act feb combined

7/29/2019 Act Feb Combined

1/64

JANUARY/FEBRUARY 2012

theactuary.com

Q&AWe put the FSAsJames Orr inthe spotlight

Soapbox

Time for actuariesto venture out of thecave and into thereal world?

CareersDefining the role ofthe actuary aschief risk offi cer

RiskdiversificationIs Solvency II anew opportunity?

A bumpy roadfor insurers?

Telematics offers an opportunityto improve risk profiling so long as insurers avoid

potential potholes

The magazine of the actuarial profession


2/64

2January/February 2012 THE ACTUARYwww.theactuary.com

aonbenfield.com/empower

Dont let the numbers puzzle you.Fill in the gaps with ReMetrica.

Aon Benfield helps its clients progress from pillar to pillar with itsSolvency II focused version 5 of ReMetrica.

ReMetrica continues to evolve to enable actuaries to enhance their

internal models under Solvency II. Using ReMetrica, our clients are able

to deliver an Own Risk and Solvency Assessment that solves business

puzzles and generates a return on their Solvency II investment.

For a demo, visit: www.aonbenfield.com/remetrica_demo


3/64

JANUARY/FEBRUARY 2012

MORE CONTENT ONLINE

Additional content can befound at www.theactuary.com

22

WRITER OF THE MONTH

Paul Cookand Meera Rajoo each win a 25book token for their article on diversifying risk,courtesy of the Staple Inn Actuarial Society

UP FRONT

12 Profession news

16 Industry news

18 People/society news

20 SIAS events

OPINION

5 EditorialNew editorDeepak Jobanputra looks atwhat the future holds for the profession

6 LettersIn which actuaries discuss fair value in

pensions transfers and foreign agendas

8 Presidents commentJane Curtis welcomes some new faces to

the Professions team

10 SoapboxGraham Fulcher takes a reality check

on reserving

36 Book reviewSystems of Frequency Curves byW P Elderton and N L Johnson

FEATURES

22 Q&A: James OrrSonal Shah talks to the chief actuaryof the general insurance specialistdepartment at the FSA

24 GI: a bumpy road for insurers?

Telematics is transforming the way motorinsurance is assessed and priced. But isthe data reliable, asks Linden Holliday?

26 Risk management:actuaries as CROs ?Chris OBrien considers what role

actuaries have in risk management

27 Soft skills: people powerAndrew Hague believes actuaries should

take the lead in engaging with customers

30 Solvency II: free lunch from the EU?Is Solvency II an incentive for diversifying

risk? Paul Cook and Meera Rajooinvestigate

32 Solvency II: repeat performanceChris Hursey describes anoriginal theory on determiningoptimal calibration nodes forreplicating formulae

AT THE BACK

35 ArtsRichard Elliott beats the winter blues at theScottish National Gallery of Modern Art

37 PuzzlesWin a 50 Amazon voucher in our

prize puzzle

39 Student pageAre actuaries forgetting to look out for thelittle guy, asks Matthew Welsh?

40 Actuary of the futureStephen Renshaw of Friends Life

40 Appointments and moves

ONLINE

CareersHow can actuaries best add leadership totheir skill-set, asks Daphna Horowitz?

InternationalDr Yan Liu offers an actuarys guide to theChinese economy

EducationAndy Cox and Woojin Oh discuss theProfessions MSc initiative

www.theactuary.com/features/2012/01

24

27

www.theactuary.com3January/February 2012 THE ACTUARY

Contents

One of the FSAs key

strengths is the rigorousapproach it brings topolicy formulation andimplementation

COVER: BRETT RYDER


4/64


Call us anytime including evenings and weekends on 020 7717 9705 or email [email protected]

General Insurance Andy Clark BSc FIA 0781 333 7891 [email protected]

Life, pensions and investment Chris Cannon BA 0771 122 8449 [email protected]

All other enquiries Roger Massey BSc MBA FIA 0781 398 9016 [email protected]

Ready to climb higher?

www.the-arc.co.ukThe Actuarial Recruitment Company

A freshapproach


5/64

Editorial

Welcome to the new, contemporary look for The Actuary. I am excited

to have taken on the role of editor and look forward to meeting as many

members as possible over the coming months to help serve the needs of

our actuarial community and related stakeholders.

Since becoming editor, I have already visited four different continents

and experienced very diverse cultures and lifestyles. Nowadays, such

experiences are not uncommon. It would be an understatement to

reflect that the world around us is changing at an accelerating pace;

increasing globalisation and technology developments are just some

of the changes that the next generation seem to take as given. As an

optimist, I see this as a great opportunity to improve the world we live in.

We can now reach the world at large to improve health and wellbeing

across the globe. There are, however, new risks that this smaller world

brings, requiring the expertise of specialists such as actuaries.

A quote from our previous President summed up a core strand

of our vision for tomorrow that every chief risk offi cer, for all

industries, will be an actuary. This statement

recognises one of our core strengths the identification

and management of risk.

We have the opportunity to lead and diversify into new

areas and to work with a wider group of professionals; this

change is already happening. Furthermore, the growing

internationalisation of our profession offers great scope for our members

at a personal level, allowing them to experience both new career options

and learning opportunities by interacting with a wide membership base.

This merely touches upon a few ways for our profession to maintain

and develop the highly respected status we hold. As readers, I would

like you to help further our profession through your involvement with

The Actuary magazine and website.

Lastly, we have an opening in the editorial team for a puzzles

editor to take on the challenge of managing the puzzles section of the

magazine; for more information, please contact Sharon Maguire at

The Actuary, [email protected].

Deepak Jobanputra

[email protected]

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

Publisher/display salesPhilip Harding+44 (0)20 7880 [email protected]

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

Chief sub-editorCaroline Taylor+44 (0)20 7880 [email protected]

News editorNick Mann+44 (0)20 7324 [email protected]

Recruitment salesKaty Eggleton+44 (0)20 7324 [email protected]

Art director

Mark Parry

Picture editorClaire Handley

Production managerJane Easterman+44 (0)20 7880 6248

jane.easte rman@redac tive.co.uk

Print and distributionPolestar, Colchester, Essex

InternetThe Actuary website:www.theactuary.com

SIAS website:www.sias.org.uk

Actuarial Profession website:www.actuaries.org.uk

EditorDeepak [email protected]+44 (0)7794 031 225

Features editorTracey [email protected]+44 (0)20 7432 3071

Deputy features editorsSarah BennettAlex EnglishDan GeorgescuAdam JornaSonal [email protected]

Profession news editorAlison [email protected]+44 (0)20 7632 2172

Industry news editorTerren [email protected]

People/society news editorYvonne [email protected]

Student page editorMatthew [email protected]

Arts page editorRichard [email protected]+44 (0)7814 509 081

Puzzles [email protected]

Editorial advisory panelPeter Tompkins (chairman),John Batting, David Campbell,Margaret de Valois,Matthew Edwards, Martin Lunnon,Marjorie Ngwenya,Sherdin Omar,Richard Purcell,Andrew Smith, Nick Silver,Chris Sutton

Published by the Staple Inn Actuarial Society.The editor, The Institute and Faculty of Actuaries and Staple Inn Actuarial Societyare not responsible for the opinions put forward in The Actuary. No part of thispublication may be reproduced, stored or transmitted in any form or by any means,electronic, mechanical, photocopying, recording or otherwise, without prior writtenpermission of the copyright owners. While every effort is made to ensure theaccuracy of the content, the publisher and its contributors accept no responsibilityfor any material contained herein.Important information for contributors to The ActuaryBy submitting content for publication you confirm that: (a) You (and/or other namedcontributors) 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-partyrights, be defamatory or in any way illegal.

