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THE FINAL STEP – 2007 PROFESSIONALISM COURSE

STERN REVIEW ON THE ECONOMICS OF CLIMATE CHANGE

THE AUSTRALIAN GOVERNMENT ACTUARY

COMMUNICATIONS TASKFORCE UPDATE

editorial

My thinking this month was sparked by Mark Baxter at the Presidential Address when he told us that working in the banking industry he has had to consider carefully whether and when he will ‘come out’ to his colleagues about being an actuary.

What does this say about our brand and our view of its perception in banking? My observation is that the brand places us squarely in a box, although as individuals actuaries are usually highly regarded for their skills and abilities. This is reinforced by comments in the The Actuarial Pulse (page 8). While we are generally proud of our qualification and what it says about us, we don’t seem to be any closer to being able to explain what it means. We recognise gaps in our areas of expertise and we clearly don’t think we need to do more than ‘do a good job’ in order to be recognised as experts in an area.

While I have some empathy with the view that if we work hard enough and do a good job we will be recognised, I think the world has moved on. We risk being marginalised by others who either :

• have developed a greater depth of expertise in areas we like to claim as part of our core knowledge; or

• are less able technically/professionally, but are proactive and have more effective promotion and influencing skills

A strong brand is key to success and whether we like it or not we need to be more active in the branding and advertising of our profession – I am not suggesting flashy TV ads here but a clearly defined strategy which as a membership we are proud to own and promote. There are certainly some risks in this – potential for over selling ourselves and the impact of negative publicity and errors but the examples of other professions suggest that you can both survive these and move forward. Concerns about the risk of ‘watering down’ the ethics and integrity of the profession can be met by continued reinforcement of our professional values and support for members to take responsibility for their own behaviour.

My experience of the newly-qualified actuaries at the Professionalism Course is that they are ready for the challenge! In the words of Bevan Damm, a newly qualified actuary, to the more experienced attendees at the Presidential Dinner, “Move over, it’s time for us to have a go”. ▲

Jenny [email protected]

� ACTUARY AUSTRALIA APRIL 2007

CONTRIBUTIONSContributions should be sent to The Institute of Actuaries of Australia, marked to the attention of Katrina McFadyen (Program Manager). When sending contributions please supply text in Microsoft® Word format. Illustrations and photos should be supplied as JPEG, TIFF, EPS or PDF files at a resolution of 300dpi. (Note: GIF files are generally unacceptable because of low resolutions). Prior to supply of material, please confirm supply specifications, copy limits and relevant details with Katrina McFadyen. Email: [email protected] design: Kirk Palmer Design 57 Griffin Street Surry Hills NSW 2010Tel /Fax (02) 9332 1223 Email [email protected]

NEXT EDITION Publication date: May 2007AA120 June 2007 Deadline for contributions: 1 May 2007AA121 July 2007 Deadline for contributions: 1 June 2007

ACTUARY AUSTRALIA EDITORIAL COMMITTEEJENNY LYON EDITORTel (02) 8235 7901 Email [email protected] MCFADYEN PROGRAM MANAGERTel (02) 9233 3466 Email [email protected] WOODS ASSISTING EDITORTel (02) 9086 6310 Email [email protected] WATSON ASSISTING EDITORTel (02) 9248 4102 Email [email protected] TSE ASSISTING EDITORTel (02) 8295 6881 Email [email protected] WOOD ASSISTING EDITORTel (02) 9995 1857 Email [email protected] DAVIS DIRECTOR, PRACTICE DEVELOPMENTTel (02) 9233 3466 Email [email protected]

OTHER CONTACTSANDREW LEUNG (Editor of AUSTRALIAN ACTUARIAL JOURNAL)Tel (03) 9270 8262 Email [email protected]

THE INSTITUTE OF ACTUARIES OF AUSTRALIA ABN 69 000 423 656

Level 7, Challis House, 4 Martin Place Sydney NSW 2000 Australia Tel (02) 9233 3466 Fax (02) 9233 3446 Email [email protected] www.actuaries.asn.au

Published by The Institute of Actuaries of Australia © The Institute of Actuaries of Australia ISSN 1035-6673

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ACTUARY AUSTRALIA APRIL 2007 �

What’s New on the Webwww.actuaries.asn.au

AA No 118, April 2007

contents

Members’ details are available via the search function on the Institute website – www.actuaries.asn.au

Actuaries on the MoveChange of Business Details from �5 January �007

4 The Final Step Report from the Professionalism Course February 2007 and Congratulations to new Fellows

Donald Campbell

7 Prizes and AwardsInstitute prize winners 2006

8 The Actuarial Pulse Member surveyJenny Lyon

10 Ask Gae Answers to life’s serious and not-so-serious questions

Gae Robinson

11 Actuary Unearthed Chris White

12 Postcard from Italy Alan Smee

14 Council gets on BoardReportAnne Peters

15 Appointment – Manager Strategic Projects Sue Wetherbee

16 The Australian Government ActuaryReportPeter Martin

19 Stern Review on the Economics of Climate ChangeReviewPauline Durant / Jill Green

22 Two Ducks SwimmingStephen Woods

23 Communications Taskforce Report and Update

Lesley Traverso

24 Report from the CEO John Maroney

26 Notes from the President’s BlogFred Rowley

28 Education Update Volunteers Cocktail Party / Part III – EducationPhilip Latham

Call for expressions of interest Part III Education

Provisional accreditation Curtin University of Technology

29 Obituary: William David Owen Chris White

30 Obituary: Les Oxby Ian Salmon

Members are encouraged to advise [email protected] if they would like to be included in Actuaries on the Move

Peter Jonas Grigaliunas, FIAAConsultantCGU Insurance LimitedLevel 7, 485 La Trobe StreetMELBOURNE, VIC 3000

Mehran RedjvaniConsultantPricewaterhouseCoopers AustraliaOffice: +61 2 826 60875Mobile: +0405 615 761Fax: +61 2 828 [email protected]://www.pwc.com/au

Mark Schneider, a founder of Classic Solutions which developed the MoSes actuarial system, has left the firm after 13 years. Mark was also the Managing Principal of Tillinghast Software Solutions (TSS) which acquired Classic Solutions in 2002.

Calendar / Events

JUNEWednesday �0 – Saturday �� June �007 ASTIN �007 – Actuarial Studies of Non-Life InsuranceDisney’s Contemporary Resort, Orlando, Florida, USA

UPOMING MAJOR EVENTSSunday �� – Wednesday �6 September �007Biennial Convention �007 – Adventures in RiskChristchurch, New Zealand

Please note that important future calendar events will be listed on the Institute website and within this What’s New on the Web listing, but no longer as a separate Calendar section on page 31

Education

Education Calendar – Tutorial Details

Publications

Actuary Australia, Issue 118, April 2007

Actuarial Practice of General Insurance 7th EditionAvailable at: http://www.actuaries.asn.au/PublicationAndResearch/books.htm

PHI Newsletter 173

Public Affairs

Submission to the Private Health Insurance Administration Council released 27 February 2007 in relation to the insurer obligation rules. View at http://www.actuaries.asn.au/PublicAffairs

Cover photos: NASA images of Cyclone Craig over northern Australia and cyclones over the Pacific


on

eL

eaving Melbourne on a sunny Sunday afternoon, I had

high expectations for the Professionalism Course: a

beautiful seaside location, swims at the beach, catching

up over food and drinks with friends made at the CAP Course

and perhaps, after all that, some useful education about being

professional as well.

This is possibly not something a newly-qualified actuary should

admit but my assumptions were flawed. The course schedule

differed from the one I imagined. It had a lot more learning and

a lot less swimming.

Day One

For non-Sydney attendees, day one of the course began the

previous evening as we flew to Sydney in preparation for an early

start on Monday. Our hotel in Manly was right on the beach but

unfortunately cool winds and persistent drizzle put to rest any

desire for a swim.

Early the following morning day one began in earnest with

the arrival of the Sydney students by coach from the CBD.

