Published in London by the Staple Inn Actuarial Society
The www.the-actuary.org.uk ActuaryThe magazine for The Actuarial Profession August 2008
The fear of failure DB pensions: assessing the risk of sponsor insolvency
Actuaries in banking • Solvency II roundtable • New presidents’ Q&A • 26 pages of jobs
001_Actuary_Cover_0808.indd 1 22/7/08 16:11:40 The Actuary
See page 5 for full details of the editorial team Incisive Financial Publishing Editorial 32-34 Broadwick Street, London W1A 2HG August 2008 T +44 (0)20 7316 9000
Publisher Philip Harding T +44 (0)20 7316 9393 E [email protected] Managing editor Breaking the spell Sharon Maguire T +44 (0)20 7316 9016 E [email protected] “Hello, calling Planet Actuary. Are you receiving me?” Recruitment advertising manager Hazell Cockle This is not a call for more letters but a quote from a review of T +44 (0)20 7316 9493 Nigel Masters’ presidential address (see 3 July for E [email protected] Evening Standard the exact transcript). Designer Nicky Brown First of all, I must congratulate Nigel on getting the actuarial Sub-editors profession into the press. I know from first-hand experience that David Whittam Ann Ives dealing with the press is not easy. But, oh, what bad press it was. Production manager As well as accusing Nigel of being “out of touch”, the Evening Matt Parle T +44 (0)20 7316 9766 Standard went on to accuse actuaries of “loving” pension E [email protected] schemes as “they can apply their financial alchemy to them”. Group editor-in-chief Anthony Gould Added to this was the comment that the carefully calibrated Group publishing director calculations we apply to our beloved pension scheme deficits are Derek Peck just “hocus pocus”. Print and distribution Benham Goodhead Print Ltd., Oxon While clearly terrible for the profession, I think that there Subscriptions are some real lessons to be learnt from this misinformed piece For subscriptions from outside the actuarial profession: UK, Eire, and of journalism. Europe: £50 a year/£5.00 a copy. For the rest of the world: £75 a Look at the words used: “financial alchemy” and “hocus pocus”. year/£7.50 a copy. Please contact: Maria Lyons It is clear that the Evening Standard journalist has no idea what an The Actuarial Profession, Napier House, 4 Worcester St, Oxford actuary does, let alone why and how it is done. This ignorance OX1 2AW T +44(0)1865 268236 has unfortunately been manifested in public criticism, at the E [email protected] profession’s expense. Students on actuarial science courses at universities may join the Staple If we are to improve the profession’s public image, Inn Actuarial Society for £6 a year. They will receive The Actuary as we need to break this spell of ignorance and part of their membership. Apply to: Membership Department, The educate the general public and press as to Actuarial Profession, Maclaurin House, 18 Dublin Street, Edinburgh who we really are. Once again we are faced EH1 3PP. T +44 (0)131 240 1325 with a glaring example of why actuaries E [email protected] must be able to communicate their skills Changes of address should be made known to the membership to the wider public. Only then will people department at the same address. understand what an actuary can do for Internet The Actuary website: them, and promote us as the serious www.the-actuary.org.uk SIAS website: www.sias.org.uk professionals we are. Actuarial Profession website: www.actuaries.org.uk
Published by the Staple Inn Margaret de Valois Actuarial Society Editor The editor, the Faculty of Actuaries, the Institute of Actuaries and the [email protected] Staple Inn Actuarial Society are not responsible for the opinions put forward in The Actuary.
© SIAS July 2008 All rights reserved ISSN 0960-457X
www.the-actuary.org.uk August 2008
003_Actuary_0808_Editorial.indd 3 18/7/08 13:30:28 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 August 2008
Editor Margaret de Valois HSBC Actuaries and Consultants Ltd, Level 16, 8 Canada Square, News London E14 5HQ T +44 (0)20 7991 3165 E [email protected] 10 Professional
Features editors 14 Education and research Tracey Brown Lane Clark & Peacock LLP, 30 Old Burlington Street, 16 Industry London W1S 3NN T +44 (0)20 7432 3071 20 People E [email protected]
Marjorie Ngwenya 21 Society Swiss Re Life & Health, p26 30 St Mary Axe, 22 SIAS notices London EC3A 8EP T +44 (0)20 7933 3163 The fear of failure E [email protected] In the second of two articles on voluntary defined benefit 23 Calendar pensions, Con Keating and Andrew Slater consider the risks Industry news editor 42 Appointments and moves Louisa Lobo of sponsor insolvency T +44 (0)7719 631 955 E [email protected] Opinion People/society news editor Features Amy Guna Grant Thornton UK 24 Presidents’ question time 3 Editorial T +44 (0)7879 453 949 Margaret de Valois is forced to abort take-off E [email protected] As Ronnie Bowie and Nigel Masters settle into their roles from Planet Actuary as Faculty and Institute presidents, they discuss their plans Student page editors Jennifer May for the future 6 Letters Hewitt Associates, In which actuaries get to grips with the casting 6 More London Place, of lots and one-man, one-vote London SE1 2DA 28 The end of days T +44 (0)20 7939 4000 Peter Ridges details the options available to pension 8 Soapbox E [email protected] schemes for risk transfer Matthew Annable, chairman of the Pensions Jean Eu Policy Institute, asks whether the government’s RGA UK, IFC Level 40, 29 25 Old Broad Street, Invest in me, I’m an actuary! pension reforms will deliver London EC2N 1HQ Chris Cannon talks to Graham Jung of Goldman Sachs T +44 (0)20 7448 8255 about the opportunities in the investment industry E [email protected] Regulars Arts page editors 30 Roundtable: The road to Solvency II Matthew Fewster 37 Arts JPMorgan The third roundtable for The Actuary saw a rigorous Matt and Finn’s music for revisionists 125 London Wall debate on the ongoing issues surrounding Solvency II London EC24 5AJ T +44 (0)20 7777 9707 38 Puzzles E [email protected] 34 Up for discussion More brainteasers to test your mettle
Finn Clawson Jenny Lee takes a closer look at the International Hewitt Associates Accounting Standards Board’s discussion paper on post- 40 Student page 6 More London Place employment benefits Is the communications exam really so hard? London SE1 2DA T +44 (0)20 7939 4435 41 Actuary of the future E [email protected] 36 International Congress Grace Huang of Hewitt Associates Puzzles editor Desmond Smith previews the International Congress of Rakhee Raja Actuaries in Cape Town 43 Appointments Xafinity Consulting Ltd, Xafinity House, 42-62 Greyfriars Road, Writer of the month Reading RG1 1NN More features online E [email protected] The following features can be found exclusively on The Edward Banister is the editorial team’s Actuary website this month: choice for August for his article on Circulation n Edward Banister assesses the impact of the case of section 75 debt and receives a £50 17,570 Gleave vs. the Pension Protection Fund in relation to book token courtesy of SIAS. (July 2006 to June 2007) section 75 debt n Jill Green and Fred Rowley provide an Australian actuarial perspective on the issues surrounding climate change. Visit www.the-actuary.org.uk/category/features
www.the-actuary.org.uk August 2008
005_Actuary_0808_Contents.indd 5 23/7/08 13:02:31 Letters Your view
Letter of the month A wealth of support I write to thank you very much for your gracious memoriam to Jackie Lagden (Millar) in The Actuary, July 2008. May I just use your column to thank all of our friends in the Profession for their response to this article and for their support after Jackie’s death and at the memorial service last autumn. For myself, I remain pretty fit and busy apart from losing two-thirds sight to belated glaucoma. But I have a faithful guide dog — a black Labrador called Flint — who was much loved by Jackie and is a great support to me. His only weakness is that he cannot replace Jackie’s skill on the computer, as he gets his claws stuck under the ‘delete’ key.
Jim Lagden 3 July 2008
The writer of the letter of the month receives a Venecia fountain pen kindly supplied by HBOS
Probable cause and effect happened to save the Persian king’s life Century England. I refer to Chris Lewin’s article (The Actuary, and the Persian king happened to have Aquinas deals with a number of June 2008) on Thomas Gataker and the a sleepless night. No doubt, a modern objections to God’s universal providence nature of chance events. As the article says, secular actuary would say that the Jewish and foreknowledge, such as those of the chance events are “uncertain to us”. Really people were very lucky, but the Christian Greeks and Romans who considered that and truly, the events may be certain and perspective is very different. For example, everything was divinely pre-ordained. Not determined but they are uncertain to us. my reference Bible comments that “in that all of the ancients held this view, for For example, when a die is cast onto no other book of the Bible is [God’s] example, Democritus and the Epicureans a level surface, if we knew precisely its providence more conspicuous”. maintained that the world was in fact made velocity, proximity to the surface and so on, by chance. Aquinas also discusses why, if we could use the laws of motion to predict Peter Currie everything is subject to God’s providence the outcome. However, because of our 24 June 2008 and care, evil exists. ignorance, the best we can do is to say that Distinguishing between necessary and all outcomes are equally likely, assuming the Theology repeating itself contingent causes, Aquinas concludes die is unbiased. Perhaps one of the reasons why Thomas that God’s providence not only extends Christians believe in a God who is Gataker has not been included in the to all things but that his omnipotence omniscient and omnipotent. This probability hall of fame is that his is such that he foresees not only what implies that nothing is uncertain to contribution was not new. Some 350 years happens necessarily but also what happens Him and nothing is beyond His control. earlier another Thomas, Thomas Aquinas, contingently without these events being Providence refers to the ways by which had already discussed whether everything any less contingent. Aquinas uses a similar God exerts control over all things, was subject to the providence of God line of argument to explain how human preserving and governing all His creatures and, if so, whether providence imposes freedom is compatible with God knowing and all their actions. any necessity on things foreseen [by God] all things. God often exerts control in such a way (Summa Theologica, that it is not obvious that He is involved part I, question 22). at all. For example, in the Old Testament Gataker being a Church Letter of the month - “C” book of Esther, God is never mentioned. of England clergyman The book refers to events occurring at a probably explains why “C” stands for capital. We’re taking analysis of movement to the next level and developing exciting capital projection techniques in order to time when the Persian Empire extended he would not have been make more efficient use of capital in our business. Find out how we’ll also from India to Ethiopia and tells of a aware of the works of invest in your career by visiting [email protected] plot to wipe out the Jewish people who Aquinas as they were were dispersed throughout the domain. unlikely to have been on Sponsored by This danger was averted because Esther the reading list of divinity Equal opportunities for all - our policy is as simple as that. happened to become queen, Mordecai schools in late 16th
August 2008 www.the-actuary.org.uk
006+007_Actuary_0808_Letters.ind6 6 18/7/08 16:44:05 Your view Letters
Your letters Council to collect robust data substantiating presidency’. Is it not just possible that many a shortage. It was decided that the Institute of the ‘No’ voters have never encountered The editorial team welcomes would investigate further. Mr Smith, but felt the tortuous exam process readers’ letters but reserves the The chief executive of the Institute they laboured through ought to be suffered right to edit them for publication. requested authority from various by all — schadenfreude being such an Please e-mail us at committees to research and collect such under-estimated delight and all? [email protected] data, but to date there has been no In fact, we don’t know why people voted Chris Lewin says that we must not significant progress. ‘No’. We do know that one-man one-vote ‘’presume more than God has promised... I was contacted in June to say that a new is the best form of democratic process we must not expect, for example, that shortage list was being compiled — again, mankind has yet to dream up. Let’s just the winner of an office determined by without the inclusion of actuaries, unless accept its outcome, get our ballot pen out lot is fitter and more efficient than his they received immediate information once more, and get on with the important opponent because God has determined confirming a shortage. business of rejecting this ludicrous merger the outcome.” According to Aquinas, what It is too late to change the situation proposal between our noble Institute and we should expect is that the winner of the this time around but in order to make a that Scottish crowd! No, no, no... office, however chosen, is the best from difference for the next renewal, robust data the viewpoint of the good of the whole must be collated. Without evidence, the TJ Bourke universe. As St Paul said: “Scimus quoniam limitations will continue and so will the 4 July 2008 diligentibus deum omnia cooperantur in staff shortages. bonum” (Romans 8:28) (“And we know that all things work together for good to them Dr Geraldine Kaye that love God”). 3 July 2008
Dr Dermot Grenham Andrew Smith — the last word? 21 June 2008 It will hardly come as news to many but Ireland held a plebiscite recently, in Information underload which we chose not to ratify the Lisbon Your July 2008 edition referred to the Treaty. Since then, there has been much revised situation regarding work permits, pontificating from elected representatives, making entry to the UK more difficult. It bemoaning how small-minded and appears that, as an industry, we may soon misguided we were by not voting as find ourselves with a skills shortage due instructed — given all that Europe has done to inaction. If we want to avoid a serious for us down the years (how ungrateful I personnel deficit over the next few years, we feel). Bamboozled, our politicians have spent need to start taking note of where these staff the Lisbon aftermath in search of culprits shortages occur. for this gross failure of democracy, blaming I wish to give actuaries, and the the loony lefties, the extreme right and not Woods Steve Profession in general, a more detailed forgetting to mention the plain ignorant Another point of view update of what has been happening 53% in between. (No doubt, the upshot will As an Institute member, I am disappointed ‘behind the scenes’, having worked result in us being sent trudging back to our that I have just been offered the chance to actively on this matter since the end polling stations until we vote correctly.) vote ‘Yes/No’ on a merger with the Faculty. I of 2006, when the classification of the Mr Icki Iqbal seems similarly pained by voted ‘No’. industry was officially altered. the outcome of the Andrew Smith vote, Faculty members have been offered After raising queries and complaints though between March and June has kindly a third choice — for the Faculty to be a about this alteration, I was invited to the softened his critique of the naysayers community, with the Institute responsible Home Office. Accompanied by the chief from “small-minded” to “misguided”. The for professional regulatory functions and the executive of the Institute of Actuaries, I met latest clairvoyance from Mr Iqbal informs Faculty continuing to provide the learned with two members of the Home Office’s us the ‘No’ brigade rejected this motion society in Edinburgh. Why were Institute Operational Policy team to discuss the out of some sense of pique at Andrew members not offered the chance to express situation in May 2007. Smith’s confrontational style — the same their views on this approach? We discovered that, in order to get confrontational style, we were told, that saw actuaries back on the shortage list, it would those household names of Sidney Benjamin Anonymous be necessary for the Financial Services Skills and Wilfred Perks sadly miss out on ‘the 4 July 2008
www.the-actuary.org.uk August 2008
006+007_Actuary_0808_Letters.ind7 7 22/7/08 14:32:12 Soapbox Matthew Annable Sponsored by
Matthew Annable, the Pensions Policy Institute’s new chairman, asks whether the Government’s pension reforms will deliver The jury is still out
ensions policy is a hot topic right is likely to increase the number of people the means-testing regime need careful now in the UK. Last year, the saving for a pension. If two-thirds of consideration to ensure that there are government passed legislation people auto-enrolled remain saving in sufficient incentives to save that set out a number of reforms a pension, as is the New Zealand n A continuing focus on financial Pof the state pension system. This year, the experience in their KiwiSaver scheme, education is required to ensure that government is legislating to introduce a there may be seven million new work- people understand the benefits of not national scheme of auto-enrolment into based pension savers. opting out of the scheme and also that private pension schemes from 2012 What is more difficult to predict is how they have realistic expectations as with, for the first time, compulsory to their likely employer contributions. pension outcome Although it is too early to predict » Given the government’s extensive n The technology exactly what the impact of these reforms programme of pension reform, the put in place to will be, it is clear that they are wide- need for the type of evidence-based identify exactly ranging and could further alter the nature who should be of pensions and retirement provision in research on pensions and retirement auto-enrolled into the UK. Given the government’s extensive policy that the Pensions Policy Institute personal accounts, pension reform programme, the need for produces has never been greater collecting their the type of evidence-based research on « contributions and pensions and retirement policy that the tracking those Pensions Policy Institute (PPI) produces, this increase in the numbers of savers individuals throughout their working has never been greater. will impact on the total level of saving. lives must be robust. Failure to get The PPI has conducted research on It is unclear how employers will respond this infrastructure in place by 2012 the potential impact of both the to the increased costs that many of them is perhaps the biggest risk that the government’s state and private pension may face due to the introduction of auto- government and the Personal Accounts reforms. The state pension reforms will enrolment. Some employers may simply Delivery Authority face. make it easier for women and carers to absorb the additional costs but others Overall, the jury is still out as to qualify for the full basic state pension in may take the opportunity to make their whether the government’s pension reforms their own right. existing pensions less generous, to reduce will deliver both more people saving in The re-indexation of the basic state the net costs of the reforms. pensions and more pension-saving and pension to earnings will halt the The PPI’s best-case scenario is that better retirement incomes. But one thing is erosion of the value of the basic state the reforms could increase the total for certain — the Pensions Policy Institute pension once it is introduced, although annual contributions into pensions by will continue to produce research and the state second pension will remain £10bn per annum but the worst-case evidence that will contribute to both the indexed to prices. Perhaps more radically scenario is that annual contributions pensions policy and wider retirement still, the government legislated for could be reduced by £10bn. To ensure savings debate. the state pension age to increase from the outcome is, and remains, at the top 65 to 68 in a series of steps over the end of this range a number of challenges Matthew Annable is the chairman of the Pensions next few decades. must be met: Policy Institute (PPI). More information on the PPI and The introduction of auto-enrolment in n The interactions between personal how to get involved in the research is available at the government’s private pension reforms accounts, existing private provision and www.pensionpolicyinstitute.org.uk
Specialists in Actuarial Recruitment UK: +44 (0)20 7283 4004 South Africa: +27 (0)11 881 5576 www.elliottbauer.com
August 2008 www.the-actuary.org.uk
008_Actuary_0808_soapbox.indd 8 23/7/08 11:29:53 News Profession
Faculty Council 2008/2009 Back row (l to r): Howard Waters, Keith Miller, Gerry Devenney, Gordon Wood, Alan Rubenstein, John Dickson. Middle row (l to r): Brian Murray, Huw Evans, Chris Hancorn, Peter Joshi, Alan Watson. Front row (l to r): David Hare, Richard Muckart, Stewart Ritchie, Ronnie Bowie, David Martin, Janina Slawski Not pictured: David Bowie, John Hylands, Fiona Kirkland, Colin Ledlie, Katie Low, Alan Rae, Kenneth Tindall
The following Faculty members were elected at the Faculty Ordinary members OGM on 23 June to serve on Faculty Council for 2008/2009: David C Bowie * Katie P Low President Ronnie S Bowie Gerry A Devenney Keith A Miller Vice-presidents John F Hylands, David B Martin, Richard D John A Dickson Alan J Rae Muckart, Janina K Slawski Huw M Evans Alan M Rubenstein * Past-president J Stewart Ritchie Fiona A Kirkland Kenneth J Tindall Honorary secretary David J P Hare Chris A Hancorn Alan H Watson Honorary treasurer Peter K Joshi M Colin Ledlie Gordon C Wood Honorary librarian Howard R Waters Honorary publicity officerBrian J Murray * denotes co-opted member
Faculty OGM report consideration of the accounts and election 19” after Rule 18 and Rule 22A (f) had been of office bearers, the meeting then voted on amended to read “A member may nominate Engagement with members was a theme a number of resolutions. the chairman or any other member who of the Faculty OGM on 23 June 2008 with One of the resolutions was a proposal will be present at the meeting as their 45 fellows attending the meeting and 63 to change the rules to include Rule 22A to proxy and direct that that nominee may fellows registering their proxy vote. introduce proxy voting for all meetings of cast the proxy vote however the nominee Ronnie Bowie gave an update to the the Faculty. Two minor amendments to the shall consider appropriate, or as directed meeting on the proposed merger and resolution had been received and agreed by by the member.” outlined the arrangements in place for Faculty Council prior to the OGM. Rule 22A After a discussion, the resolution the Faculty consultation survey. After (e) had been amended to include “and Rule was adopted.
