and Ronnie cannot retain the history and traditions of the from past presidents — is the intention that Bowie all the very best as they prepare to take profession in a new body, even if it has a new the president of the merged body should over from us.

6 June 2008 www.the-actuary.org.uk

006_Actuary_Prez_0608.indd 6 21/5/08 10:23:12 Letters Your view Letters to the editor In which actuaries call for open minds, open debate and open shops

actuaries during my working lifetime being Letter of the month described as ‘failure’. Sadly, the weakness of argument Retail therapy ‘betokened’ by such statements now It was only after the continues in the response to the letter from event that I realised that David Wilkie in the same edition, “The I had failed in my debt merger will bring two key advantages to to the profession by members: it has the support of the majority not responding to last of actuarial employers who expressed a view month’s online style poll on the matter…” and allowing the result In the first place, if the question had not to be skewed by the been asked, how many such employers would ‘charity shop champions’. have volunteered the view: “You two must In attempting to make merge”? Come to think of it, how many such amends, I am inclined employers have ever expressed a view on the to hit this month’s ‘blow matter without any prompting? Moreover, the budget’ option [re having asked the question, how could any managing personal enquirer really expect a reply other than finances] — albeit with a support for the merger? follow-up in Bond Street! It seems that the second key advantage is: As for the Paris fashion debate — with the odd health-conscious actuary aside, at least the “A stable, unified Profession speaking with male side of the profession wrestles with the dilemma that, by the time your salary can justify one voice…” Just how often has the Institute the £300 T-shirt, your waistline cannot, hence the more forgiving sizing in Harvey Nicks in expressed one view only to find the Faculty Leeds, or Selfridges in Birmingham. Interestingly, these UK cities, as well as becoming retail expresses a contrary view — just because mecca, can fairly claim to be hotbeds of actuarial employment — perhaps there is more of a it is the Faculty? Answer: never, as I recall. correlation than we know? Members of the two bodies may well hold It’s a lonely furrow but someone has to plough it. contrary views but I cannot think of one example where FIAs as a body were at odds Antony Osborn-Barker with FFAs as a body. 7 May 2008 In fact, I should have thought it would The writer of the Letter of the month receives a present a much stronger case when the Venecia fountain pen kindly supplied by HBOS profession’s view is quoted by each rather than as one. “The Institute of Actuaries and the Faculty of Actuaries in Scotland have Public image limited do this”. But now I think I understand the each said that...” seems to me to be much The main, indeed only, argument put forward master plan. The resulting cost saving stronger than “The Actuarial Profession has by Faculty Council in favour of merger is will pay for Gok Wan to make everyone said that…” that the change will enable the profession look as perfect as the people in the images I am probably not in favour of the merger to be rescued from its poor public image by plastered all over the new Actuarial which seems to me to be unnecessary and being spun into a new brand unrecognisable Profession website. Now that really would be expensive. Unfortunately, the discussion has from the old one. This seems unrealistic, a Professional makeover! of itself given the possibility of a merger a to put it mildly. To promote their cause, life of its own and we need to sure that we however, Faculty Council, with the clear Andrew Slater are not being swept along by a tide. ‘If it ain’t support of Institute Council, is working 16 April 2008 broke, don’t fix it’. hard to avoid the directives passed, with I am Welsh but I have not chosen to nail full legitimacy, by the 16 April Faculty If it ain’t broke... my colours to the Celtic mast as we do not yet SGM. Do Councils believe this disgraceful The possible merger of the Faculty and the have a Cymdeithas Actiweraidd Cymru. behaviour is consistent with their objective Institute is now beginning to generate some of enhancement of our image? The mind is heat — dare I say ‘at last’? Huw Wynne-Griffith now boggling! Like Mike Lunan (The Actuary, May 2008), 25 April 2008 I took great exception Brendan McBride to the implication that 6 May 2008 I was being given the Letter of the month - “G” choice between being Wan’s people part of a modern body “G” stands for growth. It also stands for go-getters. And what’s the link From the first announcement of the proposal or, alternatively, being between the two? It’s simple - to continue growing our business and to combine the Institute and Faculty, I have associated with failure. profits the way we have been, we need real go-getters to join our been unable to shake off an image from Yes The actuarial profession business. Find out more by visiting [email protected] Minister. It is the scene where Sir Humphrey has much to be very proud

explains the politicians’ syllogism: “Step of and a lot of it during WE SUPPORT Sponsored by one: we must do something; step two: this my 40 years. I object is something; step three: therefore, we must to the achievements of Equal opportunities for all - our policy is as simple as that.

 June 2008 www.the-actuary.org.uk

008_009_Actuary_Letters_0608.ind8 8 21/5/08 09:58:18 Your view Letters

Logically flawed Grey-sky thinking “enemies” among “EB actuaries”, which I was amused to read your letters page Surely the goal of every profession is to may be correct but should not be allowed to regarding the proposal to merge the Faculty encourage free-thinking and an open-minded disguise the fact that there are actuaries who and the Institute. I wasn’t aware that such a approach to the problems that face that have legitimate disagreements with some of thing was being debated but it made me laugh profession? It has been said that the goal of what Andrew Smith has said, for instance on as it reminded me of the recent failed merger education is to replace an empty mind with DB investment. effort in the accountancy profession. an open one, yet Colm Fitzgerald’s letter (April “Nemesis may yet strike his kind” — I can Your readers may well be familiar with the 2008) seems to endorse the opposite: force- only speak for myself, but in the context of fact that there are not two but five ways to be feed students the material and don’t dare to a discussion on professional issues I find this an accountant in the UK. The ICAEW looks deviate from the accepted line of thought or language distasteful, if not actually offensive. after many of them south of the border, ICAS show any signs of free-thinking, or you’ll be Iqbal is clearly aggrieved by this affair, but takes care of the Scots, CIMA is the preserve punished for it. it is difficult to see what positive effect he can of accountants in business (rather than public The fact that more than one student has have by favouring invective and hyperbole over practice), CIPFA is the public sector’s accountancy offered a similar answer should surely enhance the actuarial tradition of rational analysis. body and ACCA is a popular membership body, its validity, and not be interpreted as a show of with particular strength around the world. arrogance from all students? Paul Haines In 2005, the three-way merger between If this is the approach of all examiners then 2 April 2008 the ICAEW, CIMA and CIPFA was endorsed this can only slow students’ progression, not by the latter’s membership, rejected by speed it up as he proclaims. And what calibre Tax raid the former’s and aborted by the one in of actuary is left that does pass the exams but Venkatakrishnan Ramachandran (May 2008, the middle. Passions were high with some cannot think for him/herself? page 30) is either being politically kind or members arguing the merger should have remiss in not setting out the major reason happened years ago, others took the ‘over my Anon funded pension schemes became under severe dead body’ line. 25 April 2008 pressure and underfunded: Gordon Brown’s Furthermore, for decades there have been tax raid probably took a (capitalised) value of attempts to merge the English/Welsh institute Right to vote £150bn off the asset side of the schemes. with the Scottish — all of which have proved In your April issue you published two letters to be unpalatable. Finally, just a few years ago, concerning the proposal to elect Andrew Smith Mike Christophers the Scots more or less drew a line under the as a fellow of the Institute. Both letters were, 25 April 2008 whole thing, citing devolution as a reason in different ways, why it was necessary to preserve their own critical of those who Surely the goal of every profession institute, echoing a point made by some of had voted against » your correspondents. this proposal. As one is to encourage free-thinking and an One thing that I think most people who did just that, overlook is that there is an in-built British I would appreciate open-minded approach to the problems aversion to vesting all power into one body. the opportunity that face that profession? You just have to look at the nature of our to respond. « constitutional monarchy, or the regimental I voted against the proposal because, as a International crime comparisons structure of the army. There used to be a jokey basic principle, I do not think that fellows Philip Booth (Letters, April 2008) should know one-liner: ‘Why is there only one Monopolies should be elected. I considered the case put better. Making the statement: “Crime in the Commission?’ Even there, the truth is we by Council, and it was not sufficient for UK is two-and-a-half times the level in the US,” have the Competition Commission and the me to make Andrew Smith an exception to without any attempt to explain the statistic, or Office of Fair Trading to look at such matters. this principle. In particular, I cannot share provide a reference, is simply empty rhetoric. My point is that, whatever the logic in a vision for the future of the profession, Making any sort of international comparison support of a merger in the actuarial profession, as espoused by Nick Dumbreck, that is so is well-known to be difficult, with problems of logic plays only a part of the argument — and dependent on one person, however brilliant, definition, collection and interpretation, and the failure of pure logic to have the upper hand however gifted. this is particularly so for a social phenomenon could well result in a typically, delightfully, Nick Dumbreck’s letter may well have like crime. But if, for the sake of the argument, eccentrically British solution, one that works persuaded some that they voted the wrong you want to trade such statistics, a quick search well despite the ‘logical’ flaws. way but I very much doubt that any of those on Google finds the websitewww.nationmaster. that voted ‘no’ will have been similarly com, which specialises in such comparative data. Andrew Sawers persuaded by the diatribe produced by Icki This reports a “crime rate” for the UK of 85.5517 Editor, Financial Director Iqbal. Indeed, I hope that many who voted per 1000 people, whereas that reported for 1 May 2008 ‘yes’ will wish to distance themselves from the US is 80.0645 per 1000 people — only 7% the manner in which Iqbal expressed his higher. Perhaps more importantly, the website views. For example, those that did not agree goes on to explain in a note: “Crime statistics Your letters with the Council’s proposal are “small- are often better indicators of prevalence of law The editorial team welcomes minded” (and we are all men, apparently). enforcement and willingness to report crime, readers’ letters but reserves the right Andrew Smith single-handedly saved the than actual prevalence.” to edit them for publication. Please actuarial profession, which I suspect is news e-mail [email protected] to many actuaries. Bryn Davies Andrew Smith’s “style” has made 7 April 2008

www.the-actuary.org.uk 2008 June 

008_009_Actuary_Letters_0608.ind9 9 21/5/08 09:58:35 Soapbox Roger Mattingly Sponsored by

Roger Mattingly looks at the volatile factors driving global inflation and asks whether or not it is here to stay The only way is up

hat is inflation? It is ‘to increase upward-only trend in the cost of feeding the The real picture? beyond what is normal’ according world, whether it is maize, wheat, rice, soya What is the real picture regarding fossil fuels? to my Collins pocket dictionary. beans or even potatoes, and yet more inflation Are they waning in quantum to the extent In bubble or balloon terms, it inflates. People need more money and suggested or is this the oil producers’ global Wcan inflate constructively or can create great increasingly they can ask for, if not demand, game of cat and mouse? You want it; we have instability, vulnerability and ultimately — an it. The state can intervene but probably not at it. The answer does not really matter because explosion of chaos. the expense of much treasured and currently the end result is the same: less production than Inflation is increasingly thought to be superior economic growth. ’s industrial is needed or, at least, wanted for these double- the reason that we and this wonderful planet expansion has been at the expense of agrarian digit GDP growth countries. are here. Yet, in financial and human terms it production that, compounded with a new What does all this mean? Assuming can be very damaging because it results in an desire to eat more grain-intensive meat, means China’s economic and industrial will exponential downward spiral in the quality an escalating demand and supply ratio. continues, capitalised by the Beijing of life. There are only three things to fear So what of India and, for that matter, Olympics and extremely ambitious — death, fear and compound interest — and Russia, Brazil, Mexico, Vietnam and so on? The construction projects such as the new when this works against you, a hiccup in global key in many of these countries is the ability to Beijing Airport and the 38km sea bridge off inflation is an irritant while a sustained up-tick resource growth. If these states cannot supply Shanghai, then inflationary inflation is upon can be highly damaging. it, either through indigenous or immigrant us and will remain with us. So what are we faced with currently — a human resource or a combination of the two, This is true, of course, unless the US blip or a long-term inflationary whirlwind? then prices will almost certainly rise. It is not sneezing does actually cause a worldwide cold In it is of Goliath proportions; just the current ability to resource growth but after all. Countries will have to risk-manage think what a Section 75 valuation (or any the degree of future latitude that is vital. through monetary and currency policy and valuation, come to that) would look like if Then there is global warming. The the management of human expectations increases were index-linked to a rate of more response is green policies and bio-fuel — not easy when the world has more and than 100 000%. production on a grand scale. However, in wants more. What about the future Asian economic the case of countries like Brazil it is not what In conclusion, inflation may not be ‘back for it starts but what good’ but it is not going to go away in a hurry. it stops producing » Think what a Section 75 valuation — namely growing Roger Mattingly is on the main board of HSBC would look like if increases were index- maize, wheat, Actuaries and Consultants and heads up its client rice, potatoes and relationship management team. He is also in charge of linked to a rate of more than 100 000% « so on for human public relations on the governing council of the Society consumption. of Pensions Consultants. powerhouses? China’s CPI is now comfortably over 8% and rising and it is in danger of going from an exporter of deflation to an importer of inflation. Of course, when a currency is as strong as the Chinese yuan then even huge volumes of escalating and pricey imported raw materials are inflationarily contained, though not devoid of impact. Sometimes it is easy to forget (or fail to grasp in the first place) that approximately 80% of China’s growth is domestic, so a very small rise in the monetary earnings demands of one emboldened worker equates to a material percentage. Add that to the seemingly

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10 June 2008 www.the-actuary.org.uk

010_Actuary_0608_soapbox.indd 10 21/5/08 10:11:34 News Profession

News in brief Have your say on the merger proposals Regulator sets out strategic direction The Profession has launched an online will be added to the planned consultation The Pensions Regulator has published discussion board to enable members, regardless meetings at the Profession’s joint conventions its second Corporate Plan, setting out its of where they live or work, to take part in a and regional events. Most of these meetings view of the pensions landscape, strategic discussion on the proposed merger between the will take place during June. direction and outcomes to be achieved Faculty and the Institute. Both Councils are currently developing the during the next three years. The plan The discussion board is your forum to detail of the separate mechanisms to replace also highlights the progress made by the discuss the proposals and share your views with the joint in-principle vote. The Faculty will regulator in the building and development other members. Comments on the discussion hold a consultation survey of its members to of the organisation, systems, culture and board are moderated, not censored or vetted, help its Council refine the options in the light processes. To view a copy, please visit by the Profession’s staff. This is common of the SGM resolutions. The Institute will hold www.thepensionsregulator.gov.uk/pdf/ practice with any discussion board that has a an indicative vote of its members to clarify CorporatePlan2008.pdf wide audience (in this case 18 500). Discussion whether or not they want to merge with the boards with closed or limited audiences Faculty. Institute Council believes that holding Risk and the may decide not to moderate postings. The an indicative vote of its members is in accordance markets Profession, for example, has chosen not to with the wishes of the vast majority of members Markets: Magnifiers moderate contributions in earlier trials of wikis present at the consultation meetings held to date. or Mitigators of Risk? and discussion boards where there has been a More details will follow in separate is the theme of limited number of contributors. communications to Faculty and Institute this year’s finance, You can make a contribution by visiting members in June. investment and kan.actuaries.org.uk/Wiki%20Pages/Home. n You can read more about the proposed enterprise risk aspx and logging on to share your views and merger arrangements at www.actuaries.org. management comments. The contributions that you make uk/merger/proposal.pdf conference, to be on this discussion board will help plan and n You can read some questions and answers held on 15-17 implement a merger if there is a substantial about the proposed merger at www.actuaries. June 2008 at the majority in support of a merger in the ballot, org.uk/merger/faqs.pdf Hilton Deansgate, or help Councils consider alternative courses of n You can find more information about Manchester. As the pace of innovation in action if there is not. the proposals and details of the merger financial markets continues to speed up, On 22 April, members were informed that discussion meetings at www.actuaries.org. new instruments are needed to allow the Faculty and Institute Councils would be uk/members/merger_discussion all forms of financial and non-financial considering the implications of the Faculty A group of members has set up a separate risks to be traded and dispersed widely Special General Meeting on plans for merger. online discussion forum. to an ever-broader base of investors. This This was discussed fully at a meeting on 19 n You can find this forum at conference will consider developments in May and both Councils concluded that the needs www.actuariesonthemerger.com markets, instruments and risk management of the members of the two bodies were different. techniques from the viewpoints of insurers, It has therefore been decided to cancel the joint pension funds, banking organisations and in-principle vote that was planned to take place beyond. For more details, please visit www. in June. However, two separate but concurrent actuaries.org.uk/conf/firm2008.pdf exercises to gauge the opinion of the members of the two bodies will take place. Institute honorary fellows In addition, both Councils believe that they At the Institute OGM on 28 April 2008, should create more opportunities for members to Cecil Bykerk, Paul Klumpes, Ad Kok, and hear about the merger proposal, the alternative Antoon Pelsser were elected as honorary of closer co-operative working, and any other fellows of the Institute of Actuaries. viable options. Institute Council has already indicated to Faculty Council which of the Presidential address member-proposed alternatives it regards as being

Nigel Masters will give his presidential unacceptable from its members’ perspective. Photos.com address at the Institute AGM on 30 June Additional workplace consultation meetings Share your views on the discussion board 2008 at Staple Inn, London. Copies of his address will be made available on the website following the meeting. Notice of Institute AGM Notice is hereby given that the Annual General Meeting of the Institute of Actuaries, BAS consultations followed by the Presidential Address by Nigel Masters, will be held at Staple Inn Hall, The Board for Actuarial Standards (BAS) High Holborn, London on 30 June 2008 at 5pm (preceded by tea from 4.30pm). The has published a number of consultation business of the meeting will be: papers recently: 1 To receive formally the report of the Council for the session 2007-2008, the n Actuarial mortality assumptions statement from the treasurer, financial statements and the auditors’ report. (deadline 20 June) 2 To appoint as auditors, Haysmacintyre, for the forthcoming year. n Exposure draft of a standard on 3 To authorise Council to set the auditors’ remuneration. reporting (deadline 18 July) 4 To announce the names of the five members elected to Council. n Structure of BAS standards (deadline 5 Valedictory address by president Nick Dumbreck. 18 July). 6 To install the new president, Nigel Masters To view these and other BAS consultation 7 Presidential Address by Nigel Masters papers, please visit www.frc.org.uk/bas/ Following the meeting, a drinks reception will be held in the Council Chamber. publications/consultation.cfm For enquiries on the AGM, please contact Marion Young on +44 (0)20 7632 2117 or To receive direct notification of when BAS [email protected] consultations are published, please register Caroline Instance at www.frc.org.uk/bas/register.cfm Chief executive

12 June 2008 www.the-actuary.org.uk

012+013_Actuary_Prof_0608.indd 12 21/5/08 14:55:50 Profession News

FRC publishes plan Institute awards Don’t forget to and budget highest honour complete your CPD The Financial The Institute of Actuaries The deadline for completing this year’s online Reporting will confer its highest CPD declarations and activity records is 30 June Council, honour of a Gold Medal 2008. All associates and fellows that are fully the UK’s for the first time in a regulated by the UK Profession must complete independent decade to member their online CPD record. regulator Professor Phelim Boyle. Random sampling of CPD records will begin responsible The Institute Council in July and, if you are selected, you will be asked for promoting confidence voted on 19 May to award to provide evidence of your CPD activities or an in corporate reporting and governance, has Professor Boyle, based in explanation as to why you believe that you are in published its Plan & Budget 2008/2009. Canada, the prestigious Professor Boyle the category you have declared. If no satisfactory Copies are on the FRC website at www.frc.org. medal in recognition of evidence or explanations are received then this uk/about/plans.cfm the important contribution he has made to may result in a referral to the discipline process. The document takes account of stakeholder actuarial science over more than 30 years. It During the CPD year 2006-2007, the feedback on the draft plan and the budget is only the 13th Gold Medal that has been Profession reminded members of their CPD published in January 2008. A summary of the awarded since their inception in 1919. obligations on about 16 different occasions. feedback received, together with the individual The Institute will also award members, As the third year of mandatory CPD recording responses, is available at www.frc.org.uk/about/ Andrew D Smith and Greg Taylor FIA, Finlaison approaches, the number of reminders will be feedback.cfm. Key themes for the FRC during (Silver) Medals in recognition of their work for reduced. From 1 July 2008, if your records are 2008/2009 include: the profession. Silver Medals are awarded for not fully compliant then you may be selected for n Leading public debate in the UK on the service of special importance to the actuarial monitoring and could be referred through the major issues affecting confidence in profession and only 22 have been given out discipline process subsequently. corporate reporting and governance since their inception in 1966. Please note this does not apply to those n Monitoring corporate reporting and The medals will be presented later this year. in Category 1 as they are required to comply governance practices in the UK and taking within the year of the Practising Certificate. enforcement action where appropriate n Increasing participation in the development Corporate Plan of international standards and co-operation The Profession has published its Corporate Plan with international regulatory organisations for 2008/2009. Based on the strategy set by the n Contributing to modifying the UK joint Councils of the Faculty and the Institute, this regulatory regime to take account of changes is a rolling plan committing to broad aims over in European and UK legislation. a five-year time frame and, within that, setting out specific priority activities or outputs for the current year. The plan focuses on: qualifications; Stochastic reserving and career support; professional regulation and modelling seminar ethical standards; marketing and public affairs; global influence and governance/infrastructure. The Profession is holding a two-day seminar on The plan is available at www.actuaries. stochastic reserving and modelling on 3-4 July org.uk/__data/assets/pdf_file/0007/132973/ 2008, at Staple Inn Hall, London. CorporatePlan200809.pdf The requirements anticipated under Solvency II and International Accounting Economics winner Standards place greater emphasis on Life insurance prize Nick Dumbreck, right, president of the Institute quantifying reserving uncertainty. Practice Stephen Hainsworth has been awarded the of Actuaries, presents a certificate and cheque and standards are still evolving and there Worshipful Company of Actuaries Prize for to Thomas Goddard, the winner of the Watson is already a significant body of material Life Insurance (SA2) for his performance in the Wyatt Prize for Financial Economics. available to actuaries through the education April 2007 examination diet. Stephen qualified The prize is awarded to the best performing process and published papers, however, many as a fellow in 2007 and is currently working as student in Subject CT8 – the Financial actuaries may not have had sufficient practical a in life insurance, specialising in Economics paper, for the September 2007 experience with these stochastic methods. financial modelling. examination diet. This event will introduce and explore these methods through a series of lectures and hands-on working examples, with tutors Consultation on the Actuaries’ Code available to help. You do not need to have any experience with stochastic reserving and A meeting to discuss the latest drafts of the Actuaries’ Code and the supporting Actuarial you will come away from the event with a Profession (AP) Standards which will replace the PCS, will take place on 3 June 2008 at technical and practical understanding of the Staple Inn, High Holborn, London, from 5–7pm. methods in addition to spreadsheet examples Please confirm your attendance by e-mail [email protected] to help develop your work. Following the first round of consultation, the Code and first five AP Standards have This event is targeted at actuaries and been restructured into a more compact style based on the five core principles of others that wish to gain practical experience Conduct, Competence, Client Interests, Compliance and Communication. in applying stochastic reserving methods to The context in which they should be interpreted, that of serving the public interest, estimate reserve uncertainty. It will also be of has been emphasised in the preamble. interest to more senior actuaries that might The formal deadline for feedback is Friday 11 July, although it would be of considerable receive and need to understand results from assistance if all comments were submitted by the end of June. these methods. Places are limited. For more The target date for when these would come into effect is 1 October 2008. details, please visit www.actuaries.org.uk/conf/ The drafts can be accessed at www.actuaries.org.uk/regulation/ed10_15.pdf and all StochasticReserving20080703.pdf comments and views should be addressed to [email protected]