SIAS February 2012 All rights reserved ISSN 0960-457X

Opinion

SubscriptionsFor subscriptions from outside the actuarial profession: UK, Eire andEurope: 50 a year/5 a copy. For the rest of the world: 75 a year/7.50 acopy. Please contact: Alison Jiggins, The Actuarial Profession, Staple Inn, HighHolborn, London WC1V 2QT T +44 (0)20 7632 2100 E [email protected] Students on actuarial science courses at universities may join the StapleInn Actuarial Society for 6 a year. They will receive The Actuary as part oftheir membership. Apply to: Membership Department, The Actuarial Profession,Maclaurin House, 18 Dublin Street, Edinburgh EH1 3PP. T +44 (0)131 240 1325E [email protected] Changes of address should be made knownto the membership department as above. For delivery queries, please contact:

Jane Easterman E [email protected]

Circulation 21,764(July 2010 to June 2011)

Like The Actuary on Facebook Join The Actuarys LinkedIn groupFollow @TheActuaryMag on Twitter

Deepak Jobanputra takes a look atthe challenges and opportunities facingthe profession

Fresh fields

DEEPAK JOBANPUTRA

Every chief risk offi cer,for all industries,will be an actuary

www.theactuary.com5January/February 2012 THE ACTUARY


6/64

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

THE ACTUARY January / February 20126

OpinionLetters

Chronicle of a death foretold

When my executors notify you or yoursuccessor of my death (Letters, Celebrating

Life, December 2011), they will include an

attachment containing an obituary written by

me. I am by far the best person to know what I

have done in my life my children certainly

are not up to the task, and there is no one

in the actuarial world who has a clue about

what I did when, in 1966, I left the world of

life assurance for the wider field. Moreover,

in writing my own obituary, I can insert

phrases such as much loved by everyone

who worked with him in contrast to an

obituary I once read, which began, X

was probably the most cordially detestedperson ever to have worked for.... I have

not yet written my obituary; I am in no

hurry to write it because I am not going

to die until erm...

Adrian Williams 15 December 2011

Home thoughts or abroad?Jane Curtiss article (Presidents comment,

December 2011) was not a comfortable read

for me as a young UK actuary. I feel that the

interests of UK members are being sidelined

and that an international agenda is being

pursued again to their detriment.

Adding actuaries to the Home

Offi ces shortage occupation list is a

major development and, in my view,

there has not been a proper debate

or consultation with members. It will

increase non-EU immigration, drive

down wages and salaries for UK

actuaries and restrict opportunities.

If actuaries are in shortage here, then

the profession should apply generous

discounts for subscriptions and

training as it does for special overseas

countries. She reveals that more than

half of SIASs student membership

is from overseas this is a major

change in the membership structure

and likely to mean that the interests

of UK members will increasingly

be trumped.

As a result, I doubt that young UK

actuaries will enjoy the job security,

earnings and career prospects that

previous generations have enjoyed.

David Thomas 4 December 2011

A question of ethics?Response to A. Higham, December 2011

Mr Higham questions the role of actuaries involved in advising on enhanced

transfer values (ETVs). He rightly points out the deficiencies of the FSA rules

that direct how IFAs must advise members and he advocates proper standards

of advice being made available to members I couldnt agree more. But he does

not comment on the underlying issue the amount of the base transfer value.

This potentially raises even more professional and ethical issues for actuaries:

Would an actuary take a transfer value of their own pension on the terms

and assumptions that they are happy to recommend to trustees?

Do scheme actuaries tell trustees how poor they really think the

transfer terms are?

Do trustees tell members how poor the transfer terms are?

Do actuaries believe that a members statutory right to a transfervalue (and hence ability to diversify a huge concentration of employer

covenant risk) should be undermined by trustees refusal to pay a fair

transfer value?

What about divorce cases, where there may be no alternative to a poor

transfer value?

It surprises me that a desire by companies to enhance the terms offered by

the trustees and scheme actuary causes the finger of suspicion to be pointed at

employers and does not cause more scheme actuaries and trustees to question

and be questioned on whether what they are offering to members in the first

place is fair and reasonable.

The risks of mis-selling would be hugely reduced (and ETVs would cease to be

an issue) if the terms advised by scheme actuaries and offered by trustees were

fair value.

Charles Cowling 2 December 2011

The editorial team welcomes readers letters but reservesthe right to edit them for publication. Please [email protected]. The deadline for receiving letters forthe March issue is 10 February.

CloudbustingIn the November 2011 issue ofThe Actuary,

Geoff Dunsford comments that water vapour

and clouds provide the main greenhouse

effect. While this is technically true, it is also

misleading. Water vapour does not linger in

the atmosphere; any excess is rained away

in a matter of days or weeks. Its quantity is

therefore tied to evaporation rates, which

depend mainly on surface temperature, so it

mostly acts to amplify a pre-existing change

in temperature it is a feedback rather

than a forcing.

From a policymakers perspective,

therefore, water vapour is really very

boring. By contrast, carbon dioxide stays

in the atmosphere for years, continually

nudging the climate, and is easily added to

by human activities. Of course, the water

vapour feedback loop can amplify this

so-called forcing effect, but the root

cause of warming is the CO2.

There are many areas of

climate science that are still being

explored and, as risk professionals,

it is important that we are

aware of these limits on our

knowledge. It is equally

important that we do not

misinterpret key facts and

draw wrong conclusions.

Alex Labram11 January 2012

LETTER OF THE MONTH

v

co

tra

tran

It s

ver,

one

an

e

the tr

emp

THEWRIT

ER

OFTHEL

ETTER

OFTHEM

ONTH

RECEIVES

A

25AMAZ

ON

VOUCHER

www.theactuary.com

[email protected]


7/64


When you can see what others cant,you enjoy a natural advantage.

See more of what could unfold with GEMS Economic Scenario Generators,

built on one of the most comprehensive simulation platforms on the market.See more what ifs using the proven economic and financial modeling capabilities of GEMS. With more accurate tail-risk

modeling, a broad set of asset classes and the ability to model at the security level, GEMS provides cutting-edge global

economic simulations for managing your business. Whether you prefer GEMS Scenario Master, a general purposeESG for MCEV, Solvency II or economic capital modeling, GEMS Portfolio Analyzer for asset and portfolio managementincluding hedging strategies, or GEMS Enterprise Modeler for whole-company modeling and risk diversification, we offer thecapabilities to meet the challenges of economic and financial modeling in the new economy. And GEMS is just one of the

advantages you can expect from Conning, a premier insurance asset manager providing a complete spectrum of risk and

capital management products and services to optimize your companys results. Realize your natural advantage withConnings GEMS products. For more information or for a free demo, please contact us at [email protected].

2011 Conning & Company. All Rights Reserved. GEMS is a registered trademark of Conning Services (Ireland) Limited.

GEMS Best ESG Software

Hartford | New York | London | Dublin | Cologne | Hong Kong


8/64

THE ACTUARY February 20128

OpinionPresidents comment

Welcome to my first column for 2012.

This year promises to be one of the most

rewarding yet for the Profession as the impact

of our strategy changes and new initiatives

come on stream. As President, I am often

the public face of the Profession but, behind

the scenes, the assistance of a strong and

experienced executive team is invaluable. In

the past few months, new faces have joined

this team and I would like, in this article, tointroduce them to a wider audience.

In November 2011, the Institute and Faculty

of Actuaries announced that Derek Cribb was

to be its new chief executive. Derek qualified

as a chartered accountant with Deloitte in

London, and gained broad experience in a

range of strategic, operational and financial

roles in both the private and public sector

before joining the organisation in May 2010.

He is already familiar with the responsibilities

and requirements of the role, including

helping to re-shape the executive team.

As chief executive, Derek will manage the

affairs of the Institute and Faculty, working

closely with the Council and Management

Board members to ensure we progress towards

the strategy targets agreed last year.

His CV covers a wide variety of businesses

and, latterly, he has held the positions of

interim chief operating offi cer of the Pension

Protection Fund and chief finance offi cer,

UK customers and products, of Barclays plc.

I am delighted that we have such a committed

professional with the drive and enthusiasm to

fulfil this important role.

He will be supported in his role by a new

member of the team, Anne Moore, who joined

us last year, taking on the crucial role of

director of finance and operations.

More recently, Ben Kemp was formally

appointed to the role of General Counsel to the

Institute and Faculty of Actuaries with effect

from 6 February 2012. Ben had previously been

filling the position on a part-time basis but

now joins us full-time and will take the lead

on the Professions legal and regulatory issues.

Ben will be based primarily at Maclaurin

House and many will already know him from

his previous work in Scotland, including

teaching public law and human rights at

Edinburgh University.

Prior to joining us full-time, Ben was a

partner in the regulatory and professionaldisciplinary department of Kingsley Napley

LLP and regularly advised regulatory,

professional and public bodies. He comes

highly recommended, with clients praising his

mastery of the law and his solid advice.

Memoria Lewis continues to drive forward

the strategic objectives to support our

members, as does Trevor Watkins as the

director of education. Another recent recruit

has been Dan Watts. As part of the Public

Affairs Directorate, he will act as a guide to

the Presidents responsibilities, ensuring

that the team is well briefed to represent the

organisation when meeting our stakeholders.

Communication and

the way the public

perceive us is key to

the profession, so Dan

is a crucial part of

ensuring that we fulfil

our aims. He joined

us having previously

worked at the Foreign

and Commonwealth

Offi ce and the Home

Offi ce, working

for government ministers and on the UKs

representation on justice and home affairs

matters in Brussels.

