Published in london by the staple inn actuarial society The www.the-actuary.org.uk ActuaryThe magazine for The acTuarial Profession november 2008 Sucker punch A blow-by-blow account of market turmoil Pensions risk-sharing • life after QIS4 • The meaning of value • 26 pages of jobs 001_Actuary_Cover_1108.indd 1 22/10/08 14:39:05 The Actuary See page 5 for full details of the editorial team Incisive Financial Publishing Editorial 32-34 Broadwick Street, London W1A 2HG November 2008 T +44 (0)20 7316 9000 Publisher Philip Harding T +44 (0)20 7316 9393 E [email protected] The actuary of today Managing editor Sharon Maguire On 6 October, in the midst of the market T +44 (0)20 7316 9016 E [email protected] collapse, Faculty of Actuaries president Ronnie Recruitment advertising manager Bowie stood up and gave a presidential address Hazell Cockle that showed actuaries are well placed to assist T +44 (0)20 7316 9493 E [email protected] and add value in the recovery needed following Designer the current financial crisis. Nicky Brown The address, which talked about Sub-editors ‘Tomorrow’s Actuary’, provided guidance David Whittam as to how actuaries could help provide Production manager Matt Parle financial stability following the credit crunch. T +44 (0)20 7316 9766 Ronnie also commented that we must truly E [email protected] understand risk and not simply be “slaves to models”, continuing a Group editor-in-chief Anthony Gould theme that has been regularly debated in The Actuary. Group publishing director Ronnie stated that the world needs actuaries who are “curious, energetic Derek Peck and influential”. This requires us to look beyond our technical skills, and Print and distribution explore how we can use our expertise to deliver real solutions based on the Benham Goodhead Print Ltd., Oxon theory we learn. Again, this is a message that should be familiar to us all. Subscriptions One interesting point was Ronnie’s call to shift our actuarial focus from For subscriptions from outside the actuarial profession: UK, Eire, and pension scheme liabilities to assets, taking into account the risk capital of a Europe: £50 a year/£5.00 a copy. For the rest of the world: £75 a scheme sponsor and using an “economic” value of liabilities. Having seen a year/£7.50 a copy. Please contact: Maria Lyons move from discounted asset values to market values in the late 1990s, I am The Actuarial Profession, Napier intrigued to see how this debate will unfold. House, 4 Worcester St, Oxford OX1 2AW Pleasingly for me, there was relatively little attention paid to the possible T +44(0)1865 268236 E [email protected] merger of the Faculty and the Institute. Ronnie chose instead to reflect on what actuaries can bring to the pressing issues facing the financial Students on actuarial science courses at universities may join the Staple community at the moment. Inn Actuarial Society for £6 a year. They will receive The Actuary as In summary, the address provided some much welcome optimism part of their membership. Apply to: Membership Department, The for me and, once again, I am encouraged that our features and letters Actuarial Profession, Maclaurin illustrate that many actuaries are already doing the things that Ronnie House, 18 Dublin Street, Edinburgh EH1 3PP. refers to. This got me thinking — perhaps ‘Tomorrow’s Actuary’ should T +44 (0)131 240 1325 E [email protected] be re-branded as ‘The Actuary of Today’. Changes of address should be made known to the membership Margaret de Valois department at the same address. Editor Internet The Actuary website: [email protected] www.the-actuary.org.uk SIAS website: www.sias.org.uk Actuarial Profession website: www.actuaries.org.uk Apology Features editor needed Published by the Staple Inn The October edition of The Actuary included We are currently looking for a new features Actuarial Society a feature by Lukas Steyn of J.P. Morgan editor to join The Actuary team with effect The editor, the Faculty of Actuaries, entitled Stronger, fitter, faster. Unfortunately from January 2009. the Institute of Actuaries and the Staple Inn Actuarial Society are not a graph was missing from the printed version responsible for the opinions put and readers may have found the piece If you are interested in this voluntary — but forward in The Actuary. misleading. The correct version can be found highly rewarding — role, please contact © SIAS November 2008 at www.the-actuary.org.uk/815744 and on [email protected] All rights reserved ISSN 0960-457X the page-turning pdf version on the