www.the-actuary.org.uk June 2008 13

012+013_Actuary_Prof_0608.indd 13 21/5/08 15:46:26 News Profession All change for forthcoming technical actuarial standards Paul Seymour, chair of the Board for Actuarial Standards (BAS) outlines the changes ahead for technical actuarial standards

be mandatory. And, instead of setting out TASs, depending on the responses that detailed rules, as some of the GNs do, TASs we receive to our consultation. Three will will be principle-based. All this means that cover the main actuarial fields: long-term potential Mastermind contestants won’t be insurance; general insurance; and pensions. able to rely on their existing knowledge of In addition, there will be TASs on pre-paid the GNs. Perhaps more importantly, those for funeral plans and business rearrangements whom no adopted GN is relevant might wake (the latter covering matters such as Part VII up one morning to find that their work is transfers and the protection of beneficiaries covered by the new TASs. in the context of M&A activity). We are consulting on Each new TAS will undergo two separate whether there should » be a separate TAS consultations, first as a consultation covering actuarial paper setting out and discussing various information for inclusion in financial options, and then as an exposure draft statements. As you can see, even the incorporating the decisions made « specific TASs are likely to cover more But, of course, it shouldn’t come to that. ground than the adopted GNs. By the time the new standards are introduced, What will happen to the adopted GNs as the they should already be very familiar. This TASs are developed? Well, it will depend on the is because each new TAS will undergo two GN. Now that the BAS’s scope and authority separate consultations, first as a consultation have been formally articulated, we believe that paper setting out and discussing various a number of them have no content that falls options, and then as an exposure draft within BAS’s scope, and are proposing that incorporating (and explaining) the decisions they should no longer apply from some time we have made. So, all those affected will have later this year. Others have content that will plenty of opportunity to express their opinions be incorporated in new TASs, both generic and Paul Seymour is chair of the Board for and influence the outcome. specific — they will stay in force until the new Actuarial Standards The concept of generic standards will TASs are issued. be a new one to many UK actuaries. We Is your working life dominated by guidance are introducing them for several reasons. We need your input notes? Do you sometimes feel that you could They are primarily intended to address As you’ll have gathered, the BAS has been busy win Mastermind based on your intimate the findings of the Morris Review that the recently, with four consultations published knowledge of GN9, or that you could recite existing actuarial standards, as a body, are in two months. It’s an exciting time for all of GN42 in your sleep? Or do you have no idea inconsistent between different practice areas us, and the momentum will continue over whether GN12 applies to life, pensions or and lack coherence. They will also assist in the next few years. But it’s not just the BAS GI, and don’t really care? Whichever camp eliminating duplication between standards, that will be involved. In the short term, the you are in, you will probably have to change and may help users to understand some of responses to the current consultations will your outlook over the next few years, as a the basic principles underlying the actuarial help shape our work. In particular, we’d like set of technical actuarial standards (TASs) are reports they receive. comments on the proposals for the structure of introduced by BAS and the GNs adopted from the new book of standards and the treatment the Actuarial Profession cease to apply. Our New TASs and old GNs of adopted GNs. proposals are set out in our recent consultation We shall be developing three generic standards Longer term, the development of the new paper, Structure of new BAS standards (and over the next year. The first, on reporting, was TASs will need a lot of input from members implications for adopted GNs). part of our consultation on the conceptual of the profession, as well as from others. We The most obvious characteristic of the framework for actuarial standards, and has will be setting up formal working groups as proposed new TASs is that they will be very now been published as an exposure draft. well as looking for informal opinions, and the different from the adopted GNs. Instead Development of the other two, on data and contributions we get will be vital in ensuring of 37 adopted GNs, mostly focusing on a modelling, has now started, and consultation the quality of the resulting standards. fairly narrow area of work, there will be papers are expected later this year. These fewer than 10 TASs, three of which will be three generic standards will cover the main All BAS consultations are available from generic, applying right across the main areas components of actuarial work, and will provide www.frc.org.uk/bas/publications/consultation.cfm. of actuarial practice. Currently, adopted a common core of principles on which the To receive direct notification when BAS GNs are either ‘Recommended Practice’ or specific standards can be built. consultations are published, register at ‘Practice Standard’, while the TASs will all There will probably be five or six specific www.frc.org.uk/bas/register.cfm

14 June 2008 www.the-actuary.org.uk

014_Actuary_Prof_0608.indd 14 21/5/08 10:32:42 News Profession Providing support and service to members In the first of a series of articles, Maria Singleton outlines the role of the Profession’s professional community support division

The Profession’s restructure in March 2008 Enterprise risk management practice executive committee separated the Profession’s functions into two areas: professional administration and The committee met for the first time in April to agree its terms of professional community. The professional reference and identify key issues for the future. Over the coming community support division provides direct months the committee will seek to expand its membership to support to members throughout their careers, broaden the range of interests, backgrounds and skills represented. primarily through the practice executive Our initial focus will be to determine a vision and strategy for committees: enterprise risk management, the committee and the Profession in the area of enterprise risk finance and investment, general insurance, management. life, health and care, and pensions. A list of A key deliverable for the Profession will be the development of the members of each of the committees was the specialist level (ST9) examination syllabus in enterprise risk provided in last month’s magazine. management — an essential plank in broadening the Profession’s The practice executive committees have expertise in the risk management arena. Work is also in hand to develop a globally replaced the practice boards and have been recognised credential in enterprise risk management, which the Profession is actively designed and empowered to deliver support supporting. to members directly. The main areas of This year’s finance, investment and risk management conference in Manchester offers support include: an interesting and varied agenda which will be of great interest to all interested in risk n Providing relevant and accessible CPD management. The 2009 conference will be a jointly sponsored venture with the finance opportunities to encourage sharing and and investment practice executive committee, bringing together topics that will be of dissemination of knowledge interest to both groups. n Stimulating and encouraging member-led The enterprise risk management executive committee will continue to support the joint research venture with the Institution of Civil Engineers which has produced the highly regarded n Developing communication to members, RAMP and STATRisk handbooks which provide tools to both actuaries and non-actuaries fostering a sense of community within each for the management of project and strategic risk. practice area, and with external bodies. Colin Ledlie, chairman, enterprise risk management executive committee

Objectives Practice executive committees will continue community is the support that will be provided Most of the practice executive committees to liaise with external organisations and to member interest groups. These groups have have now met and are considering their main contribute to consultation responses. They been introduced to promote actuarial research objectives for the coming year: a key aim for each will also offer practitioner input to the various and discussion, including on a cross-practice committee is to engage with members working bodies in the professional administration basis. Member interest groups are groups of within the relevant practice area, particularly via area, for example to the public affairs advisory members who have a focus or area of interest regular and targeted communications. Provision committee which is responsible for managing that links them. This could be a specific, narrow of CPD opportunities is likely to include the profession’s public interest role. aspect of practice, a cross-practice topic such as networking events and open fora (either physical climate change or a regional link; any member is meetings or via a wiki), as well as the more Member interest groups free to join one or more groups. Member interest traditional routes of seminars and conventions. A new and important aspect of the professional groups are autonomous, will not report to any committee — although they may have close links with one or more executive committees — and Risk management member interest group will determine their own organisation. You can find a list of current member interest groups at As part of the restructure, the risk management special interest group www.actuaries.org.uk/members/migs has become the risk management member interest group. At its first One way to make sure members are kept meeting, the group agreed to continue to promote to its members informed about activities in their practice area and the wider actuarial community the developing discipline of is through targeted e-mails, and all members are risk management. To this end, the group will work closely with encouraged to sign up for one or more relevant the practice executive committees, particularly enterprise risk practice areas to ensure they are kept up to date. management. It will also continue to: To subscribe to practice area communities or n Develop a programme of networking evenings, by bringing member interest groups, please log on to the members from different fields together to discuss topical issues of Members’ Section of the website and, under Your common interest within risk management Preferences, select Your Profile; then expand n Support the practice executive committees by providing volunteer resource to continue Person Classifications and check the relevant research into areas of emerging interest in the field of risk management boxes from the drop-down menus for practice n Provide members with a point of reference/gateway into emerging risk management area communities and member interest groups. practices and techniques n Support the interests and development of its members. Maria Singleton is head of professional Jules Constantinou, chairman, risk management member interest group community support

16 June 2008 www.the-actuary.org.uk

016+017_Actuary_Prof_0608.indd 16 21/5/08 12:08:56 Profession News

38th ASTIN Colloquium Make a date 13-16 July 2008, Town Hall, Manchester, UK for pensions The Actuarial Profession is hosting the 38th ASTIN Colloquium this July in Manchester. The Choosing population programme is a combination of plenary and breakout sessions. Members of the Profession projections for public can claim up to 15 hours of verifiable technical CPD for attending. policy is the theme of a joint conference for Keynote speakers the Profession and The n Climate change and its impacts: Professor Julia Slingo, professor, University of Reading International Longevity n Accounting for extreme-value dependence in multivariate data: Professor Christian Genest, Centre. The conference will address four Laval University, Canada questions about mortality knowledge: n Economic capital, enterprise risk management and insurance ratings: David Ingram, 1 What do we know about mortality Standard & Poors, New York. developments given recent uncertainties Breakout sessions underlying projections? The breakout sessions will offer plenty of opportunities for discussion on the practical applications of 2 How should we make sense of different the papers presented while still accommodating the theoretical debates for which ASTIN is known. viewpoints about future mortality? Selected conference papers 3 What are the implications of different n Experience rating, bonus-malus and the poisson mixture model mortality projections – including their n Scenario analysis for a multi-periodic diffusion model of risk uncertainties – for policy? n Non-life Solvency II model 4 How should government govern, n Dynamic model of a non-life insurance portfolio sponsor and use mortality knowledge in n Expected shortfall of claim amounts: some practical aspects policymaking in the public, financial and n Clustering in ratemaking: with application in territories clustering voluntary sectors? n Measurement and transfer of catastrophic risks High-profile speakers include: Professor Sir n Claim severity distributions modelling Michael Marmot, Mike O’Brien MP (pictured), n Modelling the claims development result the minister of state for pensions reform, and n Reinsurance pricing tool for XL reinsurance Richard Willets. n Give credit where credit is due: operational risk goes bayesian The conference is sponsored by Swiss Re n Most elegant premium formulas for the most general drop down excess of loss cover and will take place on 29 October 2008 at n Loss reserving method for incomplete claim data. Staple Inn, London. For more details please For more details, please visit www.actuaries.org/ASTIN2008 or contact contact Hannah Bolton on +44 (0)20 7632 [email protected] 2145 or [email protected] Forecast your future With our flexible schedule and innovative on-line teaching techniques, your convenience is our priority.

MSc in Actuarial Science As one of the world’s leading academic centres in • Both courses are accredited by the MSc in Actuarial Management the actuarial and insurance fields, it’s no surprise Actuarial Profession that gaining a qualification with us can lead to • MSc in Actuarial Science offers exemptions exemption from many of the professional exams: in Subjects CT1 to CT8 • Both courses are available on either a full-time • MSc in Actuarial Management offers basis (over one year) or a part-time basis (over exemptions in Subjects CA1 and ST1 two years) to ST6 (and students may also complete • Part-time students attend lectures for one day outstanding CT subjects). per week, which fits in well with the study leave To find out more about our regular information package offered by most actuarial employers sessions, the next is 26 June 2008, visit • Lectures are supplemented by dedicated www.cass.city.ac.uk/masters and click on on-line material ‘Sessions at Cass’. Alternatively call admissions on: +44 (0)20 7040 8468

www.the-actuary.org.uk June 2008 17

016+017_Actuary_Prof_0608.indd 17 21/5/08 12:09:09 Profession News

FRC publishes plan Institute awards Don’t forget to and budget highest honour complete your CPD The Financial The Institute of Actuaries The deadline for completing this year’s online Reporting will confer its highest CPD declarations and activity records is 30 June Council, honour of a Gold Medal 2008. All associates and fellows that are fully the UK’s for the first time in a regulated by the UK Profession must complete independent decade to member their online CPD record. regulator Professor Phelim Boyle. Random sampling of CPD records will begin responsible The Institute Council in July and, if you are selected, you will be asked for promoting confidence voted on 19 May to award to provide evidence of your CPD activities or an in corporate reporting and governance, has Professor Boyle, based in explanation as to why you believe that you are in published its Plan & Budget 2008/2009. Canada, the prestigious Professor Boyle the category you have declared. If no satisfactory Copies are on the FRC website at www.frc.org. medal in recognition of evidence or explanations are received then this uk/about/plans.cfm the important contribution he has made to may result in a referral to the discipline process. The document takes account of stakeholder actuarial science over more than 30 years. It During the CPD year 2006-2007, the feedback on the draft plan and the budget is only the 13th Gold Medal that has been Profession reminded members of their CPD published in January 2008. A summary of the awarded since their inception in 1919. obligations on about 16 different occasions. feedback received, together with the individual The Institute will also award members, As the third year of mandatory CPD recording responses, is available at www.frc.org.uk/about/ Andrew D Smith and Greg Taylor FIA, Finlaison approaches, the number of reminders will be feedback.cfm. Key themes for the FRC during (Silver) Medals in recognition of their work for reduced. From 1 July 2008, if your records are 2008/2009 include: the profession. Silver Medals are awarded for not fully compliant then you may be selected for n Leading public debate in the UK on the service of special importance to the actuarial monitoring and could be referred through the major issues affecting confidence in profession and only 22 have been given out discipline process subsequently. corporate reporting and governance since their inception in 1966. Please note this does not apply to those n Monitoring corporate reporting and The medals will be presented later this year. in Category 1 as they are required to comply governance practices in the UK and taking within the year of the Practising Certificate. enforcement action where appropriate n Increasing participation in the development Corporate Plan of international standards and co-operation The Profession has published its Corporate Plan with international regulatory organisations for 2008/2009. Based on the strategy set by the n Contributing to modifying the UK joint Councils of the Faculty and the Institute, this regulatory regime to take account of changes is a rolling plan committing to broad aims over in European and UK legislation. a five-year time frame and, within that, setting out specific priority activities or outputs for the current year. The plan focuses on: qualifications; Stochastic reserving and career support; professional regulation and modelling seminar ethical standards; marketing and public affairs; global influence and governance/infrastructure. The Profession is holding a two-day seminar on The plan is available at www.actuaries. stochastic reserving and modelling on 3-4 July org.uk/__data/assets/pdf_file/0007/132973/ 2008, at Staple Inn Hall, London. CorporatePlan200809.pdf The requirements anticipated under Solvency II and International Accounting Economics winner Standards place greater emphasis on Life insurance prize Nick Dumbreck, right, president of the Institute quantifying reserving uncertainty. Practice Stephen Hainsworth has been awarded the of Actuaries, presents a certificate and cheque and standards are still evolving and there Worshipful Company of Actuaries Prize for to Thomas Goddard, the winner of the Watson is already a significant body of material Life Insurance (SA2) for his performance in the Wyatt Prize for Financial Economics. available to actuaries through the education April 2007 examination diet. Stephen qualified The prize is awarded to the best performing process and published papers, however, many as a fellow in 2007 and is currently working as student in Subject CT8 – the Financial actuaries may not have had sufficient practical a consultant in life insurance, specialising in Economics paper, for the September 2007 experience with these stochastic methods. financial modelling. examination diet. This event will introduce and explore these methods through a series of lectures and hands-on working examples, with tutors Consultation on the Actuaries’ Code available to help. You do not need to have any experience with stochastic reserving and A meeting to discuss the latest drafts of the Actuaries’ Code and the supporting Actuarial you will come away from the event with a Profession (AP) Standards which will replace the PCS, will take place on 3 June 2008 at technical and practical understanding of the Staple Inn, High Holborn, London, from 5–7pm. methods in addition to spreadsheet examples Please confirm your attendance by e-mail [email protected] to help develop your work. Following the first round of consultation, the Code and first five AP Standards have This event is targeted at actuaries and been restructured into a more compact style based on the five core principles of others that wish to gain practical experience Conduct, Competence, Client Interests, Compliance and Communication. in applying stochastic reserving methods to The context in which they should be interpreted, that of serving the public interest, estimate reserve uncertainty. It will also be of has been emphasised in the preamble. interest to more senior actuaries that might The formal deadline for feedback is Friday 11 July, although it would be of considerable receive and need to understand results from assistance if all comments were submitted by the end of June. these methods. Places are limited. For more The target date for when these would come into effect is 1 October 2008. details, please visit www.actuaries.org.uk/conf/ The drafts can be accessed at www.actuaries.org.uk/regulation/ed10_15.pdf and all StochasticReserving20080703.pdf comments and views should be addressed to [email protected]

www.the-actuary.org.uk June 2008 13

012+013_Actuary_Prof_0608.indd 13 21/5/08 15:46:26 News Profession All change for forthcoming technical actuarial standards Paul Seymour, chair of the Board for Actuarial Standards (BAS) outlines the changes ahead for technical actuarial standards

be mandatory. And, instead of setting out TASs, depending on the responses that detailed rules, as some of the GNs do, TASs we receive to our consultation. Three will will be principle-based. All this means that cover the main actuarial fields: long-term potential Mastermind contestants won’t be insurance; general insurance; and pensions. able to rely on their existing knowledge of In addition, there will be TASs on pre-paid the GNs. Perhaps more importantly, those for funeral plans and business rearrangements whom no adopted GN is relevant might wake (the latter covering matters such as Part VII up one morning to find that their work is transfers and the protection of beneficiaries covered by the new TASs. in the context of M&A activity). We are consulting on Each new TAS will undergo two separate whether there should » be a separate TAS consultations, first as a consultation covering actuarial paper setting out and discussing various information for inclusion in financial options, and then as an exposure draft statements. As you can see, even the incorporating the decisions made « specific TASs are likely to cover more But, of course, it shouldn’t come to that. ground than the adopted GNs. By the time the new standards are introduced, What will happen to the adopted GNs as the they should already be very familiar. This TASs are developed? Well, it will depend on the is because each new TAS will undergo two GN. Now that the BAS’s scope and authority separate consultations, first as a consultation have been formally articulated, we believe that paper setting out and discussing various a number of them have no content that falls options, and then as an exposure draft within BAS’s scope, and are proposing that incorporating (and explaining) the decisions they should no longer apply from some time we have made. So, all those affected will have later this year. Others have content that will plenty of opportunity to express their opinions be incorporated in new TASs, both generic and Paul Seymour is chair of the Board for and influence the outcome. specific — they will stay in force until the new Actuarial Standards The concept of generic standards will TASs are issued. be a new one to many UK actuaries. We Is your working life dominated by guidance are introducing them for several reasons. We need your input notes? Do you sometimes feel that you could They are primarily intended to address As you’ll have gathered, the BAS has been busy win Mastermind based on your intimate the findings of the Morris Review that the recently, with four consultations published knowledge of GN9, or that you could recite existing actuarial standards, as a body, are in two months. It’s an exciting time for all of GN42 in your sleep? Or do you have no idea inconsistent between different practice areas us, and the momentum will continue over whether GN12 applies to life, pensions or and lack coherence. They will also assist in the next few years. But it’s not just the BAS GI, and don’t really care? Whichever camp eliminating duplication between standards, that will be involved. In the short term, the you are in, you will probably have to change and may help users to understand some of responses to the current consultations will your outlook over the next few years, as a the basic principles underlying the actuarial help shape our work. In particular, we’d like set of technical actuarial standards (TASs) are reports they receive. comments on the proposals for the structure of introduced by BAS and the GNs adopted from the new book of standards and the treatment the Actuarial Profession cease to apply. Our New TASs and old GNs of adopted GNs. proposals are set out in our recent consultation We shall be developing three generic standards Longer term, the development of the new paper, Structure of new BAS standards (and over the next year. The first, on reporting, was TASs will need a lot of input from members implications for adopted GNs). part of our consultation on the conceptual of the profession, as well as from others. We The most obvious characteristic of the framework for actuarial standards, and has will be setting up formal working groups as proposed new TASs is that they will be very now been published as an exposure draft. well as looking for informal opinions, and the different from the adopted GNs. Instead Development of the other two, on data and contributions we get will be vital in ensuring of 37 adopted GNs, mostly focusing on a modelling, has now started, and consultation the quality of the resulting standards. fairly narrow area of work, there will be papers are expected later this year. These fewer than 10 TASs, three of which will be three generic standards will cover the main All BAS consultations are available from generic, applying right across the main areas components of actuarial work, and will provide www.frc.org.uk/bas/publications/consultation.cfm. of actuarial practice. Currently, adopted a common core of principles on which the To receive direct notification when BAS GNs are either ‘Recommended Practice’ or specific standards can be built. consultations are published, register at ‘Practice Standard’, while the TASs will all There will probably be five or six specific www.frc.org.uk/bas/register.cfm