We will, in due course, be saying farewell

to Paul Atkinson, our interim public affairs

director, who has made an important

contribution to building strong foundations

for our more active approach to public affairsand thought leadership.

Paul wishes to continue his career as an

independent consultant and he is working

closely with Derek Cribb to recruit a

permanent director of policy and external

public affairs.

Changes over the past year in our

executive team have allowed us to bring in

new talent and people with diverse skills

that complement our existing expertise.

Often it is the newest recruits who can take a

completely objective view and recommend

improvements to the way we operate.

Throughout all the changes to the

team, one person

remains unfailingly

indispensable.

Marion Young, as

secretary to the

Professions Council

and Management

Board, makes sure that

the workings of the

Profession run smoothly.

She has frequently been

consulted for her

in-depth knowledge of the functions and

powers of the Council.

So, as 2012 gets under way, it is my

pleasure to wish you a happy and successful

year and to look forward to the coming

months with a great team of staff and

volunteers, each of whom brings their unique

talents to make the Profession as highlyregarded as it is. a

JANE CURTIS

Expertopinions

Jane Curtis welcomes some new facesto the Professions team

Changes over the

past year in ourexecutive team have

allowed us to bring innew talent and people

with diverse skills

Jane Curtis is the

President of the

Institute and

Faculty of Actuaries

www.theactuary.com


9/64


Whats underneath?

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

Get new insights on your business at uk.milliman.com.


10/64

1 0 T HE ACT UARY January/February 2012

OpinionSoapbox

Reserving actuaries are more likely to spend

their time reading the latest guidance on

Solvency II technical provisions than Greek

philosophy. However, in my view, Platos

Allegory of the Cave provides an interesting

metaphor for what I see as a key challenge for

reserving actuaries: to get out of their cave and

engage with the real world.

The Allegory is an imaginary dialogue

between Socrates and Glaucon. In it, Socrates

asks Glaucon to imagine a cave inhabited

by prisoners who have been chained and

held immobile since childhood. Behind the

prisoners is an enormous fire, and between the

fire and the prisoners is a raised walkway along

which people move carrying objects on their

heads, including figures of men and animals

made of wood, stone and other materials.

The prisoners watch the shadows cast by

the people, not knowing they are shadows.

Socrates suggests the prisoners would take the

shadows to be real things, not just reflections

of reality, since anything else is beyond their

experience. They would praise the wisdom

of whoever could best guess which shadow

would come next. To them, this would mark

out that person as someone who understood

the true nature of the world.

The true philosopher, Plato argues, is the

person who, if set free from the cave, would

realise their previous misconceptions and

truly engage in understanding the real world.

However, many of the prisoners would reject

the world outside the cave and be far happier

returning to trying to interpret and predict

the shadows.

I would suggest that there is a danger that

reserving actuaries sit too much in their own

cave gazing at triangles on their computer

screens, and trying to predict what will

come next in the triangle. In doing so, do we

potentially overlook the fact that the triangles

are very limited shadows of a complex world ofclaims and underwriting?

One issue that reserving actuaries have

grappled with is the reserving cycle when

claims patterns appear longer-tailed in a soft

market and shorter-tailed in a hard market.

One of the immediate reactions to the

reserving cycle was to

try to mathematically

change methods to

somehow adjust for it.

I would argue, though,

that the reserving cycle

is just one example

of the need to really

understand the

business that has been

underwritten before

you try to reserve it.

The Individual

Capital Assessment

(ICA) has led us

into the realms of

stochastic reserving, whereby actuaries apply

increasingly complex methods to a very small

number of points in a triangle.

Equally, Solvency II and the promised

changes in International Financial Reporting

Standards are leading to the need for new ways

of predicting the shadows.

But when issues do arise large

catastrophe claims, spiralling cost inflation

on claims for bodily injury sustained in

motoring accidents, a surge in Italian medical

malpractice claims they are a result ofphysical, legal or behavioural developments

in the real world. And these simply arent

captured in a triangle.

Inflation will have a significant impact

on whether we get our casualty reserving

correct in the next few years or whether we

are about to repeat

some of the mistakes

of 1998 to 2000.

In turn, inflation

depends on political

and financial

developments and the

way in which

politicians and

monetary authorities

react to the sovereign

debt crisis.

2011 claims for

reinsurers and London

market players

were dominated by

natural catastrophes in Japan, New Zealand

and Thailand. Understanding the effect of

these events involves at the least: a detailed

understanding of coverages provided;

the way in which local markets spread their

risk globally; and the operation of global

supply chains (to understand exposure to

contingent business interruption).

In my view, a true reserving actuary is one

who gets out of his cave, turns away from his

computer screen and tries to fully understand

the world in which companies and clientsare operating.a

GRAHAM FULCHER

Venturingout ofthe cave

Graham Fulchersays the industrycould benefit from a reality check when itcomes to reserving

Graham Fulcher is the

UK development director

for property and casualty

business at Towers Watson

There is a danger thatreserving actuaries

sit too much in theirown cave gazing

at triangles on theircomputer screens,

and trying to predict

what will come next inthe triangle

www.theactuary.com


11/64


>`ded`]feZ`_de`D`]gV_Tj::W`c=`_XERZ]

=ZRSZ]ZeZVdRcV]Z\VeYVAe`]V^RZTDjdeV^

D`^VeZ^VdRTYR_XVZ_aVcdaVTeZgVZdR]]ZeeR\Vd


12/64


NewsProfession

UpfrontActuarialcareers eventsattract growinginterestThe Actuarial Professions careers department

ran two promotional events in 2011. The aim

was to promote the profession and the

career path of becoming an actuary to three

target audiences students studying at

university, school students and their parents,

and career-changers.

Presentations were given on the role of the

actuary and the type of industry knowledge

required. This was followed by an informal

networking event, giving the audience the

opportunity to ask the speakers specific

questions and to meet other actuaries, as well

as members of staff in the Profession.

London 26 October 2011

This event was run with the ongoing support

of PwC and, in particular, Yow Shern Lau,

who has helped to coordinate the event for

the past three years. The event has grown

each year, this year being no exception

170 students attended.

Presentations were given by Jane Curtis,

the President of the Institute and Faculty of

Actuaries; Michael Folkson, PwC;

Beth Dunmall, Lane Clark and Peacock;

Richard Whiteoak, Swiss Re; and

Ashish Kwatra, PwC.

Edinburgh 16 November 2011

The event was the first of this type run in

Scotland and proved very popular, with

50 students in attendance.

Presentations were given by Jane Curtis;

Trevor Watkins, director of education;

Keith Miller, member of Scottish Board;

Kirsty Sellar, PwC; Xian Li, Hymans; and

Kevin Telfer, Kames Capital.

If you would like to participate in either of

these events in 2012, or to find out what other

opportunities for volunteering are available,please contact the careers department on

+44 (0)1865 268 872 or [email protected].

NEWS UPDATES FROM THE ACTUARIAL PROFESSION

Welcome to the first column I have

had the pleasure of writing since my

appointment was announced. Id like to

start by thanking president Jane Curtis for

the kind introduction to some of the key

members of the Executive team, and build on that to give you some

insight into whats happening inside your profession.

2011 was a year of significant change in the Executive function, with

many changes in staff and their responsibilities as we geared up to

deliver the Professions new strategy. We are now structured so as to

align the Executive to its strategic themes, with a director responsible

for each of these working with the input of lead volunteers. We also have

a programme offi ce, managed by an experienced programme manager,

Jane McDonald, and dedicated project managers across the more

intensive and complex areas of delivery.

With the new structure bedded in, all staff in the Executive have

engaged their skills and experience to focus on the delivery of

the strategy; however I would like to specifically mention two key

appointments in our Edinburgh offi ce.

Debbie Atkins has joined us as volunteer engagement manager, with

responsibility for building stronger relationships with employers and

ensuring we have the right volunteer opportunities filled by suitably

skilled volunteers. If you attend a Profession event in 2012, expect

Debbie to come and tap you on the shoulder! Working alongside Debbie

is Beth Montgomery, charged with supporting the Scottish Board and

developing and supporting our activities in the UK regions. I am sure

both would welcome direct contact with any questions or offers of

support you may have.

In the coming editions, I will be focusing on what we are doing to

deliver the strategy, and how you will experience the benefits of this

implementation. Importantly, I will also highlight where there

are opportunities for you, our members, to volunteer your

skills to help ensure we get it right.

