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Takaful – An Islamic Alternative to Conventional Insurance

Some Further Thoughts on Systemic Risk

The Australian Wealth Management Industry

Financial Risk Management

ACTUARY AUSTRALIA • August 2009

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ContributionsContributions should be sent to The Institute of Actuaries of Australia, marked to the attention of Katrina McFadyen (Publications Manager). When sending contributions please supply text in Microsoft® Word format. Illustrations and photos should be supplied as JPEG, TIFF, EPS or PDF files at a resolution of 300dpi. (Note: GIF files are generally unacceptable because of low resolutions). Prior to supply of material, please confirm supply specifications, copy limits and relevant details with Katrina McFadyen. Email: [email protected]

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Next Edition Publication date: September 2009AA144 October 2009 Deadline for contributions: 1 September 2009

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Jenny Lyon Editor

Tel (02) 8235 7901 Email [email protected]

Katrina McFadyen Publications Manager


Genevieve Hayes Assisting Editor


Kitty Ho Assisting Editor


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Martin Stollwitzer Assisting Editor


Matthew Wood Assisting Editor


The Institute of Actuaries of Australia ABN 69 000 423 656Level 7, Challis House, 4 Martin Place Sydney NSW 2000 Australia Tel (02) 9233 3466 Fax (02) 9233 3446 Email [email protected] www.actuaries.asn.au

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editorialcomment

I was very pleased that I noticed that Hussain Ahmad had made a presentation to the Singapore Society general insurance

conference about Takaful and that I could persuade him to write something for us. It is a very useful introduction to a rapidly emerging area in some parts of the world and the people I have circulated it to have all commented on the fact that they now have a much clearer understanding of Takaful.

Geoff Dunsford managed to generate some feedback from both sides of the debate with his article Climate Forecast – Probability Low – Every Actuary should be a Climate Sceptic. The letters which were directed to me on his article will be published in this and the following magazine. The letters he received directly will not be published as these were not sent for publication and I am already often accused of too much coverage of ‘green’ issues. This has perhaps been one of the more challenging balancing acts of the role as Editor and reflects the passion of some members

of the profession for this topic. While I can influence the content of the magazine to some extent, the articles ultimately reflect the interests of those members who have the inclination to put pen to paper.

I will finishing my stint as Editor at the end of 2009 (not a direct result of the challenges mentioned in the previous paragraph) as after three years I feel it will be time to pass on the role to someone with new ideas and areas of interest. I have enjoyed the role and, with the support of Katrina McFadyen, (even from Bahrain), Simon Palmer our designer, and the committee, it is not as time consuming as everyone thinks. Plus, you get to meet and talk to lots of interesting people. If you are interested in finding out more please give me a call to discuss. ▲

Jenny Lyon [email protected]

Actuaries on the Move

Members are encouraged to advise the Institute via [email protected] if they would like to be included in Actuaries on the Move. Members’ details are available via the search function on the Institute website – www.actuaries.asn.au

No changes have been recorded for this period.

NoticesNotice of Extraordinary General Meeting An Extraordinary General Meeting of the Institute will be held on 25 August 2009 to consider proposed amendments to the Constitution to change the Institute’s financial year. Copies of the Notice, Explanatory Memorandum, proposed Constitutional amendments and proxy form can be downloaded from www.actuaries.asn.au

Reappointment of John Trowbridge to APRAIn reappointing John Trowbridge as a full-time Member of the Executive Group of APRA for a further 12-month period, from 1 July 2009, the Treasurer has expressed his appreciation of the significant contribution that John has made to APRA’s leadership team over the past three years. Copy of the media release can be downloaded from www.actuaries.asn.au

Events

12th Accident Compensation Seminar – Rising to the ChallengeSunday 22 – Tuesday 24 November 2009 Crown Promenade Hotel, Melbourne

PublicationsActuary Australia, Issue 142, August 2009

Australian Actuarial Journal, Volume 15, Issue 1

GIPC Newsletter, March 2009

PHI Newsletter, No. 205

Risk Management Newsletter, June 2009

Actuarial Practice of General Insurance, 7th Edition www.actuaries.asn.au/PublicationAndResearch/books.htm

Change of business details since 1 July 2009

contentsAA No 142, August 2009What’s New on the Web www.actuaries.asn.au 3


4 Travels in Turkey Postcard: Alan Smee

6 Thoughts from the President Trevor Thompson

7 Notice Notice to Members of the UK Actuarial Profession

8 Takaful – An Islamic Alternative to Conventional Insurance Sees Phenomenal Growth

Report: Hussain Ahmad

11 Actuary Unearthed Paul Scully

12 The Actuarial Pulse Survey: Kitty Ho / Matthew Wood

15 Some Further Thoughts on Systemic Risk – And How to Control It

Comment: Mike Barker

18 The Australian Wealth Management Industry – Meeting the Needs of All Australians?

Report: Annie Liao / Wade Tubman

20 Research Developments Research: Chris Latham / Dr Ron Murnain

22 In the Margin Puzzles: Genevieve Hayes

23 More Than Maths Communications: Martin Mulcare

24 Financial Risk Management: Practical Methodsto Improve Return on Risk – Part 2

Review: Zac Roberts

27 GI in a GFC World Report: Kitty Ho / Joyce Tong

28 Death by PowerPoint – Are You Setting Yourself Up? Comment: Michelle Bowden

30 Education Update Philip Latham

31 Student Column Report: University of Melbourne

Zezan Tam / Daniel Zhang / Yii-May Phang

32 Report from the Chief Executive John Maroney

33 Letter Stephen Woods

34 Obituary Peter Wickens

Cover photographs courtesy of Heywood-Hall Images

www.actuaries.asn.au


4 postcard

Introduction

I t is seven in the morning and the traffic over the bridge is beginning to build up. The rising sun’s rays, diffused by some mist, bounce off the water below, where a cargo ship gently

progresses. The city is not, however, Sydney. The water is not the Harbour and the bridge is not the ‘coat hanger’. I’m actually in Istanbul, on my daily transcontinental commute across the Bosphorus.

Modern TurkeyIn the last 20 years, the city of Istanbul has grown from six million people to over 12 million. Unofficial figures suggest an even higher total. It is becoming a mega-city that is already bigger than any other city in Europe, Central Asia or the Gulf. Istanbul has become a hub for parts of the Middle East, the Balkans and even some central Asian republics. Turkey itself is changing and developing rapidly. It is predicted that in a few decades the country will become a regional superpower.