The Faculty welcomed the following Stewart Ritchie hands over Stewart Ritchie presents Gordon Sharp Institute Council 2008/2009 people as honorary fellows: Faculty president Stewart Ritchie carried with his president’s award At the Institute AGM on 30 June, Andrew n Professor Alex McNeil, Maxwell out one of the final duties of his term in Stewart recognised Gordon Sharp’s support Chamberlain, Ralph Frankland, Paul King, professor of mathematics at Heriot Watt office as he put the presidential badge on his and commitment to the profession by Mike Kipling, Fiona Morrison and Peter University. A former assistant professor in successor, Ronnie Bowie. Ronnie will make awarding him the president’s award. He said: Tompkins were elected to Institute Council. the Department of Mathematics at ETH his presidential address on 6 October. “My personal award is to someone who has Council members for 2008/2009 are: Zurich, he holds a BSc in mathematics been of great support to me personally, even President Nigel B Masters from Imperial College, London and a before I became president. He makes no fuss at Vice-presidents Sally Bridgeland, PhD in mathematical statistics from all. He just gets on with the job, and he always Seamus Creedon Cambridge University. does an excellent job for the Profession and, Honorary secretaries Sally L Dixon, He has published papers in leading in my case, for me personally.” Kathleen J Byrne statistics, economics, finance and insurance Treasurer Robert T G Hails mathematics journals and is a regular speaker Ordinary members at international risk management conferences. Wendy M Beaver Michael R Kipling Andrew JM Chamberlain Julian C T Leigh n Rob Curtis, of the Financial Services Deborah R Cooper J Martin Lowes Authority. He is heavily involved with Charles A Cowling Fiona J Morrison the International Actuarial Association Jane E M Curtis Derek F B Newton (IAA) and heads the FSA’s international Nicholas J Dumbreck Michael A Pomery insurance policy team within the Donald B Duval D Ian W Reynolds wholesale and prudential standards Ralph Frankland Nicholas J H Salter division. He is also responsible for all Peter L Gatenby Stuart M Shepley life and non-life prudential policy, Dermot J Grenham Mark A Stocker including technical input to Solvency II, Ronnie Bowie David J Hindley Paul J Sweeting ICAS and Lloyd’s. Paul R King Peter DG Tompkins
10 August 2008 www.the-actuary.org.uk
010-013_Actuary_0808_Profession.10 10 23/7/08 11:32:39 Profession News
Institute presents Finlaison Medal and Membership renewals welcomes honorary fellows at AGM due from 1 October In addition to usual business, the Institute welcomed new honorary fellows and presented Fees for your membership subscription and, a Finlaison Medal at its Annual General Meeting on June 30. Andrew Smith, of Deloitte, if applicable, practising certificate, fall due received the Finlaison (silver) Medal in recognition of his contribution to the actuarial from 1 October 2008. With the exception of profession. Only 22 silver medals have been awarded since their inception in 1966. associates, subscription fees for 2008/2009 Mr Smith has been at the forefront of developing stochastic investment models for use largely remain at the same level as the in asset-liability modelling and pricing for many years. Since he graduated from Cambridge previous year, although practising certificate University in 1990, he has led technical projects on multinational arbitrage-free yield curve fees for 2008/2009 will be increased models and ways of modelling discontinuous price processes. from £800 to £830, in line with RPI. For The Institute also welcomed Paul Klumpes, of Tanaka Business School, Ad Kok, associates, in line with the Profession’s chairman of the Groupe Consultatif, and Cecil Bykerk, president-elect of the Society of strategy of repositioning this qualification as Actuaries in the USA, as honorary fellows. a fully qualified actuary, the subscription fee Honorary fellows are selected for their involvement and connection with the Actuarial will be increased to £456 for fully regulated Profession and their ability to add value to the Profession’s work. It was the first time since and £228 for partially regulated. 2005 the Institute has awarded honorary fellowships. Remittance advice will be distributed during August and it is your individual responsibility to ensure that the correct subscription is paid. If you previously paid a partial or reduced rate you must ensure that you are still eligible to renew at that rate. Applications for reduced subscriptions and Certificate of Eligibility must be approved in advance, and not sent at the time of payment. Receipts for payments can be downloaded from the members’ section of the website. The deadline for returning forms is 30 September 2008. If you have a query about your membership category, please contact the membership and certificates team on 0131 Left to right: Nick Dumbreck presents Andrew Smith with his Finlaison Medal; Cecil Bykerk with his 240 1325, or [email protected] honorary fellowship certificate; Paul Klumpes with his honorary fellowship certificate; and Ad Kok with his honorary fellowship certificate Fees for 1 October 2008: Fellows (full regulation) £690 Fellows (partial regulation) £342 Institute Council 2008/2009 Associate (full regulation) £456 At the Institute AGM on 30 June, Andrew Associate (partial regulation) £228 Chamberlain, Ralph Frankland, Paul King, Student (UK/EU) £282 Mike Kipling, Fiona Morrison and Peter Student (overseas) £192 Tompkins were elected to Institute Council. Affiliate £69 Council members for 2008/2009 are: Reduced subscription (all categories) £69 President Nigel B Masters Vice-presidents Sally Bridgeland, Subscriptions policy, reduced Seamus Creedon fees, partial regulation Honorary secretaries Sally L Dixon, Kathleen J Byrne For more details on subscription policy, Treasurer Robert T G Hails including reduced subscription and Ordinary members surcharges, please visit www.actuaries. Past-president Nick Dumbreck congratulates Wendy M Beaver Michael R Kipling org.uk/__data/assets/pdf_file/0008/28988/ Institute president Nigel Masters Andrew JM Chamberlain Julian C T Leigh subspolicy.pdf Deborah R Cooper J Martin Lowes If you believe you should pay a reduced Institute president Nick Dumbreck carried Charles A Cowling Fiona J Morrison rate, please check the subscription policy out one of the final duties of his term in Jane E M Curtis Derek F B Newton and, if appropriate, complete the relevant office as he put the presidential badge on Nicholas J Dumbreck Michael A Pomery form at www.actuaries.org.uk/__data/assets/ his successor, Nigel Masters. Nigel took Donald B Duval D Ian W Reynolds pdf_file/0009/28980/reducedsubsform.pdf the opportunity of the AGM to make his Ralph Frankland Nicholas J H Salter If you believe you should be partially presidential address. You can download a Peter L Gatenby Stuart M Shepley regulated, please complete and return the recording of his address at www.actuaries.org. Dermot J Grenham Mark A Stocker relevant form. For more details, please uk/media_centre/news_stories/2008/july/new_ David J Hindley Paul J Sweeting visit www.actuaries.org.uk/__data/assets/pdf_ institute_president Paul R King Peter DG Tompkins file/0006/28986/reducedsubs_certificate.pdf
www.the-actuary.org.uk August 2008 11
010-013_Actuary_0808_Profession.11 11 23/7/08 11:19:52 News Profession
News in brief Perfect 10 as students ace maths challenge A record 10 students achieved full marks in Wimbury said the challenge aimed to Life insurer taxation seminar the 2008 Junior Mathematical Challenge encourage mathematical thinking among This seminar, at KPMG Edinburgh on 8 held in May. In the challenge, the 10 participants, as well as fostering enjoyment October, will cover the major areas of students gained the top mark of 135, which in the subject. UK life insurer taxation, including: ‘I-E’ has previously been achieved by only one She said: “We were pleased to see the taxation, notional case I, tax modelling student. average mark increasing, but would like and planning and the implications of More than 280 000 11 to 13-year-old it to go higher still. We are also pleased recent tax consultations. The seminar is students from across the UK competed in that so many pupils entered and we got so aimed at those involved in life insurance the challenge, sponsored by the Profession much positive feedback from schools about financial reporting who are exposed to and run by the UK Mathematics Trust. the enjoyment of the challenges.” the impact of tax on financial results in The average score increased from Students who gained marks in the top both the modelling arena and from a 39.9 last year to 41.7 this year and boys 6% won gold certificates, the next 13% business planning perspective. It will also outperformed girls in the challenge. received silver certificates and the next 21% be of interest to senior management UK Mathematics Trust director Mary received bronze certificates. staff of life insurers with responsibility for reviewing tax results. For more details, please visit www.actuaries.org. Sign up for a member interest group today! uk/media_centre/events_folder/life_ A total of 1504 people have signed up to be part of 12 member interest groups, insurer_taxation_seminar established since 1 March. Some of the groups are regional actuarial societies; others cover a variety of topics including: banking, climate change and financial consumers. Two Business Principles — Aim for the Top groups that members have recently expressed interest in setting up are on mergers and This interactive one-day worskhop aqcuisitions and a Welsh regional society. will help sharpen your business and These groups, which link together members with a common interest or focus, are management skills, and enable you to designed to operate autonomously, providing their own intellectual capital. The groups complete at least two hours of CPD. The do not report (in a governance sense) to any other body within the profession, are open workshop, on 3 September, has been for all members to join and are free from bureaucracy so they can determine their own specially designed for the Profession by organisation and ways of working. Elgood Effective Learning, building on In exchange for agreeing to certain provisions (such as being open to all members and the success of the Profession’s Business acting in the general interests of the profession to protect the profession’s reputation), the Awareness Course. For more details, groups can expect to access certain resources — such as managed webspace, support with please contact Cynthia Rowe on +44 the arrangement of meetings and a staff-maintained database for communication purposes. (0)20 7632 2146 or cynthia.rowe@ Support for specific activities may also be available — particularly where a group’s aims and actuaries.org.uk. objectives are closely linked to the profession’s strategy, or where a certain activity relates to a topical matter not covered elsewhere within the profession’s services. NAPF annual conference, 8 to 10 October You can find out more about how to join or set up a group atwww.actuaries.org.uk/ Buyouts, regulation and the credit crunch members/migs. You can also contact [email protected] or joanna.blint@ will be among the discussion topics at actuaries.org.uk for more information or advice about member interest groups. this year’s National Association of Pension Funds Conference and Exhibition. The conference takes place in Glasgow, 8 to Institute Council awards ARE YOU PROPERLY ADDRESSED? 10 October. Speakers include Pensions Secretary James Purnell MP, PPF CEO Partha Peter Clark Prize Have you checked your contact Dasgupta, and broadcaster Robert Peston. Institute Council has awarded the details to receive information For more details, please visit www.napf. Peter Clark Prize for Best Paper to Risk and communications from the co.uk/conferences/annual2008/index.cfm Assessment Techniques for Split Capital Profession, including your copy Investment Trusts by Andrew Adams and of The Actuary, are up-to-date? Your chance to get involved! James Clunie. This was published in If you move house, jobs or More than 160 people attended this Annals of Actuarial Science Volume 1 Part 1 offices, please make sure you year’s finance and investment and (pages 7–36). In addition, two papers were update your contact details enterprise risk management conference, highly commended: on the Profession’s website and plans are being made for next year’s n Credit Derivatives — The report of the — otherwise you could miss out. event, 21 to 23 June 2009 at the Grand Working Party comprising Martin Muir, Please login to the members’ Hotel in Brighton. If you are interested in Andrew Chase, Paul Coleman, Paul Cooper, section of the website at presenting a paper or getting involved Gary Finkelstein, Paul Fulcher, Chris Harvey, www.actuaries.org.uk/members in a research working party, please Richard Pereira, Albert Shamash and Tim to check your contact details are contact [email protected]. Wilkins. This was presented to the Faculty up-to-date. If you have To find out more about enterprise risk on 15 January 2007. any queries, please contact management or to receive a copy of n Modelling and Managing Risk by Paul the membership team on the newsletter, please contact mark. Sweeting. This was presented on 30 +44 (0)131 240 1325 or [email protected] April 2007. [email protected]
12 August 2008 www.the-actuary.org.uk
010-013_Actuary_0808_Profession.12 12 23/7/08 11:20:44 Profession News
Survey and vote on proposed merger launched News in brief
The Faculty and the Institute Councils preference on three options for the survey New Chair at POB have respectively launched a consultation or vote on one option, either by using Dame Barbara Mills has been appointed as survey and an in-principle vote on the the dedicated ERS websites or by the next chair of the Professional Oversight proposed merger between the Faculty and completing and returning the printed Board and an executive director of the the Institute. The Councils want to ensure survey or voting form. FRC. Dame Barbara will take over from Sir that the outcome of the Faculty survey and Reminders about taking part in the John Bourn on 1 October, when his term the Institute vote gives a clear indication survey and the vote will be sent to of office ends. Dame Barbara has been from the members of both bodies to help all eligible members by ERS and the adjudicator for Her Majesty’s Revenue and the Councils decide what action to take on Profession. If you have not received or Customs since 1999. She is also a member the future working relationship between the have mislaid your invitation, please of the Competition Commission. She Faculty and the Institute. contact [email protected] so had a distinguished career as a barrister, It is important that as many members arrangements can be made to provide a becoming increasingly involved in financial as possible take part in this process replacement, if necessary. fraud cases. From 1977 until 1981, she was — every response to the survey and the The deadline for responding to the prosecuting counsel to the Inland Revenue vote will count towards shaping this survey and the vote is 5pm on Friday and was appointed junior treasury counsel future working relationship. 8 August 2008. After this date, ERS will at the Central Criminal Court. In 1982, she The survey and the vote are being collate and analyse the responses, and was appointed a recorder of the Crown managed independently by Electoral present the results for consideration by Court where she remained for 10 years. In Reform Services (ERS). All fellows, the Councils, separately and jointly, 1986 she was appointed a Queen’s counsel honorary fellows, associates and students during August. A communication and became a Department of Trade and of the Faculty and the Institute have confirming the outcome will be sent, by Industry inspector under the Financial been sent by e-mail or post an individual e-mail and post from the Profession, to all Services Act. In 1990 she was appointed invitation to take part in the survey or members by the end of August. director of the Serious Fraud Office and in the vote. For more information about the this role dealt with the high profile BCCI People in these membership categories proposed merger, please visit www.actuaries. and Guinness cases. She was director of are being asked to indicate their org.uk/members/merger_discussion. • GB1867 EXACTVAL PublicAdvert Prosecutions 16/11/07 from 9:241992 toam 1997. Page 1
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www.the-actuary.org.uk August 2008 13
010-013_Actuary_0808_Profession.13 13 23/7/08 12:26:13 News Education
Communication is key
Rafal Drag Rafal As a result of feedback from employers and students, a project team has been revising the examination CA3, Communication, for the past year. Two pilot courses will take place in September to allow any further refinements to be made before the revised CA3 is launched in 2009. All places on the pilot courses are now full. The key changes to the course include: n Introduction of a workbook that must be completed before attending the course n A two-day residential course, including training and assessment n Presentations to test candidates’ verbal Changes ahead for financial and written skills. The course was designed to provide mathematics students students with a core level of skills that can be developed by their employer through in- From April 2009, non-members of the n University students who want to assess house courses. The response from employers Profession will be able to take CT1, their ability to pass the Profession’s exams to the changes to CA3 has been positive. Financial Mathematics, on a trial basis. This or enhance their employment prospects. More details about the course will follow development has been introduced following This development may encourage more in future issues of The Actuary. consultation with employers, who gave university students to become interested in strong support for the change. an actuarial career. It may also help broaden The consultation identified that a the base of members, in line with the Ilker Yavuz number of people could benefit from being development of the Associate qualification, able to take CT1, including: as a means of moving into wider fields n Placement students taking one or two within the financial services sector. examinations during a placement year with Overall, the market response is strongly an actuarial employer in favour of the proposal. If firms are n Employees with ambitions to qualify as interested in enabling employees to take an actuary but who are currently in non- up this opportunity, they will need to actuarial roles, such as technical analysts, encourage employees to start studying the and who may or may not have the support course material from September to October of their employer and enter for the April 2009 examination. n Employees who may work with actuaries For more details, please contact Trevor and may benefit from developing their Watkins, head of learning, on +44 (0)1865 The communications exam, CA3, is to be revised numeracy skills 268234 or [email protected] to improve students’ verbal and written skills Research grants for 2008-2009 awarded
The Research Steering Group, which Dr Robert Cowell, Cass Business School Andreas Tsanakas, Cass Business administers the grants programme on Exploration of a novel bootstrap School behalf of the Faculty and the Institute, technique for estimating the Optimal capital and premium has awarded grants to support the distribution of outstanding claims allocations in non-life insurance following research projects: reserves in general insurance The Institute for Fiscal Studies Professor Vytaras Brazauskas, University Dr Vladimir Kaishev, Cass Business IFS Retirement Saving Consortium of Wisconsin, Milwaukee School Robust and efficient fitting of the Dependent competing risk survival For more details about the research generalized Pareto distribution with — impact on annuities and life expectancy projects listed above, or if you are actuarial applications in view interesting in applying for a research Professor Jens Perch Nielsen, Cass grant, please visit www.actuaries.org. Dr Iain D Currie, Heriot-Watt University Business School uk/knowledge/research/research_in_ Assessing longevity risk and pricing Claims inflation and data validation in progress/research_grants##1 for annuities with the Lee-Carter model non-life reserving more information.