The majority of the 34 attendees were survivors of the most

recent CAP course but the attendees also included those who

had qualified under the old Part III system, were earning an

exemption from the UK professionalism course or were seeking

accreditation in Australia.

Our steadfast MC, Barry Rafe, welcomed us to the course and

provided an overview of what we could expect, ending with

Tasmanian comedienne Dolly Putin’s video for the 2005 Biennial

Convention.

Given that this was the Professionalism Course, it came as no

surprise that our first session was on professionalism – What is it?

What does it mean for actuaries? And how do we achieve it?

Chris White discussed the recent actuarial scandals in Australia

and overseas and the avoidance of future scandals by engendering

a stronger ethical culture both within professions and in the

wider community.

Chris continued to present to us in the second session on ethics.

His studies in theology were undoubtedly useful as he presented

us with the theory and practice of ethical frameworks, including

how to systematically, rather than instinctively, deal with the

ethical dilemmas that we are highly likely to encounter in our

future careers as actuaries. A key part of these frameworks was

balancing integrity, fairness and compassion in determining the

best choice of action.

The ethics session included breaking into groups to tackle

selected case studies. The scenarios were deliberately challenging

with no easy answers. For example, your parents are about to

invest 25% of their retirement savings in a company to which you

consult. You know confidentially that the company’s share price

is about to dive. Where do your loyalties lie?

Difficult decision-making is hungry work, so the Institute

organisers Katrina McFadyen and Lauren O’Donnell cleverly

held lunch to ransom until we had completed not only a group

photo but also individual headshots.

The afternoon held as many difficult decisions for us as the

morning, with Tim Jenkins taking us through the recently revised

Code of Professional Conduct before we again broke up into

groups. These case studies involved some role-playing, including

a confrontation regarding suspected insider trading between an

actuary and his AIAA work colleague.

Fred Rowley wrapped up the day’s play with an address loosely

associated with his official Presidential Address but made more

interesting with the inclusion of a number of war stories,

including tough questions asked by a local actuarial student

during his travels in China.

After a few drinks with the President on the balcony, there was

barely enough time to put our notes back in our rooms before the

QED Dinner – no time for a swim in between. QED sponsored

the dinner for the eighth time running and as hosts they set

table against table in a dinner trivia quiz. ‘Murphy’s Law’ was

the eventual winner, edging out the competition by successfully

answering questions such as “Who played Karen Silkwood in the

movie Silkwood?”

report

– Professionalism Course February 2007

The Final Step

ACTUARY AUSTRALIA APRIL 2007 5

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Kane Boulton

Donald Campbell

Ken Cheung

Bevan Damm

Sarah Elsey

Kerryn Ferris

Saul Field

Dale Andrew Jackson

Jack Jiang

Sarah Johnson

Dimitri Lampitsi

Alex Lee

Wallace Lee

Jamie Levitt

Heng-Yeow Lim

Adam Lin

Andrew Loh

Nikki Mahemoff

James Makin

Adrian McCarthy

Andrew McInerney

Daniel Murphy

Mehmet Ogut

Jakub Ronowicz

Lori Tan

Dimity Wall

Jeremy Weight

Teresa Yam

Gloria Siu Yan Yu

Congratulations to our new Fellows – March 2007

Professionalism Course attendees (and trusty fascilitator)

two

6 ACTUARY AUSTRALIA MARCH 2007

report (continued)

After-dinner discussion revealed that Dimity Wall had received

an upgrade to a suite on the second floor. A large proportion of

us adjourned there for the ultimate challenge of mathematical

minds: a Texas hold’em poker tournament, which ended in a

fortunate victory by yours truly. Afterward, we headed to bed in

preparation for another early start.

Day Two

After a hearty breakfast next to fellow hotel guests the South African

Bulls (Super 14 rugby team), we were ready to go for day two.

The first session asked what the Institute can do for us and what

we can do for the Institute. The Institute CEO John Maroney set

out the current state of play and future plans for the Institute.

Kirsty Hogan and Paul Carrett told us about their experiences

volunteering with the Institute. They encouraged us as newly-

qualified actuaries to volunteer not just in the traditional role of

exam marking but to get involved in organising events, writing

papers and sitting on practice committees.

After the obligatory recaffeination break, Mark Blair discussed

the importance of managing the conflict of interest between

being a trusted adviser and a product seller, particularly after the

financial services reform.

Insurance lawyer Stephen Connell continued the regulatory

theme, presenting legal liability issues for actuaries. He told us

the good news that historically there have been very few legal

claims against actuaries. The bad news followed – that this was

likely to change given the expansion of personal liability for

professional services and the number of different ways actuaries

could be held liable in court for services they provided. The

solution: implementing risk management not only for financial

risks but for legal risks as well.

As we neared the end of two long days of learning, Barry

promised us a ‘high energy’ finale to the course. This we

received via a presentation skills workshop with Tony Bulmer

(only the second non-actuarial presenter). We succumbed to

‘Bulmerisation’ as we learned to improve our presentations by

playing to our individual strengths and styles. Tony needed to

use his best presentation skills to compete with the sunny Manly

beach scene tempting us just outside our conference room.

Two volunteer presenters capped off the workshop. Catherine

Hodson became a sales consultant for speed dating and Bevan

Damm explained Surviving Pregnancy (for Dads).

After a final wrap-up by Barry, the Melburnians grabbed taxis to

their flights home while everyone else immediately hopped on a

bus to the Sydney Presidential dinner that evening.

Both the Melbourne and Sydney Dinners went very well as we

officially became Fellows of the Institute. Of the two, the Sydney

dinner was more eventful – the Finity boys wore garish kaftans

and our new President had to move fast to avoid an amorous

new Fellow leaning in for a kiss along with his certificate.

On behalf of all the new Fellows and Accredited Members,

I would like to thank Barry Rafe, the session presenters and

Institute organisers for a fun and well-run course. I may not have

had a swim but in two very intensive days I learned a lot about

what is expected of a qualified actuary and how to fulfil those

expectations. ▲

Donald Campbell

[email protected]

Melbourne Presidential Dinner: Vote of thanks – Donald Campbell

Sydney Presidential Dinner: (L to R) John Maroney, Fred Rowley, Richard Lyon and John Shepherd

Sydney Presidential Dinner: Fred Rowley (2nd from left) with colourful new Fellows (L to R) Kane Boulton, Jeremy Weight and Andrew McInerney

Don

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Sydney Presidential Dinner: Vote of thanks – (L to R) Fred Rowley, John Maroney and Bevan Damm


2006Prizes & Awards

Anthony Asher

Andrew Jackson

Daniel Butt

Anna Mo

Ben Facer

Prof David Dickson

Christopher Beveridge

Daniel Murphy

H M Jackson Memorial Prize 2006

Andrew Jackson

Trade Generation, Reputation and Sell-Side Analysts.

The Journal of Finance, Volume LX, Number 2, April 2005.

Professor David Dickson

Insurance Risk and Ruin (Text Book) Cambridge University Press

(2005)

A M Parker Prize 2006

Anthony Asher

The Major Actuarial Challenges: A partly idiosyncratic view

presented at the Institute of Actuaries of Australia 2005

Biennial Convention.

Melville Prize for Practitioners 2006

Richard Bruynel

Optimal Investment Strategies AAJ, Volume 11, Issue 3, 2005.

Andrew Prescott Memorial Prizes 2006

Anna Mo

for meritorious performance in the investments examination

Ben Facer

for meritorious performance in the commercial actuarial

practice examination

Daniel Murphy

for outstanding performance in the Fellowship examinations

2006 Katherine Robertson Prize

Daniel Butt

for meritorious performance in the general insurance

examination

A H Pollard Scholarship 2007

The 2007 A H Pollard Scholarship has been awarded to

Christopher Beveridge for his PhD project The study of

long-dated hybrid exotic interest rate derivative contracts,

through the University of Melbourne.