website. www.the-actuary.org.uk November 2008 003_Actuary_1108_Ed.indd 3 20/10/08 15:23:55 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 November 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 Profession Features editors p32 16 Education and research Tracey Brown Lane Clark & Peacock LLP, A blow-by-blow account 30 Old Burlington Street, 18 Industry London W1S 3NN Shaun Krom shares his views T +44 (0)20 7432 3071 on the cause of recent 22 People/Society E [email protected] market turbulence Marjorie Ngwenya 26 SIAS notices Swiss Re Life & Health, 30 St Mary Axe, 27 Calendar and events London EC3A 8EP T +44 (0)20 7933 3163 Features E [email protected] 50 Appointments and moves 28 Intelligent design Industry news editor Derek Benstead considers a pension scheme sharing Louisa Lobo T +44 (0)7719 631 955 risk between sponsoring employer and employee Comment E [email protected] 3 Editorial 30 People/society news editor An option for capital efficiency Margaret de Valois on today’s actuary Amy Guna Jeff Wood illustrates the mechanics of securitisations as Grant Thornton UK T +44 (0)7879 453 949 a capital management tool 8 Letters E [email protected] Chance, risk and communication Student page editors 36 Life after QIS4 Jennifer May Roger Austin, Simon Parrack and Anne Baxter provide 10 Soapbox Hewitt Associates, Joanne Hindle on the future of regulation 6 More London Place, an update on QIS4 for life insurers London SE1 2DA T +44 (0)20 7939 4000 47 Book review E [email protected] 38 Crunch time Super Crunchers by Ian Ayres Scott Eason explores the effect of the credit crunch on Jean Eu derivatives and structured assets and highlights related RGA UK, IFC Level 40, 25 Old Broad Street, issues for life insurers Regulars London EC2N 1HQ T +44 (0)20 7448 8255 40 The price is right? 24 Trailblazer E [email protected] The Actuary talks to BGI’s Lindsay Tomlinson Angus Sibley debates the notion of subjective valuation Arts page editors Matthew Fewster and its impact in a world dominated by free markets 45 Arts JPMorgan Alan Frost returns to raise the highbrow bar 125 London Wall London EC24 5AJ 42 Paying the bill T +44 (0)20 7777 9707 Charlie MacEwan asseses the arguments for sharing 46 Student page E [email protected] the costs of healthcare provision The saving grace of students Finn Clawson 47 Actuary of the Future Hewitt Associates 43 6 More London Place Conflicts of interest Daniel Wiltshire of RGA London SE1 2DA David Johnson exposes the dilemma faced by pension T +44 (0)20 7939 4435 fund trustees in the current market 48 Puzzles E [email protected] More brainteasers to test your mettle Puzzles editor Tom Bratcher More features online Watson Wyatt Worldwide, The following features can be found exclusively on The Watson House, London Road, Writer of the month Reigate, Surrey, Actuary website this month: RH2 9PQ n The cloud gathers for Solvency II Exploring the next Angus Sibley is the editorial team’s E [email protected] evolutionary stage for actuarial modelling using IT solutions choice for November for his article n Potential lawsuits for investment advisers Underlining on the notion of subjective valuation Circulation the duties of care observed by pension scheme advisers and receives a £50 book token 18,724 (July 2007 to n Financial planning — back to school Investment courtesy of SIAS. June 2008) strategies to secure your financial future n As good as New…Zealand Opportunities available to UK actuaries in the land of the long white cloud Visit www.the-actuary.org.uk/category/features www.the-actuary.org.uk November 2008 005_Actuary_1108_Contents.indd 5 22/10/08 17:01:49 Letters Your view Letters to the editor In which actuaries look to chance, risk and communication to move in the right direction Letter of the month The right direction the reasons for expecting ex-post correlations to be related Thank you so much for publishing Solomon Green’s article Look closer, to ex-ante correlations. Similar considerations apply to the can you afford to rely on financial theory? (September 2008) I read it lack of rigour in deriving forecast returns for these supposedly with delight verging on euphoria. I heard myself exclaiming: “There uncorrelated assets. still are actuaries with both erudition and common sense”. A third example is the now clearly debunked theory that For some time as an adviser and a trustee, I have been by aggregating mortgage debt and then slicing, dicing and shocked by the assertion that the outputs of barely described distributing it, risk is magically reduced.