14 August 2008 www.the-actuary.org.uk
014+015_Actuary_0808_Education.i14 14 22/7/08 15:43:09 Education News
Support for new Twins trump actuarial exams actuarial library passed the exams, and there is also a big based in Benin element of relief that we both passed. We The Profession has donated a number would have felt awkward if only one of us of publications, including back issues had passed.” of the British Actuarial Journal, Annals of Charles, who works at MetLife, and Actuarial Science and Continuous Mortality Nicholas, who works at XL Re, agreed that Investigation reports, to help establish an the experience of their father, Ian Owen, actuarial library in Benin. in the profession had encouraged them to The Association for the Promotion of consider an actuarial career. Ian became Actuarial Sciences for Africa, working with a fellow in 1983 and is now chairman of the support of the Deutsche Gesellschaft Charles, left, Partnership Assurance. für Versicherungsmathematik, is building and Nicholas Owen Nicholas said: “Dad’s experience as an a professional actuarial education actuary made us aware of the opportunities programme for West Africa at the Institut Twin brothers have followed in the available. The competition between us also Supérieur de Management ISM-Adonai footsteps of their father to pass the exams helped spur us on, and it was good to be in Benin. necessary to qualify as a fellow of the able to bounce ideas off each other.” The Institut will provide actuarial Institute of Actuaries. Charles and Nicholas Following the final examinations and training, co-ordinate the work of the local Owen were among students from the UK the core technical examinations, also in teaching staff and organise co-operation and overseas who learned the results of April, 35 students have qualified to become with African universities and student their final actuarial exams on 4 July. A Faculty fellows and 237 have qualified to exchanges. The programme relies heavily on total of 3005 papers were submitted in the become Institute fellows. Institute president external support in the form of donations examinations, of which 1654 were passes. Nigel Masters said: “All those passing exams and expertise. Charles said he was relieved to learn they and qualifying should be proud of their For more details, please visit www. had both passed the exams, held in April, to hard work and the intellectual achievement actuarialsciencesforafrica.org become fellows: “It is a good feeling to have that the exam passes represent.”
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www.the-actuary.org.uk August 2008 15
014+015_Actuary_0808_Education.i15 15 22/7/08 15:43:35 News Industry
KPMG fined over role in Independent collapse Fitch focuses on fair values A recent report by Fitch ratings has highlighted the need for improved fair value disclosures as part of the ongoing fair value debate. The adoption of fair value accounting standards has coincided with sharp falls in the market value of sub-prime and other debt-related instruments. Recent market turmoil has also emphasised the difficulty of valuing assets in illiquid markets.
www.jmbphotographic.com The report, entitled Fair Value Disclosures: Left to right: Michael Bright, Philip Condon and Dennis Lomas of Independent Insurance A Reality Check, found that the degree of reliability and the assumptions underlying The Accountants’ Joint Disciplinary loss reinsurance deal that seemed to turn fair value measures were key issues for Scheme (JDS) has fined KPMG for its role a £105m probable loss into a £22m profit analysts of 2007-2008 accounts. in the collapse of Independent Insurance. for Independent. Both KPMG and Watson “The new fair value disclosures are Independent went into receivership Wyatt — Independent’s external actuaries obvious improvements compared to prior in 2001 after accounting fraud was — recognised the lack of commercial disclosures but do not go far enough,” said discovered. Independent’s then CEO and rationale for the reinsuring counterparty Olu Sonola, director at Fitch Ratings Credit two directors were subsequently jailed for under the deal. However, KPMG accepted Policy Group. “Investors and analysts need their role in the fraud. Independent’s management’s claim that better and more extensive disclosure around The JDS fined KPMG just under £500 000 the reinsurers’ interests were “long-term” fair value measurements.” and ordered it to pay costs of £1.15m. The without seeking independent corroboration. Fitch’s analysis was based upon a review lead partner for the Independent audit was The JDS said: “An auditor in good of 2007 annual reports and 10-Ks of the individually fined £5000. standing should not have placed such world’s largest banking groups. The fine was imposed for KPMG’s complete reliance on management The full report is available on the Fitch failure to challenge or investigate a stop- representations.” Ratings web site at www.fitchratings.com Treasury Select Committee slams FSA over with-profits
The Financial Services Authority (FSA) has guiding principles were key issues in the are able to use their discretion in a way come under fire from the recent Treasury claims made against the present state of that furthers shareholder interest to the Select Committee (TSC) investigating with-profits estate regulation. detriment of policyholders”. It urges the FSA Inherited Estates. In a press release The committee has called on the FSA to to conduct a consultation on this issue. coinciding with the release of the beef-up current regulation and improve The April evidence sessions committee’s report, the committee chair transparency, particularly in the area of produced another bone of contention the Rt Hon John McFall MP dismissed the smoothing of investment returns. The TSC — that of phasing special distributions to FSA’s approach to regulating with-profits recommends that where industry fails to policyholders when distributing excess estates as “barmy”. employ transparent smoothing techniques surplus. Aviva, intending to phase its He added: “The approach taken by the the FSA should intervene to enforce this. distribution over three years, argued FSA towards inherited estates seems It criticised the FSA’s approach to date, that this approach rewarded loyalty and a long way from the philosophy of saying that rather than developing clear benefited a large enough proportion of the principles-based regulation to which principles for estate management it has appropriate generation of policyholders. it aspires. Policyholders need to have become embroiled in “making judgements It admitted that approximately 4% of confidence that their interests are being in the round and micro-regulating particular policyholders — or 40 000 — would not protected, but the current oversight by the firms’ situations”. receive all three payments. FSA gives no such assurance.” Furthermore, the TSC expressed surprise at The increased risk of higher rates The TSC held an inquiry in April (reported how companies have been allowed to use of withdrawal following any one-off in the June issue of The Actuary), having the inherited estate of with-profits funds distribution was also cited as a potential heard evidence from representatives until now. McFall highlighted Prudential’s threat to the stability of with-profits funds. of key stakeholder groups, including use of £1.6bn of its inherited estate to pay In its report, the TSC stated that these and consumer group Which?, the Aviva mis-selling compensation as an example other arguments for phasing distributions policyholder advocate Clare Spottiswoode of policyholder returns being diminished were not sufficient. The suggestion that CBE, the FSA and the CEO’s and senior inappropriately. Also cited was the use policyholders may leave a fund after actuaries of Prudential and Aviva. of the estate to pay shareholder tax as a receiving a special distribution implied (to Conflicts of interest and a lack of clear “striking example of how certain life firms the TSC) that “policyholders were desperate
16 August 2008 www.the-actuary.org.uk
016-017_Actuary_0808_Industry.in16 16 22/7/08 14:29:18 Industry News
Recovery rates following road accidents were good — even after post-traumatic stress disorder
Study presents a NICE way forward for personal injury For actuaries working in health, hard group had a wide range of ages — with a more sessions but only 15% of those treated figures for rehabilitation of personal injury median of 38 years — and there were slightly needed more than 12 sessions. claimants can be difficult to come by. more females than males in the group. There were no differences between However, a recent study of more than 1000 Conditions diagnosed included post- results for males and females and better such cases could help to reduce the degree traumatic stress disorder (PTSD), travel responses were observed at the older (over of subjectivity involved. anxiety and depression. Treatment was 65) and younger (under 16) ends of the The study, recently presented to an applied in line with current guidelines age spectrum. international meeting of mental health from The National Institute for Clinical The average cost of treatment was less professionals in London, focused on the Excellence (NICE). than £1900 and significantly less than the treatment of psychological conditions The surprising results showed that on quantum of damages usually awarded by the following road accidents. Of the 1163 cases average only nine sessions of treatment were courts for cases of PTSD. initially referred for psychological assessment, needed to return the patient to their pre- For more information on the study please 693 opted to receive treatment. The treated accident state. PTSD cases required slightly e-mail [email protected] Financial Reporting Council reveals new guidance for auditor liability agreements The Financial Reporting Council has issued of the key considerations when making new guidance on the use of agreements that assessment will be the likely views of between companies and their auditors that the shareholders, as they must approve limit auditor liability. any agreement.” The purpose of the guidance is to: In response to the guidance, the n Explain what is and is not allowed under Institutional Shareholders’ Committee the 2006 Companies Act highlighted the following: “Institutional n Set out some of the factors that will investors are generally willing to support be relevant when assessing the case for agreements providing for proportional an agreement liability or those providing for liability to be Rt Hon John McFall MP: FSA approach is “barmy” n Highlight which matters should be covered at the level that is fair and reasonable. They in an agreement, and provides specimen consider that agreements that include an to leave that fund, and continued as clauses for inclusion in agreements element of a fixed cap — however calculated policyholders only to receive their special n Explain the process to be followed — are not appropriate. distribution payouts”. Phasing of payouts for obtaining shareholder approval, and “Shareholders take comfort from the fact would then constitute an “unreasonable provides specimen wording for inclusion that the law ensures that whatever liability barrier to exit” contrary to FSA principles. in resolutions and the notice of the agreement is reached by companies with More recently, Prudential has general meeting. their auditors, the liability will never be announced that it will not be conducting a The chair of the working group that reduced below what a court deems as fair reattribution exercise at this time. produced the guidance, Sir Anthony and reasonable. The report, summarising the committee’s Colman, said: “The guidance is addressed “The ISC notes that the legislation findings and recommendations, is available to company directors, to help them assess in this respect is permissive rather than at: www.parliament.uk/parliamentary_ whether to enter into an agreement with compulsory: companies are allowed to enter committees/treasury_committee/ their auditor, and to help them implement into these agreements, but are not obliged inheritedestate.cfm the agreement if they decide to do so. One to do so.”
