the actuary november 2014

The magazine of the actuarial profession

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NOVEMBER 2014theactuary.com

Interview: Trevor LlanwarneRe ections of a government actuary

LongevityLooking on the bright side of life

Solvency IIWhats your mindset for modelling?

CareersNEDs and the ght against nancial crime

MIS-ESTIMATING MORTALITYParametric models for life insurance data

p01_nov_coverSEMIFINALCT.indd 1 27/10/2014 15:24

2Appointments

THE ACTUARY May 2013www.theactuary.com

Whats underneath?We look below the surface to spot trends early and show you what is really happening. Whether your need relates to risk management, capital, or strategy, our cutting-edge analysis techniques can help you see deeper than the competition.

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www.theactuary.com

NOVEMBER 2014

MORE CONTENT ONLINEAdditional content can be found at www.theactuary.com

WRITERS OF THE MONTHEmma McWilliam and Richard Purcell win a 50 book token for their feature on longevity, courtesy of SIAS

AT THE BACK34 Puzzles

Try the latest cryptic crossword and Mensa puzzles

37 StudentJessica Elkin asks whether life in an Orwellian dystopia could mean an end to awed actuarial data

38 Actuary of the futureThomas Smith of AIG

ONLINE Solvency II: Building the

reporting platformThe regulatory regime expected to govern the capital adequacy of EU insurers is fast approaching. Insurers need to consider the systems implications carefully, says Madhu Senthil Thanikasalam

Review: SIAS Jubilee Lecture 2014 Mark Dainty reports on this years lecture

given by Steve Webb MP, minister of state for pensions, and Steve Groves, CEO of Partnership

For daily news reports, visit: www.theactuary.com/news

FEATURES16 Interview: Trevor Llanwarne Peter Tompkins speaks to the former

UK Government Actuary

20 Life: Key skills for lifeDavid Hughes and Chris OBrien outline the IFoAs working partys ndings into the changes in the role of the life actuary

22 Life: Im not dead yetEmma McWilliam and Richard Purcell urge individuals to look on the bright side when planning retirement needs

26 Careers: On board with fraud In the second in his series, Colin

Czapiewski looks at nancial crime andthe issues of which to be aware

28 Modelling: Top 10 fallaciesMost actuaries are at risk of some form of bias in their modelling work. Michael Ortmann explores the common pitfalls

33 Spotlight: Africa callingMarjorie Ngwenya reports on the Lord Mayor of Londons trip to Africa, and the launch of the CAA quali cation

UP FRONT9 SIAS events

10 IFoA news

14 People/society news

OPINION5 Editorial

Kelvin Chamunorwa reports back on a busy week of eclectic actuarial engagements

6 LettersConcerns on data crunching, hitting the headlines, and actuaries changing lightbulbs

7 Presidents commentNickSalter on the debates in which the profession should engage

8 SoapboxThere are high expections of a retired standard of living that the UKs resources cannot provide, says Icki Iqbal

16 As actuaries we often have to derive mortality bases from portfolio experience data, but how are we certain of the results?30

3November 2014 THE ACTUARY

Contents

COVER: OLIVIER BURSTON / IKON

28

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Risk. Reinsurance. Human Resources.

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p04_ACT.11.14.indd 4 28/10/2014 14:37

5www.theactuary.com

November 2014 THE ACTUARY

OpinionEditorial

There has been a hive of activity recently in a number of member groups in the actuarial profession. I took time to attend events hosted by some of them and I write this after a busy but pleasant week engrossed in actuarial matters including evening talks and dinners, amid marking September exam scripts.

One such event was held by Southern African Actuarial ConneXions, a member interest group whose guest speaker was Matt Lilley, CEO of Prudential Africa. He spoke about the insurers recent entry to Africa and delved into why he thought the agent and bancassurance distribution models that have brought growth in Asia could be replicated in its new market (page 15).

It was an insightful talk. In my view, distribution via mobile phones will soon emerge alongside these traditional channels, as technology develops to capture consumer behaviour digitally and as predictive analytics advance. Africa and Asia currently have the highest usage of mobile money accounts in the world in some countries it even exceeds the number of bank accounts.

Another highlight of the week was a dinner with the Worshipful Company of Actuaries; an evening steeped in tradition and etiquette. I couldnt escape actuarial exams though, as three exam prizes were awarded to Holly Hook, Louise Hunter and Richard Cohen coincidentally, all friends with whom I have had the pleasure of working.

The loving cup ceremony after the meal was particularly memorable. The actions to take as the cup comes to you seemed simple: you rise, you bow; you raise the lid in your right hand with a ourish and wait while they drink and wipe the rim with the cloth; then replace the lid and take the cup by its handles with a bow; you turn to the next person and so on. My rst attempt did not go as smoothly as planned fortunately, the actuaries either side of me at the table were both very forgiving.

At The Actuary, we also welcomed a new recruit, Gemma Gregson, ending our search for a new features editor. Gemmas arrival also signalled the culmination of my own busy week of actuarial hospitality.

PublisherRedactive Media Group17-18 Britton Street, London EC1M 5TP +44 (0)20 7880 6200

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Published by the Staple Inn Actuarial SocietyThe editor, The Institute and Faculty of Actuaries and Staple Inn Actuarial Society are not responsible for the opinions put forward in The Actuary. No part of this publication may be reproduced, stored or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the copyright owners. While every effort is made to ensure the accuracy of the content, the publisher and its contributors accept no responsibility for any material contained herein. Important information for contributors to TheActuary By submitting content for publication you confirm that: (a) You (and/or other named contributors) are the sole author(s) of the content submitted;(b) The content you submit is original and has not previously been published (unless you specifically advise us to the contrary);(c) You havent previously licensed the use of the content you submit; (d) So far as you are aware, the content submitted will not infringe any third-party rights, be defamatory or in any way illegal.

SIAS November 2014 All rights reserved ISSN 0960-457X

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Subscriptions For subscriptions from outside the actuarial profession, UK: 90 per annum/8.50 per copy. Europe: 110 per annum, rest of the world: 130 per annum. Contact: Alison Jiggins, The Institute and Faculty of Actuaries, Staple Inn, High Holborn, London WC1V 7QT. T +44 (0)20 7632 2100 E [email protected] on actuarial science courses may join and they will receive The Actuary as part of their membership. Apply to: Membership Department, The Institute and Faculty of Actuaries, Maclaurin House, 18 Dublin Street, Edinburgh EH1 3PP. T +44 (0)131 240 1325 [email protected] Changes of address should inform the membership department as above. For delivery queries, contact: Rachel Young E [email protected]

Circulation 25,331 (July 2013 to June 2014)

Kelvin Chamunorwa reports back on an eclectic mix of gatherings of actuaries with common interests

[email protected]

In my view, distribution via mobile phones will soon emerge alongside traditional channels

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InternetThe Actuary: www.theactuary.com Staple Inn Actuarial Society: www.sias.org.uk Institute and Faculty of Actuaries: www.actuaries.org.uk

Managing editorSharon Maguire+44 (0)20 7880 [email protected]

EditorKelvin Chamunorwa [email protected]

Features editorsContact: [email protected]

Jeremy Lee, pensions, investment, ERM, banking

Richard Purcell, life, health and care

Richard Schneider, life, SolvencyII, mortality/longevity, modelling and software

Helen Lau, GI, reinsurance, environment, careers

Gemma Gregson, pensions, GI

People/society news editor Yvonne [email protected]

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SIAS representative Titas Bakanauskas

Editorial advisory panelPeter Tompkins (chairman), Naomi Burger, DavidCampbell, MatthewEdwards, MartinLunnon, SherdinOmar, RichardPurcell, NickSilver, Andrew Smith

p05_Nov_editorialSEMIFINAL.indd 5 27/10/2014 15:25

THE ACTUARY November 20146www.theactuary.com

MORE LETTERS ONLINEMore letters are available online atwww.theactuary.com/opinion

OpinionLetters to the editor

The editor welcomes readers letters but reserves the right to edit them for publication. Please email [email protected]. The deadline for receiving letters for the December issue is 19 November 2014.

[email protected]

How many large group healthcare actuaries does it take to change a light bulb?

The same number as last year, times a trend factor.

How many small group healthcare actuaries does it take to change a light bulb?