14 June 2008 www.the-actuary.org.uk

014_Actuary_Prof_0608.indd 14 21/5/08 10:32:42 News Profession Providing support and service to members In the first of a series of articles, Maria Singleton outlines the role of the Profession’s professional community support division

The Profession’s restructure in March 2008 Enterprise risk management practice executive committee separated the Profession’s functions into two areas: professional administration and The committee met for the first time in April to agree its terms of professional community. The professional reference and identify key issues for the future. Over the coming community support division provides direct months the committee will seek to expand its membership to support to members throughout their careers, broaden the range of interests, backgrounds and skills represented. primarily through the practice executive Our initial focus will be to determine a vision and strategy for committees: enterprise risk management, the committee and the Profession in the area of enterprise risk finance and investment, general insurance, management. life, health and care, and pensions. A list of A key deliverable for the Profession will be the development of the members of each of the committees was the specialist level (ST9) examination syllabus in enterprise risk provided in last month’s magazine. management — an essential plank in broadening the Profession’s The practice executive committees have expertise in the risk management arena. Work is also in hand to develop a globally replaced the practice boards and have been recognised credential in enterprise risk management, which the Profession is actively designed and empowered to deliver support supporting. to members directly. The main areas of This year’s finance, investment and risk management conference in Manchester offers support include: an interesting and varied agenda which will be of great interest to all interested in risk n Providing relevant and accessible CPD management. The 2009 conference will be a jointly sponsored venture with the finance opportunities to encourage sharing and and investment practice executive committee, bringing together topics that will be of dissemination of knowledge interest to both groups. n Stimulating and encouraging member-led The enterprise risk management executive committee will continue to support the joint research venture with the Institution of Civil Engineers which has produced the highly regarded n Developing communication to members, RAMP and STATRisk handbooks which provide tools to both actuaries and non-actuaries fostering a sense of community within each for the management of project and strategic risk. practice area, and with external bodies. Colin Ledlie, chairman, enterprise risk management executive committee

Objectives Practice executive committees will continue community is the support that will be provided Most of the practice executive committees to liaise with external organisations and to member interest groups. These groups have have now met and are considering their main contribute to consultation responses. They been introduced to promote actuarial research objectives for the coming year: a key aim for each will also offer practitioner input to the various and discussion, including on a cross-practice committee is to engage with members working bodies in the professional administration basis. Member interest groups are groups of within the relevant practice area, particularly via area, for example to the public affairs advisory members who have a focus or area of interest regular and targeted communications. Provision committee which is responsible for managing that links them. This could be a specific, narrow of CPD opportunities is likely to include the profession’s public interest role. aspect of practice, a cross-practice topic such as networking events and open fora (either physical climate change or a regional link; any member is meetings or via a wiki), as well as the more Member interest groups free to join one or more groups. Member interest traditional routes of seminars and conventions. A new and important aspect of the professional groups are autonomous, will not report to any committee — although they may have close links with one or more executive committees — and Risk management member interest group will determine their own organisation. You can find a list of current member interest groups at As part of the restructure, the risk management special interest group www.actuaries.org.uk/members/migs has become the risk management member interest group. At its first One way to make sure members are kept meeting, the group agreed to continue to promote to its members informed about activities in their practice area and the wider actuarial community the developing discipline of is through targeted e-mails, and all members are risk management. To this end, the group will work closely with encouraged to sign up for one or more relevant the practice executive committees, particularly enterprise risk practice areas to ensure they are kept up to date. management. It will also continue to: To subscribe to practice area communities or n Develop a programme of networking evenings, by bringing member interest groups, please log on to the members from different fields together to discuss topical issues of Members’ Section of the website and, under Your common interest within risk management Preferences, select Your Profile; then expand n Support the practice executive committees by providing volunteer resource to continue Person Classifications and check the relevant research into areas of emerging interest in the field of risk management boxes from the drop-down menus for practice n Provide members with a point of reference/gateway into emerging risk management area communities and member interest groups. practices and techniques n Support the interests and development of its members. Maria Singleton is head of professional Jules Constantinou, chairman, risk management member interest group community support

16 June 2008 www.the-actuary.org.uk

016+017_Actuary_Prof_0608.indd 16 21/5/08 12:08:56 Profession News

38th ASTIN Colloquium Make a date 13-16 July 2008, Town Hall, Manchester, UK for pensions The Actuarial Profession is hosting the 38th ASTIN Colloquium this July in Manchester. The Choosing population programme is a combination of plenary and breakout sessions. Members of the Profession projections for public can claim up to 15 hours of verifiable technical CPD for attending. policy is the theme of a joint conference for Keynote speakers the Profession and The n Climate change and its impacts: Professor Julia Slingo, professor, University of Reading International Longevity n Accounting for extreme-value dependence in multivariate data: Professor Christian Genest, Centre. The conference will address four Laval University, Canada questions about mortality knowledge: n Economic capital, enterprise risk management and insurance ratings: David Ingram, 1 What do we know about mortality Standard & Poors, New York. developments given recent uncertainties Breakout sessions underlying projections? The breakout sessions will offer plenty of opportunities for discussion on the practical applications of 2 How should we make sense of different the papers presented while still accommodating the theoretical debates for which ASTIN is known. viewpoints about future mortality? Selected conference papers 3 What are the implications of different n Experience rating, bonus-malus and the poisson mixture model mortality projections – including their n Scenario analysis for a multi-periodic diffusion model of risk uncertainties – for policy? n Non-life Solvency II model 4 How should government govern, n Dynamic model of a non-life insurance portfolio sponsor and use mortality knowledge in n Expected shortfall of claim amounts: some practical aspects policymaking in the public, financial and n Clustering in ratemaking: with application in territories clustering voluntary sectors? n Measurement and transfer of catastrophic risks High-profile speakers include: Professor Sir n Claim severity distributions modelling Michael Marmot, Mike O’Brien MP (pictured), n Modelling the claims development result the minister of state for pensions reform, and n Reinsurance pricing tool for XL reinsurance Richard Willets. n Give credit where credit is due: operational risk goes bayesian The conference is sponsored by Swiss Re n Most elegant premium formulas for the most general drop down excess of loss cover and will take place on 29 October 2008 at n Loss reserving method for incomplete claim data. Staple Inn, London. For more details please For more details, please visit www.actuaries.org/ASTIN2008 or contact contact Hannah Bolton on +44 (0)20 7632 [email protected] 2145 or [email protected] Forecast your future With our flexible schedule and innovative on-line teaching techniques, your convenience is our priority.

MSc in Actuarial Science As one of the world’s leading academic centres in • Both courses are accredited by the MSc in Actuarial Management the actuarial and insurance fields, it’s no surprise Actuarial Profession that gaining a qualification with us can lead to • MSc in Actuarial Science offers exemptions exemption from many of the professional exams: in Subjects CT1 to CT8 • Both courses are available on either a full-time • MSc in Actuarial Management offers basis (over one year) or a part-time basis (over exemptions in Subjects CA1 and ST1 two years) to ST6 (and students may also complete • Part-time students attend lectures for one day outstanding CT subjects). per week, which fits in well with the study leave To find out more about our regular information package offered by most actuarial employers sessions, the next is 26 June 2008, visit • Lectures are supplemented by dedicated www.cass.city.ac.uk/masters and click on on-line material ‘Sessions at Cass’. Alternatively call admissions on: +44 (0)20 7040 8468

www.the-actuary.org.uk June 2008 17

016+017_Actuary_Prof_0608.indd 17 21/5/08 12:09:09 News Education

New fellows presentations Jonathan Downes PricewaterhouseCoopers Chris Pienaar Momentum Group Gareth Evans Hewitt Valentina Rocchi Watson Wyatt Craig Follows Prudential Assurance Company Nimish Ruparelia Tillinghast — Towers Perrin Michael Fung Hiscox Underwriting Group Michael Scanlon Government Actuary’s Richard Gee FarrSight Solutions Department Amanda Gerada Norwich Union Life Jonathan Sharp PricewaterhouseCoopers Robert Gibson No business address supplied Daniel Simonis Human Resource Lewis Grant Consulting Guy Green Aon Christopher Spratt QBE European Operations Andrew Hewlett Hewitt Dean Swallow Novae Group Vanessa Hodge Mercer Adam Tidball Amlin Anthony Joyce Friends First Life Assurance Evonne Twite Norwich Union 1 November 2007, pm Martin Kelly Canada Life Assurance (Ireland) Stuart Underwood Mercer Human Resource Louise Bennett Limit Underwriting Brett Malyon Resolution Consulting Anne Boulton Royal Liver Assurance John Martin KPMG LLP Natasha Varma No business address John Bowers Royal Liver Assurance Chris Mitcheson Lane Clark & Peacock LLP supplied Paul Bowker Royal Liver Assurance Zameer Mitha KPMG LLP Oscar Weafer & Touche LLP Anthony Burpitt Munich Re Paul Morris Prudential Assurance Company Brett Wethmar Risk Management Kelly Catlow Hewitt Emma Morton Deloitte Total Reward & Benefits Consultants Trinisha Chanka Investec Asset Management Gareth O’Callaghan Quantum Advisory Paul Willetts Watson Wyatt Steven Clark Deloitte & Touche LLP Sean O’Dubhain QBE Georgina Williams Munich Re Finn Clawson Hewitt Andrew Oliver Norwich Union Healthcare Neil Wilson EMB Consultancy LLP Andre Cloete Regent Insurance Andrew O’Regan Lane Clark & Peacock LLP Nick Woodward Paternoster Charles Cobb AXA Sun Life Timothy Penning Hewitt Simon Yeung RBS Insurance

Claire Evans Norwich Union Gareth Mee Ernst & Young LLP Emma Ferris Watson Wyatt Natalie Metzelaar Lloyd’s of London Niall Gallagher Mercer Human Carl Moxley Swiss Re Resource Consulting Niamh Nolan Bank of Ireland Life Andrew Gilbert Liverpool Victoria Elinore O’Neill PricewaterhouseCoopers LLP Friendly Society Zoe Panaite Royal London Group Stephen Hainsworth Towers Perrin Cita Penn African Life Assurance Co Steven Hardy Hannover Life Reassurance Rosalyn Pringle PricewaterhouseCoopers Sejal Haria PricewaterhouseCoopers Siobhan Quill Canada Life Assurance Shalin Haria PricewaterhouseCoopers Will Rainey Watson Wyatt Stuart Harrison PricewaterhouseCoopers Fabien Ramaharobandro Aon Re Rebecca Jonson No business address supplied Emma Rogers Aon 2 November 2007, pm Grainne Kelly Irish Life Assurance Nicola Rooney Mercer Human Sharon Knight Chubb Insurance Company Resource Consulting Steven Blight Phoenix Life Group Louise Legg PricewaterhouseCoopers Joanne Ryan Acorn Life Donald Brignell PricewaterhouseCoopers Vanessa Leung Watson Wyatt Peter Saunders Swiss Re Eve Byrne Watson Wyatt John Lim AXA Sun Life Assurance Shalin Shah PricewaterhouseCoopers Naomi Cooney Irish Life Assurance Wei Lim Deloitte & Touche LLP Celine Tang Swiss Re Life & Health Varusha Daljee Old Mutual Asset Managers Eamon Loughnane AIG Life Ireland Pieter Van Amersfoort Watson Wyatt Claire Dancer Mercer Human Brendan McCabe Watson Wyatt (Ireland) Richard Walsh Mercer Human Resource Consulting Rosalind McDonald Mercer Human Resource Consulting Nicholas Deahl Mercer Human Resource Consulting Robert Warren Lane Clark & Peacock LLP Resource Consulting Anish Malde Tillinghast — Towers Perrin Debbie White Bank of Ireland Life John Dewey Mercer Investment Consulting Tejinder Matharu PricewaterhouseCoopers Helen Wood Mercer Human Fiona Doyle Watson Wyatt (Ireland) Gillian Mathias Swiss Re Resource Consulting

New chair for with actuarial Actuarial Standards’ processes are reflected in developments the qualification syllabus and professionalism Examinations Board both at home courses when agreed Richard Muckart FFA becomes chairman of and overseas. n Liaising with the Professional the Examinations Board on 1 July, taking over “I’m also keen Oversight Board to ensure that the from Mark Stocker. Richard has been involved to encourage more Profession’s processes meet their with actuarial education since he qualified volunteers to oversight requirements as a fellow in 1979, first as a tutor and then become involved n Ensuring that the proposed changes an examiner, later taking up positions on in the examination to CA3 (communications) and ST3 (general the ECPD Board and subsequently the process.” insurance) deliver improved pass rates Examinations Board. His immediate Muckart: new chairman n Agreeing a qualification in enterprise “I envisage my chairmanship to be focus will include: risk management a period of calm as the 2005 syllabus n Introduction of the revised CA1 syllabus n Recruiting more volunteers to become continues to bed down,” he says. “But I’m for the April 2009 exams, which incorporates assistant examiners with a view to them aware that the Profession’s qualification more risk management content stepping up to become examiners in syllabuses will need to keep pace n Ensuring that the proposed Board for due course.

18 June 2008 www.the-actuary.org.uk

018+019_Actuary_Edu_0608.indd 18 20/5/08 16:01:35 Education News

2 November 2007, am Damien Bartlett SCOR Global Life Clair Le Poidevin BWCI Group Reinsurance UK Wen Li Prudential Assurance Trevor Black Old Mutual Company Sebastian Bleasdale Mercer Emma Lowry Mercer Human The new way to train Human Resource Consulting Resource Consulting Neal Brown Norwich Union Life Rosemary Marsh Jardine Lloyd your Actuarial Employees Graham Butcher Watson Wyatt Thompson Benefit Solutions Daniel Cahill Allianz Insurance Christopher Marshall Hewitt Susannah Calder Hewitt Associates When it comes to your employees’ actuarial Associates Paul Moffatt KPMG LLP education, ever thought about doing things a Paul Cowne Legal & General Claire Mooney KPMG LLP little differently? Leicester’s 2-year distance Assurance Society Claire Muirhead Watson Wyatt Siobhan Curtis Reliance Mutual James O’Connor Buck Heissmann learning PGDip in Actuarial Science is the Insurance Society Consultants (Ireland) new alternative in actuarial education. John Dignan Government Actuary’s Adrian O’Connor Mercer Human And for good reason. Department Resource Consulting Davina Doherty Winterthur Life UK Michael Pierce Mercer Human Drawing upon our extensive teaching and Gavin Dunkerley Financial Services Resource Consulting Authority Victoria Pinnion Punter Southall research expertise, as well as vast experience Chloe Dunn Legal & General Alice Piper Pearl Group in delivering distance learning education, Assurance Society Richard Rabin Hewitt we provide a more comprehensive approach Laura Eyres Mercer Human Stuart Redmond Irish Life Resource Consulting Assurance to learning than any other provider. Our Neil Fairchild Hewitt Nicola Rogers Royal London Group Postgraduate Diploma in Actuarial Science Jennifer Gibbons Watson Wyatt Rikhav Shah Watson Wyatt has been designed with and is fully accredited David Grant Brit Insurance Kathryn Taylor KPMG LLP Holdings Janine Thompson Punter Southall by the Faculty and the Institute of Actuaries. Sandra Grant Irish Life Assurance Neha Unia Hewitt Furthermore, your trainees will be fully Stephen Grant HBOS Financial Amy Urrestarazu Mercer Human supported every step of the way, with Services Resource Consulting additional tuition and seminars. Gemma Gregson Watson Wyatt Sarah Vaughan AXA Insurance James Hagan Aon Michael Walker Hewitt Noor Hotee Watson Wyatt Smita Warren Royal & SunAlliance In fact, early engagement with us will give you Farzana Ismail Insurance Group an opportunity to shape the training to your David Johnson Norwich Union Natalie Warwick Punter Southall requirements and guarantee the best possible Joanna Kendrick Watson Wyatt Robert Watkin KPMG LLP education for your early-career colleagues. Matthew King Zurich Municipal Samantha Watts Punter Southall Andy Kingston Hewitt Zaheer Zahoor Barnett Sie Lau Gerling UK Waddingham LLP So take the road less travelled with the UK’s only accredited university qualification Are you up to the challenge? available by supported distance learning. Are you a fellow of the Profession? Would you like to give something The difference is the University of Leicester. back to the Profession while earning some CPD hours? If so, then why not think about becoming an examiner? The Profession is looking for volunteer members to join the Board of Examiners to set and mark papers in all exam subjects. We are particularly interested to hear from you if you have been or are involved as an assistant To find out more: examiner. For more details, including a job description and honoraria, Telephone: 0116 223 1793 please contact [email protected] Email: [email protected] We are also looking for volunteers to become assistant examiners in all Web: www.le.ac.uk/mathematics/actuarial subjects. The role includes: marking a number of scripts for a particular subject in one or two of the annual sessions of examinations, ensuring that the marking scheme is followed consistently; attending a marking meeting before the marking starts; and discussing with the principal examiner of the subject any anomalies in scripts or marking schemes during the marking process. For more details, please contact [email protected]

www.the-actuary.org.uk June 2008 19

018+019_Actuary_Edu_0608.indd 19 20/5/08 16:02:32 News Industry

Treasury Committee debates inherited estate distribution A Treasury Select Committee conducted an treat customers fairly. inquiry on 22 and 30 April to discuss the 2 The current with-profits governance fairness of current approaches to distributing structure is inadequate. Companies the inherited estate of with-profits funds of life appoint members of with-profits assurance companies. committees (WPCs). There are no The committee held four evidence requirements for WPCs to demonstrate sessions, hearing statements from consumer their independence from the company group Which?, the FSA, Clare Spottiswoode or for the company to take their views CBE (policyholder advocate for Norwich on board. Union) and Mark Hodges and Nick 3 Clare Spottiswoode highlighted the need Prettejohn, the chief executives of Norwich for two key regulatory principles that would Union and Prudential respectively. remove the lack of transparency around the Clare Spottiswoode contributed to the debate The inquiry discussed a very wide exercise of discretion in with-profits funds. range of themes concerning the distribution These principles are: profits companies. The current regulatory of inherited estates of with-profits funds n All capital within a with-profits fund framework allows the estate to be used to including: the governance framework should be treated identically, regardless subsidise new with-profits business that may around reattribution exercises; determining of whether or not it is held to meet be unprofitable if written using shareholder equity between current and future liabilities or as part of the inherited estate. capital only. policyholders and between policyholders and Among the examples highlighted were 5 There is a serious imbalance of power shareholders and; use of the estate to support the levying of shareholder tax. in negotiating the size and nature corporate activities. n Companies should be made to treat of distributions of the estate under The issues highlighted and claims made were: policyholder capital in the same way as the current regulatory mechanism. 1 The current regulatory approach creates shareholder capital when deciding how it Policyholders are being made ‘offers they conflicts of interests. Directors have a should be utilised in corporate activities cannot refuse’. In some circumstances, fiduciary responsibility to maximise such as new business or paying mis- the method of distribution could also shareholder returns and so cannot be selling compensation. constitute a barrier to exit. assumed to exercise discretion in a way that 4 The presence of an inherited estate The sessions are available to view at maximises returns for policyholders and so creates barriers to entry for other with- www.parliamentlive.tv/Main/Archive.aspx Pension Regulator to be given new powers The Pensions Regulator (TPR) may be given pension schemes for profit but to the the PPF levy. greater powers to protect scheme members’ possible detriment of scheme members”. In a statement, John Cridland, deputy interests where they are exposed to risk The department also highlighted a potential director at the CBI, welcomed moves to as a result of scheme changes or corporate asymmetry whereby surplus from scheme protect individual members’ benefits, though transactions. The minister for pension reform, assets could be allocated to shareholders, he highlighted that an increased regulatory Mike O’Brien, said: “I am concerned that some whereas the risk of underfunding would burden and costs could place a strain on emerging business models might not give be met by scheme members, the Pension companies that are already struggling to the same protection for pension schemes Protection Fund and other employers through manage defined-benefit schemes. as traditionally provided by a sponsoring employer or insurance capital. We need to ensure that members’ interests are protected. I want to guard against pension schemes simply being treated as a commodity to be bought or sold.” An eight-week consultation period has been announced. The new rules would give TPR the ability to require contributions to a scheme where an employer’s actions reduce benefit security for members: the contributions would be met by the employer or an associate where a bulk transfer has been carried out. TPR would no longer need to prove intent on the part of a party attempting to avoid funding the scheme but rather that the effect of an act or course of conduct posed a materially detrimental risk to members’ benefits. The Department for Work and Pensions says that the changes are intended to address risks relating to business models that “sever the link between employer and scheme and operate well-funded occupational Pension scheme members are set to be better protected by the Regulator

20 June 2008 www.the-actuary.org.uk

020-022_Actuary_Industry_0608.in20 20 21/5/08 10:02:13 Industry News

Pearl cleared to seal Resolution acquisition EC consultation The FSA has approved the change of control on insurance that allows Pearl Assurance to acquire Resolution Asset Management. The acquisition block exemption was expected to be completed by early May. Upon completion, Pearl will become the A consultation on the insurance block UK’s largest manager of closed life funds, exemption regulation (BER) has been according to Pearl’s chief executive officer, announced by the European Commission. Jonathan Moss. The new business operations of The regulation grants an exemption to the Resolution will transfer to Royal London. application of competition rules to certain The deal was agreed in November 2007, types of agreements in the insurance sector, although market volatility led to delays as such as agreements on: Resolution was forced to restate its financial n Joint calculations, tables and studies position. In February, however, both sides n Standard policy conditions and models reiterated their commitment to the deal. on profits n Common coverage of certain types of risks (pools) n Security devices and safety equipment. JC Flowers withdraws bid The regulation, implemented in 2002, was for Friends Provident due to expire in March 2010. The consultation’s focus is primarily one of information gathering, Kroes: sufficient grounds for exemption renewal? Private equity firm JC Flowers has withdrawn although it will also examine the grounds for its 150p-a-share cash offer for Friends justifying the block exemption of certain types of agreements in the insurance sector. Provident. The offer, which is subject to due In a statement, competition commissioner Neelie Kroes said: “We need to diligence, valued Friends at £3.5bn. Proposed in investigate how the insurance block exemption is working in practice and whether or March 2008, the offer was rejected by Friends’ not there are sufficient grounds to renew it. Sector-specific competition regulations board, which refused to enter into discussions are exceptional legal instruments. If there are to be special rules for a particular saying that it significantly undervalued the sector, I need to be convinced that they are justified in terms of bringing real benefits business and its prospects. Friends is planning to competition and to consumers.” to sell its 52% stake in F&C, its investment The areas of particular interest to the Commission are: arm, and Lombard, its wealth management n Whether or not the BER is being used, where and why group, which could realise over £1bn for the n Whether or not the business risks or other issues in the insurance sector make it group as part of its strategic restructure. special and different to other sectors that operate without a BER n Whether or not the BER gives rise to any anti-competitive effects that harm consumers, such as higher prices or reduced supply of certain insurance products n Whether or not operation of the insurance sector without a BER would lead to a heavier burden on supervisory authorities and competition law enforcement. In addition to the consultation, detailed questionnaires will be distributed to key stakeholders, public regulatory and competition authorities and consumer organisations. The EU national competition authorities will be involved closely in the review. Withdrawal of the insurance block exemption could lead to the requirement to assess agreements under Article 81 rather than under the BER. The deadline for responses is 17 July, after which the Commission will draft a report and conduct an impact assessment. The Consultation Paper is published on the Commission’s website at: http://ec.europa.eu/comm/competition/sectors/financial_services/insurance.html