www.the-actuary.org.uk August 2008 17
016-017_Actuary_0808_Industry.in17 17 22/7/08 14:29:43 News Industry
From the world of general insurance
Asbestos developments to enable the subsidiary to meet its The Health and Safety Executive has obligations to customers, even if reported that mesothelioma deaths in there were problems to be sorted out the UK increased from 153 in 1968 to subsequently. The new French presidency 2037 in 2005, and it expects this fi gure to of the European Union will have a peak at around 2450 per annum between signifi cant role in developing a system of 2011 and 2015. This is said to refl ect a provisions that will foster mutual trust widening of the range of industries from between the supervisors in the different which asbestos exposure, and consequent territories in relation to this issue. It is also mesothelioma death, is being reported. It important that this is completed in time is also possible that the UK will eventually for the draft directive to be in place by the Scottish Parliamentary Scottish have a more serious asbestos problem promised date in November. than in the US, in that the use of the At a subsequent seminar in Sweden, Scotland looks to reverse ruling more potent ‘blue’ asbestos was more the worry was that there had been little The Scottish parliament has drafted widespread in the UK, resulting in more input to the latest quantitative impact legislation to reverse the effect of the mesothelioma deaths as a percentage of study (QIS4) from companies in run-off. House of Lords’ decision last year that the population. While fi rms in run-off before 10 December pleural plaques were not, of themselves, Meanwhile, a series of test cases started 2007 were not subject to the new regime, compensatory. This move has been in the High Court in London to establish those ceasing to write business after that criticised by the Association of British which insurer is liable to pay compensation date will be affected, and it is important to Insurers on the grounds that such a law for mesothelioma victims under the identify any issues that may be specifi c to would be contrary to medical opinion. wordings of employers’ liability policies run-off companies. under different scenarios. It used to be the case that there was agreement that the Other regulatory developments For more news liability should be shared between insurers US regulators have amended their stance on The following items can be found on on the basis of the periods of exposure the acceptance of contingent commissions the website: to asbestos but, more recently, a number by the three largest insurance brokerages, ■ US sub-prime mortgage crisis of insurers — particularly fi rms that are to allow them to continue receiving them ■ Lloyd’s insolvent or in run-off — have failed to for a further three years in respect of smaller ■ UK fl oods — proposed legislation respond on this basis, and a ruling is now fi rms that they acquire. This applies to Aon, ■ Proposed caps on auditor liability being sought on a legal basis. The cases are Marsh and Willis, but only in relation to in the European Union expected to run into August. existing business written by their newly- ■ acquired subsidiaries. European liability claims reserving ■ Solvency II The reason for the change is said to be Jobs ■ In mid-June, at a conference in London the desire to create a level playing fi eld in Dog bites in the US ■ on the new Solvency II regime, concern the mergers and acquisition market, where Road casualties in the UK ■ was expressed by some delegates that the ‘big three’ have recently been at a American International Group ■ parent companies would not provide competitive disadvantage compared with Independent Insurance ■ fi nancial support to troubled subsidiaries, other fi rms that were not subject to the Climate change and hurricane making the group solvency arrangements same constraints on receipt of contingent projections ■ under Solvency II potentially unworkable. commissions. A fourth fi rm, Arthur J Large losses They sought some form of a guarantee Gallagher, had received a similar concession Visit www.the-actuary.org.uk/ that immediate help would be provided in 2006. category/news/industry
FOS reveals complaints fi gures The UK Financial Ombudsman Service’s annual report for the past 12 months has
disclosed that 10,652 complaints relating to payment protection insurance (PPI) Labbe Jean-Marc were brought in the year to 31 March, an increase from 1832 in the previous year. This increase is as a result of many more individual policyholders pursuing their own complaints, often using standard templates provided by newspapers and websites established for this purpose. Increases were also noted in the number of complaints relating to buildings and contents insurance, while those for health and travel had reduced. Shortly afterwards, the UK Competition Commission produced a report on PPI, suggesting that customers were paying an additional £1.4bn per annum due to the prevailing anti-competitive selling system. Suggestions for improving the situation include further standardisation of PPI information, prohibition on selling PPI as an extension of a credit agreement, reminders about customers’ rights and reduction in the barriers to switching. Report reveals reduction in travel insurance complaints
18 August 2008 www.the-actuary.org.uk
018_Actuary_0808_General.indd 18 23/7/08 10:48:11 News People/Society
More than just Regatta success for Worshipful Company an actuary On 14 May, a yacht skippered by the Sea Cadets at Edmonton, whom the Since taking on the role of social editor, Worshipful Company past master Richard Company has ‘adopted’. I have come to note what a diverse Hawkes competed in the 2008 Royalist Richard’s crew comprised liverymen community the actuarial profession is, Regatta in wonderful weather on the Solent. Julie Griffiths and Rodger Livesey, freeman be it unusual hobbies and past times, The team — sailing under the banner Graham Jung, chairman of the Edmonton involvement in community activities, of ‘Actuaries and Edmonton Sea Cadets’ Sea Cadets Allan Jones, cadets James travel, claims to fame or simply a — put together a consistent series, being Thompson and David Mulvain and a quirky home life. placed fourth overall out of 10 competitors last-minute and very welcome substitute The Actuary is keen to celebrate the and finishing on a high note in the last race Kathy Claydon. diversity of the lives led by our readers. with a second. Ms Claydon is a member of the If you would like to share an aspect of The regatta was a charitable event to Committee of the Junior Offshore Group, of your life where you are ‘more than raise funds for the Marine Society and Sea which Richard is currently president. just an actuary’, please e-mail me at Cadets and the Duke of Edinburgh’s Award For more information on the Royalist [email protected] Scheme. The Company chose to compete Regatta, please visit www.the-actuary.org. Amy Guna with a team of liverymen and members of uk/805554 The Angell in Jaipur Kate Angell reports on her experience of volunteering at a summer camp in Jaipur, India.
What do you get if you send a Scotsman, Right: The an Irishman, an Indian and three ladies Grant Thornton to India? Lots of happy children and volunteers with six exhausted adults! This was Grant staff from the Thornton’s second overseas volunteering Vihaan School in project, organised as part of the firm’s Jaipur, India corporate responsibility programme. I was one of the lucky volunteers being given the opportunity to spend two weeks in Jaipur, India. The chosen project involved bigger than two large meeting rooms. impact by using the rest of the money volunteering at the summer camp of a Using some of the money we raised we raised to assist the school over a long small school situated in a slum on the before leaving for India to buy equipment period, through the purchase of school outskirts of the city. Leaving with very few locally, together with a large amount of uniforms and new furniture, together with expectations, and having only met each imagination, we rose to the challenge sponsoring a new vocational teacher. We all other once previously, our team arrived to — organising a wide range of activities had a brilliant time working on the project find a school with very few resources but including reading and speaking English, and will remember the experience for a lots of keen children. Our objective was to arts and crafts, football, cricket, and both long time to come. keep the children entertained and happy Scottish and Hindi dancing. We finished If you ever get the opportunity to take each day during their time at the summer with a sports day on our last day. part in such a programme, or have the camp. This was a challenge, as there were While there is a limit to the impact you chance to set up a similar scheme for up to 150 children — aged between five can have in two weeks, I think we made a your organisation, I would thoroughly and 18 — many of whom could not speak difference to the children’s lives while we recommend it. English and in a school which was no were in India. We hope to have left a lasting Kate Angell
Births 2008, age 82. George became a member n Alan Ronald Wilkins died on 26 June n Joseph Lo and his wife, Nadja Plein, of the Profession in 1951, and was a 2008, aged 71. He became a fellow of the are proud to announce the birth of their fellow of the Institute of Actuaries. He Institute in 1964. daughter, Ivy, born in May. first worked for Gresham Insurance n Andrew McNamara and his wife, Company in London and Cairo. While Marriages Michelle, are delighted to announce the in the US, he was employed at Towers n Gary Bailey married Donna Prince birth of their daughter, Ellie Isabella Jane, Perrin Forster and Crosby as a pensions — both of Mercer — on 17 May 2008 at on 30 May. consultant, and retired in 1989 from the Coleshill Parish Church. Wyatt Company. His areas of expertise Deaths included both domestic and international Please send details of births, deaths and marriages to n George Ashley Cooper died on 15 April pension consulting. [email protected]
20 August 2008 www.the-actuary.org.uk
020+021_Actuary_0808_Society.ind20 20 22/7/08 14:54:56 Society News
Actuaries line up for Bath croquet tournament
The 11th actuaries’ croquet tournament will be held on 21 September at Bath Croquet Club. The tournament features a handicap system, so players of all standards are welcome. Croquet mallets can be provided if necessary. Competitors will be battling it out for the esteemed Generali Salver, which is currently held by Jon Palin. Lunch and refreshments will also be provided at this all-day event. If you are interested in playing, please e-mail Andrew Willis at andy_willis@ btinternet.com, and he will provide further details nearer the time. Above: Last year’s competitors. The 2008 tournament will be held on 21 September
SIAS Event Deloitte A&IS winner Brian Littler, Chess tournament, 26 June 2008 pictured, is the The SIAS Chess Tournament was held on capture the piece, meaning you could winner of the 26 June in the City Tavern pub. More than have as many as 16 shots per game. Deloitte A&IS 30 competitors were hoping to become Unfortunately, the winner of the first prize for financial SIAS Chess Champion 2008. It was good game, Andrew Thompson, had not realised mathematics. The to witness many of last year’s competitors he had to finish the remaining shots as his prize was awarded to return to see if they could better their prize, and so regretted some of the moves the financial mathematics student with the performance — or perhaps have a go at the he made. In addition, a new element was highest marks at Glasgow University. Brian drinking chess. introduced — three-player chess. This triumphed over other students a year further The first phase of the competition was involved black, white and red pieces. into their studies for the prestigious prize. the group stage. Only one in five qualified The idea was to beat either of your two from each group, therefore the players competitors by ganging up on one, and considered their moves carefully. A steady then fighting it out with the other to win. Sima blogs down under stream of participants to the bar ensured Next came the knockout phase. The Sima Varsani, GAAPS Actuarial’s head of that some of the moves were made more standard was high, and the final, between research, is currently researching the sunnier from Dutch courage than from reasoned Adam Fysh-Foskett and Tony Niccoli, was climes of Australia while on secondment thought. The groups were drawn randomly, eagerly anticipated. This was a repeat of last to the firm’s Brisbane office, and has hence I was drawn in the same group as year’s quarter-final match, and Adam was contributed an informal blog for The Actuary the defending champion, Nasir Rizvi, and keen to gain his revenge for that defeat. detailing her escapades. Those considering sadly I exited at this point. The game went to two sudden-death play- an overseas stint in their career would do After the first leg only eight competitors offs, and Tony was declared the winner. well to take note, but while Sima has taken remained. There was eager anticipation as Thanks to all the entrants and the spectators to the lifestyle like a duck-billed platypus to the drinking chess came out. Each piece for contributing to another enjoyable water, she admits it is “not like Neighbours”. was represented by a shot glass; the aim tournament. As for me, maybe next year! For the latest installment, visit www.the- being to drink the contents when you Alvin Kissoon actuary.org.uk/801879
FASS charity success Mixing with marketing A group of actuaries keen to challenge some On 9 May, more than 40 people descended of the profession’s image stereotypes has on the Beehive in Edinburgh to gamble teamed up with members of the marketing away their hard-earned money at the community to form a new social dining club. inaugural FASS Charity Race Night. The London E1-based club, ‘An actuary is The event was in aid of the Children’s for life, not just for Christmas’, founded by Hospice Association Scotland (CHAS), which Lee Faulkner, Raj Khatkar and Hannah Cook, provides care and support to children with brings together professions at opposite ends of life-limiting conditions and their families the ‘sexy’ list, and is open to any actuary with throughout Scotland. A total of £420 was a marketing colleague in tow. For more details, raised on the night. For a full report, visit Amy Telford of CHAS, left, accepts the FASS e-mail [email protected] or visit www. www.the-actuary.org.uk/805597 cheque from David Ling the-actuary.org.uk/805588
www.the-actuary.org.uk August 2008 21
020+021_Actuary_0808_Society.ind21 21 23/7/08 12:32:54 Tuesday 12 August 2008 Sessional Meeting
Climate Change is Our Future The exceptional summer of 2003 will be ‘normal’ within this period. For many in our profession, our Staple Inn advice can span this length of time, or at least a 5.30pm for 6pm good proportion. The climate change working party believes that actuaries should be aware of the economy-damaging impact that climate change will have (whether we act or not according to Lord Stern) or, we fear we will leave ourselves wide open for accusations of professional negligence. Our website has a number of slides with full speakers’ notes that we hope will be useful for you, see http://climatechange.pbwiki. “Making Financial Sense of the Future” — this com/SlideShows. We encourage you to consider strap line may sound familiar to some of you but presenting these to your colleagues and are when was the last time you stopped to think about holding a meeting at Staple Inn to talk through a the individual words? The ‘future’ will include selection of them. Climate change is our future, and climate change; whatever we do with carbon if we are going to make financial sense of it we emissions, we’ve got 40 years of it to deal with. need to know the facts.
Saturday 30 August 2008 SIAS Social Event
Five-a-side Football SIAS’ long-running and very popular five-a-side football tournament returns this month. If you Catford Powerleague fancy making a stand for England this year, then London SE6 get your studs out and come down to the Catford 12pm Powerleague. Places are limited and given on a ‘first come, first served’ basis, so make sure you get your teams in fast. Teams of up to seven can be entered for £50, plus £5 for every non-SIAS member. Send an e- mail to James Williamson at james.williamson@ barnett-waddingham to reserve your place.
Tuesday 30 September 2008 SIAS Social Event
Welcome Drinks This is an opportunity for new members of Staple Inn the profession to visit 6.30pm Staple Inn. They will meet some fellow professionals and learn about the challenges and opportunities that are faced by new entrants. There will also be entertainment and refreshments.
For details of events, visit www.sias.org.uk
22 August 2008 www.the-actuary.org.uk
022_Actuary_0808_SIAS.indd 22 18/7/08 16:41:40 Events Calendar
Events Monday 22 September Wednesday 8 October London Market Tuesday 30 September Monday 27 October Sessional Meeting: Seminar: Life Actuaries Group Training course: Workshop: Actuarial Profession Mortality Scoping Group insurer taxation Thursday 18 September Inside investment independent pension Monday 30 June Staple Inn Hall, London KPMG offices, Sessional Meeting Westminster, London trustee group Wednesday 3 September Edinburgh London One-day workshop: Tuesday 23 September National Association National Association Business principles Conference: Monday 20 October of Pension Funds of Pension Funds Society of Actuaries — aim for the top General Insurance One-day seminar: Thursday 4 September Wednesday 8 to Friday in Ireland Staple Inn Hall, Convention (GIRO) 2008 Developments in Meeting: 10 October Wednesday 17 London Sorrento, Italy pensions law Local Group NAPF Annual September and regulation Liaison Committee Conference 2008 Evening meeting Thursday 11 September Monday 29 September Staple Inn Hall, Westminster, Scottish Exhibition & and dinner CPD event: One-day workshop: London London Conference Centre, 6pm for 6.30pm Professionalism event for Using strategic Glasgow experienced actuaries concepts (CPD) Thursday 23 October Monday 15 September Worshipful Company London Staple Inn Hall, London Seminar: Financial Hot topic seminar: Thursday 16 October of Actuaries reporting Trustee self-assessment Training course: Monday 29 September Thursday 18 September Monday 6 October Staple Inn Hall, Westminster, What is trusteeship? Election of Highlights of the 2008 Faculty Presidential London London Westminster, Lord Mayor Pensions Convention Address London Guildhall Staple Inn Hall, Royal College of International Tuesday 23 to Thursday Gresham Street London Physicians, Edinburgh Actuarial Association 25 September Pensions Management Wednesday 1 October Training course: Institute Other Event listings 18th International AFIR Trusteeship for Tuesday 23 September Sunday 21 September Colloquium today’s trustee PMI Autumn Conference 11th actuaries’ To list your events in The Actuary, please Rome, Westminster, Sheraton Park Lane Hotel, croquet tournament e-mail [email protected] Italy London London Bath Croquet Club
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 BWCI, Meetings held at Grimond NIOC House, Unless otherwise stated, all Actuarial Profession Hotel St Ermin’s, Caxton St Peter Port, Lecture Theatre 1, University 4 Victoria Street, London meetings take place events Street, London SW1 unless 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 Contact Donald Budge Students’ Group Pensions Management Scotland Brian Dingsdale E [email protected] T +44 (0)131 245 3988 Chairman Emma Institute T +44 (0)141 333 1066 Bournemouth E donald_budge@ 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- Contact John Lockyer supper at a nearby tavern. x2149 287 St Vincent Street, Economics) pmi.org.uk T +44 (0)20 8643 6653 Hon sec Amanda Prest E jacky.cheung@liverpool- Glasgow, G2 5NB President Yici Zhou E anitalockyer@ T +44 (0)20 7847 6266 victoria.co.uk Hon sec Susan Morgan T +44 (0)7818 262232 Society of Actuaries hotmail.com 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 August 2008 23
023_Actuary_0808_Calendar.indd 23 23/7/08 12:44:52 Q&A New presidents Presidents’ question time As Ronnie Bowie and Nigel Masters settle into their roles as Faculty and Institute presidents, they discuss their plans for the future
Why did you become an actuary and away from silo thinking. It should also reduce why did you become involved with bureaucracy for volunteers. the Profession? Ronnie Bowie: I would like to pretend I How do you think member interest thought long and hard about it but, in truth, groups will benefit the members and it appeared to be suitable for someone who the profession? was good at mathematics, it paid well and the RB: We hope they will be a mechanism for only actuary I had met seemed to enjoy it. I ‘bottom up’ or ‘grass roots’ collaboration. became involved with the Profession firstly as NM: The energy created by enthusiastic an examiner — education and training have volunteers in the member interest groups always been a passion for me. allows the development and dissemination Nigel Masters: The Profession offered the of new ideas to be achieved as effectively right blend of commercial and academic as possible. I hope that members really challenges. I really struggled with exams so grasp this initiative to drive a whole range when finally I qualified I decided to mark of enthusiasms. exams to understand where I went wrong. After that I was hooked. What part do you see the staff playing in the success of the What is the biggest change you’ve Profession going forward? Ronnie Bowie, seen in the profession in that time? RB: Volunteer time is at a premium. We Faculty RB: The range of activities in which need staff to take an increasing share of the president actuaries have become involved. work and to be empowered to do so. NM: The biggest structural change has been NM: The work of the highly professional How do you see the Profession’s the replacement of the appointed actuary secretariat allows us to leverage volunteers’ relationship with BAS and regime with the very hands-on regulatory time in the most effective way while POB developing? style adopted by the FSA. For any day-to- presenting a modern and professional face RB: We are still adjusting to this new day work, it has been the rise and rise of to all our external stakeholders. environment. I want to see us put real stochastic modelling. resources into this relationship and to get on What has the Profession done to to the front foot. We certainly do not want Why do you think it’s important for answer the criticisms levelled at it by to be the junior partner in the relationship. actuaries to become involved with or the Morris report? NM: We should support BAS to become a volunteer to work with the Profession? RB: A lot of the criticism levelled at the world class standard-setter. We must work RB: The old adage “you get out what you put Profession over the last few years has been with POB to understand and respond to in” applies very well here. Volunteering within unjustified. But an external stimulus can the legitimate concerns of the public as the Profession is hugely beneficial in widening have a positive effect. We have instigated expressed by the POB. your knowledge and your network. major changes (many of which are going NM: Knowledge and research-sharing give on under the surface). I hope the time How would you like to see the us genuine competitive advantage in our Nigel and I have as presidents will see these Profession’s role on the international work and also achieve rapid dissemination changes bear fruit in making the Profession stage develop — especially if a of best practice. It is also a chance to a world class member services organisation. merger takes place? stretch our minds beyond the day-to-day NM: The Profession has worked positively RB: Whether we merge or not, I believe challenges, which a lot of us enjoy. and proactively with the Financial our international objectives will be the Reporting Council’s Board for Actuarial same. The international stage is important Why was the restructuring of the Standards (BAS) and the Professional particularly in education and especially if Profession (in March 2008) required Oversight Board (POB) to address directly we can play our part in launching a global and what benefits do you think it will Morris’s comments. I believe the majority enterprise risk management qualification. bring to the members? of the changes needed have been made NM: As globalisation changes the RB: We have two clear purposes: to support but I am keen to ensure that we are able employment landscape, we must our members and to market the Profession to monitor effectively compliance with work closely with our sister actuarial to external audiences. We needed a structure the standards, both those of the Profession organisations around the world to create that was consistent with those goals. and the BAS. It is important to strike strong and coherent practices so that NM: The new structure was needed to give the right balance of monitoring that is we can properly engage with the major greater focus to member support and to move effective but not overly bureaucratic. international corporations.