Congratulations to all our prize winners


members’ survey

The Actuarial Pulse

The Actuarial Pulse is an anonymous web-based survey of Institute members and is run on a monthly basis giving members the opportunity to express their opinions on a mixture of serious and not-so-serious issues.

Next Survey A new set of questions will be available in the first 10 days of each month. Please login to the Members’ area

of the Institute web site (www.actuaries.asn.au) and select ‘The

Pulse’. The next survey will be available in May 2007.

What would you like to know? If you have a question you would like to put to the membership, email it to

[email protected]

Results ● 106 responses ● Presentation generated on 14 March 2007.

Question 1. How proud are you to tell people that you are an ‘actuary’?

Choice Count % Answering

Very proud 21 19.8%

Proud 48 45.3%

Neutral 23 21.7%

Generally prefer not to mention it 13 12.3%

Never really admit it 1 0.9%

So around 65% of us are proud or very proud to say we are an

actuary. The comments suggest however that some people are

less proud than they used to be – often because it has become

less important in their day-to-day work that is what more

clearly defines them but we should consider whether in fact the

message is more about the standing of the profession. Some

of the people who were proud to be an actuary said they often

wouldn’t admit to this because they would then have explain

what an actuary is.

Question �. When asked what you do, what are you most likely to say?


Consultant 11 10.5%

Manager 2 1.9%

Actuary 47 44.8%

Work in insurance/finance/banking 28 26.7%

Other (Please specify) 17 16.2%

It seems as if we are happy to tailor our answer to the situation.

A few comments indicated that it depended on the situation/

person asking the question etc and that “even actuaries can be

adaptable”. A good indication of active listening and flexibility!

Question �. When you say you are an actuary, you feel it makes people think you are:


Professional 11 10.4%

Intelligent 28 26.4%

Good with numbers 29 27.4%

Earning lots of money 5 4.7%

In a senior role in your company 0 0.0%

Highly regarded in the business sector 1 0.9%

Well-rounded 0 0.0%

Fun to talk to 0 0.0%


Well I got this question wrong, as the general consensus was

that we should have let people choose more than one option.

It seems, on balance, they would have gone for all of the above

except ‘well-rounded’ and ‘fun to talk to’. Having said that, the

way the question worked was to help polarise the thinking

and clearly the most common reactions were ‘intelligent’ and

‘good with numbers’. This is possibly a guide to what the wider

community also thinks in the first instance.

Question �. Working from the premise that the areas of investment and finance are core actuarial skills, how can we improve the actuary brand in these fields?


Advertising 5 4.7%

Publishing material in the magazines/

journals of other organisations 24 22.6%

Joint seminars with other relevant

and highly-regarded associations 34 32.2%

Increasing the links with other

courses at university level 17 16.0%



There was support for all the proposed activities except

advertising. The comments suggest that we just need to do a

good job and there will be a flow on effect – “do it better than

anyone else’, “the best advertising is through actuaries operating

in the fields doing it well and talking up their actuarial skills”,

“be walking advertisements for the brand”. This was reinforced

by comments that our best advertising was from people who are

already successful in these areas.

There was also a view that we were by no means experts in all

areas of investment and finance and that we were “quite ignorant

outside our own areas”.

Question 5. What the...

You always knew they made up the answers to survey questions!

One of my questions was excluded from the survey which in my

view gives me free rein!

I wanted to ask for your ideas about how we can increase the

link with the profession for those people working outside the

traditional areas. It’s by no means a forgone conclusion that we

should expect such individuals to want this but for those working

in areas where the profession would like to have a greater level

of influence and recognition, there is an advantage in providing

services that develop a closer relationship.

Thoughts included:

● Increased numbers of seminars/events in the areas

of interest

● Increasing quality of such events

● Greater focus on publishing articles in these areas in

Actuary Australia

● Encourage publishing by the Institute of serious technical

papers

● Greater links and sharing of material with other

organisations in these fields

● Increased branding and marketing

● Getting greater ‘buy in’ to the Institute from university

graduates

I think the answers would have been that we need to increase

the number of relevant events but only if we can increase the

quality and depth. I think this can only really be achieved

by partnering with other organisations/groups as we are too

small as a profession to ‘do it all’. If we get greater buy in from

graduates, which I think we can achieve, then we need to make

sure we can follow through in terms of adding value for them

as they progress in their career. ▲

Jenny Lyon [email protected]

© Kirk Palmer Design


with Gae Robinson

G a e . R o b i n s o n @ f i n i t y. c o m . a u

Gae answers your serious and not-so-serious questions about life in the office, career, study and coping as an actuary in the real world

Approach to Job Search

I am a new actuary looking to change jobs. My friend suggested

I apply directly to the companies in which I’m interested but

I’m worried my application will get shelved if they don’t

have a position now. Another friend suggested I approach a

recruiter because they’ll know who has roles available and

will make my resume look slick. Which approach would

you recommend?

Yes, there are advantages of using a recruiting agency for

your job search. As well as finding out about specific job

opportunities, you can get some independent advice on your

career direction. Perhaps your own view of what you can do is

too narrow? Or there may be possibilities out there of which

you would not have thought. An agency will also be able to tell

you about opportunities that aren’t public – companies don’t

always advertise.

But don’t be scared to go directly to potential employers

either – if you know what you want, it’s simpler, easier and saves

the employer money (always go directly if they advertise!). You

could talk directly to the actuaries, not HR, if you know them.

Even when using an agency, you can still apply directly to

some companies. You can also use a couple of agencies at the

same time (exposure to more ideas/opportunities). Just make

sure that any potential employer hears about you from only

one source!

As for your resume – you can get help and suggestions

from friends, family or colleagues. Here’s my advice:

● don’t write several paragraphs on your career ‘vision’ or

goals or long summaries of your strengths – this material

almost always comes across as completely meaningless. A

brief description of why you’re interested in the company

and your relevant skills and strengths in your covering

letter is enough

● do write in plain simple English; don’t try to make it

sound ‘fancy’ or be overly formal

● please don’t make your resume more than two or three

pages long! If you can’t sound impressive in three pages,

you’ll sound terrible over five

Will a company remember you in future if there’s nothing

happening right now? Potentially not. But you can stay in

touch yourself (not too often!).

To Stand or Not

On my crowded morning bus, I am often faced with the

dilemma of whether to give up my seat to someone else.

Can you tell me how to decide?

To get my seat, you need to be more deserving than I. Generally,

there are three ways you can qualify:

● age – extreme youth (under 10) or old age (at least 60)

● pregnancy

● disability

While these rules are simple, their application can be complicated.

Age can be hard to judge and pregnancy – in the early stages –

even harder. Many times I’ve wrestled with the “is she pregnant

or just a bit tubby?” dilemma. I have to say on this one I err on

the side of caution – I really don’t want to offend some slightly

tubby woman by asking her if she’s pregnant.

If you qualify, normally I will be up straight away.

Occasionally, if I’m feeling old or sick on a given day – or if

I’m desperate to do some work before I get to the city – I will

wait first, hoping someone else will be generous.

I do have a slightly bolshy (mean?) approach to old women

who dye their hair to look younger – you know, the skin looks

75, the hair is solid brown. I think to myself “If you expect to

convince me with that hair, lady, I’m convinced – you look 40

not 75 and you’re not getting my seat!”

I also get annoyed when I’m standing and I see fit young

people in all the seats wasting them – not working, not

reading, just staring blankly into the distance. If I have a seat I

make good use of it!