Pension Corporation reaches Telent agreement Pension Corporation has reached an agreement employer-nominated trustees, three with the Financial Services Authority over its member-nominated trustees and three ability to appoint trustees onto the retirement independent trustees scheme of Telent. n Independent trustees must be verifiably The regulator had raised concerns about the independent. The first three will be Friends Provident: looking to sell 52% stake in F&C potential for conflicts of interest after a trustee appointed by the Determinations Panel and of the Telent scheme highlighted the sponsor’s thereafter from the regulator’s list ability to “raid the escrow” under certain n The chairman of the board will be one of the Citigroup engineers deal circumstances. independent trustees for Powell Duffryn plan The agreement imposes a governance n The implementation of a “conflicts- structure on the Telent scheme. The structure of-interest protocol” for the effective Citigroup has agreed to insure liabilities requires that: identification and management of such. under the Powell Duffryn Pension Plan with n Pension Corporation does not appoint any In a statement, Pension Corporation said Paternoster for £400m. Powell Duffryn, a person from Pension Corporation or related it had, “fought to ensure a balanced model UK-based engineer, is part of Citigroup’s companies as trustee to a scheme in which it of governance for the future of the pension private equity portfolio and was acquired in has interests without seeking the approval of scheme,” and that it, “welcomes the restitution January 2008. The pension scheme has close the regulator of a three-three-three-split trustee board and the to 7000 members. n The board of trustees comprises three appointment of two new independent trustees”.

www.the-actuary.org.uk June 2008 21

020-022_Actuary_Industry_0608.in21 21 21/5/08 10:05:46 News Industry

ASB meeting on the Financial Reporting of Pensions

The Accounting Standards Board, in conjunction with other European standard-setters and the European Financial Reporting Advisory Group, has published a discussion paper called The Financial Reporting of Pensions. The paper is intended as a contribution to a fundamental review of current pension accounting standards at the international level. Details of the paper may be obtained from www. TEP traders scoop Queen’s Award frc.org.uk/asb/technical/projects/project0065.html

Second-hand endowment traders LSA Endowments and PolicyPlus International were among 139 companies awarded the 2008 Queen’s Award for Enterprise. Employers and trustees at odds Prime Minister Gordon Brown described the winners as: “the standard-bearers for the very best of British business”. The awards, now in their 43rd year, recognise over longevity of pension schemes • GB1867 EXACTVAL Advert 16/11/07 9:24 am Page 1 outstanding achievement by UK companies. Research by Aon Consulting has found that 80% of pension scheme trustees expect their defined benefit schemes to still exist in 10 years. The research is at odds with Aon’s 2007 employer survey, which found that 50% of External Actuarial Valuations employers expected defined benefit schemes to be wound up in 10 years. Aon surveyed over 250 trustees of defined benefit schemes. A minority (20%) thought that their scheme would be wound up within 10 years and over half (52%) thought that their schemes would still exist in 20 years. These conflicting expectations suggest that trustees and schemes sponsors are not communicating with each other fully. Aon’s research said: “This lack of commonality could lead to problems over how issues affecting pension schemes are addressed, and cause greater conflict.” Commenting on the survey results, Paul McGlone, principal and senior actuary at Aon Consulting, said: “It is worrying that there is such a large ExactVAL offers pension consultancies the expectation gap between trustees and employers over the longevity of facility to outsource their valuation work. pension schemes. It is fundamental for trustees and sponsoring employees to have a shared view, as it impacts on how all of the big issues affecting • We specialise in completing the numbers side pension schemes are addressed. Without a commonly shared view, there is of actuarial valuations for defined benefit unlikely to be agreement over actions and there is a danger that one party pension schemes. takes decisions that are a hindrance to the other. We recommend that both parties should always take steps to agree shared expectations about • We use an experienced team, together with the pension fund lifespan.” bespoke software (Superval) to turn work around efficiently. Expected rate of settlement of DB liabilities, according to sponsoring employers and trustees • We present our results in a clear, auditable and consistent format. 100 Employer expectations • Our prices are fixed in advance for each 80 Trustee expectations valuation, and are extremely competitive.

• We also offer valuation-oriented training 60 aimed at staff with varying levels of experience. For more details, visit our website 40 www.exactval.co.uk or call Bill Harris 20 on 01727 830462 % remaining unsettled % remaining Company reg no: 6004085 0 Registered office: Linksview, Everlasting Lane, St Albans, Herts, AL3 5RY Years 1050 15 20 25

22 June 2008 www.the-actuary.org.uk

020-022_Actuary_Industry_0608.in22 22 21/5/08 10:03:01 Industry News

From the world of general insurance

Terrorism limit could meet the regulatory capital requirements Larry Silverstein, the chairman of Silverstein from existing funds, with only 16% facing a Properties, has revived a 2004 legal action serious problem. It is expected that the new under which he is attempting to obtain a regime will have minimal impact on the further $12.3bn from the airlines and security market’s overall capitalisation. The results also companies involved in the terrorist attacks show the importance of product mix within of 11 September 2001. In order to reverse the the proposed regime. decision in the original case, Silverstein will Hector Sants, chief executive of the UK’s need to prove that the airlines owed a duty Financial Services Authority, revealed in of care to a third party, and that they should mid-April that political consensus on the have foreseen the terrorist acts. high-level framework directive was likely to In addition, there will be an overall limit on be achieved before the end of 2008. the amount available, as the US government A report by the credit rating agency passed a law after the attacks to limit the Standard & Poor’s attributes a substantial airlines’ liability to the amount of insurance increase in the use of enterprise risk coverage available — this was to prevent the management systems by European insurers bankruptcy of the airlines. Therefore, a long, to the approach of the new Solvency II drawn-out legal battle is likely before any regime. The agency found that the number of payment could result. insurers using these techniques had increased from 60 in 2006 to 96 in 2007. Solvency II will lead to consolidation It has been predicted by two accounting US insurance regulation partners at CLB Littlejohn Frazer that the The US Treasury Department has put introduction of the new Solvency II regime forward proposals for an option to regulate will result in a further bout of consolidation insurance business on a federal basis, rather of small insurers across Europe, in an effort than the current state-by-state level, claiming Lloyd’s in Brazil to limit the cost of them meeting the new that this would enhance competition in Lloyd’s received approval in mid-April regulatory requirements. Such a development national and international markets. The to operate as an admitted reinsurer is also encouraged by the existence of detail includes the establishment of an Office in Brazil, following the opening of the diversification credits within the new regime. of Insurance Oversight within the Treasury. Brazilian market to foreign companies. A The accountants also suggested that some The proposals have been welcomed by number of companies are also applying insurers (particularly those that write short- Lloyd’s and many European insurers and for similar status as admitted reinsurers tail commercial business) may re-domicile to reinsurers but met with criticism from but at the time of writing only SCOR is alternative jurisdictions. the National Association of Insurance known to have received approval. Prior Karel Van Hulle, head of the European Commissioners (NAIC). The NAIC claimed to 17 April, the state-controlled IRB-Brasil Commission’s development work on insurance that the proposals would be detrimental to Reasseguros had a monopoly on Brazilian and pensions, told delegates at the European consumers and would be unable to allow reinsurance business but, after that date, Insurance Forum in Dublin in early April that adequately for local nuances. 40% of cessions can be written by foreign Solvency II is likely to become a model for reinsurers. From 2011 onwards, this regulatory capital systems for the remainder UK corporate manslaughter proportion will rise to 60%. of the world. As an example, in Bermuda, the The new offence of corporate manslaughter regulators are preparing their own risk-based came into being in the UK on 6 April, making likely to be relatively severe on these clubs, capital regime, although this is understood it easier for the authorities to prosecute large which rank as small to medium in size, to be much less comprehensive than the organisations whose ineffective management and will also be adversely impacted by the European Solvency II regulations. Even in had led to a death or deaths. This offence is treatment of the asset represented by future the US, regulators were looking at their rules defined within the Corporate Manslaughter supplementary calls from their members, on to see how they would interact with the new and Homicide Act 2007, and requires a “gross which they have historically placed reliance framework, although Patrick Brady, head breach of a relevant duty of care” by an to balance their books. of insurance at Ireland’s financial regulator, organisation, arising from “the way in which thought that it was difficult to see equivalence its activities are managed or organised”. It Trading abuses — Bear Stearns tests being passed in the US, unless the is expected that this may lead to a greater The New York Court of Appeals ruled in March Americans improved their organisation. number of claims under directors’ and that Bear Stearns could not recover from its The results of the third qualitative impact officers’ liability policies. insurers any part of the $80m regulatory study (QIS3) indicate that 84% of insurers settlement that it agreed in April 2003. The Protection and indemnity clubs settlement was part of a market settlement The international group of protection and in respect of conflicts of interest involving For more news indemnity (P&I) clubs has been having a research analysts and investment bankers More news on the following items can very bumpy ride recently, and this has been in relation to Initial Public Offerings, and be found on the website: summarised in a recent report by ratings followed investigations carried out by the agency AM Best. The lower credit ratings New York attorney general and the Securities n General Re/AIG trial update to which the clubs are now subject reflect and Exchange Commission. The reason for n HIH Insurance the increased volatility of equity markets, the decision was that, contrary to policy n RBS insurance subsidiaries the credit crunch and fears of an economic conditions, Bear Stearns agreed the settlement n Climate change slowdown, at the same time as they suffer before advising its professional indemnity n Large losses from a high level of large claims. The claims insurers (Vigilant and Gulf) — the policy problems are particularly severe in the layer explicitly stated that the insurers would not Visit www.the-actuary.org.uk/ $23m excess of $7m, where the clubs pool be liable for any settlement in excess of $5m category/news/industry their risks. The impact of Solvency II is also entered into without their consent.

www.the-actuary.org.uk June 2008 23

023_Actuary_GenIns_0608.indd 23 20/5/08 15:23:15 News People

Community spirit Smart manoeuvres earn celebrated in York actuary the pole position York Cares, a charity that encourages local The Cumbernauld News reports that Kilsyth businesses to let their employees help out single-seater racer Fraser Smart, a pensions in the community, recently celebrated its actuary, took two Club Class podiums during participants’ achievements. Around 50 rounds three and four of the 2008 Formula volunteers attended a reception at the Mansion Renault BARC Championship on April 20 at House, including the charity’s new chairman, Rockingham in Northamptonshire to move to John Lister, chief actuary at Norwich Union. the top of the championship table. Lord Mayor of York, Councillor Irene Smart claimed victory in round three and a Waudby, hosted the event to thank those second in round four of the Club Class to lead volunteers that had made a positive impact on ahead of rival, Edward Heinzelmann. the city over the previous 12 months. Smart lined the grid for the first race as pole- Lister said: “It is so important to recognise sitter, earning himself a bonus championship and celebrate the work done in York by point and placing him 21st overall ahead of volunteers from different companies. some FR2000 Class cars. This is a win-win situation. Not only does He said: “I think it’s shaping up to be a great volunteering help the community but also season and look forward to more close racing as volunteers gain skills and have pride in what the year goes on.” they have achieved.” Smart is currently leading the Club Class York Cares has been involved in a number of championship with 54 points. Round five was initiatives in the area, such as helping children due to take place at Cheshire’s Oulton Park with their mathematics and reading skills, and on Bank Holiday Monday 26 May. For more

Vicky S working on environmental projects. information visit www.renaultsport.co.uk/ The 2008 London gets under way championships/formularenaultbarc/news Medicinal pub crawl Ridsdale makes another Sarah Turtle of KPMG restructuring/insurance marathon achievement solutions will be launching her fifth annual charity treasure hunt (a so-called ‘pub crawl Brian Ridsdale, a liveryman of the with a conscience’) in aid of Médecins Sans Worshipful Company of Actuaries ran the Frontières (MSF) on Saturday 7 June. 2008 to raise money for MSF is an independent humanitarian young people’s projects. medical aid organisation that is committed Ridsdale has raised £3500 so far, for to providing help wherever it is needed, Christian Aid. The money will go to partners regardless of race, religion, politics or gender such as SEND, based in Northern Ghana. (www.msf.org.uk). The treasure hunt takes SEND works with young people in a tough place in Clapham, London, and sees teams multi-cultural environment where there are competing to win prizes by answering a series Other Half Club dinner high levels of unemployment. It trains young of clues and stopping off for refreshments Following last month’s article on the ‘Other Half people in practical skills such as carpentry along the way. Club’, treasurer/secretary Margaret Ross has and hairdressing, and aims to empower them In 2007, the event raised an impressive kindly contacted us to let us know about the to build a sustainable lifestyle, as well as £6546, and Sarah is hoping to beat this total Club’s most recent social event, a dinner at the providing a business education and HIV and this year. You can support this venture by Café du Marché near Smithfield, London. The AIDS awareness. visiting www.justgiving.com/MSF_hunt_v, where evening was attended by 36 ladies, including six Ridsdale, who is a Christain Aid trustee, you can enter a team or make a donation, or guests. Margaret reports that all attendees “had said: “I was lucky enough to visit this e-mail her on sarah.turtle@.co.uk a most enjoyable and convivial time”. project in Ghana. I was really impressed by the work SEND is doing to enable young people to build their own businesses under Marriages difficult circumstances.” Nathan Thomas, pictured left, (Legal In 2007 Ridsdale and fellow liverymen from & General) married Elouise Walter in the Worshipful Company raised more than December 2007, while on holiday in £28 000 for London-based charity Shelter, the New Zealand. Children’s Society and the Scouts Association when they walked 115 miles across the Lake Births District in nine days. He said: “Last year I Paul Mylet (Aviva) and Laura Mylet walked far from London to support youth (formerly PricewaterhouseCoopers) are projects with a London bias. This year I ran proud to announce the birth of their in London to support youth projects far from daughter Jennifer, born in April 2008. A London. I am grateful to all my sponsors, and little sister for Alex and Dylan. was delighted that the Company’s charitable trust fund has donated £500 to my efforts this Deaths time.” To sponsor Brian please visit: www. George Anthony Barnfather died on 26 justgiving.com/briansrun February 2008, aged 62. He became a fellow Congratulations to Andrew Whitehouse and of the Faculty in 1972. John Lister, who also successfully completed the London Marathon, and to any other Please send details of births, deaths and marriages to actuaries who took part. [email protected]

24 June 2008 www.the-actuary.org.uk

024+025_Actuary_People_0608.indd24 24 21/5/08 09:43:43 Society News

Hinchman steps up for leading Academy role The American Academy of Actuaries has announced the appointment of Grace Hinchman as its new executive director. Hinchman was previously the senior vice president of public affairs and technical activities for Financial Executives International, a professional association of chief financial officers, controllers, treasurers, and tax directors. Joint winners, Among other responsibilities, Hinchman Avraam Pekris will be charged with developing the Academy’s and Tamanna strategic plan through its core function areas, Shah, were including public policy, professionalism, and at their best communication. when the chips President William Bluhm said, “I am pleased were down to announce Grace will be leading our staff in the Washington Academy. With outstanding managerial and strategic planning strengths and a background including public policy experience, she will be a great benefit to the Academy”.

A Worshipful wet SIAS event weekend in Wollishofen SIAS Poker Tournament A group of Worshipful Company of Actuaries Review by Clara Hughes liverymen and their spouses, led by its Master Set under atmospheric railway arches, the up-and-coming Loose Cannon Poker Club hosted Chris Ide, recently made a trip to Zurich as the inaugural SIAS Poker Tournament. A venue usually filled with city moguls and high rollers guests of the Guild Wollishofen. was commandeered for the evening of 11 March by 75 excited actuaries, each with pound Members were invited to attend the Zurich signs in their eyes. Spring Festival, known as Sechseläuten, in The evening commenced with a novices’ session — the audience a mix of true April, which celebrates the end of the winter beginners wondering what they’d got themselves into, and hustlers pretending to and the coming of spring. read lists of hand rankings. Play started nervously at 7pm with everyone feeling the Unfortunately, the Swiss hospitality on the pressure of sitting down at a table of their peers, sizing up the opponents, chips in hand, first evening extended to replication of the wondering when to make that big play. No-one wanted the embarrassment of going out British weather and the grand opening was first! 3000 chips doesn’t go that far and for James Williamson, member of the SIAS Social marred by cold wind and persistent rain, a Committee, they only lasted two hands — top pair beaten by three of a kind. His only theme that continued through the weekend. consolation was winning a copy of Poker for Dummies. After an excellent dinner revived spirits, the The whole room breathed a sigh of relief, guards dropped and the chips started flying. More itinerary for the rest of the weekend included than one of the gents fancied themselves as Daniel Craig in Casino Royale. One player in a coach and boat tour of the city, a rousing particular expected to do well having ranked highly in the World Series of Poker in Las Vegas dinner speech about the history of Belvoir but went out early — ‘bad luck’ apparently but there are suspicions he underestimated his Park, the Guild Hall of Zunft Wollishofen, actuarial competitors! Players thinned out pretty quickly, some moving on to the cash games from its master Jürg Dangel — a dark tale of on offer, others enjoying the bar refreshments. skulduggery, sex and suicide — and a trip to the After four hours of hard play (and a break for some tasty food) only the final table was left Rigi Mountain overlooking Lake Lucerne. seated. Avraam Pekris, Tamanna Shah, Lee Huddleston, Darryl Brundle, Louis Manson and Events concluded with the Sechseläuten Jean Eu could just about reach over their enormous chip stacks to place bets. The atmosphere Parade, a procession of the 27 Guilds of Zurich, was tense and no one wanted to be rushed. Play looked like going on to the early hours but accompanied by members of the Worshipful at 12:30am Avraam Pekris and Tamanna Shah decided to call it a night and split the prize Company, and culminated in the lighting of a money and prestigious first place. 50-foot high funeral pyre, signifying the end of Congratulations to them and thanks to everyone who took part — we hope you enjoyed winter, which was finally achieved despite the yourself. We’re looking forward to next year’s event already. ever-present rain. A full report of the Worshipful Company’s exploits can be found online at www.the- Amoroso hailed as Insurance Woman of the Year actuary.org.uk/category/news/people The Association of Professional Insurance Society and a member of the American Women has named Rebecca Amoroso as its Academy of Actuaries. She has previously Insurance Woman of the Year. been honoured as one of the Top 50 Hispanic Amoroso is vice-chairman and US insurance Women in Business, and Working Mother industry group leader at Deloitte, where she has magazine has named her one of its top 10 worked for 22 years. Her first eight years in the corporate multicultural women. industry were spent with American International The Insurance Woman of the Year Award, Group and the Insurance Services Office. first presented in 1976, recognises exceptional At Deloitte, she oversees more than 2000 women that have achieved prominence in insurance practitioners in over 50 cities across their profession and have made significant the US and sits on the steering committee of contributions to the insurance industry. If you have any newsworthy items for these pages, Deloitte’s Women’s Initiative. She will be honoured at a New York awards please email Amy Guna at [email protected] Amoroso is a fellow of the Casualty Actuarial ceremony in July.

www.the-actuary.org.uk June 2008 25

024+025_Actuary_People_0608.indd25 25 21/5/08 09:44:03 Tuesday 17 June 2008 Sessional meeting

The Developing Buyout Market Over the past two years there has been an The tender process has also become more increasing number of insurers and other detailed and sophisticated to allow for both Staple Inn, organisations entering the market to meet the the pricing and non-pricing issues with various 5.30pm for 6pm requirements of companies wanting to take their strategies used including online auctions, blind bids pension scheme liabilities off their balance sheet. and beauty parades to ensure the broker is finding This demand has been driven by changes the best solution for their client. It is fair to say that in pension scheme accounting, concerns over the market has now started to take off. longevity, problems caused by volatility in asset Clive Wellsteed, partner at Lane, Clark & values, regulator pressure, PPF levies and the Peacock, and Lisa Mahtani, sales director in Legal & restrictions this has on ongoing company activity. General’s bulk annuity department, describe their As a result, we have seen larger and more experience of this developing market from a broker innovative deals coming to market. and insurer perspective closest to the action.

Thursday 26 June 2008 SIAS social event

Chess Tournament It’s not big and it’s not clever… oh, wait a After the success of last year’s tournament, minute, chess is both of those. Show people we return to The City Tavern to find out who will The City Tavern, chess is a sport and make your opponent sweat. be crowned SIAS Chess Champion 2008. 29-30 Lawrence Lane, There is free entry, and players of all London EC2 standards are welcome. The popular group stage returns and, as always, there will be drinking 6.30pm chess as well. Last year’s winner had it too easy — come and show us some real moves. To pre-register for this event, e-mail alvin. [email protected] before 20 June. Pre-registration is necessary to enter the tournament. Spectators are also welcome.