24 August 2008 www.the-actuary.org.uk
024+025_Actuary_0808_Q+A.indd 24 22/7/08 15:52:48 New presidents Q&A
opportunity. Nonetheless, we will do our Should the Profession work more best with whatever structure emerges. closely with universities to offer NM: The Faculty and the Institute will alternative routes to qualification? continue to work together but an opportunity RB: Yes. will have been lost for some years. NM: Our exams take a long time and this will speed up the process. I would not want What effect, if any, do you think the the breadth of our current graduate intake to current economic turmoil will have on be compromised. Our members come with the profession? a range of first degree courses and helps the RB: It will be a challenge, but the credit Profession to take a broad perspective. crunch should present us with a great opportunity to show how actuaries can How can the Profession ensure that devise and apply models to practical the qualification syllabus remains up- rather than theoretical effect. Indeed, if a to-date and fit for purpose given the downturn forced some who are working in time-lag in changing the syllabus? traditional areas to look to those wider fields RB: We need to broaden and deepen it might turn out to be a blessing. our resources but we also need to have NM: It is an opportunity to demonstrate the confidence that if we emphasise our core strength and adaptability of actuarial ideas skills then these will have a long shelf life. Nigel Masters, by facing up to the changing economic NM: The Profession’s learning division Institute president world and responding with imagination and must lead in this, ensuring exams are real insight. updated and relevant. Some members have expressed concerns that BAS appears to have In October 2007 the International What public interest role do you think produced little in terms of output over Actuarial Association (IAA) presidents the Profession has to play and how the past two years. How do you plan agreed to develop actuarial education would you like to see this develop? to address these members’ concerns? in risk management. Do you think RB: Public interest may be difficult to define RB: BAS is open to help and it has a clearer there is a need for actuaries to branch but that should not stop us from drawing strategy now. We need to resource up and get into non-traditional sectors? What can attention to products and practices that are on the front foot in our relationship with BAS. they offer that is different or new? inherently unstable or ill-explained. NM: Establishing a standard-setter from RB: Branching out into non-traditional areas NM: The Profession should speak out on scratch is a complex task so it does not gives us the opportunity to demonstrate the relevant issues where the public good is surprise me that BAS has taken time to skills and value that actuaries can contribute clearly threatened but it should not seek to publish its first papers but it is now moving in practical and theoretical terms. create issues for the sake of it. forward at pace and we will support this. NM: It is essential that we do. We offer excellent and verifiable training that The Profession is becoming more What benefits do you think a merger employers can trust, and an infrastructure of involved with academics and business between the Faculty and the Institute research and knowledge sharing upon which — what benefits will this bring? would bring? they can draw. The Profession also offers RB: We need to continue to broaden our RB: A huge reallocation of volunteer time CPD and research that will keep those who skills and influence. This is an important to member support, and a greater clarity of qualify up-to-date and at the cutting edge. element of that effort. purpose and image, with consequent benefit NM: This is vital to remain relevant and to our efforts to market the skills of actuaries Do you think the International leading edge and the different perspectives are to the wider business world. Actuarial Education Programme (IAEP) imperative. We should engage with the major NM: It will create positive momentum of the IAA will eventually replace the employers to better understand their needs. internally and externally and will be seen by early exams that the Profession those outside the Profession as embracing currently offers? What is the single change you would change and adapting to current trends. RB: Perhaps in time, but I think that is still like to make during your presidency? some way off. RB: For the Profession to be regarded as a truly What do you think will happen if NM: I would hope that was possible world class member service organisation. the members do not support the without compromising standards as it NM: To shift the focus of the Profession to merger proposals? would bring the international actuarial the needs of the individual member. The RB: Failure to merge will be a huge missed societies closer together. membership team has an essential job.
www.the-actuary.org.uk August 2008 25
024+025_Actuary_0808_Q+A.indd 25 22/7/08 15:53:17 Pensions Risk sharing The fear of failure In the second of two articles on the costs, risk and security of voluntary benefit pension schemes, Con Keating and Andrew Slater discuss the risk of sponsor insolvency
the heart of the problem, over-funding strictly the rescue of the company. As the objective increases the likelihood of sponsor insolvency. is restoration of the sponsor company’s These elementary principles offer some competitive position, there would be clear immediate insight into the European debate issues of government aid involved. This over the application of the insurance regime, form of precautionary intervention should Solvency II, to pensions. For an insurance not be confused with post-default debt company, a capital adequacy regime is recovery. Optimal recovery of debts may appropriate as it lowers the insolvency involve corporate financial restructuring but likelihood and current risk to policyholders. as the many costs of the insolvency process Con Keating, pictured left, and Andrew For an orphaned pension scheme, it is also have already been incurred, this is merely Slater are two of the founding members of appropriate. However, for schemes with making the best of a bad job. BrightonRock. Andrew is a director and actuary, recourse to an ongoing sponsor it is not. Here The Pension Protection Fund is a while Con is head of research. over-funding operates to mitigate the current compulsory mutual compensation scheme. and contingent consequences of insolvency, Unfunded compensation schemes can be seen The first part of this article was published in the but perversely increases the likelihood of its as reverse tontines — the last man standing June 2008 edition. occurrence. There is an exception — where loses. There is clearly an incentive not to be Visit www.the-actuary.org.uk/795926 the company earns sufficiently more on its the last to die. The fundamental problem of pension scheme assets than on its operating sponsor insolvency is not resolved, merely assets. That, however, raises the question deferred. Capitalisation alone, as has been n the first part of this article we as to why the company exists at all. Risk in suggested by the PPF, will not, however, illustrated that the value for money aggregate usually increases; paradoxically, transform a compensation scheme into an proposition of defined benefit (DB) trustees demanding cash today usually insurance company. Such capitalisation pension schemes is now extremely poor, weaken the employer covenant. would presumably occur through increases to Iwith only weak incentives and very costly the PPF levy, which then raises the question current regulation. This feature analyses A remote prospect of ownership of this capital surplus. The the Pension Protection Fund (PPF) and For all schemes to over-fund as a precaution usual justification for capitalisation is that demonstrates its deficiencies of design. It against the risk of sponsor insolvency is this facilitates smoothing over time of levy also goes on to offer possible improvement clearly inefficient. Risk pooling, through charges, but this argument is greatly weakened to insolvency protection and remedies to the insurance, carries obvious benefits. Further, by the fact that the PPF can and has operated increasing cost of DB provision. the economically efficient approach is to with capital deficits. To illuminate this point Any discussion of DB pensions will rapidly focus upon the primary cause — for example, further we must consider elements of its turn to the inherent risks but there is one insolvency — rather than on consequence specific institutional design. event that is paramount: sponsor failure. It is mitigation, such as scheme funding rules or To mitigate moral hazard problems, only upon sponsor insolvency that pensions asset allocation. insurance contracts often contain a deductible can be reduced, in all other circumstances As UK voluntary pension schemes (or excess), a loss that is met by the insured pensions are paid in full. Elementary risk overwhelmingly have private sector sponsors, beneficiary of the policy. When the deductible theory continues the analysis. Pension risk government provision of this insurance is specific to each insurance policy and the is the product of the sponsor insolvency is not natural. In fact, the usual solution beneficiary’s circumstances then optimal likelihood and the consequence of any for problems of this type is private sector risk sharing results. The limitation of PPF scheme funding deficit. The problem is insurance. There are primarily one of corporate finance, and not many situations where Over-funding strictly increases the for example, scheme asset allocation. private sector insurance » To manage pension risk, we may influence serves a public good and likelihood of sponsor insolvency « the sponsor insolvency likelihood, scheme is made compulsory by funding, or both. This is complicated as government in consequence — third-party compensation to a maximum of 90% of the contributions required to achieve some liability in motor insurance is a familiar benefits cannot serve this purpose. The PPF target scheme funding will directly influence example. estimates (March 2007) that it covers just the sponsor insolvency likelihood. Further, The alignment of interests of a sponsor 83% of the FRS17/IAS19 liabilities when an orphaned scheme whose sponsor has company in distress and a private sector schemes were funded on average at 96%. failed faces uncertainty and risks that would pension guarantee insurer is unique. Prior They are general rather than specific rules previously have been borne by the sponsor, to insolvency the insurer may, with the and the insured beneficiary, the scheme resulting in pressure for over-funding to agreement of the sponsor company, commit member, cannot influence the moral hazard mitigate these risks. However, and this is at funds, for example as working capital, to that is present, which originates in sponsor
26 August 2008 www.the-actuary.org.uk
026-027_Actuary_0808_Keating.ind26 26 22/7/08 16:59:10 Risk sharing Pensions The fear of failure
PPF levy is capped for the weakest of schemes, particularly asset allocation. The entire history there is an explicit subsidy that extends to of DB provision in the UK has been one of ‘DB their sponsor companies. Government policy means DB’, except in certain circumstances resulting in subsidy is usually suspect in the when it means something less. First it was European context. share-of-fund, then the minimum funding Insurance is an asset of a pension scheme requirement (MFR) and most recently the PPF. but it is not at all obvious that participation It can be made so that DB means 100% DB in in a compensation scheme qualifies in a all circumstances. Most importantly schemes similar vein. The accounting perspective can can remain open, preserving all of the clearly illuminate: a single year, annually renewable beneficial risk-sharing characteristics of the policy, at variable rates, has value only to the corporate voluntary DB pension model. extent that the sponsor may fail in that year This guarantee insurance represents explicit and the current premium is expensed through financing of the scheme relative to the cost profit and loss. But more generally a term of alternately securing the pension payments policy (n years) with fixed annual premiums with an insurance company, without any will generate both an asset in the scheme and need for harmful over-funding. Premium- a liability for future premiums in the sponsor setting involves joint consideration of scheme accounts. The term policy can directly be and sponsor finances and prospects — it is seen as a form of financing to the sponsor a problem of corporate finance more than company; security to trustees and members is insurance risk management. provided by insurance premiums rather than cash contributions from the sponsor. Value and affordability This financing aspect does not fit naturally Perhaps unusually in risk management, it with government-sponsored enterprises. It is the long-term nature of the policy that raises questions around the desirability, as a delivers both its value and affordability. question of social policy, of the PPF’s stated Repeated premium payments over time behaviour. There is no theoretical obstruction wish to set stable long-term rates. By setting obviate the myopia of point-in-time to full insurance of pension benefits. The levy rates annually based upon scheme deficits evaluation and result in some further PPF deductions simply limit their loss it is impossible for the PPF to achieve stability interesting properties. The scheme asset’s exposure, to just one-fifth of the sponsor of the levy cost, unless this is some arbitrary fair value varies inversely with scheme covenant risk faced by a scheme — as stated large amount. Such long-term fixings will and sponsor health and offsets some of by Martin Clarke, executive director of carry with them complex concerns regarding the volatility introduced to balance sheets financial risk at the PPF, at a recent Faculty private sector financing and subsidy. by recent mark-to-market accounting Sessional Meeting. Fixed-term insurance brings with it a standards. Special contributions become time inconsistency. With such an asset entirely moot and contribution costs can A limited toolkit enhancing the credit standing for some decline to the normal cost of benefits. To manage its risks, the PPF may reduce the fixed period, lower levies are charged than Investment policy and asset allocation compensation payable, raise the amount of might otherwise have been the case. For can be evaluated in the joint context of the levy, or encourage over-funding. This those companies whose credit standing has scheme and sponsor finances and long-term PPF risk management toolkit is limited and deteriorated, there is no assurance that the prospects and preferences, the tyranny of inappropriate for the primary problem, policy can be renewed, or that rates will be current funding security has been removed. sponsor insolvency, and conditions the levy- acceptable. In consequence with fixed-term Private sector pension guarantee insurance setting process. This year it raised the funding mitigation the compensation scheme is is demonstrably superior in many regards level necessary to eliminate the risk-based levy exposed to ‘cherry-picking’. to that afforded by government-sponsored to 140%, which may be taken as an indicator However, a ‘whole-of-corporate-life’ policy, compensation schemes and excludes the need of the ultimate cost of the compensation providing irrevocable cover for as long as the for any role for them. It is inequitable that scheme. With interest rates at 5% p.a., this scheme has liabilities and triggering upon privately insured schemes should bear any represents an annual levy charge in excess the insolvency of the sponsor, fully resolves part of their costs. Restricting competition of 2% p.a. This indicated levy cost is more these difficulties. The effect is to permanently for the PPF, a compensation fund, by than five times the £300m estimate offered break the link between scheme funding level delaying the removal of redundant costs for to Parliament during the debates on the — however measured — and benefits secured. schemes is clearly not sustainable, or even Pensions Act 2004 and also far higher than any That is not a trivial statement, it has profound consistent with this government’s ambition of population historic loss by value rate. As the implications for scheme financial strategy, maintaining good DB provision.
www.the-actuary.org.uk August 2008 27
026-027_Actuary_0808_Keating.ind27 27 22/7/08 16:37:35 Pensions Risk transfer The end of days Peter Ridges details the options available to pension schemes for risk transfer
Regional Newspapers pension fund and a deficit, with a view to investing scheme Pension Insurance Corporation (PIC) bought funds in high-yielding assets. Threshers, Thorn and Telent (formerly Synthetic buyouts. The range of GEC). It is only fair to say that this last deal 7 products issued by Pensions First includes attracted considerable attention from the a bond that is intended to be economically Pensions Regulator but it would appear that equivalent to a buyout, in that it pays cash the regulator’s objections were to important flows to hedge a scheme’s liabilities. details, such as PIC’s choice of trustees, Longevity insurance. This Pension rather than to the overall principle. Next 8 Corporation product has the Peter Ridges is a question: will a company move its pension characteristics of a mortality swap. A scheme consultant at Pension scheme to a subsidiary, and then sell the pays fixed premiums, and in return receives Capital Strategies. subsidiary, with the whole scheme? any cost arising from pensioners living Any views expressed Umbrella group. This is a variation longer than expected. Unlike mortality are his own and 3 offered by an independent company, products from other issuers that have failed not those of his Occupational Pensions Trusts (OPT) and in the recent past, this is linked to scheme- employer. is a little more complex. First, a new shell specific (not population) mortality. There is company is set up. It sets up an empty little credit risk, since there is no significant pension scheme, with the same benefit upfront payment. structure as the old scheme. The old Even the more knowledgeable trustees employer then puts some cash in the old can be a little bewildered by the range of scheme, broadly to put it into surplus, options available. The factors that they need he last days of a pension scheme and the trustees agree to transfer all the advice on include: used to be so simple, at least in assets and liabilities to the new scheme. n The aim of the product theory. Your options were: you OPT buys the new company, with the new n Whether it does what it purports to do bought out the benefits with Legal & scheme. OPT says that this will be cheaper n Price T General, or with Prudential, or… well, that than a buyout. n Credit risk was about the limit of your choices. If you Balance sheet insurance. This is not a n Operational risk. were observant, you may have noticed that 4 final step but has some of the attractive A question that is frequently asked is if the cost of buying out a deferred pension qualities of a buyout. Consider Tactica there is any urgent need for a scheme to was far higher than their transfer value; Assurance, a scheme gives it assets equal enter the marketplace, given that insurers and so, you may have offered to enhance to 100% of the scheme’s IAS19 liabilities. could run out of capital reserves in the transfer values to benefit the members and For 10 years, Tactica pay all the scheme’s future? Indeed, the current capacity of their employer. benefits, in return for an asset management the buyout market appears to be a small Now the world is much more varied, and charge. At the end of the 10 years, Tactica fraction of the £1trn total liabilities of UK its complexity increases daily. Here are some returns 100% of the new IAS19 liabilities. pension schemes. of the main alternatives on offer: The scheme is 10 years closer to its end However, if profits are there to be made, Buyouts. The same principle as ever but the company management has been it is likely that investors will continue to 1 but the market is far more crowded free from pension distraction for 10 years. pour in capital, keeping the market alive. and cheaper than was recently the case. PensionsRisk LLP offers a similar product. Although the current low prices may not be New entrants such as Paternoster and the Covenant insurance. For many schemes, sustainable, it is likely that the market will large US firms have increased the number 5 the most valuable asset is the promise be there for many years to come. to about a dozen companies. Prudential by an employer to cover the cost of scheme seems to have temporarily withdrawn, benefits. Clearly, this can force a scheme to For further reading at least until prices return towards its depend heavily on an employer. BrightonRock former levels. provides insurance to a scheme against the » The End Game? An analysis of the Sale of a whole company. This option failure of the sponsor. In some ways, this bulk buyout market and other de- 2 is available not least to those wishing arrangement resembles the Pension Protection risking solutions from Punter Southall to take advantage of regulatory arbitration. Fund but there is no restriction on benefits » Pension Buyouts 2008 from Lane For now, and hopefully for the future, the paid to members. This product is also targeted Clark & Peacock capital requirements for a pension scheme at continuing, open schemes. » The End Game. Clear thinking are considerably gentler than those for Funding of deficit reduction needed Report on End Game an insurance company. Citigroup bought 6 contributions. Valiance offers a product strategies for UK pension schemes the sponsor company of the Thomson that involves obtaining funding to clear from Deloitte.