I’m a firm believer that if you’re offered a seat – no matter

how offended you are at the implications – you should take

it. The person giving it up has made a chivalrous gesture that

shouldn’t go unrewarded! ▲

© Kirk Palmer Design


actuary unearthed

Title... Feather duster (last full-time job was MD UK & Regional Manager Europe, Towers Perrin)

Organisation...Involved with several; I think the pretentious response would be that I have a ‘portfolio post-career’

My favourite energetic persuit...Cycling and bush walking, both of which I do badly

My favourite meal...French-style dinner party prepared by my wife Ros, for whom I am the kitchen hand, table setter and pseudo-sommelier

The sport I most like to watch...Rugby, cricket and Aussie rules

The last book I read (and when)...I have several books on the go e.g. Useless Beauty: Ecclesiastes through the Lens of Contemporary Film by Robert K Johnston and Nature, Design and Science by Del Ratzsch

My favourite CD... Anything by British soprano Emma Kirkby

My favourite film... Dr Zhivago; more recently Wit (starring Emma Thompson)

My interesting/quirky hobbies...Theology/philosophy/ethics, antique furniture, wine (hardly interesting or quirky)

My ideal weekend day...Read The Age with a coffee, catch up with family, concert or dinner out, church (on Sunday)

If stranded on a desert island I’d like to take... Family, my library, hat and SPF 30 (for my Celtic skin)

The person I would most like to meet...Thomas Aquinas

What gets my goat...Intolerance and grocer’s apostrophes, of which I’m intolerant

What I wanted to be when I grew up...An academic mathematician

Why I decided to become an actuary... It gave financial independence while studying for a mathematically-related profession

Where I studied to be an actuary...Part-time while working in Sydney for AMP (1963-7), GL Melville & Partners (1967-8)

Degree/qualifications obtained... FIA (1969), BTheol (Melbourne College of Divinity, 1995), MA (King’s College London, 2000)

My work history...AMP/GLM&P 1963-8 actuarial student/ computer programmer; PTOW (successor to GLM&P) 1969-75 partner in Sydney, 1975-83 partner-in-charge in Melbourne; Towers Perrin (successor to PTOW) 1983-92 Manager Melbourne, 1992-94 MD Australia & SE Asia, 1994-98 MD UK & Regional Manager Europe. I mainly worked in superannuation and, increasingly over my last 15 years, management

My current role...I now have a variety of part-time roles in a diversity of organisations – board member, ethics teacher, consultant, student, garden labourer, grandfather, etc

My role’s greatest challenges...Finding enough time, while taking time to enjoy ‘retirement’

Who has been my biggest influence on my career (and why)... Tim Trahair, who mentored me as a young consulting actuary through most of my 20s

My most important ‘had to’ life-decision...Marrying my wife Ros (1967 – though ‘had to’ gives the wrong impression), whether to become a Christian (1983) and whether to move to London (1994)

My biggest regret...Regrets are pointless but if I had my time over I’d go to university after finishing high school

I’m most passionate about...Self-interested narrow-mindedness

I’d like to be brave enough to... Right now, to ditch enough of my involvements to get my PhD finished

My proudest moment...Finishing my BTheol after 8 years while working full-time

If I were a car, I would I be... I’ve got it – an aging Jaguar S type, showing sedate, decaying elegance

What’s my earliest memory...At age three, looking through a yellow plastic ruler at the setting sun and reading the words ‘The Golden Rule’ on it

My most embarrassing moment...Being invited to lunch 25 years ago with a major client for whom I was running late with a report and drinking too much out of relief that I apparently hadn’t lost the case (I still kept it!)

In my life I’m planning to change... My weight and standard of fitness

The age I would like to stay... Now (age 60) will do! Where do I sign?

At least once in their life, every actuary should… Study a humanities subject in some depth

My next holiday destination is...A tour of the New Testament sites in Turkey and Greece

My best advice to my children...Oral advice: You’ll give the best start to your kids if you love your spouse (the real ‘advice’ was given by how we parented them in total, not just by what we said)

� words that sum me up... Friendly, talkative, over-committed, self-critical ▲

Chris White

[email protected]

Chris White

When I first told people that I was going to work in

Italy, I think people had visions of Tuscan hills and

great food. Certainly the food part is right (outside of

the staff cafeteria). We are however far from the Tuscan hills, in

a part of Italy that is definitely Italian but with influences from a

number of other cultures.

Fast factsTrieste is at the northern end of the Adriatic Sea and sits in a

narrow arm of Italian territory that juts into Slovenia. The city

has a population of 207,000 and is geographically constrained by

the high plateau (the Carso) that surrounds the city.

The region of Trieste has been occupied since before Roman

times. More recently it was part of the Austro-Hungarian empire

before being annexed by Italy at the end of World War I. Trieste’s

changing ownership is reflected in the architecture of the city.

There are Austrian and Italian influences along with a hint of

Eastern Europe.

Italian LifestyleLiving in Trieste is very different from Sydney. The geographical

constraints of the city result in it having only a few houses on the

outskirts. The majority of buildings are four to six stories high,

divided by narrow streets. The Australian dream of a backyard is

therefore just that.

The reduced space has some advantages. From where we live,

work is a 25-minute walk, the waterfront is ten minutes away

and supermarkets and shops are literally just around the corner.

Often it is quicker to walk than drive. To manage the narrow

streets, the average vehicle is much smaller. Commodore – and

Falcon-size vehicles are rarely seen and ‘Toorak tractors’ (4WDs)

are also much less prevalent.

Grocery shopping in Trieste is different as the stores and

quantities are smaller and the range is very different to Australia.

People tend to shop daily. Dress is far more formal in general,

with more attention paid to appearance. As one would expect the

quality of clothing is quite high. Thankfully to date my wife has

been quite disciplined in resisting the temptations!

One of the great things about living in Trieste is that so much

is within reach. Within a couple of hours are places including

Venice, stunning Lake Bled in Slovenia and the start of the

Croatian coast. Only a few more hours away are places such as

Munich, Vienna, Salzburg and Milan.

Driving in Italy is different with both pedestrians and drivers

mutually agreeing that pedestrian

crossings are illustrative only. Limits to

overtaking and speed seem to be both

less enforced and less obeyed. Double or

illegal parking is common. In fairness

however, crazy driving probably occurs

only slightly more than in Sydney.

It has been fairly well-publicised

that Italy has one of the lowest birth

rates in Europe of 1.3 births per female.

from

postcard

ITALY

Venice is just one and a half hours up the road

Piazza Unita, Trieste’s main square

The Barcolana. The last major race

of the Mediterranean Summer season.

Approximately 2,000 boats participate in a

race of a few hours.

Little people investigating nearby Ljubljana

1� ACTUARY AUSTRALIA APRIL 2007

We therefore stand out as a family of

five. A number of times in Trieste

old people have come up to us and

declared “Uno, due, tre, bravo!”,

congratulating us for ‘personal

achievements in the field of fertility’.

In some ways the low birth rate is surprising as

we’ve found that the kids get treated very well. Our children

in particular seem to be experts at scoring free food samples from

shopkeepers and elderly shoppers!

In Italy you are very much surrounded by history and this

history is felt by the people. This goes hand-in-hand with a

greater acceptance of things as they are. This leads to a more

conservative society in terms of change but also comes with

greater acceptance of one’s place in the world.

Working in ItalyLloyd Adriatico, the Allianz company where I am based, competes

with Illy coffee as one of Trieste’s largest employers. A number of

Italy’s insurance companies were born in Trieste as a result of its

maritime history. The Lloyds offices overlook the Adriatic and on

a clear day you can see the Croatian coast about 30km distant.

Working in Italy is far more formal with business casual and

open plan being much less common. Tradition and hierarchy is

relatively more important. One example of tradition is shown by

the art collection that graces the walls of the boardroom floor,

including a number of Renaissance and pre-Renaissance works.

The working week is a bit different in that people tend to

work a bit later during the week but leave earlier on the Friday.

Having coffee breaks is, as one would expect, of great importance

– and the coffee is very good. Being a small city, many of the

employees go home for lunch.

EuropaThe insurance sector in the continent has in recent times seen

a transformation in many countries to a far more competitive

environment, a process which is only likely to accelerate.

Obviously for many people there is some apprehension regarding

these changes. Coming from Australia where such change has

both been part of the landscape for a significant period of

time and has been largely successful provides me with some

perspective to this process.

In my role I am involved with the different European business

units. It is fascinating to see the different ways people in different

countries act and react in various situations. Despite the cultural

differences, the continent is rapidly seeing more advanced

techniques being used and such techniques becoming more

standardised across the continent.