Ten: one to screw the light bulb and nine to interpret the health reform regulations on light bulbs.

How many management actuaries does it take to change a light bulb?

20: one to screw the light bulb and 19 to have a sta meeting on it.

How many casualty actuaries does it take to change a light bulb?

None, the light bulbs are all broken.

How many pensions actuaries does it take to change a light bulb?

None, they can make an assumption that the light bulb changes itself.Tony Batory15 October

Regarding Paul Waterhouses letter Dangers of more data (TheActuary, October 2014), as of last week, many years after my rst stint at university, I am back at University College London studying machine learning.

I think I still have a little while to go before I am su ciently expert to enter the fray, but one thing that has impressed me is the structured approach to problem solving. While what I have seen so far does not explicitly cover Pauls concerns, it is not too hard to imagine an updated understanding of the Actuarial Control Cycle including

both machine learning ideas and the broader issues that Paul mentions. Well, at least, thats what I think after one week. One person who articulates clearly the machine learning approach is Professor Yaser Abu-Mostafa.

The rst two lectures in his series (The Learning Problem and Is Learning Feasible?) are well worth a listen (bit.ly/10rwyYH).

And now I have to dash as my assignment deadline is next Tuesday. Who said that a students life is easy!Alan Chalk2 October

Making sensationalist headlines make senseThe headline Retirement age could go up by six months every year in The Actuary news story online was potentially misleading (bit.ly/1FMbagO), as was its subheading: The retirement age could rise by an average of six months a year, encouraging older people to stay in work longer, under new government plans.

The headlines in the wider media followed a similar line, but I had hoped The Actuary would have been less sensationalist.

A casual reader might think that the UK government was planning to raise either the state pension age or the age at which people could take their retirement bene ts. They might think it was raising these ages to encourage people to work longer. This is not what the government has said at all, and not what the main story in either TheActuary or The Telegraph actually described.

Looking at the Department for Work and Pensions (DWP) report quoted in the story, the DWP appears to me merely to be publishing an indicator of the ages at which older people actually withdraw from the labour market and become economically inactive. DWPs wider policy is to encourage people to work later in response to demographic ageing and ensuring pensions sustainability. This is not new.

DWP said, An increase in the average age of withdrawal of more than around 0.5 years would demonstrate an improvement and meaningful change, which seems an uncontroversial fact to me.

Separate legislation already requires a regular review of state pension age, having regard to life expectancy. The government has already announced that it is considering raising the age at which people can take their occupational and personal pensions to 10 years before state pension age.Glyn Bradley14 October

Editors response: Thanks for your contribution to The Actuary, Glyn. We appreciate that the headline could have been misleading to some it was not our intention to imply changes to either state pension age or the minimum age at which people can take their retirement benefits. We did not see the need to make that distinction in the headline, which needed to be succinct. I agree with you that the DWP aim highlighted in the article is not new the news was the publication of the DWP business plan earlier that week.

Actuaries and light bulbs

Data crunching

ISTOCK

p06_nov_lettersSEMIFINALCT.indd 6 27/10/2014 15:38

November 2014 THE ACTUARY 7www.theactuary.com

OpinionPresidents comment

Life, on occasions, can be a rollercoaster ride; you are out of control, subject to all sorts of unexpected forces, and never quite sure what is coming next. Dont get me wrong, I am quite partial to a rollercoaster ride. The initial fear that gets replaced with excitement, then the thrill and nally the smile at the end that suggests I want to go again.

If you follow the media it can often resemble a rollercoaster, and last month I found myself riding it as I scanned through my news alerts. The initial fear and dread came as I read the blog from the BBCs economics editor, Robert Peston, which said that the recent UK Labour Party Conference had only a little more oomph than a convention of actuaries.

But that feeling of dread was soon replaced with excitement as I read Reuters, who highlighted our GIRO conference in their diary as one of the top economic events to watch.

Excitement was soon followed by a smile when it became apparent that the Reuters point had not been lost on others in the media and the money markets, who were glued to our conference guest speaker, the governor of the Bank of England, Mark Carney, and what he might say.

The pound strengthened against most major currencies in the lead up to the governors speech. I dont know about Mr Peston, but to me that felt like quite a bit of oomph for a convention of actuaries.

Changing timesI guess it is a sign of how the IFoA is changing, and more broadly how the perception of our profession is changing, that we can attract such quality speakers to our conferences. Opinion formers with oomph from beyond our traditional elds who recognise actuaries, not just for what we are doing today, but for what we can do in the future.

So it was reassuring to hear the governor say at the conference that, by including our profession in the new regulatory regime, he recognises the importance of our skills and the range of our contribution. A point reinforced when he stressed the need to consult with actuaries as he develops his

senior manager regime in the UK. Pleasingly, he also seemed receptive to the idea that actuaries have a lot to o er outside our traditional areas; one of my key ambitions for our profession, and something that I plan to follow up with him when I can.

If any of you have ever been engaged in public policy debates, you will know that this too can feel like being on a rollercoaster.

The fear and dread sets in as the request for a response to a government consultation drops into the inbox, with a turn around time that many budget airlines would be proud of.

Fear and dread turns to excitement as hours of toil and conference calls lead to the production of a unique and distinct contribution to a public policy debate, which, in turn, is then passed to the IFoAs Public A airs and Consultation Committee for nal sign-o .

Excitement turns to a smile when the call comes in from the originating Whitehall department asking to meet with representatives of the IFoA to further explore the contribution we have submitted.

My experience of theme parks is that the

biggest smiles are achieved by choosing the right rollercoasters to ride.

Similarly with the IFoAs contribution to the public policy debate, we will only really achieve the most smiles if we pick the right debates with which to engage.

Working alongside our volunteers on the Practice Boards, we have identi ed the key public policy priorities for the IFoA, where we will look to engage and inform public policy debate.

Key focusBy focusing on the ageing population, resource and the environment, and the future of investment and regulatory policies, we are concentrating on areas which are crossing our actuarial

practice interests. Where there are economic and social

challenges for policymakers, actuarial expertise, knowledge and experience can often bring signi cant value to the debate.

So weve chosen our rollercoaster rides, and now look forward to the smiles that will follow. Maybe even Mr Peston may change his view of our profession? a

NICK SALTER

Picking the right debates with which to engage is key to our growing reputation, says Nick Salter

The perception of our profession is changing,

that we can attract such quality speakers to

our conferences

Nick Salter is the president of the Institute and Faculty of Actuaries

Riding the highs and thelows

p07_nov_pres_commentSEMIFINALCT.indd 7 27/10/2014 15:39

www.theactuary.comTHE ACTUARY November 20148

OpinionSoapbox

Our lives come in three stages: Learners are children or trainee adults. Healthcare and primary and secondary education are free. Tertiary education has to be paid for, if necessary through student loans. Taxation and social security policy redresses the balance. Earners are adults who are not burners. They contribute to society by growing the gross domestic product. Most of the time they will be gainfully employed, but not always. Burners are people of an age when society thinks that they do not have to continue activities that are economically bene cial. Their needs are shelter, food, companionship and recreation for the body and mind; and medical care in old age. We cant tell in advance how much is required of each and what form they would take. Worse, they now expect to live longer and care costs are an unanticipated sixth item on the list.

The UK as a whole has an expectation of a standard of living that its resources cannot deliver. So we need a review. A holistic approach would be to assume that each cohort should take out no more than it has put in.

In other words, what you can draw on in retirement would be de ned by: what you made while working, less what you cost when growing up. This is a longitudinal approach straddling several parliaments. It is the correct approach but unlikely to be implemented. So we look for other solutions.

Getting the balance rightWe have in the UK established the principle that healthcare should be free at the point of delivery. Despite challenges imposed by rising costs, this principle has been maintained.

We have also established a system of incentives to encourage people to make advance provision for retirement so that the elderly dont become a burden on the state. This too has come under scrutiny.

Where should long-term care lie in the spectrum ranging from free at the point of delivery to pay as you consume? It seems to me that in terms of its nature it is closer to the UK National Health Service (NHS) than pension provision and must therefore be free at the point of delivery. The question then is how is the cost paid for?

I think a practical solution would be to say

that national insurance (NI) contributions, which at present cease on retirement, should continue right up to death. They would be deducted from income such as your pension and earnings but not investment income.