28 August 2008 www.the-actuary.org.uk
028_Actuary_0808_Ridges.indd 28 21/7/08 11:50:52 Banking Careers Invest in me, I’m an actuary! Chris Cannon talks to Graham Jung of Goldman Sachs about the opportunities available to actuaries considering a move into the investment industry
The technical skills associated with What thought processes should actuarial training are often thought to actuarial students be going through lend themselves well to technical when they decide ‘I want to work in quantitive analysis and modelling investment’? roles. What about the broader I’d start with asking yourself two questions: investment spectrum? ‘What do you really want to do?’ and ‘What At a broad level, the roles open to actuaries attracts you about the investment sector?’ who wish to apply their training in the Think about what sort of investment work investment field fall into two camps: those and environment appeals to you. For Chris Cannon is requiring technical skills; and others where any career move, make sure that you are a partner in The a detailed understanding of financial moving for positive reasons. The investment Actuarial Recruitment institutions such as pension funds and arena is large and diverse, for example, Company covering insurance companies is required. The investment management, investment the life, pensions and first group contains asset management banking, commercial banking and private investment sectors. — particularly at quantitative firms, wealth management all have some actuaries risk management and performance working in the business. Each offers a measurement roles. The second group is different vocational environment and client fter two years in the actuarial wider and includes sales roles for both base, with differing recognition of the recruitment field, one of the investment banks and asset managers, as actuarial qualification. questions that has been posed well as client relationship positions. There to me on many occasions, are, of course, other niche areas where a From your experience, is there such a particularlyA by student actuaries is: “I’d like number of actuaries have developed their thing as a right time to move? to move into the investment industry, can careers successfully, although most have In my case, I decided to move to the you help?” Invariably they are referring to the first passed through a more traditional investment industry after qualifying and investment banking and asset management investment organisation. getting some valuable exposure in an actuarial sectors, rather than investment roles within consulting environment. There is also an the mainstream actuarial consulting and CFA or FIA, does it really matter? argument for moving early, which may insurance sector. Much has been written about Yes, it matters but more for the individual be more suitable to those individuals who the suitability of an actuarial background for than for their employer, colleagues or clients. perhaps are no longer committed to being pure investment roles. I decided to share the In my experience, while a few actuaries will sit an actuary. I would say that moving mid- views of someone who has ‘been there and the CFA exams post-qualification, the opposite stream while trying to qualify as an actuary is done it’ — and is still doing it — and asked is not true. The CFA is well respected and probably a more difficult path to take. Graham Jung, an actuary with a varied career understood within the investment industry in the investment field, for his thoughts. but it does not have the full impact of a professional qualification. What was your transition path into investment banking? Is it really possible to qualify as an I joined Watson Wyatt in 1988 and I was actuary while working in the fortunate to be an early member of the investment sector? investment consulting practice. I was It is possible, although in my opinion it committed to qualifying as an actuary is challenging to do so, particularly for and convinced that I wanted to focus on students moving at an early stage of their investment. In 1996, I joined AMP Asset studies. The nature of the work in the Management as the head of investment investment industry is demanding, and solutions, working with institutional clients there are only so many hours in the day. and on a wide range of internal projects. More crucially, study and peer support In 1998, AMP bought Henderson Investors will be less readily available and time and I took on the role of head of investment to qualification increases. I think that risk working with the investment managers most actuaries would agree that pursuing as they developed hedge funds. In 2000, qualification status is best achieved in an I moved to Goldman Sachs in the prime actuarial environment, which can include brokerage business working with hedge a strong investment focus, as my career Graham Jung is an executive director at Goldman funds and their managers. history proves. Sachs, working in the prime brokerage business.
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029_Actuary_0808_Cannon.indd 29 22/7/08 15:01:00 Solvency II Roundtable The road to Solvency II The third roundtable event for The Actuary, sponsored by Ernst & Young, looked at ongoing issues surrounding the Solvency II directive and its impact on the insurance industry and beyond
The Panel David Paul (DP): I would like to start that in order to embed the model in the by asking Tim Edwards what he sees business, you first have to embed the as the big goals for Solvency II from a business in the model and demonstrate European regulatory perspective, and how you have done so, both within the then get others’ views on whether they firm as well as to regulators. feel these are being achieved? Tim Ford (TF): I think the shift to the Tim Edwards: Solvency II is primarily a quantitative requirement aspect of risk management directive and it aims to Solvency II will really help. Trying to drive David Paul, senior Jerome Kirk, senior achieve consistent standards of insurance risk management when it does not drive manager, P&C manager, market supervision throughout the EU to provide the capital requirement is a challenge that Actuarial, Ernst & reserving and a uniform level of protection. All 27 many companies have struggled with. Young (Chair) capital, Lloyd’s member states are working together to create this standard. This also means from DP: Do you get a sense of which types of an industry perspective that there is a level companies will fare better in adapting playing field to compete on. to Solvency II? Is it the nature of the Overall, the standard will be higher products, for example, or their size? than it has been historically. Solvency Paul Barrett (PB): Well, size, experience II will apply a consistent approach to and expertise are important factors. both quantitative and qualitative But there is a danger of complacency in regulatory requirements. the UK. We have got models, we have Dix Roberts, group Margaret de Valois, From a UK perspective, our existing got ICAS, but Solvency II is looking for chief actuary, RSA editor, The Actuary ICAS regime is calibrated to a very something that is the next generation. similar standard and we have introduced The Financial Services Authority (FSA) has elements of risk and principles-based made it quite clear that getting an internal regulation to our regime some years ago, model approved under Solvency II will be providing at least part of a step towards very different to just having an ICAS review. Solvency II. There is a lot of work that needs to be done Randle Williams (RW): I wonder if between now and 2012. some other countries will have enough TE: Much of that work is going to relate to Tim Ford, account Randle Williams, group resources. joining up the economic capital activity director, life actuarial, investment actuary, TE: I think that there is a gradual with the regulatory capital activity, (or Ernst & Young Legal & General realisation of what’s required. We will reporting) activity. make sure we share our experience Dix Roberts (DR): There is a large gap under our existing ICAS regime with our between the two, though, particularly European colleagues, though of course if you are on standard formula method Solvency II will require substantial where the calibration selection is opaque. changes for all of us, and especially the Then you have got a technical provisions actuarial profession. basis that is different. And you have got Roger Dix (RD): Yes, but the key skill risk measures and time horizons, which Tim Edwards, policy Roger Dix, required is to use the information that may not coincide. adviser, Solvency II group risk, HBOS actuaries provide. Crucially, it is passing TE: I’m sure everyone here would choose office, FSA the test of embedding risk at the heart of to operate at a substantially higher the business. You have got to live it and level of economic capital but it would breathe it and that is the challenge that be disproportionate to impose a higher actuaries are well placed to do. requirement on the entire European RW: We must not pretend that we are insurance industry than that proposed further advanced than we are. With under Solvency II. many firms it is the accountants and the When it comes to technical Paul Barrett, assistant actuaries that get excited but the more you provisions, we are now seeking to director, financial Stephen Humphrys, go into the core of the business, the more engage formally through Groupe regulation and senior manager, needs to happen. Consultatif, with help from ABI and taxation, Association Pensions Advisory, TE: A way in which we look at that from our own forums, to assess what this of British Insurers Ernst & Young an internal-model perspective is to say will mean for firms quantitatively.
30 August 2008 www.the-actuary.org.uk
030-033_Actuary_0808_Rtable.indd30 30 23/7/08 11:14:37 Roundtable Solvency II The road to Solvency II
DP: Dix, I wonder if you could say a PB: I think the risk margin is a really key FSA. Would other regulators be prepared to little bit more about what you think the point. The idea of trying to get towards accept a methodology that was so different issues are around technical provisions? a consistent approach linked back to from the standard approach, particularly DR: On the non-life side the definition disclosed market prices is desirable. But on something as fundamental as the of a best estimate is one. Solvency II talks the two things that go against it are the risk margin? about the discounted value of future cash no-diversification assumption, and the RW: European regulators may tend towards flows but the methods that we use give us 6% rate. An insurance group I spoke to in caution because it is all rather new. more of a range of best estimates. Then Poland said that, for there is the question of the risk margin their own internal The idea of trying to get towards add-on using the cost of capital method purposes, they used » and some issues about the definition diversified cost of a consistent approach linked back to of expenses. capital using a 4% disclosed market prices is desirable « rate and, with DP: Jerome, do you have the same sort of the level of assets they had, their DR: It is very difficult to see the incentive issues at Lloyd’s? target was at a confidence level of for the regulator to approve internal models Jerome Kirk (JK): Yes we do but I about 99.95% for their products. By for SCR purposes. wondered where Dix thinks IFRS might be applying the QIS 4 standard, they found TE: We encourage firms to use internal going with technical provisions because that if you take the capital and reserves models because they promote improved they seem to be converging. together, the numbers were coming out risk management. It is quite deliberate DR: There is a big difference between slightly higher than using a best estimate that CEIOPS has not yet written the trying to value a life insurance savings with a diversified risk margin. In other detailed rules for the new regime. Instead, policy and a pure risk product. I think words, they would have no spare capital the first 12 months have been spent the rules are trying to cover both things at all, whereas at the moment they have assessing industry practice to ensure simultaneously and struggling as a result. a decent margin. And they are extremely that the Solvency II requirements will be RD: Certainly, the ambition is to have concerned that this would impact their proportionate and realistic. a consistent set of numbers for both rating and the perceptions of external solvency and profit and any other forms of investors and shareholders. DP: Some are saying that there isn’t fast reporting. We are already in the somewhat TE: Most firms in that position would consider emerging clarity on the internal model perverse position that, even with our best use of at least a partial internal model. approval. Do you think that will happen estimates, we will have lower reserves for PB: Yes. But on a European basis, it is no soon, and how and when will your solvency valuation than we will in IFRS, longer just a relationship with the sensible firms react? » which feels the wrong way round. Even though there are difficulties, I think we have to buy in to the market-consistent economic view of the world.
DP: I just wondered Tim, where on the life side you could draw comparisons with what Dix is saying? TF: I guess we are more familiar with best estimates on the life side, particularly with measures such as embedded value. Best-estimate liabilities are perfectly straightforward — discounting of reserves is a given. What I would like to focus on is the risk margin calculation. If you look at the directive definition of the risk margin, they are the same for both insurance and reinsurance entities and both life and non-life. But for certain types of products, you get very big disconnects from the current view of pricing and reserving to what is implied by using a 6% cost-of-capital method.
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030-033_Actuary_0808_Rtable.indd31 31 23/7/08 11:15:45 Solvency II Roundtable
The road to Solvency II (continued)
» RW: Well the schedule is a lot tighter than people think if you are aiming to be there in 2012 and you need two years of running parallel with the standard factors so that the regulator can feel comfortable. I am concerned about our internal model, which we think is a good one but does not follow the way that the SCR is put together. If you read that section of QIS 4, there is an expectation at CEIOPS that all internal models will use the same modular basis. JK: I think clarity is needed sooner rather than later. For Lloyds, we have the added complication of our own model, which is the Lloyd’s Society model, and then we have over 70 underlying individual syndicate models. Under the current ICAS regime, syndicate ICAs are approved by Lloyd’s, with a peer review process from the FSA. RD: It’s concerning that we have so little hard information. Every time you hear of a model that is doing some really great things, the bar seems to be raised to that to pensions. Germany did a very good changes radically it is just going to new level. There is a certain amount of deal on the Institutions for Occupational accelerate the closure of private sector latitude in the FSA wording to take a Retirement Provision Directive to exclude final salary schemes. common sense approach but we have to all its what we might call ‘difficult’ DR: If you are a widget manufacturer with be careful this still works within a pensions, and there is a line specifically a DB scheme, you might just say ‘So what? European context. excluding all book value reserve schemes. What can the regulator do to me?’ For TE: In late September, we are publishing a There is also the issue of classification. the insurance industry, it is different. The Discussion Paper (DP) on Solvency II that The concern in Germany is that there life insurers have similar liabilities that will give firms clear messages on what they are other financial institutions providing they are valuing for Solvency II, which we should be doing over the next 12 to 18 pensions-type products without having now know have a very high risk margin. months. We have been quite surprised that to apply the same standards. And there is So why would we then value similar many people directly involved in capital some very unsophisticated debate about liabilities in our pension scheme on some modelling and management have not applying this across the board to defined different basis? even read the few articles within the benefit schemes. Directive that deal with these subjects. The UK style of DB In areas like documentation of For example, in areas like documentation scheme is not terribly » of internal models, many firms would well understood. internal models, many firms would admit they are less than halfway towards SH: In mainland admit they are less than halfway Solvency II requirements. Europe, pensions are towards Solvency II requirements In the DP we will also look at timelines very driven by the « not just for internal models but for insurance industry, whereas 75% of DB Margaret de Valois (MdV): With all quantitative standards, standard formula schemes are in the UK and Ireland, which the recent developments in the and own risk insolvency assessment (ORSA). are driven by the pensions regulator. If pensions industry, Solvency II has Solvency II comes in, then it will only not featured highly on the priority list for DP: Moving on to pensions, how do increase the cost, including the levy pension schemes. you think the cross-over to pensions charged to companies by the PPF. A SH: It is just not on the agenda for CFOs at might come? total of 80% of DB schemes in the UK are the moment. It is up to us as actuaries to PB: There is a lot of pressure from certain now closed to new entrants, and more bring it forward. member states to see a quite simple read than 15% have actually ceased future RD: It might come on their agenda via the across of all the Solvency II standards service accrual. Unless something risk door. Increasingly you see commercial
32 August 2008 www.the-actuary.org.uk
030-033_Actuary_0808_Rtable.indd32 32 23/7/08 11:16:18 Roundtable Solvency II
conferences on generic finance topics consistent balance sheet liability for non- taken into account, then we will just see including sections such as ‘Do you life across Europe. the end of DB pensions. understand the risk in your business?’ PB: My hope is that the transparency TE: We are still anticipating political Clearly the pension fund is another inherent in the process will inspire agreement on the directive by the end risk, so you could introduce it that way. confidence from the regulator. And of this year, which would constitute really Certainly, the consulting firms are in the markets too, if we get some better good progress. a very good space to provide that sort disclosures out there. My big fear is that There are really interesting challenges of service. there are certain countries that say they and opportunities for actuaries in this DR: There are two aspects to the risk. One want all the benefits of a flexible regulatory process, including a chance to assume wider is the real risk to the pension scheme, regime but don’t want to give anything — risk management responsibilities. Overall, of having to make higher funding and we fall back to a halfway house between I don’t have any major fears as regards contributions in the future. The second what we have in Solvency I and where we Solvency II, as progress to date has been is the change to your balance sheet of got to with the FSA in 2003. really impressive. I fully expect that two to applying a different set of valuation DR: The hope would be that we get a three years from now we will be saying this principles. If your widget manufacturer flexible regime that mirrors what we are has been a great time to be involved. has to do it, then there will be a lot of doing for our own stakeholders, without a RD: My hope is that Solvency II is not just holes in a lot of balance sheets. regulatory burden sitting on top. My fear is seen as a geeky thing for actuaries and the MdV: We have been talking to FDs about that satisfying 27 regulators may impose a regulator to play with. Instead it should risk but we have not been encompassing lot of bureaucracy. engage all appropriate stakeholders and Solvency II. This is an area where the JK: I think it is worth remembering how senior management in the risk agenda pensions community needs to change. far we have come, there is a vast amount where actuaries are clearly seen as being able of work that has been put in by CEIOPS to play a leading role. DP: Thank you. Moving on, I am and the FSA. My hope would be that the interested to hear people’s views on Pillar process is applied consistently. I have Have your say 3 and the proposals for public disclosures a slightly different fear which is that if on capital. too many people use SCRs, it may lead If you would like to comment on any RD: If the ORSA does what it is supposed to capital inefficiencies that could lead of the issues raised at this roundtable, to, there will be nothing hidden. But I to companies choosing to be domiciled please e-mail editor@the-actuary. have my doubts about going public, both elsewhere. We could see business org.uk. Please note that the views in terms of commercial sensitivity and leaving Europe. expressed here are those of the how customers would interpret it or how SH: I think my biggest fear on the individual and do not necessarily it would be interpreted on their behalf. pensions side is whether it is appropriate reflect the views of their employers. TF: Getting some of the hard numbers to apply Solvency II. If the issues aren’t disclosed will really drive up the quality and with ICAS it has been an opportunity lost by the FSA in requiring the ICG to be kept confidential. We need something that is economically based with the appropriate disclosures. You need risk analytics that are credible, which can then drive the management decisions. RW: As somebody who has not got a company to disclose makes it a little easier. I think we will end up disclosing quite a lot to the rating agencies, and some of them are beginning to develop their own models. I think that we all believe in disclosure but it is really how we draw that line.