With the Executive and volunteers working together

towards the common goal of our strategy, I am sure we will

deliver a profession that our members will be proud to be

a part of for many years to come. a

New structureto reflect goals

OpinionCEOs comment

Derek Cribb outlines the manychanges in the Executive function

DEREK CRIBB

Derek Cribb is the

chief executive offi cer

of the Institute and

Faculty of Actuaries

www.theactuary.com


13/64

13

One of the most keenly attended sessions at the

Life Conference, which took place in Liverpool from

20-22 November, was John Roes The sting in the tail,

where he urged actuaries to rethink 1-in-200-year tail

risk definitions and outlined tail event drivers, hedging

approaches and their application for insurers.

With macroeconomic uncertainty and market

volatility consistent themes of the past three or four

years, there is an increased focus on tail events across

insurers. Existing UK regulations and Solvency II aim to

allow for such outcomes.

However, Mr Roe questioned the approach,

calibration and time horizon for capturing those

extreme events, as well as the behavioural finance

problems associated with labelling them

1-in-200-year risks.

The presentation also discussed why capitalising

insurers to withstand much more severe stresses

would be detrimental for the economy and, ultimately,

the governments debt position over time. This in itself

is a key concern for markets. With those theoretical

aspects covered, the focus shifted to the current tail

risks and how accommodative policy and shock-

dampening since the mid-1980s had contributed to

a misconception that the business cycle had been

tamed, contributing, in turn, to the extent of the effects

of the 2008 financial crisis.

The discussion concluded with an examination

of alternative approaches for identification, analysis

and hedging of tail risks. It proposed moving away

from purely statistical market stresses to attacking

the problem from multiple angles, including macro-

economic scenario generation, historical stresses and

reverse stress tests to encourage an active, ongoing

tail hedge debate and to try to build a safety net to

protect against the emergence of such events.

S A V E T H E D A T E S

S P R I N G C O N F E R E N C E S

Open Forum: Asset-backedpension scheme funding22 March 2012, Staple Inn Hall, London

17.00 (registration) for 17.30 19.00

A small but growing number of companies

have been leveraging their assets to fund

their defined benefit pension schemes. With

HM Treasury in the process of clarifying the tax

treatment, will the trickle turn into a flood?

At this open forum, an actuary, auditor and

lawyer will each give their own perspectiveson the issues surrounding these types of

arrangements. Details of the event can be

found at:www.actuaries.org.uk/events/one-

day/open-forum-asset-backed-pension-

scheme-funding

Health and CareConference 201230 April 2 May, Manchester

Pensions Conference 201230 May 1 June, Brighton

Risk and InvestmentConference 201227-29 June, Leeds

Masterclasses coming soonThe Actuarial Profession is to provide a series

of masterclass workshops to assist members

with professionalism skills. Please check the

website to see whats on offer:

www.actuaries.org.uk.

Life actuaries urgedto rethink tail risk

Launch of SONIA in Northern IrelandQueens University Belfast has announced the launch of a new society for actuaries in Northern

Ireland and those with an interest in the profession. The Society of Northern Ireland Actuaries

(SONIA) hopes to attract actuarial professionals as well as actuarial science and risk management

degree students at Queens University Management School (QUMS).

Funded by Invest NI, SONIA aims to offer a forum for local actuaries to share opinions, as well

as networking opportunities, professional development and industry engagement for students.

SONIAs launch event is to take place on 7 February at QUMS and is supported by the Institute

and Faculty of Actuaries. President Jane Curtis will speak on the Actuarial Professions new

education strategy and discuss the latest thinking on topics such as enhanced transfer values.

Colin OHare, president of SONIA and programme director for the actuarial science degree at

Queens, said: It offers employers the opportunity to learn from academics at the cutting edge ofactuarial research and students the opportunity to develop business awareness skills.

For details, call Colin OHare at QUMS on +44 (0) 28 9097 4671 or email [email protected]

Journals newsBritish Actuarial JournalVolume 16 Part 2

is now published and freely available online

to members viawww.actuaries.org.uk/

journals_access under latest issue.

The content includes papers and discussions

on systemic risk in financial services; ERM

for insurance companies; and asset liability

management for individual households.

Annals of Actuarial Science Volume 6 Part 1

is now freely available online to members via

www.actuaries.org.uk/journals_access

under latest issue. The content includes a

guest editorial by Richard Verrall.

Book reviews and abstracts from actuarial

journals worldwide are also featured.

CONFERENCE

January/February 2012 THE ACTUARY

Graduates flockto Imperial fair

The annual Actuarial Finance CareersFair, hosted by Imperial College Business

School on 15 November 2011, attracted an

unprecedented number of undergraduate

students and major employers, many

sponsoring actuarial trainees at Imperial as

MSc Actuarial Finance students on a day-

release basis.

The Careers Fair allows employers to

meet potential new talent from leading

universities in the UK, while students get to

meet employers, learn about the profession

and the Imperial pathway to qualification.

This year, attendees heard from:

Dr Trevor Watkins, director of education atthe Institute and Faculty of Actuaries;

Paul Nicholas, alumnus of Imperial College

Business School;

Tony Hewitt, programme director of MSc

Actuarial Finance at Imperial;

Geraldine Kaye from Gaaps Actuarial.

Nine major employers had stands at the

fair Aon Hewitt, Barnett Waddingham,Buck Consultants, Deloitte, Ernst & Young,

Mercer, Milliman, Towers Watson and

Zurich Financial Services. The Actuarial

Profession, Inside Careers and

Gaaps Actuarial also had stands.

In total, 113 students attended from 29

colleges. Feedback was excellent, with 95% of

attendees saying they were likely to pursue an

actuarial career and 63% likely to pursue the

MSc Actuarial Finance as a result of the fair.

Tony Hewitt said: Imperial is committed

to our partnership with the Profession and

we are proud of our role in attracting high-

calibre graduates to the profession.

For more information on the MSc Actuarial Finance,

visit: bit.ly/imperialmsc

www.theactuary.com


14/64

NewsProfession

NEWS UPDATES FROM THE ACTUARIAL PROFESSION

The Investigation Actuary laid the following

charge of misconduct against

ALASTAIR McLEAN FIA (the Respondent).

THAT THE RESPONDENT:

Being at the material time a member of the

Institute of Actuaries he:

1 In his capacity as director of United

Business Solutions International Limited(UBSiL), and sole director of UBSiLs

subsidiary companies, United Benefits

Services Limited and United Business

Solutions Limited, he:

1.1 Entered into a contractual agreement,

dated 4 October 2004, with Haggards and

Company Chartered Accountants (Haggards),

whereby Haggards were to provide UBSiL

and its subsidiaries with accounting and

book-keeping services, in which commercial

contractual arrangement he failed to act in

accordance with the principles and ethical

standards expected from a member of the

Institute of Actuaries in that he:

1.1.1 Failed to make payment of the sum of

21,900 to Haggards, despite

1.1.1.1 Haggards successfully obtaining a

County Court judgment against subsidiary

companies of UBSiL, United Benefits Services

Limited and United Business Solutions

Limited in that sum dated 2 October 2008;

1.1.1.2 A statutory demand being served

under the Insolvency Act 1986 on United

Benefits Services Limited on 30 October 2008

in respect of the outstanding debts; and

1.1.1.3 A subsequent petition to wind up

United Benefits Services Limited being filed by

Haggards dated 10 March 2009;

1.2 Failed to file accounts for United Business

Solutions Limited and United Benefits

Services Limited at Companies House for

the year to 31 December 2007 in breach of

requirements of section 242 of the Companies

Act 1985;

1.3 Failed to file annual returns on behalf

of United Business Solutions Limitedand United Benefits Services Limited at

Companies House, despite them being due on

12 April 2009, in breach of section 854 of the

Companies Act 2006;

1.4 Failed to act in accordance with the

principles and ethical standards expected

of a member of the Institute of Actuaries

by persistently and unreasonably failing to

communicate with Haggards in respect of

ongoing business matters and failed to makepayment of their professional fees for work

carried out for his businesses;

2. For the CPD year 1 July 2007 to 30 June

2008 he failed to:

2.1 Declare the appropriate CPD category as

required by the Actuarial Profession and set

out in the CPD schemes contained within the

CPD handbook 2007 (version 12) at page 7;

the CPD handbook 2007 (version 13) at pages

7 and 12; and the CPD handbook 2007/2008

(version 14) at pages 8, 9 and 13;

2.2 Carry out the appropriate CPD activities

as required by the Actuarial Profession and set

out in the CPD handbook 2007 (version 12) at

pages 8, 9, 12 and 13; the CPD handbook 2007

(version 13) at pages 8, 9, 10, 13 and 23; and the

CPD handbook 2007/2008 (version 14) at pages

9, 10, 13, and 14;