The Blue Book (published by the O ce of National Statistics) states that the average income of pensioners in 2012/13 was 477 a week, of which pensions and earnings accounted for 371. The Blue Book de nes pensioners as those over 65, not all of whom would have retired. Assuming that all of the earnings are attributable to those not yet retired, the gure reduces to 338 a week. If 7m of the 8.7m listed in The Blue Book as pensioners are genuine, the aggregate income attributable to pensioners is 123bn.

If they were to pay NI contributions at the current employee rate, 12% of the income in excess of the Lower Earnings Limit (LEL), currently 111 a week, this would generate revenue of 9.9bn pa. That is in excess of the gure of 9bn that Kate Barker, chair of the independent Commission on the Future of Health and Social Care, and a distinguished economist, estimates as the annual cost of long-term care for those critically in need but well short of the 14bn she estimates would be needed by 2025 if extended to those with substantial needs.

Of course, 12% of earnings above LEL would be a painful additional cost to the pensioner. We can try to nd ways of reducing it, but the principle that they should pay must be maintained if it is to be free at the point of need.

Preparing for longevitySuppose we start by saying that those already retired should only pay 6%, but this is increased in half-percentage point steps from 2016 so that those retiring in 2027 would pay 12%. The Treasury could nance the shortfall by tightening up the rules on pensions.

The government thinks people should be free to decide in what form they take bene ts under a pension policy. I would contend that a certain

minimum level should be taken as an annuity to protect against longevity.

Tax relief should be limited to contributions below a speci ed limit, set to support a target pension of 18,000 a year, say.

The Centre for Policy Studies estimated that tax relief on pension contributions cost the

Treasury 26bn in 2010/11 so theres enough headroom to fund the care shortfall. There are several issues of detail, but these can be addressed once the principles are accepted.

Icki Iqbal is a retired actuary

ICKI IQBAL

Learners, earners and burners

A holistic approach would be to assume

that each cohort should take

out no more than it has put in

People in the UK have expectations of a retired standard of living that the nations resources cannot provide, says Icki Iqbal

p08_Nov_soapboxSEMIFINALCT.indd 8 27/10/2014 15:43

SAM KESTEVEN / SAM PEACH 9www.theactuary.com


MORE EVENTS ONLINEFor details of events, visitwww.sias.org.uk

SIAS IS ON TWITTER! Follow us on @SIAScommittee for latest news on meetings, socials and more!

SIAS IS ON FACEBOOK! Check out the SIAS Facebook page forphotos from the latest social events

EARLY 2015 CHARITY EVENT

Call for volunteers to help inner-city school pupils

Would you like to help young inner-city school pupils to develop essential skills that are invaluable in the working world and transfer your knowledge of the actuarial profession? Well read on...

One of the aims of the charity subcommittee of SIAS is to support school pupils by increasing awareness of the actuarial profession while aiding their development and progression into the world of work. SIAS has partnered with The Brokerage Citylink to provide introduction to being an actuary sessions to sixth-form students from inner-city London schools.

The Brokerage Citylink is an independent charity providing young people in London with a pathway of opportunities into employment. Their vision is that all young Londoners, regardless of background, will have the understanding, skills and con dence to make the most of the career opportunities in the City. By working together we can support their aims while helping to promote the actuarial profession and the bene ts that a job as an actuary can present.

We ran sessions at ve schools earlier this year and received fantastic feedback. Following the success of these sessions, we would like to run similar workshops in more schools early next year.

We had a large number of volunteers helping out at the sessions. They were responsible for presenting to students on their experiences, both in work and at university. This was an excellent opportunity for actuaries to hone their presentation skills at the same time as giving something back to the community.

If you are interested in helping out at one of the upcoming workshops please email Katie and Natanya at [email protected].

FRIDAY 21 NOVEMBER SOCIAL EVENT

Annual SIAS DinnerHonourable Artillery Company

Armoury House,City Road

London EC1Y 2BQ

6.30pm

The Annual SIAS Dinner is happening at The HAC and tickets are currently on sale. Email [email protected] if you are interested.

2015 PROGRAMME

Talks programmeRegister your ideas

SIAS is organising the line-up of programme talks for 2015; if you wish to present a paper or topic please contact the team at [email protected].

nnual Sning a

s are csocial@are inte

RAMM

s organamme nt a paam at p

SIAS Dinner isat The HAC and

urrently on sale. @sias.org.ukerested.

ME

nising the line-up of talks for 2015; if you wish to

aper or topic please [email protected].

PAINT THETOWN RED

AT OUR2014

ANNUAL DINNER

p09_nov_siasSEMIFINALCT.indd 9 27/10/2014 16:37

10www.theactuary.comTHE ACTUARY November 2014

NewsIFoA

UpfrontNEWS UPDATES FROM THE ACTUARIAL PROFESSION

This month I want to congratulate everyone who sat and passed the entry test, Module 0, in the rst- ever Certi ed Actuarial Analyst (CAA) exam session in August. Its fantastic to see so much support

from early adopter candidates and employers for the CAA, the IFoAs rst new quali cation and membership category in a generation.

The range of backgrounds of those taking the exam even at this early stage demonstrates the sheer diversity and breadth of appeal of the CAA. For example, Grainne Burke works in Ireland for a large insurance company as a business support analyst. She sees the CAA as helping her to progress to a managerial role, thus advancing her career. Compare this to Moses Chege, who works as a life and investment consultant in Kenya, who is being sponsored through the CAA by his employers to improve his skills to help him, as an IFoA member, to stand out from his peers. Candidates in over 20 countries sat the exam and we fully expect this geographical spread to increase in the forthcoming exam sessions.

We recognise that there may be some Fellowship students whose career aspirations are better served by the CAA, who therefore would have pursued the CAA had it been available when they commenced their studies. In recognition of this, I am pleased to say that on 3November we will have opened an exemptions window of 15 months, during which students on the Fellowship pathway can use passes in relevant Fellowship exams to gain exemptions from individual CAA exams and transfer across to the CAA pathway as a student actuarial analyst (SAA). Fellowship students with all relevant exam passes can transfer to the membership grade of CAA at any time, provided they meet the work-based skills and professionalism requirements.

I am very much looking forward to welcoming new and existing members onto the analyst pathway. By diversifying our

o ering, the IFoA is ensuring that it is continuing to meet the needs of modern nancial organisations by

equipping sta with relevant quali cations and the bene ts of IFoA membership. More information about the CAA, including pro les of candidates and details about exemptions, are available on the IFoA website: www.actuaries.org.uk/becoming-actuary/caa For further information about the CAA, please get

in touch at [email protected]

CAA o ers new path for students

OpinionCEOs comment

Derek Cribb talks about CAA exemptions available to current IFoA students

DEREK CRIBB

Derek Cribb is the chief executive of the Institute and Faculty of Actuaries

The International Mortality and Longevity Symposium 2014 attracted not only actuaries but global health researchers, statisticians, epidemiologists, gerontologists, policymakers and social scientists from around the world to Birminghams Aston University.

Topics included big health data; prevention and mortality; forecasting models; medical advances and conceptualisation of ageing; cause-of-death modelling; the Continuous Mortality Investigation and the Actuarial Research Centre (ARC); social and economic inequalities and longevity; and obesity. PhD students, including two from ARC, presented their latest ndings during breakfast meetings.

Dinner speaker Sir Harry Burns, former chief medical o cer for Scotland and now professor of global public health at the University of Strathclyde, discussed the economic and psychosocial causes of chronic poor health, and made a compelling case for directing public resources at the promotion of societal wellbeing rather than the mitigation of symptoms. Conference abstracts will be available to

download on the IFoA website shortly.