It is interesting to observe how Europe is progressing from

the inside. Whilst in Australia we often hear about the difficulties

of the various changes, it is my observation that economically

and socially things are gradually and perceptibly changing for

the better.

The combination of a range of factors including free

movement of labour, mutual recognition of qualifications, the

rise of budget airlines and of course the rise of the Euro is in my

observation pulling Europe much closer together. Whilst there

are setbacks, the EU as a whole seems to be a success story.

One thing that I have noticed compared to my backpacking

days is the ongoing rise of English, which is becoming the

business language of Europe. To my frustration I’m finding that

whilst this makes it easier to communicate, my learning of Italian

has been quite slow as any inter-country conversation inevitably

occurs in English.

Actuarial OpportunitiesThe actuarial profession in Italy is in relative terms smaller

than Australia with only about 700 members. Italian actuaries

are required to sign off reserves and are moving into pricing.

Training includes quite comprehensive technical training. For

actuaries with the right experience there will inevitably be

opportunities.

Working in Continental Europe should not be overlooked

compared to the more obvious magnet of London. Whilst

London has if anything become even more important in recent

years as a world centre for financial services, much actuarial work

occurs in other cities. The quality of life in many of these places

is often much better, particularly for families. Combining the

opportunity to experience another culture, along with opening

oneself to different work experiences offers real value.

In summary we’ve found our time in Italy to date fascinating,

extending and charming. Apart from it being a positive career

move, we feel fortunate to have sampled some of ‘la dolca vita’. ▲

Alan Smee

[email protected]

ITALYA

lan

Sm

ee

In January Trieste had the first snow in six years. We took the opportunity to go up on the Carso (the plateau 400m above Trieste).

Those squares have some uses for little people

Sunset over Trieste harbour

ACTUARY AUSTRALIA APRIL 2007 1�


T he Institute’s Council continues to work hard on its internal corporate governance and processes in order to ensure that it maintains an effective and efficient structure.

The current focus has been on making the operation of

Council more efficient and maximising the effectiveness of your

Councillors – the directors of the Institute.

The process begins

In August 2005, Cameron Ralph conducted a consultative study

on improving Council effectiveness. It identified a number of

areas for potential improvement – spanning group dynamics,

information, decision processes and monitoring.

Following the study, a number of changes were made that

improved Council’s performance. However, Councillors felt the

time was right to push further on increasing their effectiveness as

a strategic governing body.

During the December 2006 quarter, The Boardroom

Consulting Group was commissioned to survey Councillors on

the induction process for new Councillors. The survey raised a

number of other issues, including the purpose of the Board, the

functions and responsibilities of Council, the effectiveness of the

Executive Council Committee, impressions of Council meetings,

the expectations of Board decision making and the President’s

role as Chairman.

Workshopping the issuesBased on the survey feedback and input from the Institute’s

President, Company Secretary and Chief Executive Officer,

a Board induction workshop was designed and held on

31 January 2007.

A very full program was enthusiastically embraced by

all Councillors with extremely positive contributions and

considerable progress made.

Topics for the day included:

● enhancing Councillors’ effectiveness as Board members

● professional development on directors’ duties

● the role of the Board, group dynamics and collective

decision-making

● the future shape and direction of the Board, including

strategic focus, policy development, process improvement

and delegations

● reviewing Council policies with a strategic focus.

Key workshop outcomes

The Board agendaA key Council concern has been the limited time available for

strategic focus, given the breadth of issues that come before it.

A number of avenues were explored to ensure that

Council’s agenda reflected strategic issues rather than

operational drivers.

A new style of agenda was approved in principle and then

trialled at Council’s February 2007 meeting. It includes the

introduction of a rolling six-month outline agenda for Council

meetings to ensure ongoing continuity between Presidential

terms and maintain control of Council’s focus on key

strategic issues.

Other mechanisms for achieving this outcome – such as

reviewing delegations of authority for relevance and optimal

effectiveness – will also be implemented.

Council papersIn order to improve the overall quality, as well as consistency, of

papers put before Council, a Guide to Writing Council Papers

will be prepared and made available to the Secretariat and

through the Institute’s website. Also included will be a template

to help writers structure their papers more effectively.

Council policies reviewA review will be conducted during 2007 of existing Council policies

to ensure their continued strategic and operational relevance.

New induction process for CouncillorsWhen new board members are not properly inducted to the role,

function and business of the board and receive direction as to

what is expected of them, it can take up to 12 months before they

are able to participate fully in board decision making. As such, a

well-designed and relevant induction program is a contributing

factor to effective decision making by a board.

In addition, the workshop designers see considerable value

in maximising personal development opportunities for those

actuaries who devote so much of their time to serving on Council.

They believe that all Councillors should be fully equipped to

serve on other boards through their experience on Council.

A new induction process for Councillors was therefore agreed

involving:

● meeting with the President for a briefing on:

– current broad policy issues and their background

Council gets onBoard

report


T he Institute of Actuaries of Australia is pleased to announce the appointment of Sue Wetherbee as Manager Strategic Projects. Sue’s appointment will see her manage strategic

projects for the Institute, the first of which is ‘Integration of

CPD and Education’.

Sue brings to the role an extensive background in learning

and development in both the government and corporate

arenas. Sue’s management roles at regional, state, national and

international levels have provided rich experiences that will

contribute to the Institute’s developments in the future.

Sue commented “I am learning more each day about the

past history and present operation of the Institute’s education

and CPD programs. These pieces of the jigsaw along with many

meetings and discussions with key Executive, Council and

Secretariat staff have given me an outline of the puzzle to be

solved by the project.

I have observed a tutorial and have attended a Young

Actuaries Program event, the ERM symposium and some of the

CAP program. Exposure to and participation in many aspects

of the present CPD and education programs will also give me

an opportunity to meet members. I look forward to including

member voices in the completion of the jigsaw.” ▲

The Institute of Actuaries of Australia appoints Manager Strategic Projects

– his or her approach to managing Board meetings,

dynamics and debate

– a general overview of the Board membership

– the expectations of the new Councillor as a director

● meeting with the Chief Executive Officer for a briefing on:

– progress on implementation of the current strategic plan

– financial performance of the Institute

– key highlights of the Institute’s operational business plan

– a general overview of the senior management team of

the Institute

● meeting with the Company Secretary for a briefing on,

among other things, directors’ duties and the contents of the

Director’s Compendium (more about this later)

● receiving:

– minutes of Council meetings from the previous

12 months

– schedule of Council meetings for the next year

– an open invitation to meet members of the Institute’s senior

management team to discuss areas of responsibility

– for those candidates who do not face a contested election,

an invitation to attend Council’s December meeting.

The Director’s Compendium

The Director’s Compendium provides a learning, as well as future

reference, tool to:

● assist Councillors in fulfilling their duties as officers of the

Institute

● allow new Councillors to be productive and effective as

quickly as possible

The Director’s Compendium provides a wealth of material on

topics such as:

● how to be an effective director, including key expectations,

qualities and attributes of an effective director and tools to

self-evaluate Board performance

● directors’ duties and liabilities, as well as confidentiality

● risk, liability and the director

● a profile of the Institute and Board

● corporate governance, including the basic principles of

good corporate governance and the governance structure of

the Institute

● the Constitution, Council policies, rules and terms of

reference for committees and taskforces

● frequently asked questions

● professional development options

● the Institute’s current strategic plan, budget, annual report

and directors’ and officers’ liability insurance policy.

Continuous improvement

The last six months or so have seen the implementation of

significant changes directed at enhancing the strategic focus

and effectiveness of Council.

Many of those initiatives will offer increasing benefits over

time but ‘getting on Board’ with more effective

corporate governance practices demands continuous

improvement. Watch this space! ▲

Anne Peters

[email protected]

Sue Wetherbee

Ann

e P

eter

s


Introduction

If thinking of the Australian Government Actuary (AGA) conjures

up a mental picture of a human calculator poring over vast tables

of factors and projecting public service pension costs with great

precision, then perhaps you should read this article. Although

the idea of an AGA might sound somewhat archaic, the office

continues to play an effective role as one of the tools available to

government in the 21st century.