Some of the hackneyed comments about Turkey being a mix of various elements are, of course, true. It is, in both a geographic and cultural sense, both European and Asian. It is religiously and socially conservative in some ways, but liberal in others. It is a proudly democratic country with a secular government, yet some tensions remain.

One of the first things you notice about Turkey is the youth of the country. One quarter of the population is under the age of 15 and almost all of the employees where I work are younger than 40. The combination of a young population and a rapidly developing country results in a real openness to change.

There are some very wealthy people in Turkey, with a number of mansions on the Bosphorus worth more than A$20 million. At the same time, other people sell water, flowers and other things to those stuck in the extended peak hour traffic.

Travels in Turkey

Cappadocian castle

Galata

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Current conditionsCurrent economic conditions are tough. Growth, which was previously running at about +6% p.a., is now -6%1. Unemployment has officially jumped from 11.6% to 16.1%2, with the real figure likely to be significantly higher. The banking sector is, however, strong, as a result of reforms undertaken in the wake of previous financial crises. Although Turkey, like many other emerging nations, has significant levels of overseas borrowing.

Financial services in TurkeyMuch of the financial services sector in Australia, including non-life insurance, is relatively mature. In Turkey, however, although current conditions are tough, most industries have grown in the last five years. Spending on insurance is a fraction of what it is in Australia and will inevitably increase. Private retirement saving accounts are growing from a small base as Turkey moves towards the World Bank model (co-incidentally, much like the Australian system).

For non-life insurance, pricing is relatively unregulated for most large classes of business. The main exception is that of Motor Third Party Liability, which is being gradually deregulated. The current pricing restrictions bear a remarkable resemblance to the current NSW CTP system. Prices are submitted each quarter and can vary by broad type of vehicle (e.g. passenger car, bus, truck, etc) and by city. Companies can then price in a limited band around these base rates from -10% to +20%.

Although in some areas the insurance sector is less developed than in Australia, this is rapidly changing. The market is fast-paced, intensely competitive and highly innovative. The rate of change in Turkey is close to that experienced in India or China and certainly faster than that experienced in Australia. Linked to this change is a very strong IT sector that is more advanced than those of most ‘developed’ nations. The Turkish internet banking service I use is more sophisticated than that offered by my Australian bank.

Actuaries in TurkeyThe actuarial profession is relatively small in Turkey, with approximately 120 qualified actuaries. This picture is, however, changing rapidly as more actuaries are trained and gain experience. The local institute has recently developed their own exams. The local students tell me (as, of course, students always do) that these exams are far harder than the overseas institute exams that have been traditionally taken.

Although the profession is growing, there are challenges. There is a growing pool of well trained and educated graduates, but there are few experienced people. Actuarial and solvency standards are developing, but it will take time to gain the depth and breadth of practitioner experience required.

Turkish culture

Being a confluence of both Mediterranean and Middle-Eastern culture, it is, of course, only natural that hospitality is important. Divisions between personal and professional relationships are less defined. Favours and networks are even more crucial. Strong family ties and conservative values are the norm in Turkey, with people generally living close to parents and relatives. There is a vast difference between the more traditional and conservative regional areas and the urban, liberal and educated elite of Istanbul.

Hospitality, combined with the great Turkish food, makes for a good lifestyle. Compared to parts of Northern Europe, the fertile soil and good weather lead to perfect growing conditions. As in Australia, there is a lot of fresh food, particularly lamb.

At the end of the dayIt is the end of year work party. After the presentations, the music starts pumping with a combination of traditional melodies and modern beats. There is no shyness to dance. In fact, with most of the room on its feet, you can’t even get to the dance floor!

The room becomes hazy as the cigarette smoke rises. Your boss, your best mates and fellow workers all light up and you wonder whether you’ll end up smoking yourself. Whilst smoking is popular, you notice that drinking is moderate. Neither in excess is healthy, but things rarely occur ‘under the influence’ of nicotine.

It is time to get home before the muezzin call (call to prayer). Small taxis aggressively swim through the busy traffic. Rest is needed for the next day. I am looking forward to the morning Turkish coffee. ▲

Alan [email protected]

1 Turkish Central Bank figures Q408 year-on-year

2 Official figures February 09 year-on-year

The Bosphorous


6 president’s report

Examination success

A s I write, I am delighted to note that 34 students have completed Parts I, II and III as of semester one 2009 and

are now eligible for Fellowship (subject to meeting the various prerequisites). This is a wonderful result and will be a source of pride and relief for the students concerned and their families. My sincere congratulations to each and every one of you.

I also extend my congratulations to those students who achieved success in the various Fellowship subjects. There was a record number of students sitting the Investments course, whilst Life Insurance, General Insurance and the CAP course attracted high numbers of students.

Designations restatedI am encouraged by the amount of healthy dialogue and interest expressed in the designations changes and understanding the practical implications. The recent article in Actuary Australia by Dave Millar set out a balanced analysis of the issues and posed some challenges to Council in respect of implementation issues and possible outcomes.

I would like to respond to some of the issues raised and provide some reassurances.

Firstly, Council understands and respects the concern of recently qualified Fellows. Concern is a natural reaction to this change. However, Council is committed to supporting and encouraging students to complete the Fellowship, which will retain its primacy status. This will be driven by the market recognising the additional skills and qualification of Fellows and reinforced by the Code of Conduct.

Work undertaken by ‘actuaries’ is necessarily restricted to their relevant skills and training. This will need to be identified on any advice and any breaches that are brought to the attention of the Institute will be strictly policed.

Alignment of our Associates with the international Fully Qualified Actuary (FQA) status will serve to reinforce the additional standing of our Fellows in relations to FQAs internationally. This is a marketing positive, both at home and abroad, rather than the reverse. Australian Fellows are regarded highly overseas and this will continue.

Council sees no reason why the designation decision should cause more students to stop short of the Fellowship qualification.

However, the designations decision will allow those who choose not to complete the Fellowship to be recognised professionally to the level of their qualification, both at home and overseas.

I will ask Council to explore the notion of introducing wider routes to Fellowship qualification. These might include health, risk management (see below) and a wider range of specialist investment courses. The number of students completing the Fellowship is as much about the specialist options available as the concern about extra study or value of the qualification.