Exam results imminentThe results for the core technical (CT) series of exams sat in the September 2014 session will be published on 28 November. The nal series exam results, for the core applications (CA1), specialist technical (ST) and specialist applications (SA) subjects, will be published on 12 December. Following this, a list of students completing the exams required for Fellowship, and of students now eligible for the Chartered Enterprise Risk Actuary (CERA) quali cation, will be published in The Times in early January.

eBook service expandedMembers now have access to over 100 eBooks following further investment in the Athens eLibrary. The EBSCO eBook resource allows titles to be downloaded to tablets, eReaders and mobile phones. Titles cover actuarial practice, economics, nance and exam-related reading. For an Athens password, email

[email protected]

Global support for mortality event

p10-13_Nov_IFoA_news_SEMIFINALCT.indd 10 27/10/2014 15:45

11www.theactuary.com


Never before has our general insurance convention played host to such a star-spangled collection of glitterati. The movers and shakers of nancial services were out in force as actuaries strove to innovate and diversify (the themes for 2014) in one of the fastest evolving sectors of professional practice. More than 700 faces looked on in expectation as the First Minister of Wales opened the convention at the Celtic Manor Hotel, Newport.

Innovation featured strongly in the hot-topic session, which included the annual sprint to hear the presenter of choice before 200 other delegates chose all the available places would it be Google or the Monte Carlo Rendezvous? But every breakout session presented an equally di cult choice Periodical payment disorder, The good actuarial report, The fast close process, Cyber risk insurance, Actuaries climate index and The practising ruin working party to name but a few.

The highlight of the gathering was indisputably the frank and revealing presentation from Mark Carney, governor of the Bank of England. He shared his thoughts on the imminence of interest rate rises. Perhaps more surprising though was the revelation that, given the growing importance and in uence of

Movers and shakers up the game at GIRO

actuaries in the running of insurers, the Bank may in due course consider including the most senior actuaries in its t and proper regime.

The tempo of challenge and change was maintained with a thought-provoking presentation on the psychology of todays workplace and meritocracies from author and Radio 4 regular, Alain de Botton. Lloyds rst female chief executive in nearly 400 years, Inga Beale, painted a picture of fast evolution among the syndicates and business processes in insurance. Jayne-Anne Ghadia, chief executive

at Virgin Money, informed us of the importance that any Richard Branson outlet places on the customer.

Throughout, this stellar line-up of senior gures kept us up-to-speed with key events in the market and, before one assumes that they were forgotten, the phrases Solvency II, IMAP and ORSA did make the occasional guest appearance. Overall, it was a triumph for organiser-in-chief, Vishal Desai.

Watch this space for next years eagerly-awaited conference.

SoNIA growing fast as third birthday approachesIn very recent years, the actuarial community in Northern Ireland has grown considerably in strength and numbers. The launch of the actuarial science and risk management degree in 2007 at Queens University Belfast has signi cantly heightened awareness and interest in the profession, as well as increasing appetites for an actuarial career in Northern Ireland.

It became clear that our own regional society was both necessary and appropriate and, in 2012, the Society of Northern Ireland Actuaries (SoNIA) was launched to provide training and professional development for local actuaries and actuarial students. SoNIA was initially set up and arranged through Queens University Belfast and it maintains strong ties with the university. The committee set up to run SoNIA includes both student and lecturer representatives from the actuarial science and risk management course as well as representatives from many of the actuarial rms operating in Northern Ireland.

Our membership base does, for the most part, work or study in and around Belfast, with pension consultancies being the major player at the moment. However, we are drawn towards all things actuarial, and our past

events have covered a wide range of diverse and interesting topics.

Aims and objectivesThe main objective of SoNIA is to create a platform for actuaries and actuarial students to develop professionally, widen their knowledge of current actuarial issues and, overall, get to know one another thereby creating a close-knit and supportive actuarial community.

To encourage the participation of our own actuaries of the future we o er free membership to students on the actuarial science and risk management course at Queens and in doing so provide a link between university learning and day-to-day actuarial work and professional responsibilities (particularly useful for students seeking work placements and future employment).

A representative of SoNIA is always present at the Student Consultative Forum (SCF) meetings to ensure the views of our members are heard.

We would encourage our colleagues from the UK, Ireland and further a eld to get in touch with a SoNIA committee member if you happen to be in the area when we have an event planned we would be delighted to invite you along.

EventsSoNIA holds events ve or six times each year, o ering members an opportunity to discuss and debate the latest issues in the delivery of actuarial services. Recent events have covered a wide range of topics, including the Implications of the Scottish independence referendum and Budget 2014 what next for pensions?.

Springboard for developmentSoNIA has proved to be an excellent platform for discussion and debate on current issues in the profession and to strengthen the local actuarial community, not to mention providing a chance for our members to get quality continuing professional development locally.

The IFoA and, in particular, regions manager Tess Joyce continue to be an invaluable source of support for SoNIA, keeping us up to date with the operations of similar regional actuarial societies and by providing a platform to market SoNIA.

We will be marking the beginning of our fourth year with a sessional research event led by the IFoA at Queens University Belfast in January 2015. For further details, visit: bit.ly/1oUcaog


12www.theactuary.comTHE ACTUARY November 2014

NewsIFoA

NEWS UPDATES FROM THE IFOA

By Shilpi Nanda, Munich Reinsurance Co

During early August, I enjoyed a week in Ghana, where I was trying to live up to the responsibility of delivering CT5 (Life contingencies) lectures to postgraduate students at the Kwame Nkrumah University of Science and Technology. This was part of a volunteering initiative set up jointly by the Worshipful Company of Actuaries and the IFoA to further actuarial science in Ghana. It is supported by Munich Re.

Close to the date of travel I su ered from typical actuarial exam pangs as I was reminded how hard CT5 was. Having completed the journey, the feelings are now replaced by ful lment and gratitude. My time in Ghana has been extremely rewarding and I wanted to share some of my experiences.

KNUST campus, KumasiAway from the oppressive tra c of Ghanas second largest city, I spent two brutally long nine-hour sessions with the university students of Kumasi. Exhausting as it was, I was quite overwhelmed by the hard work, will and dedication of the students, who came from backgrounds as diverse as cocoa farming to insurance sales. Some of them had travelled nearly eight hours to make it for a 07:00 class. It was very humbling to weigh their challenges against the relative luxury of actuarial students in the UK, most of whom enjoy full study support and access to a wide range of materials from ActEd. It was also my rst teaching

experience and I learnt teaching in a classroom is a lot more complex than regurgitating prepared notes. I had to supplement the material with practical examples of insurance products and issues to help students have a wider understanding of insurance.

Cultural exchange and travels One of the aims of this volunteering initiative is to give volunteers a cultural experience in return for their knowledge exchange. The university sta organised several outings between teaching responsibilities and explained at length about their country, their culture and the challenges Ghana is facing at the moment. Trips ranged from horseriding along the banks of Lake Bostumtwe to visiting the Kakum National Park, where we walked along suspension bridges through the forest

followed by lunch with crocodiles. The perspective that I have gained isnt necessarily the one I would have had I travelled to Ghana just as a tourist.

Closing chapter: Accra Campus I repeated my lectures to a group of nearly 40 students at Accra, many of whom are already employed by insurance companies. They were a very dedicated and engaging group of students and challenged me throughout with insightful questions on the subject. Some of them will have attempted the IFOAs exams in September or will be sitting them next year in April, and we are all hoping that there will be good news.

The feedback from the students has been very positive, but the trip wasnt without its challenges. The Ebola crisis exploded in West Africa and a fellow volunteer who was scheduled to travel with me had to cancel. The physical challenges of teaching continuously for nine hours on consecutive days took their toll. There was a silver lining though. The university tested out an online system for delivering lectures with my fellow volunteer, which was a great success. This has opened up new possibilities for this teaching initiative.

All this wouldnt have been possible without the support of Munich Re and colleagues who encouraged me and covered for me during myabsence. If you are interested in teaching actuarial

science in Ghana, please contact [email protected]

Volunteering in Ghana: knowledge and culture exchange

Jagger honoured at Autumn LectureProfessor Carol Jagger, AXA Professor of Epidemiology of Ageing at Newcastle Universitys Institute of Health & Society, delivered the IFoAs Autumn Lecture to a full house of actuaries, scientists and policymakers at the Royal College of Physicians of Edinburgh on 1 October. She presented a range of unique, published and unpublished research on the e ects of old age.

Multi-morbidity is the norm for the very old, with multiple conditions and diseases contributing to disability, including high rates of hypertension, osteoarthritis, cataracts and atherosclerosis. Over their lifetime, men enjoy a longer disability-free period, and experience relatively faster decline, requiring a shorter phase of intermittent care, while women are more likely to live longer and experience extended periods requiring intermittent and then regular care, together with lengthier

periods of cognitive impairment. While life-expectancy inequalities between men and women are reducing, disability-free life expectancy (DFLE) inequalities are not.