Today, AGA is a small but dynamic organisation that provides

actuarial and related public policy advice to government and its

agencies. There are seven staff, including three actuaries, with a

range of public and private sector backgrounds. AGA has a large

client base and its advice is sought in a wide variety of contexts.

Brief history

The first AGA was Charles Wickens. He was appointed

commonwealth statistician in 1922. He added the title of

commonwealth actuary in 1924. Following Wickens’ departure

in 1932, the position was unfilled until late in the 1930s.

1n 1938, Englishman Walter Balmford became commonwealth

actuary and remained in the position until 1957. After Balmford,

Sid Caffin occupied the dual role of life insurance commissioner

and AGA until his retirement in 1978. Caffin was renowned

as a conservative ‘hands-on’ regulator of the life insurance

industry. After Caffin, John Ford held the role of AGA until the

mid-1980s.

Thus, the first sixty years of the history of the AGA saw only

four occupants of the position – Wickens, Balmford, Caffin and

Ford. In contrast to that, there have been five since 1990. Notably,

Donald Duval who was AGA during 1992 and 1993 is recognised

as the architect of the SIS legislation, which transformed the

regulatory framework for the superannuation industry in the

early 1990s.

The office of the AGA was located within the federal Treasury

until the establishment of the Insurance and Superannuation

Commission (ISC) in 1987. From 1987 until 1998, AGA was

part of the ISC. In 1998, the ISC was replaced by APRA. Two

years later, AGA was transferred from APRA to the Treasury,

thus completing the circle. Location within the Treasury puts

AGA in a much better position to contribute to broader public

policy issues.

Legislative basis

Neither the position nor the office of the AGA is established

anywhere in legislation. This situation has existed since Charles

Wickens first took the title of commonwealth actuary in 1924.

Oddly enough, however, the AGA is referred to in several

pieces of commonwealth legislation, including some which has

been enacted in the last few years. Thus, for example, the Medical

Indemnity Act 2002 requires various reports to be prepared by

the AGA.

Since the AGA is established or defined nowhere legally, it

appears that successive governments have simply assumed that

there is one and everyone knows whom it is!

Operational basis

For operational purposes, AGA is located within the federal

Treasury. This means that AGA staff are employed under

Treasury terms and conditions and that AGA shares facilities

(accommodation, IT systems, etc) with the Treasury. For business

purposes, however, AGA necessarily operates quite independently

from the Treasury. AGA provides professional advice to its clients

and it is essential that it can maintain a confidential relationship

with each of its clients individually. So, for example, other

parts of the Treasury do not have access to AGA’s computer

files, even though they are maintained on the same network.

The Australian Government Actuary

review


On the other hand, access to high level economic expertise

within Treasury facilitates relevant contextualisation of AGA’s

professional advice.

The vast majority of AGA’s work is fully contestable. This

means that, in general, public sector agencies are free to choose

their actuarial service providers. Only a small portion of AGA’s

work is ‘tied’. In a few cases, the legislation requires that something

be done by the AGA while in other cases the government may seek

advice specifically from the AGA. In order to able to discharge its

legislative responsibilities effectively and to be able to provide

high quality, responsive and timely advice to government, it is

important that AGA maintains a critical mass of staff. To do this,

AGA has to win a reasonable share of the available public sector

work since, unlike its competitors, it cannot compete for work in

the private sector space.

Financial basis

Historically, AGA was funded from the federal budget and while

having some reasonably well-defined responsibilities in relation

to commonwealth superannuation and reporting on population

mortality would undertake other work either as requested or as

determined internally to be a priority. The concern in government

in the late-1980s and early-1990s to have a more transparent and

accountable allocation of resources led to a shift to user charging

for services and the cost of actuarial services provided by AGA to

other agencies began to be billed to those agencies. Since 2000,

AGA has been required by government to charge on a basis that

is competitively neutral and fully self-funding. That is, AGA

must rely wholly on fees from its clients to pay for all of its costs

including employee expenses and other direct expenses such as

travel, rent etc. As well as this, AGA purchases corporate support

(payroll, IT support, etc) from the Treasury. For all intents

and purposes, AGA operates as an actuarial and public policy

consultancy service to government from within government.

To facilitate these arrangements, AGA operates its own

‘special account’. Fee revenue is paid into the special account

and the expenses of the office are met from it. Although this is

different from the normal public sector model where unspent

money is typically returned to consolidated revenue at the end

of each year, it is an essential element of AGA’s operation to

allow smoothing of the fluctuations in the demand for services.

AGA could not operate on a self-funded basis without the

special account.

It is interesting that the 2005 Morris Review into the actuarial

profession in the UK made a number of recommendations in

relation to the UK Government Actuary’s Department (GAD),

most notably that GAD operate on a more contestable basis

and that, to allow this to work, it operate as a ‘trading fund’.

In effect, this means that Morris recommended GAD should

operate a special account. It is fair to say that the Morris

Review recommended that GAD should move onto an AGA

operational model.

What does AGA do?

The AGA is possibly best-known for its role in producing the

Australian Life Tables that provide an ongoing record of the

mortality of the Australian population. The Income Tax Act refers

to Australian Life Tables published by the AGA but provides no

indication as to how often this should happen.

In practice, the need for reliable estimates of exposed

population has meant that tables have been produced when

census data becomes available. The first Australian Life Tables

were prepared in 1911 as part of the documentation of the

1910 census. Charles Wickens produced the 1920-22 tables as

commonwealth statistician and actuary while the 1932-34 tables

were produced without actuarial input. The 1946-48 tables and

all subsequent Australian Life Tables have been prepared by the

AGA. With the move to quinquennial censuses in 1961, the

tables are now also published on a five-yearly basis. The next

tables, ALT 2005-07 are due for publication in 2009. They will

be the seventeenth tables in the series, with the exposed-to-

risk calculations based on the data recently collected in the

2006 census.

The Australian Life Tables actually form a very small part of

the AGA work program. During the course of a year, AGA might

typically provide advice to around 40 client agencies. In the past

year, for example, all of the commonwealth’s major agencies

have sought advice from AGA; clients have included: Treasury,

Defence, Health, FACSIA, Immigration, PM&C, ATO, AGs,

Finance, Veterans’ Affairs and DEST. Sometimes, the advice will

be provided in response to specific questions from government

or its agencies while on other occasions agencies may want us

to work in tandem with them in developing policy proposals

for consideration by the government. As well as this, AGA

provides pure technical advice to support the public sector

financial management process and to support implementation

of government policy.

The nature of the work done by AGA has changed considerably

since the mid-1990s. Then the vast majority of its work was

focussed on public sector superannuation. Most of the rest was in

support of the prudential regulator (the ISC). Only a very small

proportion of AGA’s work related to other contexts.

In contrast, public sector superannuation counts today for

less than a third of AGA’s fee revenue. In recent years, a significant

amount of work has had a general insurance flavour. Some of

this has been ‘internal to government’ – for example, around


the complex compensation arrangements for military personnel

and veterans. And some of it has arisen as a result of external

factors: the collapse of HIH, the government’s desire to support

and stabilise the medical indemnity industry, the withdrawal of

terrorism cover, etc.

These latter contexts are examples of greater involvement

today in policy development. On prudential regulation, for

example, AGA today provides advice to the Treasury on the

policy framework whereas 10 years ago, AGA supported the

prudential regulator directly. Similarly, AGA has been involved in

the development and implementation of the superannuation in

family law and superannuation simplification policies.

As well as these more traditional areas of work, many

other interesting contexts crop up from time to time. A few

recent examples include: higher education funding, immigration,

climate change and genetics.