Some people have asked why there is a transition period and what are the precise requirements for attaining ‘actuary’ status? The transition period is required to allow existing Associates and students approaching their Associateship a reasonable period to meet any additional requirements. It also ties in with the need to satisfy a three year experience requirement. The implementation group will be developing these requirements, including what constitutes ‘relevant’ experience, and further information will be provided later in the year.

As the article in Actuary Australia indicated, there will be very little practical impact day to day, other than recognition of a wider group of members for their relevant skills and a stronger framework for policing standards and professional accountability, which overall will serve to enhance the brand.

Risk management – is this the future?One of the most powerful messages emerging from the recent International Actuarial Association (IAA) meetings was the universal view amongst the member associations that risk management offers the greatest opportunity for the profession in many years and the ability to make a meaningful contribution to a stronger financial and economic community going forward.

A global actuarial designation in risk management is close to fruition. The designation will be issued by local member associations who participate and meet strict quality assurance requirements in relation to a common education syllabus and standards.

A significant number of major actuarial associations, including the SoA, have agreed in principle to participate from the outset and other countries are able to join later. The new designation will provide significant global and local exposure and standing for the profession plus progressively open doors to wider opportunities for actuaries.

Thoughts from the President


7

The Institute of Actuaries of Australia has been a major force in driving the global designation and we will be an initial participant. One option being considered is for our members to sit the relevant UK Institute examination without needing to become a member of the UK Institute. We may also require a supplementary short program which focuses on case studies, to ensure a practical overlay with some Australian content. We are also considering introducing a specialist Fellowship subject in risk management.

Overseas actuarial associations anticipate that a significant proportion of students, in due course, will specialise in risk management as the demand strengthens and opportunities widen beyond our traditional fields.

I encourage you to follow developments and give serious thought to the career opportunities which may unfold following the global financial crisis. ▲

Trevor [email protected]

D ue to some confusion, the Institute has been asked to remind its members who are also Fully Regulated Members of the

UK Actuarial Profession (UKAP) of their obligations to the UKAP with respect to continuing professional development (CPD).

The UKAP has advised that, for those members of the UKAP who remain Fully Regulated, the UKAP recognises other actuarial bodies’ CPD schemes as being equivalent to its own and, in these cases, actuaries who fulfil them can be regarded as fulfilling the UKAP’s requirements.

However, the UKAP stresses that this is not a concession on doing CPD; it will only reduce the effort involved in reporting it to the UKAP.

A member who wants to use this method for fulfilling the UKAP’s requirements must still make a CPD Declaration and must tick the appropriate box on the Category Declaration screen and select the relevant association from the drop down fields. If this is not completed correctly, the member will not have complied with the UKAP’s requirements and could find themselves referred to its Discipline Investigation Team for non-compliance.

Institute members who are Partially Regulated Members of the UKAP are not required to comply with the UKAP’s CPD Scheme, but must comply with the Institute’s CPD requirements.

Questions regarding the above advice should be directed to the UKAP. ▲

notice

Notice to Members of the UK Actuarial Profession re CPD

Trevor – relaxing on the farm


8 report

G rowing up in a Muslim country, I never really had an idea of what insurance was. I was familiar with the word and yes, there were occasional advertisements in the media about

protecting the family, but I never really questioned the fact that my family never carried any insurance of any kind. In high school, as time came to decide on a career, I found out about something called ‘actuarial science’; the curriculum for which fitted pretty well with what I considered to be my strengths.

As I discussed this potential career with my family and friends, after the initial question of “what is it?” came the barrage of accusations: “You want to work in ‘insurance’? You do realise it’s not allowed in Islam, right? It is forbidden! Is there nothing else you like?”

That is not an attitude unique to my friends and family, but one that is fostered across the Muslim world. The consequence of this can be seen in the following chart, which displays the insurance penetration rates (premiums as a percentage of GDP) across various Muslim-majority countries and compares them with certain more established insurance markets, like Australia and the UK. Apart from Malaysia (which has a significant non-Muslim population), no other Muslim-majority country in the chart crosses the two percent mark; some don’t even make it to one percent.

The issues with insuranceThis averseness to insurance, as I found out in my subsequent research into the topic, is not entirely unjustified. Since the first formal insurance contracts started surfacing, Muslim scholars have been taking a stance that it does not comply with Islam for various reasons (outlined in the following comments). However, the important thing to note is that there is no objection to the concept of risk-pooling. The simple act of many people coming together to help the few in times of need is something that is not only allowed, but also encouraged in Islam. However, there are objections to the way modern insurance companies operate, and brief descriptions of these objections follow:

Takaful

Photographs courtesy of Heywood-Hall Images

An Islamic Alternative to Conventional Insurance Sees Phenomenal Growth


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● Riba – loosely translated as ‘interest’, this is the biggest difference between Islamic finance and conventional finance. Islam completely forbids Riba in all forms, and while most commentaries you will see on Islamic finance talk of not being able to invest in interest-bearing securities, there is an added complication for insurance. Riba in its broader sense also means exchange of money for money, so the simple act of premiums in exchange for possible benefits is not allowed!

● Gharar or ‘uncertainty’ is another issue cited by scholars as a problem with insurance. This doesn’t refer to uncertainty of outcome, as that is inherently present in all business ventures. Uncertainty in contract terms is what the scholars object to; limited amount of disclosure, complex contracting terms, lots of exclusions and small print.

● Maisir or ‘gambling’ is also strictly forbidden in Islam. And despite what practitioners say about insurable interest making insurance different from gambling, Muslim scholars don’t seem to agree. Frankly speaking, traditional insurance doesn’t always adhere to the principle of insurable interest entirely; different benefits on the same risk for different perils, is something very common within the industry, for example death benefits on an accidental death versus a naturally occurring one.

An added problem comes in when dealing with life insurance – how do you value a life? Can you put a value on it at all?

Takaful as an alternative to conventional insuranceThus came about the need for an alternative to conventional insurance. Keeping in mind that pooling of money to help those in need is desirable, the building blocks of traditional insurance needed to be changed so that they would comply with Islamic law. This led to the advent of ‘takaful’, whereby life insurance was converted into ‘family takaful’, and non-life insurance became ‘general takaful’.