Tuesday 22 July 2008 Sessional meeting

Details to be confirmed Check the SIAS website for the latest updates. Staple Inn Hall, 6pm

Friday 25 July 2008 SIAS social event

Summer Boat Party There’s plenty of fish in the sea, so why not come entertainment and plenty along to the ‘traffic light’ boat party and see of food and drink. Golden Jubilee what you can catch! Wear green if you fancy your Tickets are like gold Embankment Pier chances, amber if you’re tempted to be hooked or dust, so be sure to 6.15pm til late red if you have already netted a good catch. reserve them quickly. The action will kick off at 6.15pm at Embankment Tickets cost £10 for Pier. Be sure to be on time as the boat will leave at members and £15 for 6.30pm on the dot. Once aboard you will be greeted non-members. To reserve by welcome drinks and then the real party begins. a place, please email Be ready to set sail and be blown away for an action- nilantheny.christie@aig. packed evening along the Thames, full of dancing, com by Friday 18 July.

For details of events, visit www.sias.org.uk

26 June 2008 www.the-actuary.org.uk

026_Actuary_SIAS_0608.indd 26 20/5/08 15:29:07 Events Calendar

Events General insurance pricing Thursday 26 June ‘Do You Really Know Seminar: ‘The future Lisa Mahtani Royal College of ERM interest group the Characteristics of for trustees — survival Staple Inn, London Actuarial Profession Physicians, London networking evening: Your Liabilities?’ of the fittest’, 5.30pm for 6pm Wednesday 4 The role of the CRO in ERM Clifton Pavilion, Bristol Zoo Mayfair Conference to Friday 6 June Sunday 15 Staple Inn Hall, London 5pm for 5.30pm Centre, London. Thursday 26 June Pensions Convention: to Tuesday 17 June 5.45pm for 6pm Chess Tournament ‘Different Worlds’ FIRM conference: Association of Society of Pension The City Tavern Hotel Europe, ‘Markets: Magnifiers or Thursday 3 July Consulting Actuaries Consultants 29-30 Lawrence Lane, Killarney, Ireland Mitigators of Risk?’ Two-day seminar: Thursday 26 June Monday 16 June London E2, 6.30pm Hilton Manchester, Stochastic reserving and Sessional Meeting/Dinner SPC London Tuesday 10 June Deansgate, Manchester modelling (GI) evening meeting Tuesday 22 July Professionalism event Staple Inn Hall, London Monday 21 July Speaker: Jane Beverley, Sessional Meeting for experienced Wednesday 25 June Golf Day principal and head of Staple Inn, London actuaries, Edinburgh One-day workshop: Tuesday 8 July West Byfleet Golf Club research, Punter Southall 5.30pm for 6pm ‘Legal Principles: One-day workshop: Using Lovells LLP, Thursday 12 June What Can Go Wrong?’ strategic concepts (CPD) Glasgow Actuarial Atlantic House, Friday 25 July One-day seminar: Staple Inn Hall, London Students’ Society 50 Holborn Viaduct, Summer Boat Party Life insurer taxation Thursday 26 June Thursday 12 June London EC1 Golden Jubilee Staple Inn, London The role of the CRO in ERM Faculty of Actuaries ‘Everything you always 5pm for 5.30pm Embankment Pier, 6.15pm Hymans Robertson, Monday 23 June wanted to know about Friday 13 June Glasgow Ordinary General Meeting yield curves’, presentation Staple Inn Actuarial Worshipful Company of One-day seminar: 5.45pm for 6pm The Merchants’ Hall, 22 by Andrew Smith of Society Actuaries Hanover Street, Edinburgh Deloitte, 6pm Tuesday 17 June Thursday 12 June Event listings Sessional meeting City churches guided walk Institute of Actuaries Pensions ‘The Developing and supper To list your events in The Actuary, please Monday 2 June Management Institute Buyout Market’ Guides: Peter Tompkins, e-mail [email protected] Sessional Meeting: Wednesday 11 June Speakers: Clive Wellsteed, Robin Michaelson

Contacts Association of Channel Islands Invicta Actuarial National Association Society of Pension Consulting Actuaries Actuarial Society Society of Pension Funds Consultants Actuarial Profession Meetings held at Jolly Meetings held at Bacon Meetings held at Grimond NIOC House, Unless otherwise stated, all Actuarial Profession Hotel St Ermin’s, Caxton & Woodrow, Lecture Theatre 1, University 4 Victoria Street, London meetings take place events Street, London SW1 unless St Peter Port, Guernsey, of Kent, Canterbury, 6pm. London at City Conference Centre, See event listing for otherwise stated, 5.30pm, 5.15pm for 5.30pm, Contact Andrew James SW1H 0NX Coleman Street, London location details. See also dinner at 7pm for 7.30pm. unless otherwise stated. T +44 (0)1227 827703 T +44 (0)20 7808 1300 EC2 at 5pm or 6.30pm, and www.actuaries.org.uk Secretariat Sessional meeting E [email protected] E [email protected] all Yorkshire meetings at T +44 (0)20 7382 4594 monthly. Hammond Suddards’ Leeds Faculty of Actuaries E [email protected] Hon sec David Peel London Market Norwich Actuarial office at 5.45pm. Meetings held at 4.30pm T +44 (0)1481 728432 Actuaries Group Society Contact - London John for 5pm, unless otherwise Birmingham Actuarial E [email protected] All meetings are 12.30pm Meetings usually held at Mortimer stated. Society at the Old Library, Lloyd’s. the offices of Norwich T +44 (0)20 7353 1688 T +44 (0)131 240 1300 Meetings held at 5pm Faculty of Actuaries Chairman Armoghan Union, Surrey Street, E john.mortimer@spc. E [email protected] for 5.30pm, followed Students’ Society Mohammed Norwich NR1 3NG. uk.com by drinks locally. Non- Sessional meetings held T +44 (0)20 7213 5906 Hon sec Gemma Thompson Yorkshire Richard Institute of Actuaries members welcome. at Standard Life House, E armoghan.mohammed@ T +44 (0)1603 684 460 Sweetman Sessional meetings held at Hon sec Thomas Alden Edinburgh, 5pm for uk.pwc.com E gemma.thompson@ T +44 (0)113 243 6671 Staple Inn, 4.30pm for 5pm, T +44 (0)121 633 6786 5.30pm. Contact hon sec norwich-union.co.uk North West Steve Robinson unless otherwise stated. E thomas.alden@ for details. London Market T +44 (0)161 236 9191 T +44 (0)1865 268200 landg.com Hon sec Rachael Todd Students’ Group Pensions Management Scotland Brian Dingsdale E [email protected] T +44 (0)131 246 2915 Chairman Emma Institute T +44 (0)141 333 1066 Bournemouth E rachael_todd@ Blackhurst PMI House, Staple Inn Actuarial Society standardlife.com T +44 (0)1372 751 060 4-10 Artillery Lane, Worshipful Company Actuarial Society Meetings held at 6.30pm. E emma.blackhurst@ London of Actuaries Meetings held at Staple Non-members welcome; Glasgow Actuarial emb.co.uk E1 7LS 3rd Floor, Cheapside House, Inn, 5.30pm for 6pm contact hon sec. Students’ Society Contact Vince Linnane 138 Cheapside, London unless otherwise stated, Hon sec Jacky Cheung Meetings held at LSE Actuarial Society T +44 (0)20 7247 1452 EC2V 6BW followed by a buffet T +44 (0)1202 292333 Resolution, (London School of E pmiservices@pensions- Clerk David Johnson supper at a nearby tavern. x2149 287 St Vincent Street, Economics) pmi.org.uk T +44 (0)20 7776 3880 Hon sec Amanda Prest E jacky.cheung@liverpool- Glasgow, G2 5NB President Yici Zhou E clerk@actuariescompany. T +44 (0)20 7847 6266 victoria.co.uk Hon sec Susan Morgan T +44 (0)7818 262232 Society of Actuaries co.uk E amanda.prest@hymans. T +44 (0)141 275 8208 E [email protected] in Ireland W www.actuariescompany. co.uk Bristol Actuarial E susan.morgan@ 102 Pembroke Road, co.uk Programme contact Society resolutionglasgow.com Manx Actuarial Society Dublin 4. Lisa Mahtani Meetings held at 5.30pm, Meetings held at 5.30pm Details of all forthcoming Yorkshire Actuarial T +44 (0)1737 375107 with tea from 5pm. Groupe Consultatif for 6pm. meetings can be found on Society E [email protected] Hon sec Nicola Smith Actuariel Européen Hon sec Joanne Hadfield the Society’s website. Contact Malcolm Slee Social contact Clara T +44 (0)117 989 3144 Sec Michael Lucas T +44 (0)1624 821212 T +353 1 660 3064 T +44 (0)1904 452792 Hughes E nicola.j.smith@axa- T +44 (0)1865 268218 E joanne.hadfield@ E [email protected] E malcolm.slee@norwich- E [email protected] sunlife.co.uk E [email protected] fpiom.com W www.actuaries.ie union.co.uk

www.the-actuary.org.uk June 2008 27

027_Actuary_0608_Calendar.indd 27 21/5/08 14:24:19 Probability Book review Doubting Thomas Chris Lewin examines how Thomas Gataker questioned God’s role in the outcome of events and paved the way for probability theory

o what extent are chance events guided examples are when a hare runs out in front of by the hand of God? Many people someone or when every fresh glance shows a new nowadays would argue, not at all. In scene coming together by chance. ancient times, however, the common In a statement of great importance, opinionT was the exact opposite. Gataker says that chance events are The Institute’s library has recently acquired a ‘uncertain to us because not determinable rare and fascinating book that can be regarded by us, though determined ordinarily by as a ‘half-way house’ between the two camps some natural cause or other’. I believe that — arguing that chance events are not guided by this statement summarises much of our own the hand of God unless, as a special exception, thinking about probability today. God himself chooses to intervene. The book He then asks how we can determine whether Chris Lewin has starts to break down the religious barriers that God’s special providence was involved or not managed large had previously constituted an intellectual block in a chance event which has occurred. If a man pension schemes for to an objective consideration of chance events travelling over Salisbury Plain finds a pitcher of much of his career. He and had thereby prevented the emergence of a water that someone has left there, having no leads the joint risk- theory of probability. use for it, no-one would say this was a special management initiative The author was Thomas Gataker (1574- providence of God. If a very thirsty man, ready of the actuarial and 1654), a Church of England clergyman and a to die for want of water, found such a pitcher, civil engineering profound scholar. His book was entitled The he might think that this was due to God’s professions, which has Nature and Use of Lots and it was first published special providence, however, it would be hard produced RAMP and in London in 1619. The Institute has acquired to be sure that this was actually the case. STRATrisk. the second edition of 1627, in which some of the text has been reworked to clarify and Blissful ignorance improve it. Gataker then turns to the question of fore- Even today we often hear someone say, ‘I knowledge of an event. He says that an event, will die when my number’s up’. The outcome which appears to one person to have occurred is predetermined by an external force and by chance, may not seem so to another person cannot be changed. It was this kind of belief who has forecast it or has foreknowledge of it. that was prevalent in ancient civilisations: He states: ‘chance is founded, and dependeth ‘the lots may be cast into the lap, but the wholly upon, Man’s ignorance’. I believe this is issue depends wholly on the Lord’ (New a significant conclusion and one that still needs English Bible, Proverbs 16.33). careful consideration today when considering People used to draw lots to determine many future outcomes. Often we will carry out decisions, confident that God was directing the research before making a decision, to reduce outcome — for example, to choose the officers the area of uncertainty but we are always left of Athens and Rome, to share out booty, or to with a degree of ignorance. Gataker warns that select people to be thrown overboard to lighten effects and events are often better known than a sinking ship. The book gives many interesting their causes. He gives an example of a servant details of the various methods used, and even who finds some money that he thinks was of the frauds that were occasionally practised. left there by chance, whereas in actual fact it Gataker clearly thought deeply about the was left there deliberately by his master to test nature of chance events. He defines a chance his honesty. I believe it is often true of many event as a contingency or uncertainty severed people today, even of actuaries, that they base from forecast and foresight. Then he points out their work on observed effects rather than that events which seem to happen by chance doing enough to seek out the underlying causes actually have a cause — for example, a fowl of what has been observed. Was this true of crossing the road or a stranger in front turning to mortality trends 10 years ago, for example? the left or right. Devoutly, he reminds his readers A general conclusion that Gataker then draws of the Bible’s teaching that the providence of is that many events seem to us to occur by More features online God extends to all things — from the alighting chance, even though they are foreseen by God, of a sparrow to the shedding of a hair (Matthew who decides beforehand how everything will The following features can be found 10.29 and Luke 12.6). However, he then argues turn out. Nearly 1700 years previously, Cicero exclusively on The Actuary website that there is sometimes, but not always, a special took the opposite view, “it seems to me that God this month: providence in these chance events, ‘when himself cannot foreknow absolutely those things n Mike Brockman assesses the according to God’s secret will and purpose, some which are to happen by chance and fortune. For implications of the fourth UK Bodily special work, either of judgement or mercy, is if he knows it, then it will certainly happen; and Injuries Study thereby to be effected, for the glory of his name’ if it will certainly happen, there is no chance in n Simon Sheaf explains the features of the (or for other reasons). However, this is not true the matter.” (On Divination, translated by CD best rate monitoring systems for insurers. in general — there are many everyday chance Yonge, Prometheus, 1997, page 207). Visit www.the-actuary.org.uk/ events that do not show God’s will at all, and However, we must not expect God to direct category/features are not a work of God’s special providence. Two chance events to fall out in a certain way so that

28 June 2008 www.the-actuary.org.uk

028+029_Actuary_0608_Lewin.indd 28 21/5/08 10:19:58 Book review Probability

the ‘right’ outcome occurs. To expect this is to presume more than God has promised. Thus we must not expect, for example, that the winner of an office determined by lot is fitter and more efficient than his opponent because God has determined the outcome. Nor may we conclude that the way events have turned out shows that God must have exercised his special providence. In an interesting passage, Gataker anticipates one of the conclusions later arrived at in probability theory, namely that if there is only a small probability of an event occurring in one trial, and there are several trials, it is extremely unlikely that the event will occur in every trial: ‘Suppose that some one Minister of a whole hundred in our head City should by lot be selected to visit the pest-house [a building where plague victims were isolated — no minister would have welcomed being selected to visit it, since some strains of plague were highly infectious], would the lot drawn in this case four or five times together… light certainly and constantly ever on the same man?’ As the same man will not be selected each time, Gataker argues that it is absurd to say that God determines the outcome, since this would in religious opinions would have filtered excellent article that recognises the importance imply that God is inconstant. through to everyday life quite quickly. The of Gataker’s contribution, see DR Bellhouse, The book devotes a considerable amount book clearly made a significant impact at the Probability in the Sixteenth and Seventeenth of space to the lawfulness of games of chance time it appeared, stirring up controversy and Centuries: An Analysis of Puritan Casuistry, and warns that we must not call on God to let going into a second edition. Its conclusion International Statistical Review, vol.56, no.1 us win. The conclusion is that such games are that games of chance were permissible in some (April 1988), pp63-74.] lawful provided they are played “for pleasure, circumstances was welcome to many people. However, Gataker’s book helps to explain not for profit; for game, not for gain”. This The first English book to set out the rules of a why probability theory was not created was a controversial statement and the book card game appeared in 1651 — The Royall and earlier, due to rigid religious beliefs. [For a was attacked by critics (see Gataker’s life in the Delightfull Game of Picquet was translated from a discussion of the reasons for the failure of Oxford Dictionary of National Biography). French work that went through several editions the ancient Greeks and Romans to develop a We may conclude that, although Gataker in the 1630s and 1640s — and probability theory of probability, see CG Lewin, Pensions did not invent probability theory, he helped theory was developed from a consideration of and Insurance before 1800 — a social history, to lay the groundwork for it by moving the the chances in such games. Tuckwell, 2003, pp1-6.] If all chance events debate away from the widespread traditional Gataker has been overlooked by most were directed by God, the study of how belief that every chance event was the result of writers on the history of probability, However, often particular outcomes occurred was not the will of God, to a position where this might Lorraine Daston, Classical Probability in the only blasphemous, but pointless, since past only happen exceptionally. experience might not This enabled mathematicians to develop a be a reliable guide to probability theory based on the assumption » Gataker has been overlooked by most God’s decisions in that each event occurred solely by chance writers on the history of probability future. This would without God’s intervention at all. The first « have been particularly published work on probability, De Ratiociniis in true in relation to the Ludo Aleae, was written by Christian Huygens Enlightenment, Princeton, 1988, page 155, sensitive question of when someone would (appended to F Schooten, Exercitationum summarises his argument (though rather die. Gataker showed how these religious beliefs Mathematicarum, Lyons, 1657, English inadequately) as follows: “Hence Thomas could be modified credibly, in such a way that translation published in London, 1714) and Gataker and others separated profane from chance events could be viewed objectively for was wholly mathematical in nature. sacred appeals to lots, and made the distinction the first time. This way of thinking enabled depend on the circumstances: the magnitude probability theory to emerge, closely followed Religious opinion of the outcome; the intent of the participants; by the creation of actuarial science by Jan de In assessing Gataker’s own contribution, it the overall scheme of God’s providence… Witt and Edmund Halley later in the 17th is worth remembering that religion played a ‘Lusorious’ lots became instances of God’s century. As actuaries, we perhaps owe more to much bigger part in most people’s lives than it ordinary rather than extraordinary providence, Gataker than we have hitherto realised. does in western cultures today. Everyone was in contrast to the traditional view that every required by law to attend church weekly and lot ‘necessarily supposed the special providence To comment on this article please e-mail editor@ the sermons were often lengthy, so a change and determining presence of God.’” [For an the-actuary.org.uk

www.the-actuary.org.uk June 2008 29

028+029_Actuary_0608_Lewin.indd 29 21/5/08 10:26:10 Insurance Solvency II From consultation to implementation Phil Vermeulen and Jeev Muthulingam discuss the lessons learned from the third Solvency II Quantitative Impact Study (QIS 3) and raise some new issues arising from QIS 4

formulae for the minimum capital requirement Figure 2: QIS 3 participants (MCR) and SCR calculations. by business size CEIOPS released the draft specifications of QIS 4 on 21 December 2007. QIS 4 was officially launched in April 2008 based on these specifications and will run until 7 July for solo Large companies and until 31 July for groups. See figure 1. 18% CEIOPS has also recently released Consultation Paper 23 (CP 23) that gives Small guidance on how to determine the technical 41% Phil Vermeulen, pictured provisions (Best Estimate and Risk Margin) Medium left, is a senior manager when data and/or expertise are missing in the 41% and Jeev Muthulingam company. These simplified methods will also be is an associate. They tested in QIS 4. both work for Ernst & Young in Zurich. Overview of QIS 3 Overall, QIS 2 participation was good but QIS 3 was even better — to the point where it almost ince late 2005, the Committee of doubled compared to the previous study. This Solvency II on the regulatory balance sheets of European Insurance and Occupational shows the high interest from companies for insurance companies. Pensions Supervisors (CEIOPS) has Solvency II. See figures 2 and 3. n Technical provisions tended to decrease, been involving the European insurance QIS 3 was the first study to have focused with the release of the prudence margin in S industry in a consultation process to test the specifically on calibration and it has provided Solvency I being greater than the additional impact of proposed Solvency II regulations, a wealth of information on a wide range of risk margin under Solvency II. known as Quantitative Impact Studies (QISs). elements of the Solvency II proposal. For some n This tended to be more than matched by an The QISs are performed by companies on elements, multiple approaches were tested increase in the capital requirements and, on a voluntary basis. These have been run by with the aim of being able to choose among balance, the overall solvency ratio tended to CEIOPS, at the request of the Commission the approaches after its completion. The main decrease. This was most significant for non- and are the primary means for testing the objectives of QIS 3 were to: life companies, where the solvency ratio design of the future standard formula for n Measure the financial impact on balance decreased for the majority of participants. required capital, as well as the main route for sheets of the adoption of QIS 3 specifications Life companies showed a combination of determining the correct calibration. The QISs n Collect feedback from the participants increases and decreases in the solvency ratio. are also instrumental in collecting data on the on the practicality and suitability of the n QIS 3 showed 98% of firms meet the potential impact of the new regulations. calculations MCR and 84% of firms meet the SCR, so QIS 1 was intended to test an approach for n Test the effects on insurance groups for the a large-scale capital injection is unlikely. setting the technical provisions, while QIS first time. However, some reallocation of capital may 2 focused on a methodology for assessing be needed, reflecting the increased risk required capital (the Solvency Capital Financial impact sensitivity of the proposals. Requirement, or ‘SCR’). QIS 3 focused on The numerical results of QIS 3 provided some In addition to the CEIOPS assessment, the improving the calibration of the standard interesting insights into the potential impact of Chief Risk Officer (CRO) Forum, an industry body representing the CROs of the 13 largest European (re)insurers, benchmarked the results Figure 1: Solvency II work stream of the QISs to the internal models of its members. They found that the QIS 3 specification tended Key implementing to result in an SCR circa 40% higher than Other implementing measures measures QIS5? internal models, largely due to differences in the QIS4 calibration of the insurance risk SCR. timetable Regulatory Regulatory

Regulator starting Full Pillars 1, 2 and 3 Solvency engagement Pillar 1 Run Submission Model II in force Feedback on practicality and Milestones on model review Dry Run to regulator Approval 31/10/12 suitability of the calculations QIS 3 results were largely well received and 2008 2009 2010 2011 2012 the participants were generally positive about moving towards market-consistent valuation Main Systems and risk-sensitive solvency requirements. Internal External QIS4 Development Review Review However, there were a few key areas that (alongside QIS5) Remediation participants felt should be addressed: 1. Risk margin. It was suggested that the

timetable Develop policies, processes and controls risk margin approach should be more clearly Typical company company Typical Training defined and that market risks should be excluded to avoid double counting. QIS 4

30 June 2008 www.the-actuary.org.uk

030-031_Actuary_0608_Vermeule.in30 30 20/5/08 17:21:17 Solvency II Insurance From consultation to implementation

Figure 3: QIS 3 participation 300 250 Large 200 Medium QIS1 564 Small QIS3 150 1027 100 50 QIS2