2.3 Maintain an online record of CPD

undertaken as required by the Actuarial

Profession and set out in the CPD handbook

2007 (version 12) at pages 10, 13 and 23; the

CPD handbook (version 13) at pages 8, 9, 10,

13 and 23; and the CPD handbook 2007/2008

(version 14) at pages 9, 10, 11, 14 and 24;

3 He failed to cooperate with, or respond

to, requests from the Investigation Actuary

for information to assist the investigation,

in breach of the requirements of rule 3.11 of

the Disciplinary Scheme of the Institute of

Actuaries, as read in conjunction with

rule 1.10 of the Disciplinary Scheme of the

Institute of Actuaries;

4 His conduct in paragraph 1 above fell short

of the standards required by paragraphs 1.3, 2.1

and 2.2 of the Professional Conduct Standards

versions 2.1, 2.2 and 2.3, and paragraphs 1.2,1.5, 2.1 and 2.2 of version 3.0 of the Professional

Conduct Standards;


of the standards required by paragraphs 1.3, 2.1

and 2.2 of the Professional Conduct Standards

version 2.3 and paragraphs 1.2, 1.5, 2.1 and

2.2 of the Professional Conduct Standards

version 3.0;


of the standards required by paragraphs 1.2,1.5, 2.1 and 2.2 of version 3.0 of the Professional

Conduct Standards and was contrary to

Principles 1 and 4 of Version 1.0 of the

Actuaries Code;

7 His conduct in any, or all of the above, in

any event constitutes misconduct in terms

of rule 1.6(b) of the Disciplinary Scheme

of the Institute and Faculty of Actuaries,

being conduct that fell below the standards

of behaviour, integrity, competence or

professional judgement which other members

or the public may reasonably expect of

a member.

THE HEARING:

The Respondent was not present and was

not legally represented. The Institute and

Faculty of Actuaries was represented by

Ms. Julie Matheson of Kingsley Napley LLP.

In the Respondents absence, the Tribunal

first considered whether the Respondent

had been served the charge in accordance

with the disciplinary scheme and, second,

whether he had received suffi cient notice of

the date of the hearing in accordance with the

disciplinary scheme. The Panel was satisfied

that the Respondent had been both served the

charge and advised of the date of the hearing

in accordance with the disciplinary scheme.

The Respondent submitted a letter disputing

the charges for the consideration of the Panel

which indicated that the Respondent would

not be in attendance at the hearing. The Panel

was therefore satisfied that it was appropriate

to proceed in the Respondents absence.

The Tribunal heard live evidence from a

witness in relation to the allegations under

paragraph 1 above and, in the Respondents

absence and, therefore, the absence of cross-

examination, the Panel applied the weight it

considered appropriate to the evidence.

DETERMINATION:

The Panel found the allegations under

THE INSTITUTE

AND FACULTY OF

ACTUARIES

DisciplinaryTribunal Panel

Determination under Rule 6.23 of the Disciplinary Scheme of the Institute of Actuaries

(2007) in respect of a Charge of Misconduct brought by Mr. Alan Taylor FIA, (the

Investigation Actuary) in the case of MR ALASTAIR GRAHAM McLEAN FIA

Heard at the International Dispute Resolution Centre, 70 Fleet Street, London EC4Y 1EUon 1 November 2011

This determination is subject to an appeal.

1 4 T HE ACT UARY January/February 2012www.theactuary.com


15/64

15January/February 2012 THE ACTUARY

paragraph 1.1, 1.2 and 1.3 above were proven

and determined that 1.1 amounted to

misconduct for the purposes of paragraph 7

above. They did not find the allegations under

1.4 to be proven.The Panel found that the allegations under

paragraph 2.1 and 2.3 above were proven, but

not those under paragraph 2.2. The Panel

determined that the proven facts were not

suffi cient to amount to misconduct for the

purposes of paragraph 7 above.

The Panel found the allegation under

paragraph 3 above proven and determined

that it amounted to misconduct for the

purposes of paragraph 7 above.

The Panel imposed the following sanctions:

A suspension of the Respondents

membership for a period of two years; andA fine of 5,000.

REASONS:

The Panel found that the facts alleged in

paragraph 1.1 above were proven as the

Respondent, as sole director, had failed

to procure the subsidiary companies to

pay the sum of 21,900, as ordered by the

County Court. The further statutory demand

and winding-up petition did not result in

the payment of the sum which remains

outstanding. The Panel considered the

failure to comply with the order of a court of

competent jurisdiction to be misconduct.

Having found the allegations under

paragraph 1.1 proven and amounting to

misconduct, the Panel concluded that further

consideration as to whether paragraphs

1.2 and 1.3 also amount to misconduct was

not appropriate.

Evidence was provided by the Respondent

to dispute charge 2.2 and the Panel was

satisfied that the Respondent had completed

suffi cient CPD for the year in question.

With regards to the charges under paragraphs

2.1 and 2.3, the Panel noted the decisions in

previous Tribunal hearings which found that

a Respondent failing to record CPD before

the closing of the online recording system

did not constitute misconduct by virtue of

the fact that the applicable CPD handbooks

do not create any such deadline. Although

the deadline was communicated through

other means, a Member should be able to

rely on the CPD handbook to advise them of

all their obligations. The Panel was satisfied

with the Respondents explanation that he

had attempted to record his CPD online

after the closing of the recording system and

therefore concluded that he had not failed

to comply with his CPD obligations. As a

result, all charges under paragraph 2 above

were dismissed.The Panel found the charges under

paragraph 3 above proven. The Respondent

did not respond to any correspondence from

the Profession or the Investigation Actuary

for a period of several months prior to the

first delivery of the papers for a Tribunal

scheduled to be held in late 2010. A reply wasthen received on behalf of the Respondent

stating that the Respondent had just been

taken seriously ill. There was no suggestion

that his illness had been the reason for not

responding to earlier correspondence. It was,

however, agreed that the Tribunal should

be postponed until the Respondent had

recovered. The Respondent did not respond

to further correspondence until he sent a letter

by email immediately prior to the rearranged

Tribunal. Although denying the charges

under Paragraphs 1 and 2, the Respondent

made no reference to the charges under

Paragraph 3 and produced no evidence tosupport his position. The lack of co-operation

with the Investigation Actuary frustrated the

investigation process and the Professions

regulatory function. All Members are expected

to co-operate with an investigation and the

Panel considers the failure to do so to be a

serious offence.

COSTS:

An application for costs was made by

the Institute. The Panel ordered that the

Respondent make a contribution towards costs

of 2,000.

Martin Slack FIA (Chairman),

Huw Wynne-Griffi th FIA,

Judith Goulden

3 November 2011

CPD determinationsBecause of the consistent nature of CPD cases,

these are now published on the Professions website

and are not to be taken as a reflection of their lesser

importance under the disciplinary scheme.

The following members have faced disciplinary

action for failure to record their CPD in accordance

with the Professions CPD requirements:

Mr. Corneth Aiyefemi Bart-Williams, a reprimand.

http://bit.ly/adjudi-14

Mrs. Sarah Louise Brooks, a reprimand.


Mr. John Francis Casey, a reprimand and a

fine of 200.


Mr. Josias Cloete Vermeulen, a reprimand and

a fine of 400.


On 2 December 2011, over 100 Chinese

actuaries gathered in Staple Inn

Hall, London, to launch the Chinese

Actuarial Network UK (CANUK). Ms

Haijing Wang chaired the evening and

introduced this event as a significant

milestone for Chinese actuaries in

the UK.

Launch of CANUK

In his opening speech, Mr Feifei Zhang,

President, set out the objectives for

CANUK as providing a networking

platform and a communication channel

for Chinese actuaries in the UK and

further afield, and supporting Chinese

actuarial professionals in the UK through

educational, social and other events.

Derek Cribb, chief executive of the

Institute and Faculty of Actuaries, and

Trevor Watkins, director of education,

spoke at the event. They highlighted the

international outlook of the UK actuarial

profession and the fact that one-third of

the members, and half of the students,

are based overseas. The UK Profession

has an international policy to enhance

the interests of its members in the

broad areas of regulatory environment,

professional environment and career

opportunities worldwide. Dr Watkins also

pointed out that this was the largest-ever

gathering of Chinese actuaries in Staple

Inn Hall.

Peter Lee, director at Towers Watson,

delivered a presentation on current

hot topics. Mr Lees presentation was

followed by a panel discussion about

actuarial careers in Asia and in the UK.

The panelists were Mr Alex Ince

(Oliver James), Ms Fulin Liang (KPMG),

Mr Feifei Zhang (Aviva) and Dr Yan Liu

(RBS Insurance).