Takaful, in Arabic language, means ‘mutual guarantee’. There are various models, using different building blocks, that can be used to achieve ‘mutual guarantee’, but all have at least three things in common:

● Tabarru – the financial transaction related to the act of ‘donation’ is the most basic of building blocks underlying takaful. ‘Participants’ in a risk-pooling fund (akin to policyholders), donate their ‘contributions’ (akin to premiums) into the pool which has the purpose of helping those who suffer from specified losses. The concept of donation actually eliminates the elements of money-for-money exchange, as well as gambling.

● Qard-hasan – loosely translated as ‘interest-free loan’. This is the way any shortfall in the tabarru account is made up by the

‘takaful provider’ (akin to an insurance company). In case there are more claims expected than the money in the tabarru funds, the takaful provider agrees to provide an interest-free loan that can be reclaimed from future underwriting surpluses.

● Shariah-compliant investments are investments that comply with the ‘Shariah’ (Islamic law). That means there can be no investments in interest bearing securities (e.g. conventional bonds) or in equity of companies that are either highly leveraged (e.g. conventional investment banks) or indulge in businesses not allowed in Islam, for example, manufacture or distribution of alcoholic beverages, among other things. Other asset classes, like most equities, real estate, commodities and any physical assets are completely acceptable.

The role of the takaful provider is to manage the pool of money in the tabarru funds, to make sure the participants contribute appropriately and those who suffer losses are paid accordingly. They provide qard-hasan, if needed, and manage (and invest) the money in the pool in a manner compliant with the Shariah. The takaful provider gets compensated for providing these services by way of either:

● Wakalah fees – that is, a fee earned by the takaful provider for rendering services prescribed at the time of signing of the contract with the participant. This can be a fixed amount or a percentage of the participants’ contributions.

● Mudharabah profits – that is, a percentage of profits from any surplus left in the tabarru funds, also prescribed at the time of the signing of the contract. While it is perfectly acceptable for the takaful provider to share in any investment gains, there is a debate about whether or not they can share in underwriting surplus; or

● a mix of the two above.

For the interested reader, further details can be found on the website of the Islamic Financial Standards Board (www.ifsb.org), document


10 report

ED8, the exposure draft on Guiding Principles on Governance for Islamic Insurance (Takaful) Operations. The document provides additional descriptions of the models in use, as well as illustrative examples of the possible flow of funds under each model, both for family and general takaful.

Some might be thinking here that this whole thing looks a little too much like normal insurance with a few added terms and maybe a twist or two. While the structure is intentionally kept similar in order to be able to integrate takaful companies into a marketplace that is largely conventional, the structure does add some complications unique to takaful.

For starters, the definition of surplus is different from a conventional insurer; while a conventional insurer can accumulate the surplus from all lines of business and declare it as profit, the takaful provider can only take from the tabarru funds that which is prescribed by the Wakalah and/or Mudharabah contracts. Generally, each individual line of business has its own tabarru fund and mixing of the funds is not allowed either, effectively restricting any cross subsidies.

There are other issues too, such as what can or cannot be covered (for example, bars cannot be covered), and the bigger issue of being competitive in a conventional marketplace while dealing with the added complexity in operational structure and when investment options are limited. The latter issue also gives rise to potential asset and liability mismatches, among other problems.

The opportunityDespite these, and other added complications, the takaful industry has been thriving as of late. While the modern takaful structure was conceived in the late 1970’s and Malaysia became the first country to adopt independent takaful legislation in 1984, the real growth on a global scale has come in the last five years or so, where global contributions have shown an annual increase of over 20%. The current estimate of global annual contributions is over

US$2 billion (this can vary depending on the source of information; US$1.7 billion in 2007, per Swiss Re Sigma No. 05/2008). While starting from a small base, the expected rates of growth over the next five years are even higher than the last five years.

Globally, given the low insurance penetration rates among the Muslim populace, takaful presents an opportunity with great potential. While direct comparison of penetration rates with countries like the USA, UK and Australia may be misleading due to overall difference in disposable incomes, propensities to save, and liability systems, nobody can deny that, given the global Muslim population of over 1.2 billion, there is room for phenomenal growth.

Another opportunity, albeit less talked about, is to target the Muslim populations of the countries that have higher insurance penetration rates. A number of European countries have significant Muslim populations, many of whom would likely seriously consider takaful as an alternative to their conventional insurance policies. A takaful provider was recently set up in London, offering motor takaful to the local Muslim population.

In Australia, according to the Department of Foreign Affairs and Trade, the total number of Muslims per the 2006 census is estimated at over 340,000; mostly living in either Melbourne or Sydney. This is an easy to target market which may represent an opportunity for a number of companies that decide to take the first steps in providing the needed services to this market segment.

Of course, a takaful company can underwrite non-Muslims as well, who may be attracted to takaful for various reasons:

● the requirement for lack of complexity, and clarity in contracts may be appealing;

● due to the restrictions on investments, takaful companies cannot invest in any companies involved in practices that may be considered unethical (e.g. alcohol, gambling and weapons, among others). Socially conscious investors may prefer this over conventional insurance companies; and

● the excess surplus in tabarru funds, if any, is typically distributed back to the participants who did not incur losses, by surplus sharing agreements defined at the time the policy is underwritten. This is an attractive feature for Muslims and non-Muslims.

Thus, while the Muslim population will always be the main impetus for providing takaful, the target market is not necessarily limited to Muslims alone. For companies that can enter now, establish a name and educate the masses about takaful, the future looks extremely bright. ▲

Hussain [email protected]

▲

Paul Scully

Title…I appointed myself M.D.…

Organisation......of my own consulting company, Decision Horizons, through which I do board and committee work and a small amount of genuine consulting

My favourite energetic pursuit...My version of body surfing

My favourite meal...Indian

The sport I most like to watch...The Olympics

The last book I read (and when)...A translation of Homer’s Odyssey by E V Rieu (finished last week); am now reading Lilian’s Story by Kate Grenville

My favourite CD...It varies from time to time but, at the moment, East West by the Butterfield Blues Band

My favourite film...Apocalypse Now

My interesting / quirky hobbies... Tai Chi, blues music

My ideal weekend day...Culburra on the South Coast, a morning surf, finding somewhere new in the area, a good feed

If stranded on a desert island I’d take...the Lonely Planet Guide to Desert Islands

The person I’d most like to meet...Fabius Cunctator

What gets my goat…Interviewers who don’t ask the questions I want answered

What I wanted to be when I grew up...A musician, a writer and to travel forever

Why I decided to become an actuary...There were so few jobs for marine biologists, my first choice

Where I studied to become an actuary...Macquarie University

Qualifications obtained...BA, FIAA

My work history...South British United Life, Mercantile Mutual morphing into ING (life insurance, retail funds management, investment management), self-employed (directorships, consulting)

What’s most interesting about my role...Its variety

My role’s greatest challenges...Staying on top of a myriad of different issues from different organisations

Who has been the biggest influence on my career (and why)... In staying at it, wife and family so that I could give us all options later on; work wise, no single person, but finding that I liked being involved in investment and funds management was important

My most important decision…To marry my wife, Julie

My biggest regret…Not continuing with piano lessons

I’m most passionate about…Music and poetry

I’d like to be brave enough to… Not care about money

My proudest moment… The birth of my children

The best party I’ve had… The one I can’t remember!