Number of insurers of Number 514 0 Life insurers Non-Life Reinsurers Multiline insurers only non-life insurers

addresses these issues by providing guidance option to replace these factors with entity- A criticism from members of the on simplified approaches for projecting the specific values, calculated on historic data using industry was that the QIS 3 treatment of SCR and changing the specification to exclude standardised techniques. insurance groups did not allow for adequate market risks. Participants felt that the 6% cost 6. Life catastrophe risk. The QIS 3 SCR geographical diversification benefit. The of capital rate was too high, however, CEIOPS included an assessment of lapse catastrophe approach to non-EEA subsidiaries was has not addressed this in QIS 4, pending more risk, based on a mass lapse of 75% of the also challenged. To address this, QIS 4 has industry research into an appropriate factor. company unit-linked portfolio. This was requested a series of calculations so that 2. Reduction for profit sharing. The method criticised as being too onerous and has been different approaches can be investigated proposed for assessing the risk-absorbing ability reduced to 30% in QIS 4. The new rate is now for group diversification. One of these is of future discretionary profit sharing (known extended to apply to all businesses where there an approach that assumes consolidation as the ‘KC’) was strongly criticised as a key is a surrender strain on lapse. of non-EEA entities, which aims to apply weakness of the QIS 3 specification. This method 7. Non-life catastrophe risk. A simple more consistent standards and include was based on calculating all SCR components formulaic underpin (Layer 1) will apply in QIS diversification benefits. assuming no change to discretionary profit- 4 if regional scenarios (now referred to as Layer sharing benefits in stress scenarios, aggregating 2) are not available. QIS4 also introduces Layer New issues that companies need to these, and then reducing the overall SCR by a 3, where insurers will calculate capital based on address in QIS 4 factor to reflect the risk-absorption capability the ‘personalised’ catastrophe scenarios that are The main objectives of QIS 4 are to test: of future profit sharing. The calculation of this regarded as appropriate to their business. n Simplifications for smaller insurers (the factor proved to be problematic and QIS 4 has 8. MCR. The approach set out for the MCR was principle of proportionality) moved to a calculation of SCR risk categories ‘net’ believed to be too volatile and impractical and n Simplified approaches to estimating of management actions that is more aligned with demonstrated an unintuitive relationship with technical provisions current market practice. the SCR for many life insurers. QIS 4 is now n Further refinements to the calculations and 3. Operational risk. The QIS 3 feedback was proposing a ‘linear’ approach, which is less risk- calibrations of the SCR standard formula. that the formula was insufficiently risk-sensitive, sensitive. However, as a mitigating factor, the A further use of these techniques is in the includes an inappropriate charge on unit-linked final specification includes a link between the projection of the SCR in future time periods business and does not diversify with other risks. SCR and the MCR via a 50% cap and 20% floor. as proposed by the risk margin calculation for While the formula and diversification benefit CEIOPS had made it clear that this is an area in those who cannot project the SCR. This can be have not been changed in QIS 4 (CEIOPS stated which the QIS 4 methodology is by no means a a viable alternative to the formula-based SCR that this was better addressed under Pillar 2), the final view on the potential methodology. run-off. charge for unit-linked business has now been The fact that a number of issues were based on expenses, which aims to address the addressed by CEIOPS in QIS 4 highlights how Next steps industry feedback. the consultation process allows the industry Solvency II seeks to improve risk management 4. Life underwriting risk. The life correlation to contribute to the overall form of future and reward good practice. While updating risk ratio has been changed between mortality and Solvency II requirements. management processes and practices takes longevity following industry feedback. From time, companies are already working hard previously assuming no correlation, it has Issues for insurance groups to implement the changes before the new now been set to -0.25. This is likely to have a QIS 3 was the first consultation to address the regulations come into force — and possibly significant effect on firms exposed to both risks. issues related to management of insurance using QIS 4 as a testing ground to see how well 5. Non-life underwriting risk. Calibration groups, and included limited guidance in they comply. Further QISs in 2009 and 2010 are of the non-life underwriting risk module this regard. QIS 4 has aimed to address this by also probable, providing further opportunities of standard formula SCR was regarded as including more guidance and focusing for actuaries and risk managers to familiarise unsatisfactory in QIS 3. Some factors have on important areas such as group themselves with the key elements of the new been recalibrated for QIS 4 and there is now an diversification benefits. solvency framework.

www.the-actuary.org.uk June 2008 31

030-031_Actuary_0608_Vermeule.in31 31 20/5/08 17:21:29 Life CGT Simplifying CGT Matthew Little analyses the recent changes to the taxation of capital gains and assesses their impact on the life assurance industry

Chart 1: Comparison of investments for higher rate taxpayer 80000 Life bond Offshore bond 75000 AIF Old AIF New 70000 AIF New AIF Old Offshore bond 65000 Life bond Matthew Little is an Associate at the 60000 Financial Services Authority and a

Proceeds net of tax of net Proceeds 55000 member of the Faculty and Institute Tax Working Party. 50000 Other members of 3 4 5 6 7 the working party are The results above assume a £50 000 equity-style investment earning a 5% real return (plus 2.5% RPI), Paul Turnbull, Matthew projected over a 3 to 7-year period, a 20%/80% income/capital split, no relief from the use of the CGT annual Taylor, Andrew Rendell allowance (£9600 in 2008/2009) and that the investor is a higher rate taxpayer. and Trevor Fannin. AIF: Authorised investment fund

n 24 January, the Chancellor of the Exchequer, Alistair Darling, Life bonds the investor will pay tax at the appropriate reiterated the changes to Capital The income and gains from assets backing marginal rate: 40% for higher rate tax payers. Gains Tax (CGT) first announced a life bond are taken into account in the However, due to the beneficial effect of tax in O the pre-Budget Report on 9 October 2007. I-E calculation. The expression I-E refers to credit receipts on UK dividends, it is likely that In this article, we describe the nature of the basis of taxation where HM Revenue & the marginal rate of tax will be around 25% for the CGT changes, look at how the taxation Customs (HRMC) taxes life assurance business equity investments. The income is thus taxed environment differs depending upon the on investment income and chargeable gains on roll up during the life of the investment choice of investment vehicle, and outline the (referred to as ‘I’) less allowable expenses through an investor’s income tax returns. alternatives that were discussed. (referred to as ‘E’). The income and gains are Once the investment matures, the investor then taxed as they roll up during the life of the will be subject to CGT on any investment gain. So, what’s changed? investment through this calculation. As announced, this is now taxed at a flat rate of The stated objective for the changes Once the investment matures, a chargeable 18% since April 2008. However, the investor will was simplification. They only affect events regime kicks in. In effect, this converts have an annual CGT allowance to negate the individuals and trusts and the main points the excess proceeds over initial investment full effect of CGT and, if used efficiently over a of significance are: into income. Like any other form of income, it number of years, this allowance can significantly n There is now a single 18% rate of CGT is subject to income tax at rates ranging up to reduce or extinguish the CGT burden. n Taper relief has been withdrawn 40% depending on, amongst other things, an This is an important consideration as n Indexation allowance, which indexes investor’s marginal rate of income tax. There is a an analysis without this being factored in base cost up to April 1998, has also been credit of 20% where the roll-up has been taxed in represents an existing layer of over-taxation for withdrawn the I-E calculation. Curiously, for higher rate tax most policyholders. This is because very few n The changes came into force on 5 payers, the total effective tax rate is only 36% on policyholders would be liable to pay CGT on any April 2008. life bonds, rather than 40%. This is because the other investment and therefore rarely use their chargeable gains tax rate of 20% (40% less the personal CGT allowance — particularly if they are What does this mean for the life credit of 20%) is applied to the investment gain basic rate taxpayers. The personal CGT allowance assurance industry? on the policy rather than the gain grossed up for is not available through the chargeable events In simple terms, the relative position of a the I-E tax paid by the life company on behalf of regime, and, therefore, life bonds. higher rate taxpayer investing in a bond the policyholder. It is also worth considering one other provided by a life assurance company is likely Under current proposals this will not change. alternative, the offshore bond. to have deteriorated when compared to an Now let’s look at other forms of investing. investment in a unit trust or an Open Ended Offshore bonds Investment Company (OEIC). This can make Authorised investment vehicles An offshore bond is a similar offering to a life bond less attractive to an investor. Alternative investment vehicles that an a life bond, except that the investment is However, it’s worth looking at the impact investor may consider include unit trusts and managed offshore. This arrangement brings on the life assurance market, the investment OEICs. Income on authorised investments is tax benefits and drawbacks. Income in the market and the offshore investment market to declared annually as a dividend to the investor, form of a dividend or interest may be received understand this relative impact. and recognised in the income tax return. Here, net of local withholding tax, particularly if

32 June 2008 www.the-actuary.org.uk

032-033_Actuary_0608_Little.indd32 32 21/5/08 10:29:52 CGT Life

the company writing the offshore bond is in performance of the offshore bond. Although the n Switching unit funds is possible without a low tax jurisdiction. Other income may be offshore bond benefits from the preferential roll- surrendering; other asset classes would received gross. Tax on gains is then charged up through tax deferral, it does not benefit from a necessitate realising gains to switch when the investor receives the proceeds under gains indexation allowance. The CGT indexation investments the same chargeable events regime as for life allowance is significant within this example. n They can be used as part of a wrapper design. bonds. However, there is no credit of 20% Chart 2 summarises the relative position of the These additional benefits are now even more since the roll-up has not been taxed in an I-E alternative investments for a basic rate taxpayer. important to the future success of the life bond. calculation. The applicable rate of tax is derived Given certain assumptions, it again highlights as described above for life bonds and related to a differential that did exist in the tax regime What were the alternatives? an investor’s marginal rate of income tax. between AIFs and life bonds. However, it Many in the insurance sector voiced concerns also highlights the about the recently announced CGT changes and » It is clear that a large gap now exists continuing apparent the impact on the relative attractiveness of life when comparing life and investment advantage of the life insurance products compared to other forms of bond. Please note saving, in particular for higher rate taxpayers. products for a higher rate taxpayer that any apparent In the above example, it is clear that a « advantage of the life large gap now exists when comparing life A key benefit of an offshore bond is that bond can be negated through the management and investment products for a higher rate of tax deferral. Tax on income is low, possibly of an investor’s annual CGT allowance, when taxpayer. A couple of proposals were voiced zero, therefore, the fund accumulates on available to be applied to the proceeds of an AIF. by the life industry in an attempt to bridge preferential terms. However, a counter to this this gap: benefit is that offshore bonds do not benefit What else has the life industry to offer? 1. To remove tax on chargeable gains within from a CGT indexation allowance. The main concern of the industry is that, for a the life insurer There is specific anti-avoidance legislation higher rate taxpayer, a gain in a life insurance 2. To change the rate of tax on chargeable that applies where investors take funds offshore product will be taxed at a cumulative rate of up events. to avoid tax. This does not currently apply to to 36%, while a gain on a direct investment will The Association of British Insurers (ABI) offshore bonds. The Willoughby case (IRC v be taxed at only 18%. However, it may be that an proposed the latter: a reduction to the tax rate Willoughby (1997) STC 995) distinguished investor who is currently a higher rate taxpayer on chargeable events to 30% for higher rate between tax avoidance which is acceptable and becomes a basic rate taxpayer on exit and will taxpayers. Therefore, for life bonds, the effective that which is not. Lord Nolan referred to ‘a benefit from the change. Such a change in tax rate would be 28% rather than 36%. However, course of action designed to conflict with evident status is common in helping to relieve the tax the CGT announcements within the budget were intention of Parliament’. The conclusion was burden of the higher rate taxpayer. a clear signal of events and bring finality to the that the specific tax regime for chargeable events There are other specific benefits of investing ABI’s recommendation. represented the way in which offshore bonds in a life bond, including: were intended to be taxed, so that the anti- n They can be written in trust This article and previous articles from the Taxation avoidance legislation did not apply. n They are useful for inheritance tax planning, Working Party can be found at www.actuaries.org. with a benefit provided on death uk/life_insurance/topics/taxation. The site also has a What does this mean for n The tax efficiency can be enhanced by summary of other events which may affect life company different investors? taking up to 5% drawdowns each year taxation, together with links to other relevant websites. Until April, the level of taper relief on direct investment was 0% in the first two years, increasing to 40% in year 10 onwards. So in Chart 2: Comparison of investments for basic rate taxpayer year 10 and beyond, any gain was taxable at 80000 24% (60% of 40%) and 12% (60% of 20%) for Life bond higher and basic rate taxpayers respectively. So, the move to a flat rate of tax of 18% on any 75000 AIF Old gain post-April 2008 is: n much more beneficial for higher rate 70000 AIF New taxpayers, particularly so in the early years Offshore bond n marginally more beneficial for basic rate 65000 taxpayers in the first few years but worse thereafter. Chart 1 summarises the relative position of 60000 these alternative investments for a higher rate taxpayer. 55000 Given certain assumptions, it highlights tax of net Proceeds the differential that existed in the tax regime 50000 between authorised investment funds (AIFs) and life bonds. Since April, the situation looks 3 4 5 6 7 very different where the advantage lies firmly The results above assume a £50 000 equity-style investment earning a 5% real return (plus 2.5% RPI), with the AIF. projected over a 3 to 7-year period, a 20%/80% income/capital split, no relief from the use of the CGT A further thought is the disappointing annual allowance (£9600 in 2008/9) and that the investor is a basic rate taxpayer.

www.the-actuary.org.uk June 2008 33

032-033_Actuary_0608_Little.indd33 33 20/5/08 17:23:24 Pensions DB pensions Where’s the incentive? Con Keating and Andrew Slater consider the costs, risks and security of voluntary defined benefit pensions

and employees. Government participation is commutation option alone is sufficient reason motivated by the desire to reduce later reliance for an employee to wish an employer on the state pension system and incentives are to create and maintain a scheme. provided through the taxation treatment. In the Moreover, as this future value UK this has the form known as EET (‘Exempt, is uncertain, the rational exempt and tax’. Contributions, investment employee should be prepared income and capital gains of the pension fund to forgo some part of the are exempt and benefits are taxed as personal full gain associated with the income), where contributions are tax deductible, scheme, which lowers the funded investments accrue without payment of current contribution cost for the income taxes and the pensioner is subsequently sponsor, providing an incentive to Andrew Slater, subject to income taxes on the pension received the employer to create the scheme. pictured left, and in retirement. The pensioner may also commute The negotiating game here is rather more Con Keating are part of his entitlement (up to 25%) as a cash complex in that employees, collectively, two of the founding lump sum free of income taxes on retirement. because of their diverse ages, can share risk team members of This arrangement is often described as inter- among themselves through scheme rules, BrightonRock. Andrew temporally fiscally neutral, which, if true, would under which years of service determine benefit Slater is a director and be further evidence of only weak government entitlements. This lowers the dependence actuary, Con Keating is support at best. The truth of this statement of the scheme upon market prices at any head of research. is difficult to evaluate as it depends upon particular point in time. It also lowers the cost present and future tax rates for individuals and of provision to the employer. There are two companies and the relative productivity of capital inherent smoothing mechanisms at work here, investment in the public and private sectors. arising from the multi-year nature of sponsor contributions and also the lowered dependence Real consequences upon individual accruals. Closing a scheme It is, though, the accrual tax concession that to new members actually raises benefit cost has real consequence. In an economy where progressively, precisely because it crystallises the individual is subject to income taxes on inter-employee risk-sharing, which then investment income, the future accrued capital declines with the passage of time. value of pension savings can be orders of The optimal solution to this negotiating magnitude larger than the individual may game is one where employees share risk among hy should a company offer achieve directly. To provide some quantitative themselves and with the employer in the form pension benefits, which are intuition, future (deterministic) capital values of defined, less uncertain and less risky future administratively onerous and risky, arising from £1 of current contribution for three benefits to the advantage of all. This is greatly rather than wages? The provision levels of income tax and two rates of return on complicated by the presence of preserved Wof defined benefit pensions by companies is investment for a twenty-year period are shown deferred members within a scheme. This class a voluntary action, so beyond some vague in Table 1. As not all of these incentive effects of member, former employees, does not have paternalistic motivation, an analysis of the common incentives associated incentives for the company sponsor In theory, the provision of private with current and other parties would seem necessary. This is » employees, for whom particularly relevant when one stated objective sector voluntary pensions should ongoing employment of this government is to encourage the is usually a major continuance of good defined benefit schemes. involve risk and cost-sharing between concern, tempering The only direct incentive for a company to government, company and employees the pension element create a defined benefit scheme arises from the « of the labour contract absence of an employer’s National Insurance are immediately intuitive, the box opposite greatly. It is also interesting to note that this contribution for payments to scheme funding. investigates some aspects quantitatively. class of member was introduced gradually Even at today’s levels, this contribution is These future capital values are the prime by a number of changes to legislation spread relatively small, approximately 13% of the determinant of retirement income. However, over more than a decade, which suggests that pension contribution. The deductibility of there remains significant uncertainty and its introduction in a single act would have contributions from sponsor corporation taxes risk for an individual employee saver as to been entirely unpalatable. is not a relevant consideration since wages paid retirement income. The capital values and the The treatment of pensioners in payment are also deductible currently. The advantage to conversion of these capital sums to income functions as a signalling mechanism informing a shareholder of £1 as a pension contribution both depend upon the vagaries of financial the negotiations between employee and to an employee, rather than as immediate markets. Risk-sharing between company sponsor, and is the source of pensioner’s rather wages, is just 9.5p (13p net of corporation tax). sponsor and employee is an obvious solution. limited negotiating strength. This may be taken as evidence of only weak In a situation where, because of tax effects, Over the decades there have been many government support. the best saving scenario that an employee can changes to legislation that have added further In theory, the provision of private sector achieve is lower than that possible within a benefit entitlements and costs to the provisions voluntary pensions should involve risk and pension scheme, it is rational for the employee of a scheme. The £1 of benefit promised has cost-sharing between government, company to wish to participate in the scheme. The cash been increased substantially by these actions,

34 June 2008 www.the-actuary.org.uk

034-036_Actuary_0608_Keating.ind34 34 20/5/08 16:50:55 DB pensions Pensions

sponsor is solvent, the pensions due will be paid. Of course this leaves the question of security should the sponsor become insolvent. This was the principal subject of the Pensions Act 2004 and one of the driving forces behind the creation of the Pension Protection Fund (PPF). Before considering the design, costs and incentives of the security mechanisms now in effect, we should observe what effect these new regulations to appear to have had upon pension schemes. The above near contemporaneous changes to accounting £2 by some standards (2002), the EU’s Institutions for

estimates, has Occupational Retirement Provision (IORP)

a further become a Directive (2003) and the Pensions Act 2004 disincentive pensioner. This make causal attribution of behaviour to any « to create or opens the possibility that the employer will be one of these changes unwise. maintain a unwilling or unable to meet these obligations scheme, but this as they fall due, and begs questions about the Cost/benefit-sharing potential is well-travelled security or credibility of the promise. This issue of incentives territory and not has become known as the sponsor covenant. centrally relevant Before addressing those questions, there Table 1 can be used to gain some insight to the subject here. Such is a further incentive consideration, related into the potential magnitudes of the to scheme creation cost/benefit-sharing potential of incentives. The scale of this tax loss to which should be In the figures that follow, no account has » considered. An been taken of the cash commutation the Exchequer is remarkable; in employer wishing option in risk and cost sharing. In an to curtail the environment where individual income the last three years this amounts provision of pensions taxes and investment accrual rates are high to a total of £10.98bn must effectively (83%, 15%), equal sharing of risk and cost « now terminate between employees and sponsor results in historic actions do, though, cast doubt upon the scheme and wind it up, purchasing a pension promise to the employee of £9.01 government intention. annuities reflecting the entitlement rights of future benefit (i.e. the average of £16.37 of all individual members (a number of and £1.65), and has a current cost to the A form of incentive alternative solutions have emerged, such as sponsor of £0.55 (i.e. £9.01 discounted at Some regard the ‘contracted out’ rebate, the sponsor substitution, but none of these have 15% for 20 years). refund of contributions made for entitlements gained much acceptance or use as yet). These By contrast, when individual taxes and due under the State pension system but can only be purchased from regulated life investment accrual rates are low (40%, 5%), forgone, as a form of incentive. At inception companies and, as a result of their regulation equal risk-sharing results in a promise of just this was true but at present rates, by virtue of and existence with profit in mind, this £2.36, and at a cost to the sponsor of £0.84 its insufficiency — the current rate is lower cost is 20% or more above the accounting (both calculated in a similar manner). The than that recommended by the government values reported in a company’s statutory negotiating flexibility is greatly reduced. If actuary and even that remains ‘under review’ accounts. This is a pronounced barrier to exit the original promise of £9.01 was agreed, its — it is now a disincentive to the creation and in fact is much larger than the initial current cost to the sponsor under the lower of schemes. Advanced corporation tax was government incentive to create a scheme. investment accrual rate would have risen similarly not an incentive but rather a refund The risk-sharing negotiating game has been to £3.40. This simple illustration shows how to remove taxation inequities — its removal is a moved against the employee to reflect this severe the basic problem faced by pension further disincentive. potential cost to the sponsor company. schemes really was when, in the 1990s, both A pension promise is to be met at many The 2003 ‘debt on employer’ legislation investment rates and taxes declined. times, far into the future, when the employee has the effect of ensuring that as long as a In addition, the effects upon shareholder value are themselves a function of Table 1: Future capital values of £1 invested corporation taxes. When these taxes were Twenty Year Horizon 52%, the post-tax cost to a shareholder of Marginal Income Tax Rate 83% a promise of £9.01 was just £0.26, while 0% 40% (current) (highest historic rate) at the more recent 28% rate the £2.36 Investment Rate 5% £2.65 £1.81 £1.18 promise costs a shareholder £0.61. The economics have changed markedly and 15% £16.37 £5.60 £1.65 some of the effects are not naturally intuitive. Source: ONS MQ5 and BrightonRock calculations

www.the-actuary.org.uk June 2008 35

034-036_Actuary_0608_Keating.ind35 35 20/5/08 16:51:30 Pensions DB pensions

Where’s the incentive? (continued)

First, in Diagram 1, the ratio of pension Diagram 1: Ratio of administrative expenses to pensions paid scheme administration expense as a proportion — self-administered pension schemes — univariate cluster analysis of pension payments for the period from 1992 is examined. It is evident from this that the - costs of administering schemes have increased markedly, from approximately 3.5% in the early 1990s to approximately 6.5% recently. , Absent any changes, the expectation would have been for this ratio to decline slowly. There is some evidence, from cluster analysis, + - that this shift is secular and implies that the new regimes have very significant ongoing * compliance, expenses. This is a staggering increase in administrative costs; a friction that severely restricts the future benefits attainable. ) Its inefficiency+ is a most significant disincentive to this form of provision. ( Expected* to decline BrightonRock’s survey work indicates that pensions in the UK have, in recent times, cost ' ) some 28% of salaries, which may be expected &..& &..( &..* &.., &... '%%& '%%( '%%* '%%, to decline to 23% to 24%. The comparable Source: ONS MQ5 and BrightonRock calculations. figure (for Dutch schemes, however, which offer broadly similar promises and are subject to than 20% of salaries. The institutional design be remembered that HMRC now applies the same European regulation, is a cost of less of pension regulation in the UK now appears to ‘spreading’ rules to limit the effect upon ' be very costly indeed. exchequer tax receipts in any one year. &..& &..( &..* &.., &... '%%& '%%( Second,'%%* in Diagram'%%, In addition, this diagram shows a linear » This government may wish to 2, we show the level regression fitted to the data series from 1992 encourage the ongoing provision of of tax deductions (in until 2001, which is extrapolated to 2007. This constant 2007 pounds linear regression shows a slight positive slope defined benefit pensions, but there sterling) due to special over time, as might be expected to arise from contributions made technicalities such as scheme closure to new is scant evidence in the analysis to pension schemes. members and interaction effects between risk of incentives that this is anything This diagram shows factors like mortality and inflation. It is evident )*%% more than wishful thinking the full tax deduction, that the period from 2002 onwards is massively « IVmXdhi&though it should different from the prior experience. At some fives times the projection of expense from the IVmXdhi' (,*% 1990s, it is clear that the new regimes have Diagram 2: The corporation tax cost of A^cZVgiVmXdhi& special contributions had material effects on behaviour. The scale of this tax loss to the Exchequer is remarkable. In )*%% (%%% the past three years this amounts to a total of £10.98bn. It is several pence in the pound of IVmXdhi& income tax rates and far more than the PPF’s (,*% IVmXdhi' ''*% estimates of the capitalisation it would require A^cZVgiVmXdhi& if it were a regulated insurance company, rather than the compensation fund that it is. —b^aa^dch'%%, &*%% (%%% This government may wish to encourage the ongoing provision of defined benefit pensions, but there is scant evidence in the analysis of ,*% ''*% incentives that this is anything more than wishful thinking. The costs of pension provision % under current regulation appear too large, —b^aa^dch'%%, &*%% swamping the weak incentives evident. These &..% &..' &..) &..+ &..- '%%% '%%' '%%) '%%+ '%%- costs are also sufficiently large to the economy that they have consequences in terms of social ,*% equity since these schemes cover only a small fraction of the population. It is time for a rethink.