DP: To finish off I’d like to ask what people’s greatest hopes and fears are for Solvency II? My own ambition is that we end up with a true best-estimate, market-
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030-033_Actuary_0808_Rtable.indd33 33 23/7/08 11:16:53 Employee benefits Regulation Up for discussion Jenny Lee takes a closer look at the IASB’s discussion paper on post-employment benefits
n The presentation for DB promises an employer to defer recognition of gains n The accounting for contribution-based and losses on pension liabilities. This means promises. that pension deficits could be recorded While this is welcome, some would prefer a as assets in the statement of financial comprehensive review of the standard rather position and pension surpluses as liabilities. than a limited scope, short-term project. Immediate recognition would better reflect Others argue that the IASB should address the funding position of a plan. only the recognition and presentation of DB Many companies that apply the IASB’s liabilities. Some disagree with the specific standards already use an option to do this Jenny Lee is a proposals on the former but agree with the under IAS 19. Furthermore, some countries project manager at overall scope of the project on the grounds — including the UK and the US — have the International that the problems with the accounting for already amended their pension standards to Accounting contribution-based promises have been this effect. Standards Board with outstanding for years, and there is a need for If the IASB continues with its proposals, responsibility for IAS 19 clear guidance. this would be a significant move towards Employee Benefits The IASB will decide on the way forward improving comparability, reducing and IFRS 2 Share- after analysing comments received on the complexity and increasing transparency in based Payment. discussion paper and expects to begin this pensions accounting. The views expressed process in October this year with a view in this article are not to publishing an exposure draft of specific Presentation for DB promises the result of official proposals in the fourth quarter of 2009. At present, there are many different ways deliberations of the to present the gains and losses arising from IASB nor do they Immediate recognition for DB liabilities pensions in the financial statements of the reflect the position Perhaps the most important change employer. The IASB’s objective is to allow of the IASB. They are proposed is the recognition of all pension one presentation approach. However, it the personal views of liabilities immediately in the period in has not yet reached a preliminary view on the author. which they occur. Today the standard allows which of the following three approaches
he Financial Times greeted the Impact on the profit and loss statement International Accounting Standards Board (IASB) discussion paper Current IAS 19 Approach 1 Approach 2 Approach 3 that sets out preliminary views on Service cost 600 600 600 600 amendments T to IAS 19 Employee Benefits as Interest cost 1800 1800 See note 3 1800 ‘a triumph for common sense’. Return on assets 1 (2000) (7000) (1500) Analysts, preparers, auditors and benefit Actuarial (gains) and losses 2 See note 3 2900 1500 1500 consultants have largely supported the Expense recognised as profit or loss 400 (1700) 2100 2400 addition of the pension project to the IASB’s 1. IAS 19 expected return, Approach 1 actual return, Approach 3 imputed interest on plan assets at a high quality agenda, and with good reason. Flaws in the corporate bond yield. current IAS 19 accounting model can present a 2. Approach 1 total gains and losses on liabilities, Approaches 2 and 3 gains and losses on liabilities except those misleading statement of a company’s financial arising from the change in discount rate. 3. Recognised as other comprehensive income rather than as profit or loss position in relation to the size and nature of the pension risk to which it is exposed. Some recent cases demonstrate that Impact on other comprehensive income
pension underfunding can pose a significant Current IAS 19 Approach 1 Approach 2 Approach 3 threat to the continued operation of a Interest cost 1800 company, yet its extent is not always reflected Actual return on assets (7,000) in the primary financial statements. The 4 discussion paper focuses on how the IASB Actuarial (gains) and losses (2100) 1400 (4100) could make some worthwhile improvements Total OCI (2100) (3800) (4100) to the pensions accounting model in a Profit or loss expense 400 (1700) 2100 2400 relatively short time. In particular it addresses: Total expense (1700) (1700) (1700) (1700) n The recognition of defined benefit (DB) 4. IAS 19 total gains and losses on assets and liabilities, Approach 2 liability gains and losses due to discount rate and pension liabilities all asset gains or losses, Approach 3 liability gains and losses due to discount rate plus some asset gains and losses.
34 August 2008 www.the-actuary.org.uk
034+035_Actuary_0808_Lee.indd 34 22/7/08 14:59:27 Regulation Employee benefits
would best improve the decision-usefulness Current classification appropriate accounting for both. of the information provided. The IASB is The new category would also include keen to receive views on these approaches. promises with guaranteed fixed returns and Approach 1: All changes are recognised as career average promises. profit or loss as they occur. Some argue that this is too wide a scope. Approach 2: Service cost and related gains Defined ??? Defined In particular, they disagree with accounting benefit and losses (excluding gains and losses due to contribution for career average plans in a different a change in the discount rate) are recognised manner to final average salary plans with as profit or loss. All other gains and losses are long averaging periods. Whatever the scope, recognised as other comprehensive income. one of the most important issues the IASB Approach 3: Service cost and related gains New classification needs to address is how the liability for these and losses (excluding gains and losses due to ambiguous promises should be measured. a change in the discount rate), interest costs and imputed interest income are recognised Measurement of the liability as profit or loss. All other changes (such as Many seem to believe that the measurement remeasurements due to changes in financial of an entity’s contribution-based promises Defined Contribution-based assumptions) are recognised as other benefit should incorporate: comprehensive income. n Explicit, unbiased, market-consistent, Approach 1 echoes the view that all probability-weighted and current estimates items of income and expense related to the of the contractual cash flows pension promise are a remuneration expense gives results that do not appear to be a n Current market discount rates that adjust and should be recognised as profit or loss. faithful representation of the liability. the estimated future cash flows for the time Approaches 2 and 3 assume that some For example, consider the following: value of money items of pension expense — service cost, n A promise of a lump sum equal to n The effect of risk. for example — have a different predictive contributions of 5% of salary for each year The IASB took the view that credit risk value from others (such as the change in the of service should be included in the measure of the market value of assets) and should be shown n Contributions are increased with liability but that the risk that the benefit in different parts of the income statement. compound interest in line with the return promise may change should be excluded The two tables, left, show the effect of the on a specified equity index — a measure termed ‘fair value assuming the three new approaches, compared with the n There is a minimum guaranteed return of benefit promise does not change’. IAS 19 approach. 2% each year. Many accept that for some types Responses so far indicate that, of the This promise appears to be similar to a of promise there is no other suitable three possibilities, approaches 1 and 3 are DC plan with a minimum guarantee. This measurement attribute — promises that the most popular. A small minority prefers means that it would be classified as DB are very similar to derivative financial the simplicity of approach 2 but many reject under the current requirements. instruments, for example. However, some this approach on the grounds that interest However, the DB accounting method disagree with the application of a fair value- cost is a financing item and should be underestimates some parts of the liability type approach to all promises falling within shown as profit or loss. by ignoring the value of the guarantee. It the contribution-based category, such as It appears that, so far, most people agree overestimates other parts of the liability, by career average promises. Some also disagree with the proposed change from the expected projecting forward at the expected return with including credit risk in the measure of return on assets to a more objective measure on the equity index and discounting at the the liability. that interest income should be either at the (lower) high quality corporate bond yield. Another problem is that the mixed actual return on assets or with reference to measurement model, one for DB promises the yield on high quality corporate bonds. Definition of contribution- and the other for contribution-based based promises promises, could lead to similar economic Accounting for contribution- To address these issues, the IASB proposes the benefits being accounted for differently. based promises creation of a new category of ‘contribution- Under IAS 19, a promise is either DB or based promises’. These are benefit promises Other issues defined contribution (DC). For many that are based on contributions, known or There are a few additional issues that have promises this distinction is unproblematic. actual, and a return on assets or index. The not yet been addressed, such as disclosures However, there are some promises that new category includes some promises that and transition requirements. These will be appear to have characteristics of both and are currently DB and all the promises that included in the next phase and your views will for which the specified accounting method are currently DC, with the aim of more help the IASB to determine how to proceed.
www.the-actuary.org.uk August 2008 35
034+035_Actuary_0808_Lee.indd 35 22/7/08 14:59:47 Events ICA 2010 International Congress Desmond Smith issues a rallying call to potential delegates for the 2010 International Congress of Actuaries
provide ample opportunity to unwind, and post-event tours, caters for the family both the scientific and social programmes as well, so we are really making this as will be ideally suited to networking. delegate-friendly as possible. This isn’t too difficult — Cape Town was voted 10th While the concept of a “congress of best holiday city in the world in the 2007 congresses” holds advantages, should one World’s Best Awards survey, carried out by not simply attend a relevant colloquium? Travel & Leisure magazine. These are held fairly regularly, and would probably be less Desmond Smith is the expensive. » The three most important organising committee Colloquia have a very specific elements of any congress are chairperson of the purpose, and there is no denying 2010 International the contribution they make to the scientific programme, events Congress of Actuaries the professional development outside the programme and the of delegates. The International networking opportunities Congress, however, provides the « additional opportunity for cross- pollination between areas Where exactly will the congress be held of practice. and what facilities will be available? Furthermore, some generic themes, such The Cape Town International Convention as professionalism, will be run throughout Centre is a state-of-the-art facility — it the Congress, which will allow delegates to is wheelchair-friendly and offers first-aid personalise their programmes by attending services as well. The venue recently hosted sessions they are really interested in. As for the World Congress of Anaesthesiologists less expensive, our calculations show that (WCA 2008), which attracted 7300 the 2010 Congress will be significantly less delegates, while the World Diabetes ith the 2010 International expensive than the previous one. Congress in December 2006 was attended by Congress of Actuaries nearly 12 300 delegates. 18 months away (7–12 March You mentioned that delegates will This is also where the 2007 IAA Health 2010), Desmond Smith took be allowed to personalise their Section Colloquium was held. Dave Hartman, Wsome time out to respond to a few questions programmes. Does this include IAA president-elect at the time, reported to the posed by The Actuary (South Africa). registering for half the event? IAA that the Colloquium “was kind of a dry Yes. Perhaps I should point out that there run for 2010, and it passed the test with flying Why should actuaries travel all the way to will be five days of scientific activity. colours in my opinion”. South Africa to attend the 2010 Congress? Previous Congresses had a “day out” on the Cape Town is an overnight flight from Wednesday, but we shall be offering two Will there be any opportunities to see most European cities, and with more than half-days out instead, on the Tuesday and the sights? 20 international airlines flying to and from the Thursday afternoons. The gala dinner If you haven’t been to South Africa before, the city, it is very accessible. will be on the Tuesday evening. This will we’d recommend extending your stay In July 2007, Cape Town was named allow delegates who attend one half only to to take in some of the highlights. A lot as the top long-haul destination favoured attend the dinner as well. We are of the view of work is being put into infrastructure by UK-based events agencies, a position that this arrangement offers better value for at the moment in readiness for the FIFA previously held by New York. But, beyond the delegates’ money, too. World Cup. ICA 2010 will therefore really that, our research has shown that the three provide actuaries, and their families, with most important elements of any congress are You referred to the social programme an opportunity to experience Africa, while the scientific programme, events outside the and logistical arrangements as well. enjoying all modern amenities. We look programme and the networking opportunities. Could you elaborate? forward to welcoming you in Cape Town. On the scientific side, we are working We have made arrangements with a closely with the various IAA Sections. The number of hotels, rated from three stars More information Congress itself will, in a sense, be a congress upwards, to ensure the availability of of congresses, with specific days allocated adequate accommodation in various price For more information on the to specific sections. Outside this, the social categories. We secured 1440 rooms. The International Congress of Actuaries programme and logistical arrangements will social programme, including pre- and please visit www.ica2010.com
36 August 2008 www.the-actuary.org.uk
036_Actuary_0808_Daykin.indd 36 22/7/08 14:57:58 Matt and Finn Arts Music for revisionists Matt and Finn delve into their record collections and serve up some prime cuts for private study
With exams looming fast and students everywhere slowly entering into pre-exam Recommended festival solidarity, we felt it was time to provide a helping hand. Whether you serially listen to Whitstable Winkle music as you study or save it for break-time, we have chosen four great albums that Comedy Festival we hope will keep you concentrating and your toes tapping. Additionally, once the 18 to 21 September sees the pleasant unmentionables are over we have some recommendations to help you unwind. Kent coastal town of Whitstable hit by a wave of comedy. The inaugural festival The London Radiohead featuring top comics and music from Philharmonic In Rainbows a wealth of talent should keep you Orchestra One of the entertained by the sea. If you don’t like most acclaimed Who’s Serious: The comedy you can always sample what bands of the Symphonic Music of the Whitstable is famous for — piles of past two Who oysters. For more information, go to www. Crossover albums decades, whitstablewinkle.co.uk are often a prime Radiohead example of how to have been on a musical journey ever since take two good things and create something their debut album Pablo Honey in 1993. Client entertaining awful. This collection of unorthodox In Rainbows is a culmination of many The Dome, Edinburgh orchestral interpretations of Who classics of their previous albums, honing the Towering at the east end of the sounds fresh yet retains the powerful experimental styles developed on Amnesiac upmarket George Street area, the resonance of the originals. Baba O’Riley is and Kid A, with the strong solid song grand Dome restaurant and bar is simply magical and will make the hairs on writing of their earlier albums. The result a memorable setting for a brisk lunch the back of your neck stand on end. is a mix of guitars, complex electro sounds or indulgent evening meal. The menu The arrangements have truly been and Thom Yorke’s haunting vocals, to has a strong Scottish infl uence and, as thought through, with the LPO bringing bring about possibly one of their greatest you’d expect for such an elegant setting, their own interpretations to the music albums to date. the cocktail list is impressive. Combined rather than simply ‘covering’ the songs. This Radiohead made waves in the music with friendly, attentive service the Dome does mean that several of the songs deviate industry when In Rainbows was initially is an ideal place to talk business — after signifi cantly from the original recordings offered online as a ‘pay-as-much-as-you- all, the building was a bank from 1844 but the CD is all the stronger for it. like’ download. until 1993. For more information visit Purists will not enjoy it but with an album www.thedomeedinburgh.com title this good, it just has to be listened to. Aim Cold Water Music John Coltrane The fi rst and Art by an actuary A Love Supreme best album from Hilary Clarke Probably the Aim, the Grand Hilary best album he Central Records Clarke is an ever recorded DJ Andy Turner. actuary with and consistently Featuring a a passion mentioned as the number of guest for digital greatest album in jazz, artists from the hip-hop world, to the fi ne photography. A Love Supreme raises expectations and voice of Kate Rogers plus a sample from Her picture, more than meets them. It is a spiritual the fi lm Halloween, it blends them all Rain on my journey and very much Coltrane’s attempt together into a very eclectic mix. From the windscreen, to honour and praise God. chilly, spine-tingling opening notes of the right, demonstrates her love of making The work of a gigantic heart and soul who title track Cold Water Music, to the dark, the ordinary seem a little more special. has mastered a musical language; it is an haunting Demonique, this album is one She is currently involved in a series of album that outlived John Coltrane’s lifetime of the fi nest examples of music to chill collaborative exhibitions combining the and will outlive ours. Haunting, powerful and out to. life of George Forrest (the plant hunter), joyful, this masterpiece is a timeless classic. Put it on, sit back and relax. and the work of textile artists, and will be touring the UK. For more details go to Off to Edinburgh Dignity to Edinburgh Festival over August. If www.aitchclarkephotography.co.uk George Lewkowicz, a student actuary at you are in the area, why not support a fellow Travelers Insurance Company, is taking his actuary? George will be reporting back on the If you would like your work featured in this space, please comedy sketch show An Evening Without experience in future months. e-mail [email protected]
www.the-actuary.org.uk August 2008 37
037_Actuary_0808_Arts.indd 37 22/7/08 15:27:58 Puzzles Coffee break
Puzzle 402 Cryptic crossword
1 2 3 4 5 6 7 8
9 10
11 12
13
14 15 16
17 18 19
20 21 22 23
24
25 26
27 28
Across Down
1 When the actresses come in and rant widely in the 1 Diminishes when you turn round to look (5) mad scene (9) 2 Not curing, anyway, by beating (9) 6 Establish it’s a sales talk (5) 3 Are worth more a head when the new price 9 The waters carried back the vessel (5) is entered (7) 10 Come back with a roar of uncontrollable anger (9) 4 Had a job at last; was a road-worker (7) 11 Part and parcel with a city in the north (10) 5 Having helped one to food, became amorous (7) 12 Support the light (4) 6 Looked tiptop, we’re told (4) 14 If one had been in the nude, maybe it would have 7 A mere suggestion, you find (5) made one (7) 8 Nine out of ten would be tight with money (4,5) 15 By which you measure out the pick-me-up? (7) 13 Do come down, but be patronizing (10) 17 Glad I threw it in with the fingers (7) 14 In the marine hierarchy, does it rank low? (9) 19 Rotters, according to the auctioneer? (3,4) 16 The stock stipulation (9) 20 Make even bread (4) 18 The pupil is, in our currency, a money-winner (7) 22 Steal something from the children’s playground and 19 Do they give us beer from state-owned jugs? (7) attack one (4,1,5) 21 Catch the sun, also, wandering about (5) 25 It’s a cheek cutting the lion scene! (9) 23 Going back east, the ice bird (5) 26 He’ll give you the direction and distance (5) 24 A shade risque (4) 27 It’s the wrong end, dear, for you (5) 28 Unusually sincere about Ed being back home (9)
38 August 2008 www.the-actuary.org.uk
038_039_Actuary_Puzzles_0808.ind38 38 21/7/08 12:02:29 CoffeeXxxxxxxxxxx break Puzzles
Puzzle 403 Sudoku 7 9 6 1 Place a number from 1 to 9 in each blank cell such that each row, column and box (bounded by the bold lines) 8 2 contains numbers from 1 through to 9. Each number should appear only once in each row, column and box.