The future

It is said that the net worth of a consulting firm is made up

of perhaps a few months of work and its reputation. Actuarial

consulting is unlikely to be significantly different. Moreover, the

actuarial workspace is being increasingly targeted and eroded

by other disciplines and professions. Computer technology has

made complex calculation accessible to everyone. Present value

tables and formulae have become redundant. At the same time,

the actuarial profession is looking to broaden its horizons and

get into non-traditional areas such as banking and infrastructure

financing to name two. The lines are becoming blurred.

For these reasons and more, competing for actuarial work

in the public sector is no easy task. Firstly, policy agencies

employ economists and other quantitative analysts who are

comfortable dealing with numbers and probabilities. As a

general rule, AGA has to ‘compete’ with these people for advice

opportunities. Secondly, government agencies have to meet

budgets and actuarial advice comes at a cost. Although that

does not sound any different from the private sector, actuarial

advice to a government agency most often will not improve that

agency’s own bottom line. Thus, an insurer might seek advice

from an actuary either because the law requires it or because it is

looking for a direct financial benefit. In this case, the insurer has

a positive financial reason to spend the money on the advice.

More often than not, however, a government agency will only

spend the money if it thinks it is a good idea to do so. It will

likely never have a positive financial reason to do so. The best

that we can hope for is that the agency believes that the advice

will add to its policy development and that it can afford the

advice. The natural incentives are, therefore, arguably weaker

for public sector entities than for for-profit entities. AGA

operates wholly within the public sector marketplace.

It is true to say that AGA’s current operational model means

that it will have to work hard to maintain its relevance. AGA’s

response to this situation is simple: it aims to ensure that it

continues to provide timely, robust, authoritative, unbiased advice

which comprehends both the government’s policy priorities and

government processes.

AGA is, of course, uniquely placed to do this and the

government recognises the value that AGA can add to its

product. For example, as recently as 10 October, the AGA

was referred to in a second reading debate in the House. The

parliamentary secretary to the treasurer closed with “The

Australian Government Actuary advises that current market

conditions suggest we have before us now the best opportunity

to negotiate the sale of pre-transfer contracts”. As well as

this, AGA enjoys a good reputation within the public sector.

Moreover, AGA now has a diversified client base. Contacts

across a wide range of agencies mean that it is ‘plugged into’

many issues. Location within Treasury gives AGA access to

economic and related expertise. All of this facilitates practical,

relevant and properly-contextualised advice, which is likely to

add real value to the policy development process.

The AGA and the Institute

The first government actuary, Charles Wickens, advised the

federal government on its then new public service superannuation

scheme. However, the government’s decision to operate the

scheme on an unfunded basis was not favoured by Australian

actuaries. Wickens explained the government’s viewpoint to the

local actuaries who, probably only because time ultimately beat

them, did not to write to the government about the matter.

The interaction between Wickens and the actuaries and then

among the actuaries themselves is reported (Bellis, 1997, The

Future Managers) to have been quite unseemly.

Even now, as it was then, there does not seem to be a strategic

dimension to the interaction between the AGA and the Institute.

The ‘relationship’ has been ad hoc.

The Institute has a desire to promote the benefits of actuarial

input in government policy making. It is clear that this endeavour

would be significantly enhanced by the ongoing presence and

involvement of a vibrant AGA. There is therefore a convergence of

interest. It would make sense to leverage this to the extent possible.

Perhaps a worthwhile activity for the next twelve months

would be to explore the issues involved systematically with a

view to developing a framework intended to ensure that the

operational relationship between the AGA and the Institute is

mutually optimal. ▲

Peter Martin

[email protected]

review (continued)


review

SternReview

T he community’s awareness of climate change has gained traction in the last few months and as Cameron Hepburn from Oxford University has said “When the history of the world’s response to climate change is written, the Stern Review

will be recognised as the turning point.”

Sir Nicholas Stern, a former chief economist of the World Bank,

was commissioned by the Chancellor of the Exchequer to report

to the UK government on the economics of climate change in the

UK and globally. Robert Solow, the 1987 Nobel Prize economist

commented, “If the world is waiting for a calm, reasonable,

carefully-argued approach to climate change, Nick Stern and

his team have produced one. They outline a feasible adjustment

policy at tolerable cost beginning now. Sooner is much better.”

The review finds that “..while cost estimates for action are not

trivial, they are also not high enough to seriously compromise the

world’s future standard of living – unlike climate change itself,

which left unchecked could pose much greater threats to growth”

The review predicts that “Over the next 10 to 20 years carbon

pricing will be universal and automatically factored into decision

making” as “All economies undergo continuous structural change;

the most successful have the flexibility and dynamism to embrace

the change” and “Tackling climate change is the pro-growth

strategy for the longer term”.

We have set out to give a brief overview of the modelling, the

main findings and the main recommendations made in the

575-page review. Space limitations preclude anything but a high

level view.

The modelling

A 200-year timeframe

A long timeframe of about 200 years is needed for comparing

inaction (business as usual or ‘BAU’) with the effects of possible

policy options. This is due to the exceedingly long lead times before

any actions taken will have an impact on the level of greenhouse

gases (‘GHG’) in the atmosphere – the absorption capacity of

the biosphere is such that GHG (carbon dioxide in particular)

emitted now will remain in the atmosphere for about 100 years.

The expectation is that it will take at least fifty years to stabilise the

global level of emissions. Once the emissions level is stabilised, the

stabilisation of the GHG concentrations in the atmosphere will

take at least another 50 to 100 years to fully flow through.

The connection between GHG concentrations and

temperature/ climate change

The key assumptions underlying the economic modeling in

the review are projections made about future levels of GHG

concentrations in the atmosphere and the associated changes in

climate that will occur over time. The predictions made in the

Inter-governmental Panel on Climate Change Third Assessment

Report in 2001 are the main ones used. However, the results of

many other scientific studies are also taken into account.

Prior to the industrial revolution GHG concentrations were

around 280 ppm CO2e. Currently the concentration is about

430 ppm and the level of emissions is higher than the capacity

of the biosphere to absorb. Hence, even if emissions could be

stabilised now, the concentration of GHG is still predicted to

increase to 550 ppm CO2e (parts per million CO2equivalent) by

2050 and to higher levels by 2100. Under the BAU scenario with

on the Economics of Climate Change

NASA image of Cyclone Craig over northern Australia

ACTUARY AUSTRALIA APRIL 2007 �0

emissions increasing, the 550 level could be reached by 2035 and

the concentration could treble to 750 ppm or higher by 2100.

The table below summarises the predicted range of increases

in average global temperatures arising from various possible

levels of GHG concentrations.

Stabilisation Global Mean 5% to 95% TemperatureLevel Increase Increase rangeTemperature (relative to pre- (relative to pre-industrial levels)(ppm CO2e) industrial levels)

450 2º C 1ºC to 4ºC

550 3º C 1.5º C to 4.5º C

>77% chance will exceed 2ºC

650 3.5º C 2ºC to 6ºC


750 4º C + 2.1º C to >6º C,


How the model assesses the cost of temperature/climate change

The review includes detailed descriptions of the potential effects

of climate change on different regions of the world. The major

points taken into account in the development of the models of

economic costs are that:

● the impacts are unevenly distributed with the poorest

countries due to suffer earliest and the most due to their

geographical locations and ability to adapt

● some parts of the developed world will benefit through

increased agriculture, reduced heating costs, etc from

moderate levels of temperature increases but the net benefit

will disappear at higher temperatures, in particular due to

the costs of extreme weather events, which could reach 0.5 –

1.0% of global GDP by 2050 and the effect on global financial

markets through higher and more volatile costs of insurance

● amplification effects could lead to dramatic increases in costs

and social consequences associated with water shortages and

rising sea levels

As the projection of costs based on the mean expected temperature

increase conceals the risks of much higher outcomes, the models

used are designed to analyse risk explicitly. Ethical judgments are

also made on the distribution of incomes and how to treat future

generations. An overall welfare cost is calculated by:

● aggregating the results of stochastic simulations across a

possible range outcomes of temperature increases

● averaging the effects on incomes over the next 200 years

incorporating a utility discount rate of 0.1%pa

● weighting the results by population so that the higher loss

of income in percentage terms that will be suffered by low

income countries is not overshadowed by the higher incomes

of the developed countries

The model includes allowance for market impacts (agriculture

losses, damage to coastal zones) and non-market impacts

(increased mortality, environmental degradation) and also

probabilities of catastrophic events such as hurricanes.