% To comment on this article please e-mail editor@ &..% &..' &..) &..+ &..- '%%% '%%' '%%) '%%+ '%%- the-actuary.org.uk Source: ONS MQ5 and BrightonRock calculations.

36 June 2008 www.the-actuary.org.uk

034-036_Actuary_0608_Keating.ind36 36 20/5/08 16:51:43 Team-building Recruitment Peak performance Andrew Binns explains how employers can maximise the potential of new recruits within an actuarial team

Get the right people Graduates applying for actuarial roles will have different skills and interests. It is therefore important to consider any gaps in your current team’s skill-sets during the recruitment process. Your requirements may be for people with strong programming skills, for example, or those that are highly confident and can build relationships quickly. It is possible to involve even very new Andrew Binns is a people in graduate recruitment, providing graduate recruitment a low risk environment for developing and development skills such as presenting to reasonably sized manager within Ernst groups. Assigning ‘buddying’ responsibilities & Young’s insurance for a new joiner or involvement in assessing and actuarial advisory an applicant gives a sense of responsibility services practice and having a stake in the business that can often be missing in the early stages of a career.

A questioning culture Two-way feedback One of the most important ways of recruiting A majority of the students surveyed stated the and retaining students is to provide varied lack of any kind of performance markers as a and challenging work. Interest can often be concern. As well as providing guidance on what maintained by giving graduates plenty of was done well and how to improve, feedback opportunity to engage with more senior staff. fulfils a secondary but vital role in making sure Practical methods of achieving this include that people feel that they are important. This role reversal, where the graduate undertakes can most easily be demonstrated by the time and a review of a more experienced colleague’s attention that they are receiving from colleagues. work, and making sure that coffee machine Feedback does not have to be formal or task- debriefs occur after meetings, so that any based. Impromptu conversations with senior issues that were not fully understood can be managers, covering future career aspirations, explored further. rather than past performance, are also useful in making people think differently about their work. Communication skills Encouraging a relatively new student to Don’t assume that basic business etiquette organise and chair a peer-group meeting is a will be second nature to new graduate joiners. great way to develop their negotiation and Traditional induction and development planning skills, as well as gathering useful programmes tend to concentrate on feedback from the team. practicalities, such as IT, at the expense of magine the scene: after 12 months or more softer skills. Practical examples of discussions, you’ve finally convinced Feel free to give advice on the basics Here are some other practical ways in which the finance director to part with £100k to such as making a business telephone call. recruits can gain wider skills that also benefit purchase state-of-the-art actuarial software The frequency with which very intelligent the actuarial group: forI your department. So what happens when graduates will fail to introduce themselves or n Participating in an Institute working group it arrives? You dive in, of course, making sure confirm that the recipient has time to speak will increase technical knowledge in addition that you take every opportunity to embed the is surprising. to communication and networking skills system into your daily work and show that the Although team meetings provide an ideal n Organising internal seminars on current investment was worthwhile. So why does the opportunity to practice active participation actuarial issues for the wider company will give same not always happen when an often larger skills in a safe environment, it can be useful exposure to other departments within a firm investment is made in new graduate recruits? to get new joiners used to being involved in and develop project management ability Ernst & Young recently undertook a survey client-facing meetings at an early stage. Start n Leading training sessions on IT applications. of graduate joiners in consultancies and other with meetings that are less challenging, such Designing and delivering training is a great way companies and it was clear from their point of as those that are gathering information and to improve both group presentation and one- view that they were not always being used to make sure that specific questions to ask are to-one coaching skills. their potential. While it will always be difficult allocated beforehand. So, the next time that you are thinking about to balance an ideal training environment Ensuring that graduates are given plenty the priorities within your team, just add up the with the ever-increasing demands that most of exposure to more experienced people and salaries and study support costs and consider if actuarial departments face, I hope to provide situations, such as formal meetings, should you can afford not to get the most out of this some ideas that have worked well for us. allow some of these skills to rub off. vital investment in the future of your business?

www.the-actuary.org.uk June 2008 37

037_Actuary_0608_Binns.indd 37 20/5/08 16:48:18 Pensions Debt regulations Ringing the changes Clive Weber of Wedlake Bell considers whether the recent changes to debt regulations in relation to occupational pension schemes are good news for actuaries

ctuaries should be aware that another, and immediate annuity costs swiftly the Occupational Pension Schemes change, at present in a downward direction. (Employer Debt) Regulations 2005 It would seem that the current annuity cost (Statutory Instrument No. 678) have for buying out certain pensions in payment beenA substantially amended in relation to debt may be less than a scheme’s funding reserve, events on or after 6 April 2008. depending on the scheme’s chosen funding An actuary’s functions under the amended assumptions. regulations — called ‘the new regulations’ in this article — significantly differ from the The new funding test previous guidelines. The new functions are Under the new regulations, actuaries not narrower in some areas but in others add to the only have to provide a prescribed certificate Clive Weber is head actuary’s responsibilities. setting out the amount of the debt, but they of the pensions The new regulations clarify many also have a much wider role to play. Scheme team at Wedlake problematic areas — there is now a clear apportionment arrangements and withdrawal Bell Solicitors. This definition of ‘employment-cessation event’, for arrangements can take place only if the article is for general example. In addition, there are specific rules for “funding test” is satisfied (Regulations 6A, information only and is members who have moved between employers 6B and 7). not intended as legal in a multi-employer scheme, and the wording Although it is the trustees who must be advice. Specific advice of the specimen actuarial certificates in the reasonably satisfied that the arrangements should always be schedule to the regulations is much improved. meet the funding test, the actuary has a central sought for individual This includes references to the calculations role in advising the trustees on any effect the cases. being ’approximate’, which has added a degree apportionment or withdrawal arrangements of flexibility. may have on the scheme’s technical provisions (Regulation 2(4A)(a)). The actuary’s new role A scheme apportionment arrangement will Under the pre-6 April 2008 regulations — the meet the funding test only if the additional test ‘old regulations’ — actuaries had a very central under Regulation 2(4A)(b) is satisfied, namely role and were expected to ascertain, as well that the trustees are reasonably satisfied that as value, both the scheme liabilities and the “the effect of the arrangement will not be scheme assets. to adversely affect the security of members’ Under the new regulations, however, the benefits as a result of any: trustees (not the actuary) are responsible for (i) Material change in legal, demographic valuing the assets. It is the trustees who will or economic circumstances, as described “determine” the liabilities, while the role of the in Regulation 5(4)(d) of the Scheme Funding actuary is to calculate and verify the liabilities. Regulations, that would justify a change to In this latter respect, the wording in the new the method or assumptions used on the last regulations follows the old — the calculation occasion on which the scheme’s technical and verification is to be done assuming the provisions were calculated liabilities are to be discharged by the purchase (ii) Material revision to any existing recovery of annuities and “for this purpose the actuary plan made in accordance with Section 226 of must estimate the cost of purchasing the the 2004 Act”. annuities” (Regulation 5(11)). The trustees will turn to the actuary for advice An addition to the new regulations comes on most elements of the above test, and the in the way of guidance on how actuaries actuary will have to decide what the expression can approach this task. They must estimate “security” of members’ benefits means — the the cost on terms “consistent with those regulations offer no guidance, nor does the in the available market” and, if this is “not Board of Actuarial Standards (BAS). practicable”, then the estimate is to be made “in such manner as the actuary considers Updated actuarial certificates appropriate in the circumstances of the case” The new regulations also introduce another (Regulation 5(12)). concept, termed the ‘updated actuarial The wording “consistent with those in the assessment’. The regulations require trustees available market” is presumably intended to to take into account the member liabilities be helpful. From a legal perspective, however, described in Regulation 5(8). In the case of the words are imprecise. What constitutes the an employment-cessation event, however, available market at any particular point in time an updated actuarial assessment may be may be legally difficult, if not impossible, to prepared by the actuary if the trustees “after determine and therefore the wording may pose consulting the actuary and the cessation a trap. employer, so decide”. The leading insurers in the present buy-out Updated actuarial assessment is defined market are in intense competition with one in Regulation 2 as the actuary’s estimate of

40 June 2008 www.the-actuary.org.uk

040+041_Actuary_0608_Webber.indd40 40 20/5/08 17:18:39 Debt regulations Pensions

scheme solvency in the latest Section 224 but, for individual actuarial valuation “adjusted to the applicable » Good communication between actuaries, mandatory time to reflect the actuary’s assessment of the trustees, the auditor and standards would changes between the effective date of that provide some legal valuation and the applicable time in the value the actuary will be essential in protection as actuaries of the scheme’s assets and of the matters set operating these provisions begin to fulfil out in” certain parts of the Scheme Funding « responsibilities under Regulations. the new regulations. Is the actuary under a legal obligation to assets, there may be a large difference between The possibility of legal claims becomes all the bring to the trustees’ attention the pros and the valuation at the date of the accounts and more real because, as quoted in the BAS letter cons of an updated actuarial assessment, the updated value. However, is it possible to in the context of updated actuarial assessments, especially if the effect of an updated actuarial adopt an updated actuarial assessment without “there is no objective measure of what assessment would be to increase the Section an updated asset assessment, or vice versa? techniques might be ‘accepted’ in practice in 75 debt? Trustees may expect the actuary to be Apparently not. Regulation 5(3) states that the different situations”. So why are actuaries being pro-active in this area. The actuary may owe a assets of the scheme shall be valued and the left in this precarious legal state? duty of care to trustees to be pro-active. amount of the liabilities shall be determined and verified by reference to “the same date”. Challenging Section 75 Updated asset assessment Good communication between the trustees, The difficulties of a challenge to the actuary’s The bedfellow of the updated actuarial the auditor and the actuary will be essential in Section 75 certificate by, for example, a assessment is the ‘updated asset assessment’. operating these provisions. disgruntled employer, were demonstrated in In the case of an employment-cessation Actuaries will be helped in their many duties the High Court decision in the case of Cornwell event, the trustees can use either the asset and discretions under the new regulations by v Newhaven in 2005, where the court upheld value in the latest accounts or the updated professional guidance from BAS. Regulation the actuarial certificate. Nonetheless, the novel asset assessment. The latter means, according 5(17) helpfully directs actuaries in forming features of the new regulations and the absence to Regulation 2, an update (whether or not an opinion of the amount of a liability or in of BAS standards underlines the need for audited) of the most recent accounts that: preparing an updated actuarial assessment to actuaries to ensure their terms of engagement (a) Is prepared by the trustees apply “any relevant BAS standards”. However, are up to date. Before providing Section 75 (b) Estimates, where they consider appropriate, the BAS letter of 1 April 2008 to the Profession certificates under the new regulations, actuaries any alteration in the value of the assets states that BAS does not propose at the should ensure their liability is appropriately between the date of the accounts and the moment to issue any standards whatsoever in restricted so far as the law allows. date of the cessation employer’s exit from relation to this matter. the scheme. The political reasons for this approach may If you would like to comment on this article, please Given the likely volatility in value of scheme seem reasonable from the viewpoint of BAS e-mail [email protected]

www.the-actuary.org.uk June 2008 41

040+041_Actuary_0608_Webber.indd41 41 20/5/08 17:18:59 Life With-profits estates A matter of principle David Forfar discusses the build-up and use of a with-profits estate, in line with regulatory principles

“Unless a hedging strategy can be followed, n The shareholder may wish to move money at least approximately, and the necessary from shareholder equity in the subsidiary, to instruments are available, the mathematical the parent company. methods for calculating option values may be interesting but are of no practical application.” An estate is required to meet British Actuarial Journal, 11, p312. the TCF principle This need for an estate, if the FSA’s TCF he Financial Services Authority’s principle is to be observed, was illustrated (FSA) Treating Customers Fairly (TCF) by a letter to Money Management in 2004. A principle is: “A firm must pay due correspondent wrote about the practice of a regard to the interests of customers and major life office with regard to the financial David Forfar is a former treatT them fairly” and the Conflicts of Interest guarantee on its with-profits endowments. The appointed actuary of (CofI) principle is: “A firm must manage guarantee was that the maturity value would Scottish Widows and conflicts of interest fairly, both between itself not be less than the sum assured increased currently supervises and its customers and between a customer by contractual bonuses. The correspondent MSc Projects at Heriot- and another client” (FSA Handbook, PRIN maintained that the practice was not meeting Watt University. 2.1.1). The FSA is quoted in Money Management the FSA’s TCF principle since, if the guarantee (January 2008) as saying that there will be ‘bit’, the money required would have to be “serious consequences” for life offices if the taken from other customers’ unsmoothed TCF principle is not observed. asset-shares and this would be unfair. Asset- A with-profits estate (the inherited estate is share means the premiums, less expenses and the expression used to describe surplus assets in charge paid to the estate, at the investment the with-profits fund) is typically built up from return achieved. The with-profits office wrote transfers of small charges on the premiums from back that this was not so, as the money existing and matured with-profits policies (or required if the guarantee bit, would be taken from their maturity pay-outs) and from surpluses from the estate and this would not be unfair on non-profit business. With-profits contracts are to those policies where the financial guarantee not pure investment contracts, like unit trusts, did not bite. but contain important financial guarantees. If policyholders with different types of financial Regulatory principle of reserving for guarantee are all to be treated fairly and the financial guarantees/options, size of conflict of interest between shareholders, existing estate and stochastic modelling and new policyholders is to be managed fairly, Stochastic projection takes account of the then an estate is necessary. The estate should bond/equity distribution of the fund and be commensurate with the size of the financial provides a distribution for the difference guarantee which is unhedged or unhedgeable between projected liabilities and corresponding owing to the ‘incompleteness’ of the market (the asset-shares. It shows the size of the ‘upper tail’ so-called ‘naked’ part). (a measure of VAR) and the degree to which the guarantees are naked. An estate needs to be internal to the A premium charge (or charge at maturity), with-profits fund reflecting the expected cost of the financial It is becoming clear that the managers of guarantee, will normally be based on the shareholder companies are reluctant to use average cost of many future scenarios. It is an shareholder equity external to the with- FSA requirement that financial guarantees/ profits fund (for example, the shareholder/ options are valued but the FSA valuation meets non-profit fund) for meeting financial only the average of the distribution of liabilities guarantees/options or for smoothing (holding (para. 176 http://fsahandbook.info/FSA/html/ back some of the profits made by the fund handbook/INSPRU/1/3). As guarantees/options in good years and using them to pay out can, at best, only be partially hedged, that Coming up next month… more in poorer years). This is because of the means that the asset-share will be insufficient conflict of interest between shareholders and in the financial circumstances of guarantees The July 2008 issue of The Actuary policyholders, namely: ‘biting’. Then the estate will have to be relied will include a special supplement n It damages shareholder equity and the share upon to meet TCF requirements. on international recruitment and job price if shareholder equity external to the opportunities in the UK and overseas. with-profits fund has to be transferred into the Guaranteed Investment Return with-profits fund (GIR) example For advertising and sponsorship details, n The shareholder can only take 11.11% of Take, for example, a with-profits contract for please contact Hazell Cockle on declared bonuses out of the with-profits fund £50 per month, for a 20-year term, which +44 (0)20 7316 9493 or e-mail n If the shareholder makes a loan to the invests 40%/60% in bonds/equities and, for [email protected]. with-profits fund, he/she may never receive simplicity, contractual bonus is nil. If the GIR Copy deadline 13 June 2008. the loan back is 95% of premiums rolled up at 3.5%, the

42 June 2008 www.the-actuary.org.uk

042+043_Actuary_0608_Forfar.indd42 42 21/5/08 13:38:29 With-profits estates Life

‘guaranteed fund’ is £16 423. The investment annuity payable, the TB takes account not HMRC benefit rules are written in terms of an in bonds (95% of £20 per month at 7%, say) only of the investment returns achieved amount of pension thus, for a defined benefit will only cover some 59% of the guaranteed but also of the current bond yields and scheme which also provides a cash benefit, fund. Thus the bonds, if their mean term longevity. Thus the (annuity-based) TB is a fixed ratio — typically 9:1 at age 65 and equals the term of the policy, will only hedge 48% (1283 / 867 = 1.48). This is equivalent equivalent to a GAR of 11.11% is required to part of the guaranteed fund leaving the to a Type 1 GAR, where the GAR only convert the cash into an amount of pension, in aggregate investment in equities of £6840 (0.95 applies to the guaranteed fund to establish a order to obtain HMRC approval]. guaranteed annuity It requires the life office to invest It is becoming clear that the managers of ‘guaranteed fund x simultaneously to provide whichever is » GAR’ per annum. the better value of: the cash maturity value of shareholder companies are reluctant At policy maturity, of the contract; and the present value of to use shareholder equity external to the these longer-term annuity payable equal to the maturity value bonds might be worth multiplied by the GAR rate. The maximum with-profits fund for meeting financial £9521, plus equities that could reasonably be charged for this worth £7585 giving guarantee is 10% of premiums but the actual guarantees/options or for smoothing « a fund of £17 106 cost, in this example, is 48% more than the — corresponding to policy’s cash maturity value. x 30 x 12 x 20) to cover the remaining £6733 an alternative open-market option (OMO) (See Thus a Type 2 GAR is a financial guarantee (16 423 x 0.41), the naked guarantee. Income and Corporation Taxes Act 1988, 622(1) (a)) of quite a different order from a Type 1 GAR A ‘market consistent’ valuation may use of £17 106 and an (OMO-based) TB of 119% (17 and demands an estate, depending on how option pricing methodology but this assumes 106 = 1283 / 0.075 and 17 106 / 7800 = 2.19). much GAR business has been written, several the guarantee/option is, or can be, hedged. This As the example concerns a single premium times that in the above examples, if the TCF is not the case for a long-term naked guarantee/ contract, the two financial guarantees (they principle is to be observed. option (there are no instruments long enough) cannot bite at the same time) may cost the so the upper tail of the liability distribution estate about the same as in the above monthly Ownership of the estate has to be taken into account (and not only the premium example. One or other of the The with-profits funds of major life offices average value). The naked guarantee might guarantees may bite if 1) equity values fall 2) are now closed to new business (Money require, in this example, a charge of around if interest rates fall or 3) if longevity increases, Management, Nov 2007, p63). Their estate 2% of the premium, with a standard deviation but an estate of some 10% should be able to is thus being distributed as declared bonus of 4%, to meet the guarantee. Therefore, a cope, particularly if the life office moves into to policyholders with the shareholders policyholders’ estate of around 10% (taking longer-term bonds as bond yields fall. receiving, as of right, one-ninth (11.11%) two standard deviations above) may be of declared bonuses whether contractual or adequate, giving a total estate of around 11% Type 2 GAR non-contractual. It is normally assumed that, (10 / 0.8889) of corresponding liabilities. If the terminal bonus is based purely on the because of this, the shareholder ‘owns’ 11.11%, investment returns achieved, and not also on and the policyholders 88.89%, of the estate. GIR and Guaranteed Annuity Rates the current bond yields and longevity, this In the case of the few remaining offices where (GAR) example guarantee is equivalent to a Type 2 GAR. In this there is new with-profits business, the estate Take, for example, a 20-year single premium case the GAR of 11.11% (or a fixed ratio, like needs to be large enough to also cope fairly with (of £4126) pension contract (retirement age 9:1) applies to the whole of the maturity value any naked guarantees in the new business. 65), with a GIR specified as above, and a GAR to establish an annuity payable of (guaranteed of 11.11% and, for simplicity, the contractual fund + terminal bonus) x GAR per annum. New business and mis-selling bonus is again assumed nil. The guaranteed In the example, the annuity payable would Writing new business at an uneconomic fund is £7800 and the ‘guaranteed annuity’ be £1900 per annum (17 106 x 0.1111) and premium, particularly if it has naked is £867 per annum (7800 x 0.1111) and, the (annuity-based) terminal bonus would be guarantees, would require the capitalised therefore, there are two guarantees. Assuming 119% (17 106 / 7800 = 2.19). The OMO would value of the shortfall in premium to be met a bond/equity split of 50%, the bond be the value of the annuity payable, namely immediately by a transfer from the estate. component, if invested in long-term bonds £25 333 (1900 / 0.075) corresponding to an This would seem to conflict with a charge, yielding a little over 7%, would hedge the (OMO-based) TB of 225% (25 333 / 7800 = commensurate with the financial guarantees, guaranteed annuity, excluding the increase 3.25). Long-term bonds (or swaptions) protect being transferred to the estate by existing in longevity. But the increase in longevity of the guaranteed annuity if there is a fall in bond policyholders and would seem to conflict, in 40% (from 15 to 21 years today) might mean yields. There is currently no traded instrument respect of new/existing policyholders with the that only an annuity of £715 per annum that enables long-term equity risk, longevity CofI principle. Existing policyholders may feel could be hedged. risk (or retirement at any time between 60 and they are not being treated fairly. 70) to be hedged. As any mis-selling of policies is arguably the Type 1 GAR It is noted that the Type 2 GAR annuity fault of management, but not of policyholders, The initial equity component of £2063 might payable is some 48% more than the Type 1 it would seem unfair, and a possible provide a maturity value of £7585 and an GAR annuity payable of £1283 per annum. infringement of TCF and CofI, to take all of the annuity of £568 per annum (assuming a GAR A financial guarantee of a Type 2 GAR is, cost of mis-selling claims from policyholders. at 65 of 7.5%) giving an ‘annuity payable’ economically speaking, asking a life office for of £1283 per annum (715 + 568). Where the the nearly impossible, although required when To comment on this article, please e-mail terminal bonus (TB) is calculated from the approving the rules of pension schemes [the [email protected]

www.the-actuary.org.uk June 2008 43

042+043_Actuary_0608_Forfar.indd43 43 21/5/08 14:10:53 Student Page Jen and Jean

Jen and Jean try and disassociate themselves from any form of failure as they welcome guest editor Matthew Pinkney In defence of failure