A particular challenge is that DFLE also varies widely across ethnicities, with Pakistani and Bangladeshi men and women in England experiencing a much shorter DFLE than average. Lifestyle and regional factors also contribute to variance in DFLE. The north-east and west of England vary considerably from London and the south.

Jagger also highlighted the e ect of these on carers. For men, two years are spent needing daily or constant help. For women, this gure is three years. Often the care is provided by children who are themselves in their early 60s with poor health. However, Jagger stressed that most old age is not spent dependant or physically or cognitively impaired.

On the whole, the course of old age disability was predictable, with public policymakers aware of the issues. However, elderly care and wellbeing still presents unmet challenges.

IFoA president Nick Salter was extremely pleased to present both Jagger and Sir Philip Mawer, former chair of the Professional Regulation Executive Committee, with Honorary Fellowship of the IFoA at the lecture. The lecture will be made available on the IFoA

website shortly.


13www.theactuary.com

November 2014 THE ACTUARY 13

As members of a chartered profession, actuaries have a core obligation to serve the public interest. But what does this mean? Public interest is not a clearly de ned concept and there are number of ways we try to support members to ful l this duty.

As a regulated profession, it is critical that we engage on regulatory issues and build strong relationships with regulators and other actuarial associations issuing rules or standards of practice. We respond to consultations and meet regularly with key regulators and our actuarial colleagues internationally in an e ort to inform regulatory policy so that actuaries can carry out their work in the public interest.

More recently, we have developed some key public policy priority themes on which the IFoA can proactively engage, using actuarial expertise to inform policy development:1. Ageing population;2. Future of investment policy;3. Resource and environment issues.

These key policy priorities: represent signi cant economic and social challenges for policymakers at the domestic and international level; are long-term issues that transcend the duration of a parliamentary term; are areas where there are di erent perspectives on how the policy dilemma might be resolved;

are of cross-practice interest; and vitally, are issues on which actuarial expertise can add signi cant value, and where opportunities exist for the actuarial profession to provide an impartial, evidence-based contribution to the policymaking process.

To arrive at these themes we have had signi cant input from all of the practice area boards and, as we develop our work streams within them, we will continue this consultative approach. Our next step is to ensure that the valuable outputs of our vibrant working party community are drawn upon, examining how our member-led research can help to inform public policy and to raise the pro le of the profession.

Through a process of continued dialogue and input from the boards, we will produce a series of policy brie ngs that will outline the key policy challenges and consider how actuarial expertise might inform the debate.

We already have clear evidence to demonstrate the impact we can have when we derive our policy positions from research ndings. The Pensions and Long Term Care Working Party was established to develop intellectual capital that would support the IFoA in building a narrative and engaging in the debate on long-term care.

Following the publication of its report, we have met key civil servants to discuss the

ndings, and our external engagement programme is ongoing.

We want to build on this momentum and bring actuarial analysis to debates such as the future of retirement income provision, risks of procyclicality and understanding the e ect of climatic events.

We hope that our public-policy priorities demonstrate an important way in which actuarial expertise can be deployed outside our usual frame of reference re ecting our diverse skill set and driving thought leadership in the public interest.

If you would like to get involved, please contact IFoAs head of policy, Amy Tarr. Email: [email protected]

IFoA policy priorities: making our research count

EVENTS AND CONFERENCESMake your mark at Momentum

If you have recently quali ed or are about to qualify as an actuary then Momentum is the conference for you. Providing insightful discussions and plenary sessions, alongside excellent networking opportunities, there will also be one hour of continuing professional development available at the end of the conference. Taking place at Edinburgh International Centre from 3-5 December, this event is highly recommended for those of you wishing to meet fellow actuaries from di erent specialisms. Visit the events section of our website to nd out more: bit.ly/1CXRW5e

Revisions to the UK Corporate Governance Code Raising the bar on risk management: how prepared are UK companies?

24 November, Staple Inn Hall, London

In September 2014, the Financial Reporting Council (FRC) issued an updated version of its UK Corporate Governance Code. The revised code will apply to accounting periods beginning on or after 1 October 2014. The IFoA is conducting a survey of UK listed companies to gain an understanding of the e ects of the updated code and wishes to present its ndings and provide a unique opportunity for interested

parties to come together to discuss the impact of the changes. To be a part of this discussion, book your place online: bit.ly/Zu1sOR

Masterclasses: invest in yourself

The IFoA is introducing a series of ve Masterclass events taking place from November 2014 to January 2015. Masterclasses are live events, created by experts in the eld to help actuaries achieve success in all areas of business. These bespoke modules focus on developing essential skills for business professionals that are not always covered in formal training. Unsure if they are for you? Why not attend the introductory

Masterclass on Personal impact, which will improve your professional interactions and in uence. The four advanced communication classes cover the following topics over a half-day period: In uencing others, Di cult conversations, Public speaking/presenting and Motivating and inspiring others. Attend one session or attend them all, you decide how progressive you feel your personal development requirements are. The IFoA is o ering a discount for those who attend all four of the half-day modules. Read more about these classes or book yourself a place at: bit.ly/1nebajk

The Cass Business School and Hymans Robertson research team will present their work on a methodology for assessing the basis risk arising from the use of population level mortality indices for managing the longevity risk in pension bene ts or annuitant liabilities.

The work is part-funded by the IFoA and the Life & Longevity Markets Association and is being overseen by the Longevity Basis Risk Working Group. The full results will be presented at an IFoA sessional meeting at Staple Inn Hall, London, on 8 December.

Sessional research event


www.theactuary.com14 THE ACTUARY November 2014

NewsPeople & Society

If you have any newsworthy items for these pages please email [email protected]

After the birth of her rst son, actuary-turned-writer Alex English decided to hone her ction skills at a writing for children class at City Literary Institute in London.

A homework assignment, a favourite childhood book and an inspirational visit to the Natural History Museum resulted in the idea for her debut picture book Yuck said the Yak a conversation of just over 100 words between a small boy called Al e and a yak.

Ive always loved writing stories and fooling around with words, she says. Picture books are a real passion of mine there is so much opportunity for wordplay and humour.

When I was a child, my favourite book was The Tiger Who Came to Tea by Judith Kerr. I love the idea of a huge wild animal turning

up at the front door uninvited. I think Judiths tiger had better manners than my yak though!

Illustrations for the book were lovingly hand designed by Emma Levey giving an enticing textural quality to the yak.

Alex is a volunteer for the Society of Childrens Book Writers and Illustrators and is married with two sons, Freddie (2) and George (6 months). She grew up in Hampshire and now lives in Reigate, Surrey.

Alex is a former features editor of TheActuary. Her second book, Pirates Dont Drive Diggers, will be published by Maverick in spring 2015. For more information, please contact

Kimara Nye [email protected]

From actuary to childrens author

(3 September 1814 15 March 1897)3 September 2014 marked the 200th anniversary of the birth of James

Joseph Sylvester, an eminent mathematician. He was an actuary of Equity & Law and was instrumental in founding the Institute of Actuaries in 1848, holding the position of vice-

president for ve years.

James Joseph Sylvester

Martin Miles installed as Master of WCAMartin Miles was installed as the 36th Master of the Worshipful Company of Actuaries (WCA) at Drapers Hall on 8 July 2014. The Companys chief guest at the dinner was the Right Honorable Michael Fallon MP. Martin said I felt immensely honoured to become the Master of the Company and I will do my best to maintain the very high standards that previous masters have set, none more so than my immediate predecessor, Charles Cowling. Charles did an enormous amount within the Company and in the City generally. And he remains the most talked about of all the 109 livery company masters of his year group, having completed his remarkable 10 in 10 (10 Lake District marathons in 10 days), and raising over 70,000 for charity in the process. He was only the 79th person ever to complete 10 in 10... 79 idiots I have heard it whispered!

(3 Septem3 Septemannivers

JosepmatactuinstInsthold

pres

JameSylve

Sarah Bennett (Medscheme) and husband David are pleased to announce the arrival of the latest addition to their family, Rachel Helen Bennett, born on 4 September in Cape Town.