5 1 NOTES 5 6 9 3 8 9 3 7 1 9 2 5 6 3 2 5
Solutions for July 2008 Puzzle 401 Twelve square sudoku Puzzle 400 Sweet surprise 4 6 8 B 2 3 A 9 7 C 1 5 At her birthday party Betty was given a bag of sweets as a joke present. She was told that each of the six sweets in the bag had 9 2 5 C B 1 6 7 4 8 3 A been brought by a different guest and all but one of the sweets had a horrible taste. She could see each sweet looked different. 1 7 A 3 8 C 5 4 9 6 2 B One of the guests, whose name was Linda, told Betty that the sweets were priced at 67p, 62p, 37p, 47p, 52p and 57p. 5 3 1 4 A 6 C B 8 27 9 1 The sweet which is mainly made of caramel isn’t exactly 10p more than any other sweet. B 9 2 A 3 8 7 1 6 4 5 C 2 Rita’s sweet is 5p more than the detergent-tasting sweet. 3 The sweet that tastes like shower gel costs 10p more than C 8 6 7 5 4 9 2 3 B A 1 the sweet made purely of chocolate. 4 The sweet that Jessie brought costs 47p. 2 C B 1 7 9 4 8 A 5 6 3 5 Maggy’s sweet has no caramel in it, but does it taste of rotten apples? 6 5 4 9 C A B 3 2 1 8 7 6 Sasha bought her sweet for 10p more than the sweet that tastes of soap, but 5p less than the sweet tasting of body spray. 7 A 3 8 6 2 1 5 B 9 C 4 7 Queen paid more than 20p more than the sweet with caramel. 8 The sweet that tastes like crude oil is 10p more than the 8 1 7 2 9 B 3 C 5 A 4 6 toffee sweet. 9 The toffee sweet and the peanut sweet cost an even 3 B C 6 4 5 2 A 1 7 9 8 number of pence. 10 One of the sweets is made of biscuits. A 4 9 5 1 7 8 6 C 3 B 2 11 The liquorice sweet costs less than the peanut sweet. Sweet Taste Ingredient Price More puzzles online Jessie Detergent Chocolate 47p Maggy Shower gel Liquorice 57p To access the puzzles archive or to play daily interactive Queen Body spray Biscuit 67p sudoku, visit www.the-actuary.org.uk/puzzles Sasha Crude oil Peanuts 62p The puzzles editor is pleased to receive ideas for new Linda Rotten apples Caramel 37p puzzles from readers on [email protected] Rita Soap Toffee 52p
www.the-actuary.org.uk 2008 August 39
038_039_Actuary_Puzzles_0808.ind39 39 21/7/08 12:01:23 Student page Jen and Jean
The Profession’s communications exam is relatively straightforward, says Jean Eu, so why are so many students coming unstuck? Communication breakdown
The communications exam (CA3, 201) has communications paper is simple: “To ensure always been the thorn in every budding that successful candidates have an ability actuary’s backside. However, looking at to present fundamental actuarial ideas and the recent set of results where, out of 953 arguments to others outside the Profession.” Institute and Faculty candidates, only 273 Furthermore, actuaries are generally lucky souls (28.6%) managed to pass, I can’t intelligent people. However, there are too help but wonder — are actuaries really that many people failing the exam and too many bad at communicating? cases where the paper has become a barrier Let’s start with the communications to qualifi cation. paper itself. Currently, the exam consists Don’t get me wrong — I’m not one of of two questions allowing candidates to those bitter students who has repeatedly display their prowess in a variety of ways. failed CA3. On the contrary, I passed fi rst They could be asked to write a letter to time and, somewhat perversely, CA3 was their grandmother, explaining what a my favourite exam of all. I even tackled all ‘present value’ means; draw out slides for the assignments and past papers I could a presentation to a board of trustees; or fi nd on the subject and, in doing so, I found pull together a report for a director — all the approach so simple and formulaic that explaining some form of actuarial theory in it always surprises me so many people just ‘normal’, jargon-free language. don’t get it. Is the reason for the low pass-rate, Points scoring therefore, because CA3 is not taken as Candidates score points by presenting seriously as some of the other papers? To their answer in the correct format, being me, it is no different — as long as candidates concise, using headings and pagination do enough work and look at enough past and including an introduction, explanation papers to fi gure out how they are expected on in a monotone that could cure any and conclusion. Attention is also paid to to describe these “fundamental actuarial insomniac — and all of this is shrugged technical accuracy and correct spelling and ideas and arguments” in a jargon-free off with a nonchalance that suggests their grammar, and they will lose points for the manner, they should do just fi ne. Yet I know unimportance. With such poor examples, opposite. What, then, makes this paper so many people who take CA3 with another is it any wonder that young actuaries are diffi cult to pass? subject and spend most of their time falling short of the mark? Many people blame the paper itself, and studying the latter, while CA3 is left to the In addition, are these experienced there are various arguments about how it is last minute. And maybe once they’ve failed members to blame? Who taught them not fully representative of communication a couple of times, they get too bored to pay their communication skills when they were skills today, with reliance on computerised much more attention to it. young actuaries? Is this just a vicious circle spell-checkers and so on, but I would One must also question how budding that is being repeated? like to dig a little deeper. The aim of the actuaries pick up their communication With the introduction of a two-day skills. Assuming that a lot of young actuaries course in 2009 that tests presentation and STUDENT ALERT enter the Profession without any experience written communication skills, the Profession of presenting, and that most student is hoping that pass rates will improve. The closing date for UK actuaries do not receive softer skills training However, I remain sceptical. With no softer examination entries is 18 at work, it is the more experienced members skills training, how can the Profession August 2008. You can now of the Profession that they must surely expect good presentation skills? In addition, enter exams online — log on look to emulate. However, I have been to what should the marking criteria be? at www.actuaries.org.uk, go to talks at Staple Inn where the presentation Readers, I am interested in your views, so ‘Transactions with the Profession’, has been poorly put together, the wrong please feel free to communicate them to me then ‘Register for an exam’. slides used and where the speaker mumbles in a clear and concise, jargon-free manner.
40 August 2008 www.the-actuary.org.uk
040_Actuary_0808_Student.indd 40 21/7/08 11:58:40 AOTF People
If she can stay awake long enough, Grace Huang could well be an Actuary of the Future Grace Huang What’s your best attribute? Favourite book/CD/gadget? I have inherited my parents’ strong Book: The Good Food Guide 2007. CD: Guns ‘n’ Describe yourself in three words. work ethic, but I always have time for Roses: Live Era 87-93. Gadget: My dishwasher, It’s organised mess. a good giggle. although that’s more of an appliance than a gadget, I guess. Gadgets are for boys. What’s the best thing about your job? And your worst? The variety. I’ve been involved in Hitting the snooze button. I may have a Who would you most like to be stuck in client meetings, networking events and strong work ethic, but I love my sleep. a lift with? recruitment, as well as the technical stuff. My husband and two-year-old daughter. How do you relax away from the office? These days, it’s rare that we’re all in the And the worst? I get the calendar and guidebooks out and same place at the same time. Of course, this Getting there! Anyone who cites queuing plan my next holiday. would only be a good idea if we had a big etiquette as a quintessential English custom suitcase full of toys, books and snacks. Maybe has never tried to get on a rush-hour train. Alternative career? also some other toddlers to play with, and This is the alternative career. I first entered possibly a small trampoline. What is your formula for success? professional life as a concert pianist, and I Whatever you do, have a good reason also taught piano at a girls’ boarding school If you would like to nominate someone for Actuary of for doing it. in Kent. the 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.
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TA08_AD180X130.indd 1 14/2/08 10:21:51 www.the-actuary.org.uk August 2008 41
041_Actuary_0808_AOTF.indd 41 22/7/08 14:38:13 Appointments People moves
group in a finance Pension Corporation former chief execu- PwC retirement news role, takes on the has announced that tive of the Financial Peter Copeman and Fred Duncan are both role of finance direc- John Coomber is Services Authority to retire from PricewaterhouseCoopers’ tor at Nucleus. to join the manage- is to join the Lucida actuarial consulting practice in summer ment team as execu- Board as a non- after long and distinguished careers in The Groupe Consulta- tive vice chairman. executive director. the insurance industry. tif, the association Mr Coomber was Cathy Wang has Mr Copeman has been practice leader of of 34 European ac- previously CEO of joined as a trainee PwC’s non-life insurance actuarial team, a tuarial associations, Swiss Re. In his role, actuary. Ms Wang member of the General Insurance Board, James Ash, above, has announced that Mr Coomber will was previously a and chairman of the London Market joins Quantum Advi- Seamus Creedon be responsible for senior actuarial ana- Actuaries Group. He was honoured by his sory as an Actuarial has been appointed managing the day-to- lyst in actuarial and actuarial peers in 2007 when he received a Consultant, respon- by the Group’s day operations and insurance solutions Lifetime Achievement Award. sible for managing Insurance Commit- finances of Pension at Deloitte London. Mr Duncan, client projects in the tee to take over from Insurance Corpo- pictured, joined PwC London office. Prior Dr Rolf Stölting as ration alongside Jacquie Curness from Sphere Drake to joining, Mr Ash manager of its Sol- Edmund Truell, chief has been promoted and has been one worked in the UK, vency II project. executive officer of to chief actuary and of the linchpins of Canada and Ireland Pension Corporation. actuarial function the firm’s actuarial for Hewitt Associates Pricewaterhouse- holder at Unum. Ms insurance practice and Watson Wyatt. Coopers LLP has ap- Curness will succeed over its history. He pointed three new Graham Hockings has been chairman of the London Standard Life Inter- pensions partners: who will semi-retire Market Actuaries Group and a member national Limited has Alan Higham, who and take on a con- of the General Insurance Board of the appointed Colm Fa- joins from Higham sultancy role. Institute of Actuaries. gan as a non-execu- Dunnett Shaw; tive director to its Jonathon Land; Dave Cheeseman Ian Farr retires from Watson Wyatt board effective from and Chris Massey. has been appointed Ian Farr worked for almost a quarter 16 June, 2008. Mr In addition, the Clal Insurance Com- as finance director for century at Watson Wyatt, becoming a Fagan is a qualified pensions practice pany has appointed AXA Life. Mr Cheese- partner in 1988. He has advised a wide actuary and founder welcomes Richard Ofer Brandt, above, man will be respon- range of UK companies and trustee of Life Strategies. Giles, who recently as executive vice sible for all financial bodies on pension matters, and has been joined as director president. Based in and actuarial matters scheme actuary to some of the largest Nucleus has ap- and Charles Garns- Tel-Aviv, Israel, Mr affecting the AXA UK pension schemes in the UK. pointed former St worthy, who has Brandt, who is a fel- Life business. Over the past two years, Mr Farr James’s Place finance taken the position low of the Institute has been chairman of the Association development direc- of actuarial and of Actuaries, holds The Pensions Man- of Consulting Actuaries (ACA). His tor Neil Howitt to insurance manage- the position of chief agement Institute is chairmanship came to an end on 31 its team. Mr Howitt, ment solutions life actuary. Prior to pleased to announce May but he will continue to play a role who also worked at practice leader from joining the company the election of Mike in articulating the case for allowing the Zurich insurance 1 July. seven years ago, he Sullivan as a vice conditional indexation in defined worked with Tilling- president. Steve benefit schemes. Jag Sodhi has been hast Towers Perrin in Delo was re-elected Mr Farr has also been chairman of the appointed head of London. president, Neil Bold- Joint Working Group for Occupational European actuarial ing was re-elected Pensions from 1 July 2007 to 30 June 2008. at Combined Lucida has made two honorary treasurer He joined Watson Wyatt in 1987 Insurance Company actuarial appoint- and Brian Critchell through a desire to concentrate on of America. Mr Sodhi ments in the last was re-elected as a consulting work. He commenced his will be responsible month. John Tiner, vice president. career at The Scottish Mutual Assurance for the actuarial Society where he qualified as a fellow function across all Have you moved? of the Faculty of Actuaries in 1971 UK and European offices. He joins after Please send news of moves, and subsequently held a series of having spent two years setting up and promotions, retirements and pensions and marketing executive developing a number of businesses appointments to peoplemoves@ appointments, both at head office and within the financial services sector. the-actuary.org.uk its branches.
London ● UK Wide ● France ● Europe ● South Africa ● Asia Pacifi c ● Australia Your World With GAAPS www.gaaps.com +44 (0)20 7397 6200
42 August 2008 www.the-actuary.org.uk
042_Actuary_0808_PeopleMoves.ind42 42 22/7/08 14:33:48