With exams over and the summer The next round of exam results will be released increase for passing the exam would need to months now upon us (well, three before too long, and no doubt those who have be £2600 for it to be worthwhile to pass. hot days in May), actuarial thoughts recently qualifi ed will enjoy having a good Looking at it from the company’s point are far behind us. Not for one chuckle to themselves (before using the actuarial of view seems to reveal a different story, man though, as this month, guest control cycle to help make a bacon sandwich however. The extra 10 study days could be editor Matthew Pinkney of Hewitt — the applications of that baby are endless). valued at approximately: Associates takes us through an But how upset should one be in the face of actuarial justifi cation of failure. We failure? Besides the ability to go around telling Number of days x Charge-out rate x applaud the use of actuarial science students that the exams are getting easier Chargeable hours per day in justifying that most fundamental as they verge on a mental breakdown, what = 10 x 100 x 6.5 = £6500. of student experiences and look do we have to provide an incentive for our forward to seeing more practical progression towards exam completion? This would then need to be converted to an applications of the actuarial control As exciting as being able to call oneself an annual salary increase using an annuity factor cycle. Get in touch at the usual actuary sounds, experience suggests that doing over the period the higher salary is payable address to claim your spot as guest so in public will not result in people breaking (namely, until the exams are complete, when editor of a future issue. out in spontaneous applause. More common, the student is no longer one exam ‘behind’ If you have any bright ideas for the perhaps, is the following conversation: — let’s assume this is four years). This suggests Student Page, please e-mail jenandjean@ a salary increase of £1625 per annum. the-actuary.org.uk - So, what do you do then? Is £6500 really the cost to the company of - I’m an actuary someone failing an exam? Arguably not, as - [Cue silence accompanied by a slightly there is a chance that the person failing will frightened expression] leave before they take the extra study days. The - Among other things, I model fi nancial cost could quite easily be nil in this scenario. risks in pension schemes and advise sponsoring We defi nitely need a withdrawal decrement, companies and trustees about the contributions therefore, which raises additional questions they need to pay to meet benefi ts in the future (such as whether the probability of leaving the - Oh right, so you sell pensions then? company increases with exam failure). - No [emphatically]. No, I don’t. If we assume that there is a 50% chance the - Oh, right... [pause] I’ve been thinking about extra study days will be taken, we arrive at a sorting my pension out recently. What do you think salary increase of £813. is a good one to get? What can I conclude from this analysis? If your company awards between £813 and £2600 There is the pay rise that usually comes with for passing an exam, and you are questioned exam passes but some back-of-the-envelope about an exam failure, try suggesting that the calculations seem to reveal fairly quickly that failure makes fi nancial sense for both you and this is less valuable than the value of future the company. After all, that is what being an study days if one fails. Of course, this depends actuary is all about. greatly on how your fi rm’s study policy Matthew Pinkney operates, in particular relying on people who fail being able to take some extra study days. To demonstrate this, let’s suppose that a LOST AND FOUND student failing an exam will take 10 extra study days in their career. If the student was on Ever get the feeling that something £30 000 per annum, this might be worth: is missing from your life? Among the items left behind at previous Number of extra study days / Number of exam sessions were passports, car workdays in a year x Salary keys, house keys, scarves, marbles, = 10 / 230 x 30 000 = £1300. faith in the examination system, the And if they passed the exam next will to live… the list goes on. time around, they would get the salary If you’ve lost any property at increase only six months later. So, exams, why not contact the Matthew Pinkney in purely fi nancial terms, the salary Faculty or Institute?

44 June 2008 www.the-actuary.org.uk

044_Actuary_0608_Student.indd 44 21/5/08 13:34:45 AOTF People

Could it be that Satinder Singh Sohel’s love of the paranormal has spookily earned him a nomination as an Actuary of the Future?

Satinder Singh Sohel Study day sleeper or shopper? How do you relax away from Sleeper — and in case my bosses are reading — the office? I usually just go out with friends, Date entered profession? followed closely by some studying. watch a movie or play some sport — and stay December 2006. well away from any study material. Tell us your formula for success. Employer and area of work? I will let you know when, or if, I become successful Tell us something unusual about Chaucer Syndicates, reserving actuary in — however, always believe you can succeed. yourself. general insurance. I am fascinated by anything paranormal. I used What is your best attribute? to sit around for hours with friends and Describe yourself in three words. My ‘try anything’ attitude. How will you know exchange scary stories and, in the process, scare Energetic, random and enthusiastic. you are good at something unless you try it? ourselves half to death. Unfortunately, nothing spooky has ever happened to me, yet… What is the best thing about Your worst habit? Not being able to say ‘no’. your job? Who would you most like to be The good mix of people at work, and the What is most likely to irritate you stuck in a lift with? challenge and variety in what I do. about others? I do not easily get annoyed but A black cab driver, because they usually have using text-speak in e-mails is irritating. many tales to tell. And the worst? Spreadsheets and sitting in front of the monitor for hours on end. I need to Alternative career? If you would like to nominate someone for Actuary of the stretch my legs every so often. I was always told I would be a good teacher. Future, please e-mail [email protected]

TheActuary

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The Actuary’s website has changed for the better. As well as all your favourite sections from the magazine and a fully searchable archive, the website now carries new and exclusive content, online games and a full-service jobs board updated daily.

K^h^ii]Z"VXijVgn#dg\#j`id/ ¼View the latest issue ¼Search and apply for jobs ¼Access exclusive content ¼Visit the Careers Clinic ¼Browse the eight-year ¼Sign up for email alerts archive ¼Play online sudoku

TA08_AD180X130.indd 1 14/2/08 10:21:51 www.the-actuary.org.uk June 2008 45

045_Actuary_0608_AOTF.indd 45 20/5/08 17:17:16 Puzzles Coffee break

Puzzle 398 Inspecting the column (The following puzzle has been contributed by Mr Norman Graham) A column of soldiers of length a is marching steadily along a road, when an offi cer on horseback rides at uniform speed from the rear to the front and back again Volunteers required while the column moves distance b. Are you a puzzles fanatic with a devilish How far does the offi cer ride? desire to push your fellow actuaries to the limit? Could you spot a riddle wrapped in a mystery inside an enigma? The Actuary is looking for a volunteer to take on the vital role of puzzles editor. If you are up to the task, please contact editor Margaret de Valois on [email protected]

More puzzles online

To access the puzzles archive or to play daily interactive sudoku, visit www.the-actuary.org.uk/puzzles The puzzles editor is pleased to receive ideas for new puzzles from readers. Please contact Rakhee Raja on [email protected]

Puzzle 395 Number block solution 57 Puzzle 396 Exam word search solution EETGHSEEXASDTTVE E G H S E A S D T T V VMCMNSOARTEIINOV M C M N S O A T E I I N O 1 3 32 4 9 9 2 7 4 44 ROOOVIEIORASCECR O O O V I E I O R S C E C ENARNDDCTITCIMRE A R N D D C T C I M R 1 8 3 4 8 61 2 6 4 43 SISCTOHNNAOOFEAS S C T O H N N A O O F E A EWTITAMMUERUERME I T A M M U E R U E R M 3 5 2 5 6 7 5 8 6 9 56 RTOESULINFJNDIYR S U L I N F N D I Y 3 87 8 8 9 7 3 8 7 68 OYBTEFAICORTETYB T E F A I C O T E T Y NOITUBIRTSIDIEON O I T U B I R T S I D I E 19 1 9 6 8 9 5 1 9 58 UCLAIMSSIYTLARRC L A I M S I Y T L A R INSURANCEAITSTUI N S U R A N C E A I T 7 2 1 5 4 4 93 3 1 39 COMPOUNDDBLYINGC O M P O U N D D B L SCHEMEAMATCHINGS C H E M E M A T C H I N G 89 3 92 1 9 5 2 4 52 GAINGOOIDLUCKWIO I D THYOVALUATIONURV A L U A T I O N 5 5 4 4 2 2 7 4 9 2 44 RESULTSSALARIESS A L A R I E S The following words were hidden in the grid: ACTUARIAL, 2 4 16 1 91 11 7 33 CLAIMS, COMPOUND, DEFICIT, DISCOUNT, DISTRIBUTION, ECONOMICS, FUNDING, INSURANCE, LIABILITY, MARCOV, 3 6 2 9 7 8 8 4 2 2 51 MATCHING, MORTALITY, RATIOS, RESERVE, RETIREMENT, SALARIES, SCHEME, STOCHASTIC, VALUATION 5934 61 63 65 37 45 49 The remaining letters spelled out the hidden message: 27 48 45 The exams are over and it is now time to enjoy before you start studying again. Good luck with your results! Puzzle 397 Cryptogram solution The original quote had to be recovered from the encrypted quote. Each letter in the original quote was replaced with a Greek letter. TO BE OR NOT TO BE, THAT IS THE QUESTION ______, ______ΑΡ 0Ψ ΡΠφΡΑΑΡ 0Ψ, ΑΙΘΑ ΧΤ ΑΙ Ψ ΗΕΨΤΑΧΡφ

46 June 2008 www.the-actuary.org.uk

046_047_Actuary_Puzzles_0608.ind46 46 20/5/08 17:09:07 CoffeeXxxxxxxxxxx break Puzzles

Puzzle 399 With the candlestick? (The following puzzle has been contributed by Mr Hugh Norman) The answers to the six unspecified clues below are all in the same group and are connected with 23 Across.

1 2 3 4 5 6 7 8 Volunteers required

9 10

11 12

More puzzles online 13 14 15 16

17

18 19 20

21

22 23 24

25

26 27

28 29

Across 22. Characters have a wager on 6. Running up to school bearing 1. Carry screw for bait (7) mountain height (8) extension (6) 5. (7) 23. What this clue does in a game (6) 7. Bad blood in my iotas possibly (9) 9. Look! S’s aristocrats (9) 26. It could be grand to have time after 8. Increases river dams (7) 10. (5) work (5) 14. Alien comes across crack private’s 11. Arouse after big night — sounds as 27. Exchange Consul with Red Knave (9) paraphernalia (9) if there wasn’t a bedhead (6) 28. To pack up troubles in them is an 15. A deputy head draws locations… (9) 12. Part of skeleton to scramble and awfully big task (7) 17. … of Kraals in bad state (3,5) grind away (8) 29. (7) 18. (7) 13. Took three examples, and ran off 20. Minute: amount of fluid time under for eighteen (9) Down flustered, faceless, federal cop (7) 16. One for the base in this square 1. Vanellus about to gnaw lip (7) 21. A dog after black fruit (6) — root failure (4) 2. (5) 24. Recruit devious loner (5) 18. (4) 3. Harmonic significance (8) 25. Plant nothing, instead of one in the 19. Dilapidated and eroded sty was 4. Fix base for nothing in fifth square (4) previous square (4) restored (9) 5. Surround head with 16 devilries (9)

www.the-actuary.org.uk 2008 June 47

046_047_Actuary_Puzzles_0608.ind47 47 20/5/08 17:11:15 Arts Matt and Finn What not to wear Matt and Finn give Trinny and Susannah a run for their money

At long last the sun has arrived, a bit of a tan tends to make us all look a bit better, Recommended album and this month’s feature offers some great advice for framing that tan. Yes, following Seu Jorge Esquire’s damning words, we have some tips on the art of how to dress appropriately in the offi ce. And in keeping with the summer theme, we have reviewed the perfect place The Life for a spot of brunch where you can order your eggs sunny-side up. Matt and Finn Aquatic Studio Sessions recent survey by Esquire rated ring and a watch, but save the piercings and Think David Bowie actuaries as one of the worst-dressed chains for the weekend. If you really do like in Portuguese professions in the UK. Looking wearing a watch, ditch the Casio and go for and you have this around my offi ce, I can’t say I have something a little more elegant. excellent album much A to counter them. The slow domination of Tie die. Throw away those comedy Christmas by the Brazilian ‘business casual’ in the workplace has exacerbated ties. A Homer Simpson tie should never grace musician/actor this problem — loafers, chinos and an M&S the workplace. Leave it in the bottom of your Seu Jorge. You easy-care shirt is just not a strong look. I will wardrobe and, if necessary, lie to your mum may recognise the music as featured say that this style defi cit affects the males in our about how all the work guys found it hilarious. in Wes Anderson’s excellent 2005 fi lm Life profession more so than the ladies. There are a Keep your tie silk and co-ordinated with your Aquatic with Steve Zissou that features Bill number of basic dress etiquette rules that all of us shirt, tie a good solid knot such as a double Murray sporting a very fashionable wool hat. could follow to help us improve our image. Windsor but make sure it isn’t too big — we’re This album puts a new slant on David Bowie, Though high-quality work is essential, an not estate agents. with acoustic songs translated into Portuguese. elegant work-look Keep it clean. Following all of the above is You may not know the words, but you’ll be can encourage great but it can be completely ruined if you singing along: “Five years, quando nao vi nada both clients and yourself are not clean, keep the hair neat and nesses, fi ve years...” colleagues to take make sure any facial hair is well groomed. A you seriously. A subtle dab of cologne is always a nice touch. Client entertaining well-assembled The same goes for the outfi t, make sure the outfi t also shirt and suit are well pressed and that your Automat, London delivers the shoes are spotless. Offering brunch at its best, American diner subtler message One huge positive for us men is that formal Automat is nestled in the heart of Mayfair. that you pay business wear does not change signifi cantly It is the perfect spot for breakfast meetings great attention to detail. from year to year or season to season. Consider with top clients with big appetites. Stylishly Suit you, sir? We are all paid more than implementing the above as a fashion annuity, an decorated, this is an upmarket place to eat enough to buy a couple of decent suits. Go up-front cost now will pay off for years to come. your eggs in the morning. If you are there and get one fi tted if you can afford it and if If you want to challenge Esquire’s judgment, over the weekend, the recommendation is the not, at least go shopping with someone who we would love to hear from you. If your dress Automat Brunch Burger — a burger cooked knows what does or does not work for you. sense is particularly snappy, we’ll put together to order featuring a fried egg, cheese, bacon Pick a conservative suit in navy, black or grey. a team to take to Esquire and show that, like and a sausage. What more could you need, If you do want to go for a pinstripe look, go for most things, us actuaries really do know what except possibly heart bypass surgery? For more something not too heavy. Let the quality of the we are doing. information visit www.automat-london.com material speak for itself. Belt up. A belt is not only for function but also form. Your trousers may not need a belt Art by an but if you have belt loops you should still wear actuary one. What’s more, those brown shoes you are wearing would look that much better with a Jon Bowden matching belt (oh, and there is a variety of Jon Bowden, shades of brown out there). an investment Learn your lines. Detail is good but don’t consultant with overdo it. Wearing a pinstripe suit with a stripy HSBC Actuaries and tie and a stripy shirt is just too much. Plain Consultants Ltd, took shirts work well with stripy ties and vice versa. this picture early Never go for more than two stripy items of one autumn Sunday clothing and never both your shirt and tie. morning in woodland Bag it up. Yes, a rucksack is more practical for near Aldbury in all those presentations but it makes you look Hertfordshire. For like a schoolboy. Leave it for your gym kit Jon, forests in and invest in a nice leather man-bag. Bonus the morning are points if you pull out of this bag some quality probably one of accessories. A leather-covered notepad and the most peaceful Mont Blanc pen look more sophisticated than a places there are — true escapism at its best squirrel that crept into the frame. half-chewed biro and a few scraps of paper. — something we believe he has managed Sling the bling. With jewellery, less is most to capture in this atmospheric shot. If you If you would like your work featured in this space, certainly more. No-one will mind a wedding look carefully you might spot the rogue please e-mail [email protected]

48 June 2008 www.the-actuary.org.uk

048_Actuary_0608_Arts.indd 48 20/5/08 16:40:24 Appointments People moves

Len Currie has association with teams consulting announced the joined Standard Life Strategies for a with a number of return of Neil Smith Steven Blackie Life from KPMG small number of his multinational clients to its UK Investment has joined where he was a long-standing clients. and managing Consulting team. Mercer as senior pension and Dermot Corry will several multiple Mr Smith previously a principal employee benefits continue to lead Life country projects. spent six years at and senior consultant. Mr Currie Strategies. Mr Fagan Prior to this, Mr Hewitt from 1999 investment will report to Louise plans to pursue a Argyrou spent to 2005, and will consultant in Kay, head of UK range of activities, five years working be rejoining its Steven its Edinburgh institutional business including acting with the UK London office to Blackie office. development and as non-executive Government Actuary’s provide investment Mr Blackie will have responsibility will be responsible director, both in Department in social advice to pension for the investment consulting business for working with the financial sector security work for scheme trustees. in Scotland. Mr Blackie has joined from institutional and otherwise. governments around Mr Smith rejoins Aon Consulting where he held the role investors to the world, as well Hewitt from KPMG, of commercial director for Scotland develop business Hewitt Associates has as pensions-related where he was a and head of Aon’s Scottish Practice. opportunities and appointed Pantelis work for UK local principal investment Before joining Aon he worked for further strengthen Argyrou to its authorities. In consultant within Merrill Lynch Investment Managers SLI’s market presence. pensions consulting addition, Hewitt the Investment (now BlackRock) in London as a client team in Cyprus. Associates has Advisory team. relationship director and Japanese Colm Fagan Mr Argyrou, who equity product specialist. resigned in April as an will be based in Have you moved? Mr Blackie will take over his role employee and director Hewitt’s Nicosia Please send news of moves, from Anne Kershaw. of Life Strategies, office, joins from promotions, retirements and Mercer has the Dublin-based Towers Perrin. Most appointments to peoplemoves@ also appointed consultancy which he recently, he worked the-actuary.org.uk Gabriella founded in September in its international Franco as 1993. He will however practice in London, Hymans principal in the Andrew Gaches retain a consultancy leading client Robertson international has appointed team. Peter Wright Andrew Gaches Ms Franco and Stuart as a longevity will provide Thompson, consultant. He consulting principals at joins Hymans advice for Gabriella Franco the Tillinghast Robertson from multinational insurance Aon Consulting clients and will consulting where he have a specific focus on Southern business of was head of Europe and . Towers Perrin, the actuarial She joins from the Global Consulting Peter Group at Towers Perrin where she took Wright both retired practice in London. Mr Gaches is from the also a contributor to the profession’s the lead in developing new business company at the end of 2007. Mr Wright, research into the longevity of pension with Italian and British multinationals who joined the consultancy in 1999, scheme members, and sits on the and managing global benefits projects. was vice-president of the Institute Continuous Mortality Investigation’s Self- Chris of Actuaries from 2004 to 2006, and Administered Pension Schemes Mortality Sheasby has during the Committee. also been latter years of Hymans Robertson has also appointed his career was announced the appointment of Richard as a senior a significant Shackleton as scheme actuary and associate in contributor partner. Previously a European partner at its retirement to the IFRS Mercer Human Resource Consulting and business. and Solvency head of Mercer’s Based in II debates. Brentwood office, Richard Shackleton Chris London, Mr Sheasby He has been Stuart Mr Shackleton Sheasby appointed as a Thompson joins the actuarial will provide actuarial advice to a non-executive practice in a portfolio of pension schemes as director of Countrywide Assured. Mr consulting role. well as advising on merger and Thompson was a member of the In addition to acquisition issues. 2001 Fair Valuation Working Party and providing trustee Mr Sheasby joins Mercer from contributed to a number of prize- advice, his focus Hymans Robertson, where he was an winning papers. After his 18 years as will also be actuary to three schemes, as well as a principal with Towers Perrin, he now on developing holding responsibility for managing intends to take a well-earned rest. Hymans Robertson’s corporate offering. and developing client teams.

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50 June 2008 www.the-actuary.org.uk

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