New WCA Master Martin Miles (right) with the chief guest, the Right Honorable Michael Fallon MP

Births: Congratulations to Alex (Allianz, GI) and Clare Craig (LCP, Pensions) on the birth of their son, James Anthony Craig, on 11 September 2014.

s

p14_15_Nov_soc_newsSEMIFINALCT.indd 12 27/10/2014 15:48

www.theactuary.com15November 2014 THE ACTUARY

By Bronagh TraynorThe Student Society of Actuaries in Irelands annual Student Table Quiz took place in Diceys Garden Bar. The teams of four were tested on their general knowledge with over 80 questions in a wide range of topic areas such as geography, movies, sport, famous people and a specialist Father Ted round.

A number of teams competed strongly for rst place over the course of the night with the lead changing hands a number of times as the rounds progressed. After a tightly fought seventh round, the quiz ended all tied. A tense tie-breaker competition was needed to separate the joint top two teams, Turkish & Parade 2 and Hoof hearted. The two teams battled it out with a nal closest-number-wins question to nd the ultimate winner.

The tie-break question was a tough one:

What was the estimated additional revenue generated by the Gathering Ireland initiative in 2013 to the nearest million?

It was Turkish & Parade 2 who guessed closest and claimed the victory on the night. The team members were presented with a 25 One4All voucher each to spend in a variety of retail outlets and a prize was also given to the runners-up for their e orts.

A box of chocolates was awarded to the team with the best team name CACI is Deloitted to have Aegon its face. Other prizes on the night included quiz books and bottles of wine.

Congratulations to all 20 teams for taking part in a challenging quiz, and making the night such a success.

For those of you curious to know, the answer to the tie-break question is 170 million.

Dicey quiz for Irish students

We would be delighted to hear from you if you have any newsworthy items for these pages. Please contact Yvonne Wan at [email protected]

Phiatus awardAndrew OBrien was the winner of the 2014 Phiatus award for completing 12 marathons in 12 months and raising over 10,000 for the ISIS Foundation.

Pictured here is Martin Miles (left) presenting Andrew OBrien with the Phiatus Silver Salver last month. Andrew will keep the Salver until the next winner is announced.

For details on the ISIS Foundation, visit www.isisgroup.org

Marathoner neededThe Company of Actuaries Charitable Trust (CACT) has secured a place in the London Marathon on 25 April 2015 for an enthusiastic runner who will use it to seek sponsorship for CACT. The candidate will have: A desire to raise money for CACT (which supports mathematical education); The ambition to run the London Marathon; Friends and colleagues willing to sponsor them; and No important client or business meetings on 27 April 2015.

If you are interested, please email the Trustees of CACT c/o [email protected]

Hole in oneOn 31 July 2014, Andrew Benke, Robert Ross and Gordon Sharp represented the Actuaries Company in the Ray Je s Charity Golf Day. They did well, coming sixth out of the 19 livery company teams competing. But hero of the day was Gordon who won the nearest the pin competition, and followed that up with a hole in one at the 17th! This was the rst hole in one in the competitions 15-year history. Well done, Gordon, and thank you for the generous contribution you made to the charity of the day to mark your achievement.

On 13 October, members from The SAAX Group were joined by CASS students to hear from Matt Lilley, CEO Africa for Prudential, about their ambitions in Africa; their recent acquisitions and plans for the future. It was an excellent opportunity to hear rst-hand from an industry leader driving strategy and growth across the African continent. For Matts presentation please see our website (www.saaxgroup.org).

Matt touched in particular on the Asian markets before sharing Prudentials strategy of replicating their agency model in Africa. They have seen success in emerging markets exhibiting low insurance penetration where they have a large proportion of the existing market share. Its about being a serious player in a market before it grows.

Matt was candid that Prudentials success is built o a strong distribution strategy relying on agents on the ground. Their strong performance is a direct result of being able to modify their distribution strategy appropriately into one that is scalable. They have learnt from their mistakes, transferring successful practices from one market to another. Identifying which markets to get involved in is the starting point and Matt shared several metrics looked at to compare opportunities. Initial markets identi ed as attractive include Ghana and Kenya. In both countries, Prudential has bought small existing companies with the intention of growing signi cantly in the future.

The evening concluded with drinks, snacks and a spot of networking.

Venturing into Africa

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By Mark DaintySteve Webb is a great public speaker and this is quite apart from the content of his excellent presentation. He is certainly someone to look up to and learn from on a soft skills perspective, which we, as actuaries, are working so hard to develop.

He had no slides, no notes and possibly a tough crowd. Yet he was engaging, clear and concise with some lovely light-hearted moments to de ect away from the reality that

he and the government have put a bomb under the annuity market.

Then came Steve Groves, CEO of Partnership, an organisation a ected so signi cantly by the previous speaker that their share price had plummeted by 60% in a day... this was about to get spicy!

To nd out more about possibly the most impressive SIAS presentation Ive attended, go to: www.theactuary.com

Thumbs up for SIAS jubilee lecture

p14_15_Nov_soc_newsSEMIFINALCT.indd 13 27/10/2014 15:48


I met Trevor over a very long breakfast to talk about his achievements and challenges in public service, and it soon became clear that he is very proud to be an actuary.

The highlights for Trevor in his career have been the three leaps of qualifying as a Fellow, being admitted as a partner by Price Waterhouse, and his appointment from the private sector to be the government actuary in 2008.

Re ecting on what he had done previously, Trevor drew attention to his imaginative creation of a successful innovative hybrid Small

Self-Administered Pension Scheme (SSAS) product at Sun Life, wisely planning the investment of the pro ts from a large business sale right at the bottom of the stock market in 2003, and derisking of de ned bene t pension plan liabilities ahead of the pack at the turn of the century.

During his time at the Government Actuarys Department (GAD) he discharged his professional advice carefully, often with very little publicity, knowing that his role was to advise and allow o cials and ministers to take the ultimate decisions and deal with the public reactions. He was at pains to point out that his work involved analysing and providing options, whilst making it clear where the responsibility lay.

One area of special concern was the policy on selection of discount rate for valuing public-sector pensions. His work in government led him to think a great deal about the social economics of inter-generational fairness in striking suitable rates for planning future pensions and contribution levels.

He was proud to have developed the department and in his view signi cantly increased in uence in government. He believed in focusing on leadership and minimising management, doing away with micro-management and command and control, too often beloved by professional service organisations.

Trevor comes across as a politically savvy adviser that is political with a small p. Sometimes it is important to release statutory information into the public domain where it belongs without attendant publicity, especially where poorly informed journalists might get hold of the wrong end of the stick.

Areas he had to be careful with included the quinquennial review of the National Insurance Fund, which is not a fund like an ordinary pension fund, but more a payment mechanism between contributions from employees and pensions to the retired. The long-term actuarial consequences of the triple lock paying pensioners increases which are the best of prices, wage in ation or at least 2.5% per annum are signi cant but very di cult to get across to the public at large, as well as having been politically sensitive to the coalition government.

Astonishingly, we learn that there are over 300 references to the government actuary in legislation, although many come down to the automatic production of actuarial factors. Trevor was a scheme actuary to just one privatised government agency pension scheme, but in practice was actuary to pension arrangements with liabilities exceeding 1 trillion. Most of these were unfunded liabilities, though the former coal industry schemes operate under special legislation where signi cant invested funds do have returns that impact on public nances.

In practice, there might have been on average one signi cant report to complete every week during his six years in o ce, which is quite a workload when one considers the bunching together of the major public-sector pension schemes with identical valuation dates.

On my [email protected]

Trevor Llanwarne was, until recently, the Government Actuary in the UK. Following his six-year tenure, he spoke toPeter Tompkins as he re ected on this latest phase of his extensive career

Government engagement

MANUEL VASQUEZ

p16_18_nov_interview_Trevor LlanwarneSEMIFINALCT.indd 16 27/10/2014 15:52

Commenting on the professionalism inherent in his role, Trevor drew attention to the contracting-out rebate review, where the reduction in National Insurance for those contracted-out is calculated. The legislation does not require a recommendation from the government actuary. Making recommendations requires political and social policy considerations as well as technical analysis, he said. Adding that his approach in his work has generally been to set out the options but stress that a social policy steer from ministers is needed to reach the proper conclusions.