The Olympic sport I’d like to be in… Synchronised swimming – nothing about me is elegant!

If I were a car, I would be… Anything beat-up but that still goes; either that or a yellow Hummer

My earliest memory… A bonfire with neighbours in the street

My most embarrassing moment… Waking up nude in a bed in the room next to mine on a Losmen in Bali!

In my life I’m planning to change… Nothing really

The age I would like to stay… Any age when I didn’t feel the descent of ageing

At least once in their life, every actuary should…Take a chance at something else!

My next holiday destination… Cambodia

My best advice for my children… Find something to be passionate about and pursue it

Four words that sum me up…Blind, deaf, absent-minded and beautiful (from my wife) ▲

Paul [email protected]

actuary unearthed 11


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

The Actuarial Pulse

Next Survey A new set of questions will be available in the first 10 days of each month.

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

Results There were 367 responses and the report was generated on 10 July 2009.

T his month’s Pulse survey topic is ‘Working from Home’. The survey aims to understand the flexibility of actuarial work

(and employers) and whether it is possible for employees to work from home. The first five survey questions were submitted by a reader, while the last one was added to see whether employers are cautious about the spread of ‘swine flu’ in their offices. Apologies to the retired actuaries who may have found these topics irrelevant to their lifestyles.

Q.1 To what extent does your role require you to be in the office?

Workplace %I need to work from the office all the time 19%I can work from home some of the time 68%I can work from home most of the time 9%I don’t need to be in the office at all 4%

The results seem to show that actuaries are quite flexible regarding working from home. Some commented on the fact that there is a need to be in the office, as there is a need to interact and collaborate with people face to face. Also, resources such as space, filing, PA support and facilities are better at the office.

survey

Q.2 If you work at home, where do you work?

Home work environment %In a shed or separate building 1%Dedicated office away from main living area 38%Dedicated area in bedroom or nook 23%Kitchen / lounge / dining room – wherever there’s space 38%

Q.3 What technologies do you have setup at home?

Technology %High speed internet 96%Home network 34%Printer / fax 65%Additional processing power or electronic storage 16%Separate work telephone line 6%

Q.4 How does your employer feel about you working from home?

Employer’s consideration %Not possible with this employer 5%Not too keen but allows it occasionally 32%Is okay as long as it is not abused 53%Actively encourages 10%


12

0 20 40 60 80 100 0 20 40 60 80 100

0 20 40 60 80 100 0 20 40 60 80 100

Dedicated office

Dedicated area

Office always

Home sometimes

Home anytime / always

Homemostly

Kitchen / wherever

Shed

0 20 40 60 80 100 0 20 40 60 80 100

High speed internet

Home network

Printer / fax

Extra power / storage

Separate line

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Actuarial Recruitment Experts Call: +61 2 9262 1612 • www.qedactuarial.com.au

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A handful of those who selected ‘actively encourages’ indicated in the comments that they are self-employed. A number of actuaries also commented on the need to look after babies or their disability as being the reason for their employer’s flexibility about working from home.

Q.5 Relative to working in the company office, how productive are you at home?

Productivity %I can only get work done at home away from interruptions 4%A bit more productive at home 39%About the same 35%Not as productive at home 22%

In the previous question, 37% of the respondents noted that their employers are ‘not too keen’ or impossible about them working from home. Perhaps the statistic of 39% of all surveyed feeling that they are a bit more productive at home might change employers’ minds! A number of comments backed up their reasons for this:● less travelling time, so you end up working more hours;● sometimes you just end up working longer hours;● less interruptions and distractions;● “being at home gives me the excuse to not attend unproductive

meetings;” and● can take short breaks which improves concentration on

complex tasks.

For the 35% who said ‘it is about the same’, general comments included:● liaising directly with work colleagues is more efficient than over

the phone or via email;● don’t have printers and other resources at home;● lack of access to data when not onsite at work;● “I’d be more productive without a fridge at home;” and● “driven by the kids – during the term is more productive than

school holidays.”

Those who selected ‘not as productive’ made similar comments to the last comment above – children are a major source of distraction.

Q.6 Which of the following swine flu precautions do you have at your office (or at home if you work from home)?

Precautions %Emails regarding swine flu risk are sent to all employees 86Anti-bacterial hand gel in bathrooms and meeting rooms 43Tissues in bathrooms and meeting rooms 20Face masks – issued if contamination risk deemed high 12Other 14

The results show that the majority of employers at least alert their staff to the risk of swine flu. A handful commented that there is nothing done at all by their employers. ‘Other’ precautions include asking staff displaying flu symptoms to stay at home and those who had travelled to certain areas had been asked to work from home for the first few days on return, to quarantine themselves. On the more cautious end of the scale, some commented that the medication ‘Tamiflu’ is available and staff can check their temperature weekly.

At the time of writing, swine flu is still declared as a ‘current pandemic’. As at 1 July 2009, there had been 77,201 cases worldwide, with a death toll of 332. That’s a fatality rate of 0.43%, compared to the seasonal flu’s rate of less than 0.05%. The number of infections can be expected to increase. In some countries infections are no longer restricted to travel-related cases but also occur among the population at large, especially those who have contact with travellers returning from abroad, or frequent contact with other people. So, personal hygiene has become even more important – it is better to be safe than sorry! ▲

Kitty [email protected]


13

0 20 40 60 80 100 0 20 40 60 80 100

0 20 40 60 80 100 0 20 40 60 80 100

Only at home

Bit more at home

Less at home

Same at work / home

Emails

Anti-bacterial gel

Tissues

Face masks if deemed necessary

Other


14 survey

Pulse Report Update

Back in March, we asked you to predict the values of various indices at 30 June. The results were reported in the April edition of Actuary Australia. This is a follow up article comparing the actual values with your predictions.