The website for CANUK can be found at

www.chineseactuary.net/UK/. CANUK

wishes to acknowledge that the launch event

was sponsored by Oliver James Associates.

About the Author

An actuarys introduction to the Chinese

economy by Dr Yan Liu can be found at

www.theactuary.com/features/2012/01

Chinese

Actuarial

Network UKlaunchedReport by Dr Yan Liu

www.theactuary.com


16/64


NewsIndustry

MORE BREAKING NEWS ONLINE

Visitwww.theactuary.com for breaking newsand to register for weekly news alerts

Data and risk modelling head upinsurers Solvency II compliance needs

Reliance on third parties for data, sophisticated riskmodelling needs and obtaining detailed fund data are thekey challenges faced by European insurers in complyingwith Solvency II.New research by BNP Paribas Securities Services and InteDelta revealed

that, although insurers are advanced in terms of preparing the directives

quantitative requirements (Pillar I), and have started addressing

risk governance (Pillar II), a significant amount of work remains to

implement and embed those requirements into their businesses.

For more on this story, visit bit.ly/solvcomp

Out-of-date practices leave risk managersunprepared for flock of black swans

Many companies risk management practices areincreasingly outmoded, leaving them exposed to a newrisk landscape of catastrophic black swan events,according to a paper by PwC.The firm suggests that businesses need to adapt and innovate if

they are to combat major-impact events, such as terrorist attacks,

tsunamis or oil spills, overhauling archaic practices to embed a new

risk culture.

The PwC paper Black swans turn grey: the transformation of risk

suggests that enterprise risk management (ERM) practices can become

a box-ticking exercise, encouraging staff to see risk as separate from

their own business decisions.

In contrast, comprehensive risk management practice makes

companies distinctive, more appealing to prospective clients and

provides a competitive edge, the firm says. When properly embedded, it

helps protect reputation and enhance resilience, while providing a clear

view of the boards attitude to integrity, risk and safety.

For more on this story, visit bit.ly/blackswanevents

Globalisation gainsat risk from economic

and social turmoilThe worlds vulnerability to further economic

shocks and social upheaval threatens to

undermine the progress that globalisation has

brought, according to a report from the World

Economic Forum.

The Global Risks 2012 report says that

chronic fiscal imbalances and severe income

disparity are the risks seen as most prevalent

over the next 10 years.

In tandem, these factors threaten global

growth, as they are drivers of nationalism,

populism and protectionism at a time when

the world remains vulnerable to systemicfinancial shocks, as well as possible food and

water crises, the report says.

The survey of 469 experts and industry

leaders shows a shift of concern from

environmental risks to socio-economic risks

compared to a year ago.

The full report can be downloaded at

bit.ly/zTe0ht

For more on this story, visit

bit.ly/yMZxK7

ACA slams Solvency II-style pensions proposals

Proposals to adopt a Solvency II-style

approach to pensions funding requirements

are inappropriate, unaffordable and

unnecessary, according to the Association of

Consulting Actuaries (ACA).

Responding to the European Insurance and

Occupational Pensions Authority (EIOPA)

consultation on changes to the Institutions

for Occupational Retirement Provision (IORP)

Directive, the ACA said there was mounting

concern that fierce opposition from a number

of UK bodies would not be echoed across the

EU, where funded pensions are not widespread.

The ACA believes a majority approach could

jeopardise the established arrangements in

the UK. It could also accelerate the closure of

yet more UK private-sector defined-benefit

pensions, meaning that funding calls on

businesses would increase substantially.

The complete ACA response can be found at

www.aca.org.uk(See Recent Publications).

The Actuarial Professions consultation

response can be found at bit.ly/wrceYvFor more on this story, visit

bit.ly/zh4frW

Pension buy-ins, buy-outs

and swaps top10bn in 2011The value of the UK

pension buy-in, buy-out

and longevity swap

market topped 10bn for a

calendar year for the first

time in 2011, according to

figures from LCP.

Last years total deal

volume was 11bn, with

the number of deals

peaking in the fourth

quarter, the firm said.

During the courseof the year, pension

buy-in and buy-out

deals exceeded 4bn.

Longevity swaps

including deals for ITV,

Rolls-Royce, British

Airways and Pilkington

pension schemes

totalled 7bn.

For more on this story,

visitbit.ly/yimPQ9

Hannover Retakes on 1bnPilkingtonlongevity risksHannover Re has agreed

to take on the longevity

risk from Legal & General

of around 11,500 former

employees of the UK

glass manufa cturer

Pilkington, totalling

around 1bn of

pension obligations.

The reinsurer is to

take over the bulk of

the business, while

the rest will remain

with Legal & General.

Only the biometric risk

is assumed, not the

investment and inflation

risks, according to

Hannover Re.

The firm anticipates

premium income of

roughly 800m over

the entire term of the

transaction, with 60m

attributable to the 2012

financial year.

For more on this story,

visit bit.ly/zPU7ID

www.theactuary.com

[email protected]


17/64


MORE GI NEWS ONLINE

For further GI news, including the Euro debt crisis,visit theactuary.com/news/2012/01

Asbestos challenge refutedThe UK Supreme Court has decided

that the Scottish Parliamentacted within its powers in passing

the Damages (Asbestos-Related

Conditions) Act 2009 this

legislation provides the possibility

of compensation for anyone with

pleural plaques.

The legality of the Act had been

challenged by insurers on the basis

that it ignores medical evidence

that pleural plaques represent

symptoms rather than physical harm, the latter being required for

payment of compensation.

An analysis of mesothelioma deaths by The Health & Safety Executive

(HSE) shows that the number of deaths increased from 153 in 1968 to2,321 in 2009. Men accounted for more than 80% of the deaths, many

of them having been employed in the building industry when asbestos

was still widely used.

The HSE projects that male deaths from mesothelioma will peak at

around 2,100 in about 2016, whereas, for women, deaths will peak later

at a much lower level.

Solvency II models cleared for useThe FSA has confirmed that it will allow firms to use its Solvency II

internal models to meet the requirements of the Individual Capital

Adequacy Standards (ICAS), prior to the introduction of the new regime.

This means that firms will not have to use the two models together.

Shortly afterwards, Lloyds announced that it will require participants

to use the new models for 2013, prior to the EU-wide implementation

of Solvency II, declaring that it was pleased to receive this clarification

from the FSA.

A spokesman from the International Underwriting Association also

welcomed the FSA move, but indicated that the association would leave

it to individual companies to decide on their approach for 2013.

Aviation: premium rates downPremium rates for airline insurances during the busy fourth-quarter

renewals season (when 80% of the premium is written) have been

depressed. Many accounts showed a single-figure percentage reduction

in October and, by November, reductions were often in the range of

10%-15%. Largely, however, this has been offset by increased fleet

values, so overall premium income has held up pretty well.

In the earlier months of the year, fleet values increased by 9% and

passenger numbers by 15%, according to figures from brokers Aon.

Much of the growth in exposure

has been in relation to smaller

airlines. The reduced premium rates

result largely from an exceptionally

low claims experience during 2011.

Only an estimated US$481m in hull

and liability losses were in excess

of US$1m by the end of October.

This is well under two-thirds of

the long-term average. Allowing

for minor losses, total claims of

US$1.03bn in the first 10 months of2011 are little more than half those in

the same period of 2010.

Earthquakes, Christchurch,New ZealandThe total insured losses from the entire series of

quakes from September 2010 onwards has now

been put at over NZ$30bn, which is considerably

more than the projected cost of reconstruction.

The figure includes business interruption claims,

temporary accommodation costs and claims

handling expenses. Aftershocks continued to

occur at regular intervals, including two major

ones (magnitude 5.8 and 6.0) on 23 December.

The New Zealand Earthquake Commission, in

its annual accounts, has shown an overall loss of

NZ$7.1bn from the quakes, wiping out its funds

of NZ$5.9bn and leaving a deficit of NZ$1.2bn,which will have to be bridged by the government.

Floods in Thailand from JulyThese continued through the autumn, with

ever-increasing estimates of the overall losses.

By the beginning of November, Aon Benfield

was estimating sums insured of US$11bn in the

area most seriously affected by the flooding

US$4.9bn of it in a single industrial park. At this

stage, the Federation of Thai Industries believed

30%-40% of this parks sum insured would be

called on. Much of the cost at these industrial

parks is insured in Japan, with several Japanese

companies located here. There is also likely to

be exposure in international markets, either

directly or through reinsurance.

In early November, there was concern

for the Bangkok underground train system,

and the governor ordered the evacuation of

11 of the capitals 50 districts and the partial

evacuation of seven others. Overall, economic

losses have been put at well over US$40bn, and

total insured losses of between US$4bn and

US$20bn have been estimated. Current best

estimates range from US$6.5bn to US$10bn.