During his tenure, sta numbers in GAD grew signi cantly unlike almost all other government departments and income doubled. This was despite some strategic decisions made to pull out of international insurance regulatory work, which no longer tted in with a department which had been short of its UK regulatory work to the FSA.

The GAD is still well known for some of its more modest roles such as checking that the Electronic Random Number Indicator Equipment (ERNIE) randomly selects premium bond winners, or setting the regular limits for income drawdown from personal pension products. But the core of the work is pensions and social security advice to government. Trevor proudly explained how they had retained the Scottish Public Pensions Authority, and won back the Principal Civil Service Pension Scheme .

Trevors goal when taking on the appointment was to improve the reputation of GAD, which he felt would also have a knock-on bene t of improving the reputation of

actuaries more generally. GAD and the profession more

widely had a reputation that had been badly tarnished in the wake of Equitable Life. The con dence of his civil service colleagues had to be renewed. Trevor wanted to be seen as the government actuary not just the governments pensions actuary.

During his time in o ce he had been working on non-pensions issues, such as risk management, looking at informing government on ood risk, or the risks associated with nuclear decommissioning.

Another area of sensitivity is that

of litigation risk in the National Health Service (NHS), where GAD recently won a competitive tender to work for the NHS Litigation Authority.

Trevors time overlapped almost precisely with the global nancial crisis, also giving him the chance to provide actuarial assistance on the loss reserving and valuations of toxic assets held by the Asset Protection Agency.

There is real opportunity for growth in the use of actuarial skills, he believes, but he cautions that some of these opportunities are also for mathematicians more generally. His own contribution to creating that prospect is built around his intention to devote time now in pursuit of the understanding of strategic risk, of which we should hear more over the coming year. We nish our discussion on the future of the profession, where he lays down four challenges. Increase our diversity by encouraging quality mathematicians to join our profession. He is of the view that there could be a parallel process to qualify as a Fellow as a high-quality mathematician. He also believes that the later exam subjects which could be linked to enhanced Practising Certi cates instead can be a barrier to the people we want to bring into the fold. Overhaul the concept of the profession as a learned society by focusing on better quality research and its promulgation. Support the Financial Reporting Council in a principles-based approach to the Actuaries Code. Collaboration with other bodies, including the mathematical societies.

Trevor is himself engaged in work with ve learned mathematical societies to nd ways in which they can work together in the interest of societys use of mathematics as a whole. With the London Mathematical Societys 150th anniversary coming up, he sees this as an opportunity for the societies to do more.

There is the sense that Trevor is not going to put down his pen so easily. He is excited about his work on strategic risk and the mathematical societies, but he is also contemplating some non-executive roles that can make use of his skills.

Is Trevor now optimistic for the profession? Not entirely he is concerned that one unaddressed issue is that actuaries are overpaid for non-reserved role work relative to other equally good mathematical modellers, of whom there are many today. Unless more realism comes into our pricing then the market will allow others to take more of our space. A focus on more diverse membership is, he believes, the way to drive up quality and professionalism throughout industry and commerce, while equalising that price. We look forward to hearing about the next phase of Trevors career and seeing how his predictions work out. a

Peter Tompkins is a former colleague ofTrevors and chairs The Actuarys Editorial Advisory Panel


MANUEL VASQUEZ

On my [email protected]

Unless more realism comes into our pricing then the market will allow others to take more of our space


4Appointments

THE ACTUARY May 2013www.theactuary.com

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Milliman.com/Arius

p19_ACT.11.14.indd 4 28/10/2014 14:30

[email protected]

Anyone qualifying as an actuary today and entering the life insurance industry is likely to encounter a whole di erent set of career opportunities and challenges compared with their counterparts 20 years ago.

Using a combination of analysis of senior roles in life o ces, a questionnaire and interviews with senior personnel, the working party has recently completed a review of the changing environment for life actuaries. How are skills requirements evolving as a result? Is the seat on the executive board still within reach? And what e ect has the emergence of broader risk functions had on wider actuarial involvement in

Key skills for

LifeIn 20 years, the roles of life actuaries have altered vastly, re ecting changes in regulations, technical methods and the life insurance market itself. Chris OBrien and David Hughes outline the investigation by the IFoA working party to ask what the future holds

Analytical

Critical thinking

Written communication

Leadership

Strategic thinking

Verbal communication

Decision-making

People motivation

Willingness to take on responsibility

Presentation

Learning

Negotiation

0 0.2 0.4 0.6 0.8 1 1.2

Figure 1: Relative importance of key skills for the actuarial function holder role


20 SHUTTERSTOCK

p20_21_nov_lifeSEMIFINALCT.indd 20 27/10/2014 15:52

CHRIS OBRIEN (left) is a senior associate at the Centre for Risk, Banking and Financial Services, Nottingham University Business School. DAVID HUGHES (right) is a senior nancial risk manager at Phoenix Group

focus on quantitative skills at the expense of business and management skills. But analysis of senior roles shows that 23% of life company chief executives are actuaries, implying that some actuaries have been capable of acquiring both technical and general management skills.

Seniority of actuariesThe importance of actuaries for the management of life o ces is clear many are directors and the regulator has speci ed roles that are reserved for actuaries. Our questionnaire respondents spend most of their time with their senior management group, again indicating the importance of actuaries contribution. And non-actuary interviewees were complimentary: for example, asked if actuaries provided support in making nancial sense of the future, one said, Absolutely yes, vital within life o ces.

However, actuaries are now less commonly found as executive directors. Comparing the 93 life companies in 2013 with a sample from 1990, we found that the representation of actuaries on the board has increased slightly. However, this hides an important change. The number of executive actuaries on the board has reduced and actuaries as non-executives has increased (see Figure 2). This may re ect the way in which, in the past, actuaries were often found in positions such as head of marketing, IT or customer services, whereas such functions are now headed by their own specialists.

One further nding that is worthy of note is the limited number of actuaries working as chief nancial o cers (CFOs). Several interviewees suggested this role was more suited to generalists, a view corroborated by a CFO actuary who indicated that for those wishing to develop into the area it was bene cial to initiate such a move early in ones career.

More positively, several interviewees commented that actuaries had an important role to play in risk management, a sentiment re ected in the survey with 15 of 23 life o ce chief risk o cers (CROs) who are actuaries.

Actuaries in reserved rolesWe found that around 30% of AFHs and with-pro ts actuaries are consultants, which is higher than the 20% gure of appointed actuaries who were consultants in around 1990. It may be that independence is more highly valued than it was.

Excluding AFHs who are external appointments, the 13% of internal AFHs who are directors is much lower than the 47% of appointed actuaries who were directors in 1992: this may help AFHs from appearing con icted.

Looking aheadSo what do these ndings mean for the future roles of actuaries in life insurance companies? The Working Party has put forward four areas where it sees increased opportunities. Risk management actuaries already play an important part here, however the risk function is likely to develop much further under the impetus of Solvency II. There is also a need to develop the skills to operate in roles that go beyond risk measurement. The CRO in particular is in a general management role and actuaries are well equipped to continue the development of risk functions as the roles go beyond risk measurement to meet the requirements of multiple stakeholders. Financial analysis and management under Solvency II and International Financial Reporting Standards actuaries are helping to establish these new regimes. They are also well placed to help life o ces analyse, understand and communicate the results given their good understanding of the business, which one non-actuary interviewee said was a strength of actuaries. Two CFO non-actuaries commented that accountants may not fully appreciate the drivers of business, while actuaries are strong on intellect and knowledge of the industry. Big data some life o ces are experimenting with the myriad of data sources available, particularly in pricing, but it is not yet business as usual. There are issues such as understanding, collecting and structuring the new sources of data and recognising behavioural issues, with which actuaries are less familiar. Although there will be competition from other professionals, actuaries can expect opportunities from applying their skills here. Product development some interviewees felt this was a topical area where actuaries could add value. With knowledge of the industry (and lessons learned from past mis-selling), and understanding the nancial drivers of the business, the Working Party felt this was an area in which actuaries could increase their impact in the future.