The findings

What is the BAU cost compared to the cost to stabilise

GHG concentrations?

The review demonstrates that the long-term cost of inaction is

much larger than the cost of action.

BAU cost of climate change to the economy

The average total cost over 200 years of changes from BAU

scenarios is equivalent to average reduction in consumption per

capita of at least 5% pa but adding the other considerations these

costs increase as follows:

● non-market impacts (environment and health) add 5% to

this cost

● limited allowance for amplifying feedbacks adds another 3%

● applying higher weight to the poor scales up these previous

costs by about 25%

Putting all these together increases the total cost to a 5% to 20%

pa reduction in consumption per capita “now and forever”.

Optimum stabilisation level (550 ppm CO2e) – cost to

the economy

The review chooses 550 ppm CO2e as a reasonable objective for

stabilisation of GHG concentrations. Lower levels are considered

too expensive. For example costs to achieve 450 ppm would be

three times higher.

In order to stabilise at 550 ppm, a feasible reduction trajectory

is for the absolute level of emissions to peak in 10 to 20 years’

time and then fall by 1% to 3% per year. By 2050 emissions would

need to be 25% below current levels despite the world economy

being 3 to 4 times larger then than it is now. Historically CO2

emissions per capita have been strongly correlated with GDP

per capita. This trend will have to be reversed so that emissions

per unit of GDP are about one quarter of current levels by 2050.

Of course if the reduction does not occur until later then more

severe reductions will be required. (See Figure 8.2 on opposite

page, reproduced from the review.)

The expected cost to achieve the stabilisation level is 1% of

GDP by 2050 but with a range of –2% (a net benefit) to +5%.

Beyond 2050 the range of estimates diverges strongly but

on average the cost is expected to remain at around 1% pa

of GDP.

review (continued)

ACTUARY AUSTRALIA APRIL 2007 �1

The recommendations

Summary of global greenhouse emissions

The pie chart below provides a snapshot of the major sources of

GHG emissions.

Emissions can be cut in four ways:

● reducing demand for emissions-intensive goods and services

● increased efficiency

● action on non-energy emissions, eg land use and

deforestation

● alternative low-carbon energy sources.

Policy requirements to achieve reductions

The review gives three essential requirements for an emissions

reduction policy:

● carbon pricing

● technology policy

● removal of barriers, and

● encouragement of behavioural change

Carbon Pricing

Greenhouse gases are in economic terms an externality – those

that produce them are bringing about climate change and thereby

imposing costs on the world and future generations. Meanwhile

they do not face the full consequences of their actions themselves.

A carbon price can be achieved explicitly through tax or trading

schemes or implicitly through regulation.

Carbon trading appears to be preferable to taxation as it is a

method that is structured to achieve emissions reduction at the

lowest possible cost.

Technology Policy

Carbon pricing gives an incentive to invest in new technologies

to reduce carbon. Policies to support the market for early stage

technologies will be critical.

Removal of Barriers to Behavioural Change

Information policies including labelling and the sharing of

best practice can help consumers and businesses make sound

decisions. There was a recent example of this in the UK where

a minister declared, just before Valentines Day, that roses flown

from Kenya cause less emissions than roses shipped from Holland

that were grown in heated greenhouses.

Governments and organisations can be catalysts for dialogue

through evidence, education, persuasion and discussion. The

efforts of our Institute in this area have been outstanding and a

tribute to the foresight of our Presidents.

In summary, we found the report to be a fascinating read. Where

else could you find a complex stochastic valuation over a period

of 200 years incorporating not only the usual pure financial

considerations but also chemistry, physics, geography, economic

theory, sociology, ethics etc? Now that’s really something for an

actuary to get her teeth into! ▲

Pauline Durant

[email protected]

Jill Green

[email protected]

Green house gas emissions in �000 by source

Reference The Report and further information can be found at http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm

Jill

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ACTUARY AUSTRALIA APRIL 2007 ��

with Swoodsy

Calendar awareness

April 1st is the day upon which we are reminded of what we

are on the other three hundred and sixty-four. – Mark Twain

April is the fourth month of the Gregorian calendar that we use

and is carried over from the Roman calendar – although it was

briefly known as Neroneus during the reign of the very modest

emperor Nero.

April is officially the designated month for (amongst other

things) chocolate eaters and mathematics awareness.

Which came first: the rabbit or the egg?

Easter is the most significant day of the Christian calendar,

celebrating the death and resurrection of Jesus Christ –

notwithstanding the discovery of any occupied tombs by

Titanic director James Cameron. Despite this, Easter is named

for a pagan spring goddess Eostre. Easter eggs and the Easter

bunny are also remnants of prehistoric pagan culture, being

symbols of fertility.

Easter is celebrated on different days around the world as a

result of divisions in the church and slight discrepancies in the

chronology of the gospels.

● Traditional: the Sunday following the first astronomical full

moon on or after the vernal equinox

● Western church: the Sunday following the ecclesiastical full

moon after March 21

● Eastern church: a Sunday according to the Julian calendar

● Jehovah’s Witnesses: a day according to the Hebrew calendar

Holiday bonanza(c)

April 25 is ANZAC Day, a national holiday in Australia, ensuring

that when Easter falls in April it is the shortest working month

of the year. Party on dude.

In the swing I

In the second week of April, Augusta National hosts the US

Masters, the first major golf tournament of the year.

● My cousin Tiger holds the record for the best score, an 18-

under 270 in 1997 when he won by 12 shots!

● The legendary Sam Snead holds the record for the highest

winning score, a 1-over 289 in 1954.

In the swing II

In the USA the last week of April is National Lingerie Week.

It may not be a holiday but it probably should be.

The April fool’s test

You couldn’t fool your mother on the foolingest day of your life if

you had an electrified fooling machine. – Homer Simpson

Candidates should attempt all questions.

Where appropriate, solutions should be illustrated with labelled

diagrams.

1. What date is April fool’s day?

2. Which will be the shortest day of 2007 in the southern

hemisphere?

3. Spell the following:

(i) aging

(ii) asymptotic

(iii) googol

4. How many are there in a baker’s dozen?

5. (a) Who won World War I?

(b) Who came second?

6. (a) What was King George VI’s first name?

(b) Name 5 other English kings named George.

7. The Canary Islands are named for which animal?

8. Which country makes Panama hats?

9. The international Morse code distress signal is ‘SOS’.

The letters ‘SOS’ stand for what?

10. Approximately how many commandments was Moses given?

11. Which two leap years immediately preceded 8AD?

12. How many months of the year have 30 days?

For your chance to win the sensational prize of $150 to spend

at the restaurant of your choice (provided courtesy of the

Institute), send your solution by email to or by regular mail to Two Ducks via the Institute.

Puzzle solution deadline

To meet printing requirements and to be eligible for the

sensational prize, puzzle solutions must be received by the first

week of the month following publication. ▲

Stephen Woods

[email protected]

22Two Ducks Swimming

ACTUARY AUSTRALIA APRIL 2007 ��

report

Communications Taskforce Report and Update

T he Institute Communications Taskforce was set up in 2006 to review the need to develop communication capability across the actuarial profession in Australia. This culminated in a

report to the December 2006 Council meeting of the key findings

and recommendations.

The taskforce’s work during 2006 included an investigation of how

different actuarial bodies around the world approached the issue

of communication skills of actuaries. These approaches included:

● in the UK, a formal, examined subject as part of the

qualification of Fellow

● in the US, an emphasis on producing articles, ‘how to’ tips

and practical help via publications

● for the smaller actuarial populations such as Australia, a

longstanding commitment and recognition of the importance

of this aspect of actuarial training but less emphasis on

providing practical and structured assistance to those in the

profession keen to improve their communications skills

Despite the

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