Indirect business interruption claims have been

reported from many countries in particular,

computer firms have been hit by a shortage

of hard disks, many of which are assembled

in Thailand.

Hurricane Irene, Caribbean andeastern states of USProperty Claims Services has increased its

overall loss estimate in the US to US$4.3bn, an

18% increase over the original estimate. There

have been nearly 855,000 claims in 14 states,

with New Jersey and North Carolina having the

largest losses at US$900m or more each.

LARGE LOSSES

NZ$30bn

US$40bn

US$900m

GENERAL INSURANCE NEWS ROUND-UP

Total insured losses fromNew Zealands quakes

Overall economic lossesfrom Thailands floods

New Jersey andNorth Carolina sufferedthe largest losses fromHurricane Irene

www.theactuary.com


18/64

THE ACTUARY January / February 201218

NewsPeople & Society

If challenges like the Inca Trail are a distant dream,why not join the Worshipful Company of Actuaries onthe second best walk in the world - right here in England

Honorary doctorate for Alan FrostDr Alan Frost has been made an honorarydoctor of business administration byBournemouth University.

Dr Frost was recognised for the contributionhe has made to the life and development ofthe university, particularly as chairman of theUniversity Board from 2004 to 2010.

An experienced former financial serviceschief executive with expertise in changemanagement, Dr Frost also served as visitingfellow in the Universitys European Centre forCorporate Governance. Since 2010, he has

Best foot forwardGo coast-to-coast for charity in 2013

The Worshipful Company of Actuariesis organising a charity walk for actuaries

across the breadth of England.They will follow the famous Wainwright

coast-to-coast path from Robin HoodsBay on the North Yorkshire coast across to

St Bees on the Cumbrian coast. The walktakes in three national parks and some

At 190 miles, it is not aninsignificant challenge.

It will take two weeks,walking between 10 and

20 miles each day

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

SHORTS

of the most beautiful and breathtaking

scenery in England.It has been named among

the best walks in the world and, inone survey of travel writers, beat such

famous hikes as the Inca Trail and

Mount Everest, coming second only tothe Milford Track in New Zealand in a

poll of the 50 best walks in the world(for details, seewww.wainwright.org.uk/

coasttocoast.html).

At 190 miles, it is not an insignificantchallenge. It will take two weeks, walking

between 10 and 20 miles each day.The team will leave Robin Hoods Bay

on Saturday 17 August 2013, walking

across the North Yorkshire Moors andthe Yorkshire Dales National Parks,

arriving in Kirkby Stephen on Saturday24 August. Following a short break in

Kirkby Stephen, they will set out again

on Monday 26 August and walk throughthe Lake District National Park (taking in

such walks as Striding Edge), arriving inSt Bees on Saturday 31 August.

An invitation is extended to actuaries(and their families) to join part or all of

the walk either on the weeks through

North Yorkshire or Cumbria.It is a popular long distance walk

and, as it is taking place in high season,preliminary bookings will need to be

made soon. Baggage transfers andany other transportation needs will be

arranged as necessary. All you will need to

do is the walkingMuch of the detailed planning will

take place over the next 18 months. Ifyou are interested in being part of this

great charity adventure, please contact

Charles Cowling as soon as possible [email protected].

been a deputy lieutenant of Dorset, and iscurrently high sheriff.

Dr Frost is a fellow of the Institute andFaculty of Actuaries and the Institute ofLeadership and Management. He is alsoa past Master of the Worshipful Companyof Actuaries and an informed critic of theinsurance industry.

The Actuarys readers will also be familiarwith Dr Frost as the magazines former artseditor and a regular contributor.

Further details can be found online atwww.theactuary.com/news.

www.theactuary.com


19/64

January / February 2012 THE ACTUARY 19

Births

Edward (RGA) andGlenda Maguire arepleased to announcethe birth of their son,Senan Paul Maguire,on 16 October 2011,weighing 8lb 11oz.Senan is the couplessecond child.

Record crowd enjoys

Lord Mayors ShowBy Roger BevanThe Worshipful Company of Actuaries

attracted record numbers to its activitieson Saturday 12 November 2011, the day

of the Lord Mayors Show in London. Allmembers of the profession with their

family and friends had been invited to

join in, with 90 taking up the offer toenjoy prime viewing of the procession

from Barnett Waddinghams offi ces inCheapside. The Company was represented

in the procession as part of the Modern

Companies float by John Lockyer, theMaster of the Company, together with his

senior and junior Wardens, Bill Smith andCharles Cowling.

From 2.30pm there was a pub lunch bythe river in a private room at the Doggetts

Coat and Badge, famed for honouring the

prize of a 300-year-old boat race. Mr Lockyerwelcomed everyone and described the aims

of the Company. The room provided a goodview of the spectacular fireworks at 5pm,

launched by the new Lord Mayor from abarge on the Thames. Because of capacity

restrictions, 100 people attended and some

applications had to be declined. But therewill be another opportunity to take part

next year on 10 November and anyone whomissed out this time will be given priority.

SIAS annual

dinner 2011By Mark DaintyThe Staple Inn Actuarial

Society (SIAS) held its annualdinner on Friday 26 November

in the fantastic setting of theTower of London. Interest in

the event was far greater than

anticipated, with over 1,000applications for 700 places.

The venue was a significantdraw and on the night it did

not disappoint.

Guests were welcomedby two Royal Footmen, who

guided them through tothe reception. Pausing for

photographs, with a constantand entertaining commentary

as guests entered the venue,

made it an interesting start tothe evening.

The reception cocktails andchampagne were well received

as the anticipation built for the eveningahead, with the wandering magicians

providing an intriguing demonstration of

their skills.As dinner was announced and guests

filed through, the main hall lookedspectacular. Set in a breathtaking

marquee just inside the walls of the

Tower, it offered an illuminated view ofthe main building and a real feel for the

grandeur of the setting.The meal itself was delicious and the

wine flowed freely. As the dance floorbeckoned and fresh doughnuts provided

Award season for charitable nominationsThe Actuary, in conjunction with the Worshipful Company of Actuaries,has been running a campaign to reach a target of 1 million through thefundraising activities of actuaries. A total of 238,370 has been raisedsince the launch of the campaign in September 2010.

The Company will shortly be making an award to the actuary whois considered to have made the most impressive charitable efforts.Fundraisers being considered for the Phiatus award include those whoseactivities have been covered in The Actuaryand nominations we have

received to date. Have you been involved in any charity events? Do youknow any actuaries who have? There's still time to make a nomination byemailing Deepak Jobanputra at [email protected]. The winner ofthe Phiatus award will be announced in April.

Like The Actuary on Facebook Join The Actuarys LinkedIn groupFollow @TheActuaryMag on Twitter

Master John Lockyer

a nice late-evening snack, the guests

partied hard through to midnight. Eventhen, there was not a glass slipper or

pumpkin in sight, as the after-party venueproved more popular than ever.

Photographs from the night areavailable. For details, please contact

[email protected].

Looking forward to the 2012 annualdinner, the SIAS committee is hoping to

build on the success of last years eventand provide another fantastic night for

even more members.

Please continue to let us know if you are taking part in any charity events

so that we can keep track of your fundraising activities. You can do thisby emailing Yvonne Wan at [email protected] or Charles Cowlingat [email protected]

www.theactuary.com


20/64

MORE EVENTS ONLINE

For details of events, visitwww.sias.org.uk


SIASEvents

TUESDAY 7 FEBRUARY PROGRAMME EVENT

Effi cient curve fitting techniquesChris Hursey and Rebecca Scott

Staple Inn,

High Holborn,

London WC1V 7QJ

Refreshments available from 5:30pm for

a 6pm start

The use of internal models under Solvency II has led to the development of proxy liability modelsthat can be used to evaluate liabilities under many thousands of scenarios. One of the most widely

used techniques for this purpose is that of replicating formulae. This paper proposes a method

to determine effi cient replicating formulae by introducing a theorem that identifies optimal fitting

points and points of maximum error.

There is no need to register in advance for this event. Following the meeting there will be a free

drink and buffet at a nearby pub.

THURSDAY 16 FEBRUARY SOCIAL EVENT

Roller discoThe Renaissance Rooms

Vauxhall Roller Disco,

Miles Street,

London SW8 1RZ

7pm

Time to get your dancing shoes on again for a floor-filled

night of roller disco. And, fear not, there will be plenty of food

to replenish your energy. So, whether youve got moves like

Jagger or youre more Bambi on ice, what are you waiting

for? Get your skates on and reserve your place today!