Based on its ndings, the working party believes that the outlook for those who accept the challenges and opportunities will be ful lling and rewarding. Such achievements, as noted by many actuaries interviewed, are likely to come from actuaries own personal motivation and skills: beyond the professional quali cation, it is an actuarys personal responsibility to develop his or her career. a

Working party: Chris OBrien (chair), David Hughes, Gerry Gallagher, Rob Green, Fulin Liang, Scott Robinson, Paul Simmons and Annie Tay

running life insurance businesses? The data analysis examined all life o ces

writing long-term insurance business at end-2012. The survey was sent to the actuarial function holder (AFH) in each life o ce (or another senior actuary where the AFH was appointed externally) and we carried out 11 interviews, including some non-actuaries.

Necessary skillsThe evidence from the questionnaire survey is that analytical, critical and strategic thinking skills are regarded as highly important for actuaries (see Figure 1). But there was also widespread agreement among interviewees that actuaries have developed new technical skills in areas including nancial economics, stochastic modelling and nancial projections. Written and verbal communication are also rated as particularly important skills, with interviewees commenting on the importance of communication in providing technical support for business concerns. Leadership skills are naturally a requirement for senior roles, though the di erence between management and leadership skills needs to be clearly understood.

Actuaries contributions extend beyond the actuarial function. The questionnaire results showed that, in the majority of life o ces nance and risk functions, actuaries have a signi cant representation. They also play a part in other functions, and making a contribution in several areas is consistent with a reputation for having a good understanding of the industry, demonstrating that their nancial skills can be employed in a number of applications.

It does appear, as a number of interviewees commented, that at a senior level actuaries are perceived as more siloed, with an increased

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5

4

3

2

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01990 2013

Non-executive director, non-actuary

Executive director, non-actuary

Non-executive director, actuary

Executive director, actuary

Figure 2: Mean composition of life company boards


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65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 101 103 105 107 109

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When ve comedians in their 70s can ll the O2, a clear but subtle message is given amidst the comedy its positive to be old and even though they are one down, ve to go, the remaining group is still living life to the full. And perhaps the longevity of Monty Python and their unique style of comedy can provide some inspiration when it comes to the topic of life expectancy.

Communicating longevity can be as complex or simple as you make it. Certainly Monty Pythons line Im not dead yet is an e ective way. But no one wants to think about his or her own death and this makes engaging on life expectancies a challenge.

With nancial responsibility gradually shifting to individuals, against a backdrop of fewer nancial advisers, life expectancy is something we all need to get to grips with

whether for nancially protecting family or planning for retirement. Actuaries have a key role to play in working out how to communicate life expectancy to the wider population. So we should try to bring longevity to the fore.

Flaw of averagesIt wont be a surprise that very few individuals die exactly in line with their own expected lifespan. And life expectancy cannot be viewed as static as it creeps up the longer one lives.

Not only should individuals understand the full range of possibilities, but also reassess their projected life expectancies at regular intervals. It helps to visualise the possibilities for long life, as illustrated for healthy, wealthy males and females in Figure 1 (below).

Perception versus reality Perception is another hurdle to overcome.

A recent Reality Cheque survey conducted by Hymans Robertson showed that individuals underestimate life expectancy at retirement by some ve to eight years on average (Figure 2, right). This is possibly a function of personal anchor points, the inability to conceptualise living in old age, and the media reporting period rather than cohort life expectancies (the former not allowing for future mortality improvements).

As expected, the perception gap has been shown to close as individuals consider life expectancy at older ages. This requires us to take di erent approaches for di erent age groups.

Anchoring and framingPersonal anchor points may play a useful role when it comes to thinking about and shifting the

Emma McWilliam and Richard Purcell urge individuals to look on the bright side of death to overcome hurdles and personalise their life expectancies

Im not

yet

Figure 1: Age at death for 100 men and 100 women retiring at 65


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boundaries of an individuals perception. For example, What is the oldest age you have known someone to live to? may prove more insightful than What age did your grandparents live to?.

Framing questions in terms of when people will live to rather than die by can also give a nudge towards a more realistic estimate. Indeed, Columbia Business School research has shown that people predicted life expectancies around seven to nine years higher when questioned in the live-to category. Also, positively envisaging living in retirement seems to open up thinking to outcomes around living longer.

Yet, while such questions help the shift towards a more realistic range of outcomes, longevity is still potentially underestimated, as lifespan increases over time.

Nudge nudgeCould taking a di erent approach to presenting lifespan help encourage better decisions?

We could present an individuals implied age based on their own lifestyle factors. This approach is used by a number of insurers around the world that use the Vitality programme to promote and reward healthier living. So, an individual who does not undertake enough exercise may have an implied age of 33 when they are actually only 30 years of age. This shows the impact of lifestyle on longevity at an individual level. In a similar way to the TV programme 10 Years Younger, this approach gives people the impetus to change their lifestyle for the better.

Similarly, we could encourage people to adapt their plans for retirement by showing them the potential risks that exist. If someone can see that their funds will run out by the time they are 78, but their life expectancy is 85, they may be

positively encouraged to save more, work longer or plan for a more austere retirement.

Ranges and risk appetite We should help people understand the full range of likely outcomes. For example, a 90% probability you will live to be between age 70 and 90 or 10% chance you will outlive your savings, may help the individual to conceptualise possible retirement outcomes.

Understanding an individuals or a couples appetite for risk is then the next step to deciding how much they need to save and which retirement products to choose. For example, to be 100% certain not to outlive wealth, a form of annuity may be appropriate, whereas a higher-risk appetite may indicate income drawdown.

The meaning of lifeThe common currency for discussing life expectancy and potential ranges should be one that is well understood by the audience.

Communicating to boards and investors on longevity can come to life when presented in terms of, say, the nancial impact on capital and embedded value. However, just as boards do not plan in terms of becoming insolvent, neither do individuals want to think in terms of their own death. So, try another entry point in terms of the meaning of life.

Surveys of the most important things in life invariably rank family, health, career, where you live and money among the top ve. Engagement is likely to be higher if the life currency is in terms of say: Family: showing life expectancies in terms of the expected number of birthdays, or other important family events such as future holidays. Health and lifestyle: showing how life expectancy is a ected by lifestyle factors such

as exercise, alcohol intake and smoking. Career: showing life expectancy relative to retirement age and state retirement age. Where you live: showing regional or postcode-based life expectancies to give a more meaningful benchmark than national averages.

In personalising life expectancies and making them relevant in the context of nancial planning, you have to make sure it does not turn into the Spanish inquisition sketch. A simple and rewarding process of engagement that entices individuals to disclose further information to better re ne life expectancy estimations is the best outcome for all.

Indeed, the risks are minimised and rewards are highest for individuals who can grasp longevity in terms of everyday activities, such as buying a lottery ticket. For example, the odds of an average 65 year old living to 100 are higher than the odds of getting three numbers on a single UK lottery ticket! It is only at this stage that individuals are able to envisage their life in retirement and push the limits of planning to think positively about future life milestones.

And now for something completely di erent...In the world of Monty Python, they looked at how to build certain interesting things. In the world of pensions, Steve Webb, the minister of state for pensions, has committed to delivering a guarantee of guidance to ful l our retirement needs, with longevity considerations being a core element.

The challenge will be building interesting and engaging ways to communicate longevity to the masses in a personalised way. Infographic dashboards picture-based communications on life expectancy are some of the most fun ways to receive this information. Such methods are emerging in the UK but are common practice for some providers in other parts of the world, such as in the US and Australia.

In our view, the most successful communications are likely to be those that are tangible and relevant, encourage conceptualisation of the range of possible outcomes and look on the more positive side of life. These three ingredients will enable and actively encourage individuals to make informed decisions and take ownership around planning for protection and retirement needs.

So, for the bene t of all generations, we call upon actuaries to play their role centre stage to help communicate life expectancies. And just like ve to go, the motto always look on the bright side of life will bene t everyone. a

Figure 2: Perception gap: average underestimation of life expectancy

club vita estimation vs perception

5.2years

club vita estimation vs perception

7.8years

November 2014 THE ACTUARYwww.theactuary.com

23

EMMA MCWILLIAM (left) is a senior insurance consultant at Hymans Robertson and editor of Longevity Risk, published by RiskBooks RICHARD PURCELL is head of technical marketing at PruProtect with Vitality

p22_23_nov_life_expectancySEMIFINALCT.indd 23 27/10/2014 15:54

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