1. ASX200 (3,345 at COB 27 February 2009)

Index Value No of respondents<=2,500 142,501-3,000 823,001-3,500 1623,501-4,000 214,001+ 9

In early March, the ASX200 was flirting with the 3,100 level, but since then we have had consecutive positive monthly returns. The actual value at 30 June was 3,954, very much at the high end of the estimates. In fact, at the time of writing (23 July) it is up to 4,064. Is this a dead cat bounce or are we back on the up and up?

2. Unemployment rate (4.8% at 31 January 2009)

Rate No of respondents<= 5% 365.1%-5.5% 1075.6%-6% 786.1%-7% 407.1%+ 17

Some commentators are projecting unemployment to peak at 7.5% by the middle of 2010 before recovering. The rate at 30 June was 5.8%, about in the middle of the respondents’ predictions.

3. CPI inflation rate from 30 June 2008 to 30 June 2009 (CPI increased by 3.7% from 31 December 2007 to 31 December 2008)

Rate No of respondents<=0% 60.1%-1% 191.1%-2% 662.1%-3% 1023.1%-4% 684.1%-5% 8>5% 4

The inflation rate has collapsed from 5% to just 1.5% in less than a year – the most dramatic slide on record. Is the lid finally on the inflation genie, or is this just a positive side effect of the GFC? Most respondents predicted a rate of over 2%.

4. RBA cash rate (3.25% at 1 March 2009)

Rate No of respondents<=1% 31.1%-2% 142.1%-2.5% 672.6%-3% 1433.1%-4% 354.1%+ 3

There was just one more 25 basis points drop in interest rates after 1 March, with the rate remaining unchanged at 3% since. It looks likely now that rates have bottomed out and will start rising again early next year. The majority of respondents predicted that the rate would be in the 2.6%-3% range.

Overall, the cash rate and unemployment rate were predicted the most accurately, with inflation below and the ASX200 above most predictions. Well done if you got them all right. Let’s see what the rest of the year and the future holds!

Matthew [email protected]

▲

15comment

I n 1999, I presented a paper to the Darwin Convention, attempting to identify possible indicators of financial distress and to sound warning bells for the future. In particular, the

paper focused on the issues of: automatic, price-insensitive trading; optionality in product design; and leverage in general. The final conclusion of the paper was that we could be headed towards “a world bank holiday, which would be required while the monetary authorities found a way of recycling funds back from the general public to an insolvent global banking system”.

The “world bank holiday” has, fortunately, not eventuated, but in the last twelve months, in most developed countries, the banking system has needed government support, by way of capital injections or guarantees. A crisis is certainly upon us, if not exactly the one I was forecasting 10 years ago.

Pro-cyclicalitySome of the issues raised in my 1999 paper now go under the generally accepted term ‘pro-cyclicality’. This has become a central debating point in international regulatory circles over the past couple of years. The current risk-based regulatory regimes for a range of financial institutions are pro-cyclical in their effect. This comes about in two ways:● during favourable operating conditions, high returns cause the

capital base of financial institutions, and thus their risk-taking capacity, to grow at a fast rate; and

● these same favourable operating conditions are often associated with falling volatility, and typical risk measures, such as VaR, cause an apparent fall in the level of risk carried for each position held.

Together these can lead to an excessive increase in risk-taking and a build up of leverage within the financial system.

The build up of risk-taking and leverage is often attributed, by observers, to complacency or greed, but it is important to note that the regulatory system itself permits and even supports the trend in a pro-cyclical fashion. There are no apparent incentives, at present, which would encourage institutions to build up extra reserves for when conditions turn negative.

A build up of leverage usually develops into a financial bubble, which, as explained by the late economist Hyman Minsky, sows the seeds of its own destruction. The pro-cyclical regulatory factors then go into reverse. Poor financial performance damages the balance sheets of institutions and their ability to accept risk, just as the world appears to be becoming more risky, and higher amounts of risk-based capital are required for each position. De-leveraging becomes the order of the day.

The role of accounting standards should also be mentioned at this point, as a contributor to pro-cyclicality. Fair values, by marking to market, accentuate the transmission of weak financial markets into balance sheets and capital adequacy, particularly when markets become illiquid and one-sided.

What caused the GFC?It seems that everyone has their particular view on the principal cause(s) of the GFC. The blame is usually directed at another part of the system, over which the commentator has had little control. In particular, it is popular to blame human nature, behavioural factors or plain greed on the part of (other) market participants. My view is that, while human factors have contributed, the prime causes would be better described as those emanating from the financial system, by which I mean the structure of laws and regulations which govern products and the institutional providers of those products. In other words, it was the rules of the game that were flawed, rather than the players.

As a general statement, the rules have been designed mainly from the perspective of maintaining the financial health of individual firms. Standards and ‘best practice’ have been the order of the day. The focus has been on micro-regulation, on the assumption that if individual firms are behaving properly, systemic dangers will be largely under control. This approach treats the system as the sum of its parts. A system is more than the sum of its parts, though. In my 1999 paper I used the example of the Prisoner’s Dilemma. Incentives designed for individual players can still leave a system that is sub-optimal and, indeed, can be dysfunctional. A system can become too complex to be fully understood and too big to manage.

The difference between entity risk and systemic risk is now recognised by regulators. In particular, Federal Reserve Chairman Bernanke, in his 2008 Jackson Hole speech, drew attention to the fact that rules devised by a micro-prudential regulator to protect an individual firm are likely to be very different from those preferred by a macro-prudential regulator looking to protect the system.


Some Further Thoughts on Systemic Risk

– And How to Control It


16

▲

comment

Can we prevent future systemic risk crises?I now turn to the main purpose of this article – how we might attempt to control systemic risk and prevent future systemic crises occurring.