Please email Jack Oakshatt at [email protected] reserve

your place.

TUESDAY 6 MARCH PROGRAMME EVENT

Dynamic management actionsDominic Clark, Jeremy Kent and

Ed Morgan

Staple Inn,

High Holborn,

London WC1V 7QJ

Refreshments available from 5:30pm for

a 6pm start

Realistic modelling of dynamic management actions is critical to many areas of the financial

management of a life insurance company today.

This topic will:

Explain what is meant by dynamic management actions (DMA) and what the main types of

DMA are; Introduce the areas in which DMA is important (Solvency II, MCEV, ALM etc);

Describe how DMA can be linked to real expected management behaviour (including

considerations around concepts such as the use test);

Illustrate how improved modelling of DMA can, under some circumstances, materially

influence calculated results;

Show how understanding DMA and its interactions with dynamic policyholder behaviour

can improve a companys enterprise risk management.

There is no need to register in advance for this event. Refreshments will be available from 5.30pm

for a 6pm start. Following the meeting, there will be a free drink and buffet at a nearby pub.

THURSDAY 22 MARCH SOCIAL EVENT

Poker nightLocation: TBC

To bluff or not to bluff that is the question! After the success

of last years event, SIAS is hosting another poker night. No

experience needed. If youre a beginner, you can take part

in the practice sessions beforehand. And, if unlucky in the

tournament, you can carry on the fun playing on other tables.

There will be cash prizes for everyone who makes it to the

last table. Places are limited first come, first served.

Please email Jack [email protected]

reserve your place.

www.theactuary.com


21/64


USEFUL

CONTACTS

Editor [email protected]

[email protected] [email protected] [email protected]

Getting ahead inActuarial Science

Our expertise in flexible and accessible education andyour passion to succeed in Actuarial Science will enableyou to get ahead.

Study with a top-20 department that provides the supportyou are looking for, on a course thats accredited by the

Faculty and the Institute of Actuaries and offers closelinks with industry.

A world-class research university, Leicester offers flexible,

innovative courses because we understand that youvegot other responsibilities. In fact, were committed tomaking sure that everyone in our vibrant community getsthe very best experience at Leicester, whether youre on

campus or on the other side of the world.

Distance Learning

Department of Mathematics

Postgraduate Diploma/MSc Actuarial Science

Get ahead,get in touch

www.le.ac.uk/goto/actuary+44(0) 116 252 5377

[email protected]

Whats coming upin The Actuary?

March 2012Published 30 FebContributor deadline (13 Jan)Advertising deadline 08 Feb Investment ERM Pensions Reader survey

April 2012Published 05 AprContributor deadline 08 FebAdvertising deadline 14 Mar

Education / research Life Modelling and software Careers: networking

May 2012Published 03 MayContributor deadline 15 MarAdvertising deadline 11 April Regulation / standards Health and care Banking / financial services

June 2012Published 31 MayContributor deadline 12 AprilAdvertising deadline 11 May Solvency II Risk management Careers: CPD / training

July 2012Published 05 JulContributor deadline 10 MayAdvertising deadline 15 Jun Careers: working overseas General insurance Pensions Mortality / longevity

August 2012Published 02 AugContributor deadline 14 JunAdvertising deadline 13 Jul Investment Life Careers: work-life balance

September 2012Published 30 Aug;Contributor deadline 12 JulAdvertising deadline 10 Aug

Reinsurance Environment Modelling and software

October 2012Published 04 OctContributor deadline 16 AugAdvertising deadline 14 Sep Careers: graduate Risk management Mortality / longevity

November 2012Published 01 NovContributor deadline 13 SepAdvertising deadline 12 Oct Solvency II Pensions Careers: new fields

December 2012Published 29 NovContributor deadline 11 OctAdvertising deadline 09 Nov General insurance ERM Investment

Read, contribute, comment, advertiseHere is your guide to forthcoming issue themes for 2012. If you areinterested in contributing features or other content, you may wish totarget particular dates based on this information.Please note, however, that the themes are not exclusive: we aim tocover the latest hot topics and feature a strong cross-section ofarticles in each issue. The schedule may also be subject to minorchanges, so please check for the latest details.

Arts [email protected]

Advertising(display) [email protected](jobs) [email protected]

www.theactuary.com


22/64


JAME SO R RSonal Shah talks to the FSAs James Orr on theimpact of Solvency II on the general insurancemarket and the FSAs preparations going forward

actuaries, involved in these processes.

Although those of us who have grown up

through the early days of Risk Based Capital

at Lloyds and the UKs Individual Capital

Adequacy Standard (ICAS) regime might feel

that greater formality could restrict the scope

for individual creativity and problem-solving,

there is still much to do in better quantifying

risk and uncertainty for the real-world risks

accepted by firms. I see this as a maturing

stage in the development of the sector.

Is Solvency II being regarded as an opportunity

or a disturbance by firms in the market?

Implementation of Solvency II clearly

involves a huge amount of work. It should not

be viewed, however, merely as a compliance

exercise, but as offering significant benefits

through enhancements to risk management,

better alignment with capital and a more

integrated approach. Opportunities are also

On my agenda

Why did you choose to become an actuary, and

how did you enter the profession? At school,

my teacher said that Id be a good actuary.

I took this as career advice, studied Actuarial

Mathematics and Statistics at Heriot-Watt

University and qualified with the Faculty of

Actuaries in 1994.

What are the key issues facing general insurers?

It is a long list: economic pressures driving

claims costs; reduced yields on investments;

changing distribution and competitive

environments the shift of economic

activity and wealth to the East is clear and

fundamental. All of these challenge firms

business models.

How do you expect Solvency II to affect the

general insurance market? Solvency II is

clearly challenging and represents a huge

investment in terms of finance, staff

resources and management. In less developed

markets, the greater formality around risk

and capital management can be expected to

drive consolidation and, in the UK, I would

expect the minimum size of firms to increase.

If Solvency II achieves all its goals, in

addition to the creation of a single insurance

market within Europe, firms should be much

clearer about what their risk appetite is and

the pricing and control of the risks they

accept. With the effective integration of risk

and capital management, solvency and the

security of firms should improve, as it is less

likely that they'll take on risks that they have

failed to price and capitalise correctly.

I would expect more structure around riskassessment and investment decisions within

GI firms, with more risk specialists, including

James Orr heads up the FSAs

general insurance risk specialists

department, which works

closely with FSA supervisors

and prudential policy to provide

expert input to development of

effective regulation and assuring

its implementation in firms, which

includes Solvency II.

James has 22 years of

experience, qualifying as a

pensions actuary then moving

to general insurance, with a

specific focus on reserving and

capital modelling.

His roles have included:

underwriting inwards reinsurance

with a trade credit insurer;

working on the British Antarctic

Survey in Cambridge on the

promotion of scientific research

to the insurance industry; and

managing the capital and lossmodelling teams at Lloyds of

London. He lectures part-time on

Cass Business Schools actuarial

Masters programme. James

joined the FSA in 2008.

One of the key strengthsof the FSA is the rigorousapproach it brings topolicy formulation andimplementation

CURRICULUM VITAE

www.theactuary.com

[email protected]


23/64


presented by the changes in asset allocation

rules, particularly the prudent person

principle, which will allow firms to align their

asset choices to their overall strategies.

What are the implications of the delays in

the implementation of Solvency II? We have

attempted to approach the expected change

in the implementation date to January 2014

in a way that allows breathing space without

losing momentum. We are pressing ahead

with internal model approval, and will

continue to work with firms to ensure that

we and they are ready. It is also important tobear in mind that the change in dates is not a

complete one. We still expect to be required to

have transposed the rules into our Handbook

by January 2013. And it is possible that some

requirements will fall on firms earlier than

2014, possibly in the area of reporting. We

await further clarity from Europe in this area.

Is the FSA seen as an enabler in the general

insurance market? Our role as regulator of the

insurance market is to ensure that firms are

suffi ciently capitalised and that consumers

get the right level of protection. We work with

and challenge live firms through the ICAS

regime, while ensuring that, with specialist

run-off firms, policyholders are protected.With regard to European policy-making, we

have helped to develop guidance, interacting

with organisations such as the Groupe

Consultatif, and our pre-application process

prepares firms for Solvency II. Furthermore,

Solvency II encourages firms to simplify

complicated group structures that may haveresulted from mergers and acquisitions.

Again, our actuaries play a critical role in

assessing the suitability of Part VII transfers

that are put to the courts for approval.

The FSA is often cited as a leading regulator

globally what gives it this reputation? Thats a

tricky question for somebody in the mi

act feb combined

Documents