Over the past few months, many international bodies have been putting together lists of things that need to be done. One such list, consisting mainly of suggestions of ways by which actuaries could make a contribution, has been produced by the IAA’s Risk and Credit Crisis Taskforce, of which I was a member. It is published on the IAA website under the heading Dealing with Predictable Irrationality – Actuarial Ideas to Strengthen Global Financial Risk Management. I will focus on two key components of the IAA’s proposals. Firstly, the creation of a Chief Risk Supervisor role, and secondly, countering the pro-cyclical aspects of regulation via a dynamic capital adequacy regime.

Previous government efforts to dampen economic cycles have generally fallen under the two headings of fiscal policy and monetary policy. Historically, there have been many occasions when operation of these policies has failed to prevent: the financial system building up excessive leverage; asset bubbles; and the subsequent periods of correction, which have been quite painful. During these disruptive occasions, the financial institutions at the heart of the crisis have often seen calls for a strengthening of prescribed capital requirements.

This article suggests that the capital adequacy rules for financial institutions should not be based on a static set of prescribed formulae, but should be considered a matter of ongoing discretionary review and adjustment, in a similar way to fiscal or monetary policy. Thus, control of the economy would be a three way policy interaction between: fiscal policy, under the review and control of the national treasury (and parliament); monetary policy, under the review and control of the central bank; and institutional capital adequacy policy, under the review and control of a Chief Risk Supervisor.

The Chief Risk Supervisor (CRS)It is important to understand that the role of the CRS would not just be to monitor the nation’s financial institutions, but also to monitor the financial system, which, as stated earlier, is not merely the sum of its parts. The CRS role would, in some respects, be analogous to that of the Chief Risk Officer (CRO) within a large corporation. It would differ, though, insofar as it would have wide-ranging executive power to change the capital adequacy requirements of financial institutions.

Until now, the monitoring of systemic risk has generally been a function of central banks. It may well be asked whether the CRS function should not continue to be subsumed within the central bank. I make two points here:● the issues involve the understanding of processes within

individual organisations – in Australia that lies in APRA, not the RBA; and

● controlling systemic risk may be necessary at a time when inflation is quite subdued – they are different objectives and may, at times, appear to be in conflict.

It may also be asked whether APRA does not already have sufficient power to change capital adequacy standards. APRA has certainly intervened in the case of individual organisations. It has also demanded particular stress tests in an effort to identify or draw attention to possible systemic risks. However, APRA has not, in the past, seen fit to change capital adequacy requirements in response to changes in general market conditions. For the CRS role I am proposing, this would be a key function.

This discussion also leads naturally to the question of independence. Giving independence to central banks is believed to have been a major contributor to the control of inflation. This is partly because raising interest rates is not usually popular, and borrowers are more vocal than savers. An independent central bank can carry the blame more easily than can politicians. In the case of systemic risk control, tightening capital adequacy requirements would probably not be a popular move. To use a popular analogy, the CRS would be taking away the punchbowl just when the party was in full fling! This is a very good reason for the CRS to have full independence in the same way as the central bank.

Dynamic capital adequacyThe purpose of a dynamic capital adequacy regime would be to counter and restrain the natural forces at work within the financial system. Thus, if excessive leverage appeared to be building within the economy, or if financial markets appeared to be overheating, ‘brakes’ would be applied by raising capital requirements for some categories of financial market participant. By contrast, following an external shock to the system, the capital requirements could be reduced to provide a buffer and to avoid the potential need for institutions to competitively liquidate their positions all at the same time.

Resilience reserves for life insurers in Australia already are in part counter-cyclical, through the dividend yield formula. The advantage of this formula-driven type of capital adequacy regime is that it creates a predictable set of rules within which an institution can design products and generally manage its risks. As an alternative, the process can be discretionary, with the CRS making decisions, from time to time, to alter the levels of capital required, and hence creating a more uncertain environment for the businesses concerned. Whilst this uncertainty would probably not be welcomed by the industry, it is argued here that, from the perspective of controlling systemic risk, the uncertainty of facing a possible increase in required capital would be helpful in discouraging excessive risk-taking in a market which is showing signs of over-heating.

An analogy is in the setting of interest rates, which is, in most countries, a discretionary function of the central bank. Anticipation of future central bank actions is an important feature of the financial


17

markets, and is generally agreed to influence market behaviour in a healthy way. Although, in this example, the central bank is using discretion, it is unlikely, in practice, to be doing so without first examining the decisions which would be indicated by one or more automatic formulae. A similar integrated approach is recommended for the CRS decisions. The important question, then, is which formulae or models are appropriate as support tools for these CRS discretionary decisions.

Control theoryA dynamic formula can be viewed as a type of control process. A typical control process, such as those found in engineering literature, identifies a variable which it is desired to control (the process variable), and a response mechanism which is expected to influence the variable in question (the manipulated variable). An example of a control system is the PID (Proportional-Integral-Derivative) controller, which is a generic control loop feedback mechanism widely used in industrial control systems. This varies the response in terms of: the extent to which the variable has deviated from its desirable level; the cumulative deviation; and the rate of change of the deviation. It is obviously possible to target more than one variable and to have multiple response mechanisms, although selection of tuning parameters would become successively harder.

A control process such as that described above could be of particular appeal to the actuarial profession, trained as it is in model-building techniques. I believe the use of such approaches to identifying and controlling systemic risk is an area where actuaries could play a major development role.

There are many economic and financial market indicators which could be used as process variables for systemic risk control purposes. They could include the following:● leverage in institutions, households or the economy in general;● money supply, capacity utilisation and inflation measures;● levels of various asset markets and implied return expectations;

and● growth in size of derivative markets, particularly options.

The possible use of monetary policy to influence asset markets has been the subject of much controversy over the years. At an RBA conference in 2003 which looked at this question, the consensus opinion appeared to be that, in determining monetary policy, regard should be paid to the level of asset prices but monetary policy should not actually target asset prices. According to comments made in a speech by RBA Governor Glenn Stevens in Kuala Lumpur last February, it may now be time to take a fresh look at this issue.

If the levels of asset markets are to be used in monitoring systemic risk, as I am suggesting they should, and if the regulator is seen to be targeting asset prices, then there will no doubt be howls of

protest from some quarters. This adds to the reasoning for the CRS to be as independent as possible.

Importantly, the CRS would also be monitoring changes within the financial system such as the rise of ‘shadow banking’ institutions and shifts of market between sectors due to non-uniform micro-regulation. These could be addressed in terms of changes to capital adequacy on a sector-by-sector basis.

Systems theorySystems theory has been an important contributor to progress in many of the sciences. Emphasising ‘the fundamental interconnectedness of all things’, it allows causes and effects to be understood as mutually interactive, non-linear and non-stationary. Systems theory looks for ‘influencing factors’ whose power may only emerge after a ‘threshold’ or ‘tipping point’ has been reached. Systems also learn as they develop and relationships are recursive.

Systems theory does not fit easily alongside the mathematical control theory approach described earlier. Nevertheless, systems theory may draw attention to issues which would not be evident from a purely historical analysis of time series. An effective approach for the CRS role may need to combine the left-brain skills of the engineer with the right-brain skills of the social researcher. Actuaries are known more for the former than the latter and may need to work at extending their skill base.

ConclusionWith the various suggestions above, it may appear that I am advocating an increase in regulation. I make no apology for this. I believe that regulation, if carried out effectively by an adequately resourced, strong and skilled regulator, fulfils an important social good and improves the long term efficiency of the financial system. Arguments against regulation are often based on past anecdotes of under-resourced and inefficient regulation and are often self-serving. The ‘regulation-light’ regimes in the US and the UK have certainly been found wanting in recent times.

The argument that the best and brightest people will always work for the private sector, where they can earn more money, is insulting to the increasing number of professionals (including many actuaries) who believe that the pursuit of maximum personal wealth is not the most important aspect of life. There will always be market ‘guns for hire’ whose aim will be to maximise their wealth, or that of their employer, at the expense of the client.

One lasting benefit of the GFC may be that there are many more people now prepared to sit on the other side of the fence and become part of a strong and effective regulatory team. ▲

Mike [email protected]


18 report

In many areas the Australian wealth management industry is a great success story. The industry is open, well contested and well regulated for the protection of consumers.

A massing over $1 trillion from superannuation due to compulsory and voluntary savings, the system has made great inroads to ensure a degree of self sufficiency for many

Australians. However, as the system impacts most Australians, there is much at stake and it was for this reason that we set out to understand how well the industry has done in meeting the needs of all Australians.

The ‘Holy Grail’ in our view is to ensure access for all Australians to a sufficient and sustainable retirement income for life. In order to assess how far we have come towards this vision, we interviewed a number of influential actuaries and industry experts from key areas, to gain a range of perspectives.

Since conducting our research and interviews, the government has announced the Super System Review, chaired by Jeremy Cooper, Deputy Chairman of ASIC, focusing on the governance, efficiency, structure and operation of Australia’s superannuation system. The Review will report in 2010 and initial indications are that the Review will focus on investigating: the current fee structures (including commissions); the benefits of choice; market competition, liquidity and other systemic issues; and the overall complexity of the current disclosure requirements.

Cooper questions: “is the system equipped to deal with the needs and expectations of the next generation? Does it produce the optimal outcomes for members? Are there ways in which it can be improved while preserving existing benefits?” Let’s hope these issues stay top of mind and that the Review doesn’t get bogged down in endless debates or second order issues.

Are we meeting the needs of the average Australian?Mandated superannuation strives to achieve stability and investment into corporate Australia. However, it was generally acknowledged by all interviewed that there are opportunities for our industry to improve; with a strong emphasis on issues of engagement of customers, advice, products (particularly the need for more retirement products) and appropriateness of many investment strategies.

To understand whether we are meeting the needs of all Australians, we need to understand what the ‘average Australian’ is. Unfortunately, the average Australian lacks a deep understanding, engagement and confidence in their superannuation.

Many consumers are not appropriately engagedOnly one in six people have a strong knowledge of their superannuation, with many not knowing whether they are in an accumulation or defined benefit fund, what their approximate account balance is and whether they are invested in a growth, balanced or conservative investment option. One quarter of members don’t understand how the sharemarket affects their superannuation. It has been reported that some do not even know their superannuation is theirs!

Despite all of the investment choices available to fund members, 90% of Australians remain in the default fund and most remain in the default investment option selected by their employer. The introduction of SuperChoices a few years ago gave members options to make choices over which many were ill-equipped to make.

Advice for allWhen it comes to advice, there is an ongoing debate on commissions. This focus on remuneration misses the more fundamental issue that four in five Australians currently don’t receive any form of financial advice. Advice is critical for educating and engaging Australians in order to deliver the right outcomes for retirement.

The Australian Wealth Management Industry – Meeting the Needs of All Australians?


19

Onerous and bewildering advice statements are barriers to reducing the cost and accessibility of advice, rather than remuneration structures. Innovations such as AMP’s new fixed $440 or 20 basis points advice model for Super Easy show that our industry is willing and capable of delivering on customer needs for advice. The recent ASIC announcement to enable low-cost, simple advice about a person’s investments in an existing superannuation fund should increase engagement and understanding. Previously funds were prohibited from assisting members with many basic questions about their superannuation.

Ease of engagementWhen it comes to interacting with the system, archaic frameworks have created barriers for investors, employers and providers alike, increasing costs and decreasing engagement. Without electronic clearing and settlement, the iPod generation is stuck using cheques and faxes. A complex web of rules and regulations make managing superannuation so burdensome, that 40% of those that try to consolidate their accounts give up.

ProductsThe choice of products is very extensive and definitely one of the benefits of our industry. However, there exists a vast range of ‘legacy’ products which continue to act as a weight around the neck of the industry. With no effective means of modernising old options, the system is left with:

● more Australian equity investment options than there are shares on the stock market; and

● a median fund size of less than $5 million, with one third of them having less than $1 million.

Investment managementInvestment management is the name of the game, and platforms have delivered a simple mechanism for significant choice. However, the negative returns of recent times experienced across most account balances have put investment strategies back under the microscope. Over the last two decades, almost all investment risk has been shifted back to investors who, some argue, are the least capable of dealing with it.

This market risk is exacerbated by asset allocation issues, particularly where balanced options are not very balanced, being increasingly weighted towards equities. In the boom markets, allocation decisions were often too focused on outperforming rivals or irrelevant benchmarks, rather than their original objective, which may have been a target return over CPI or cash.

Some suggest that standard ways are needed to communicate risk and reward. Others argue that unless all Australians become financially sophisticated, funds should look to reduce, transfer, or take on the investment risk.

RetirementThere appears to be a significant gap in the objective of meeting the retirement income needs for Australians. There are few options in the market to sufficiently manage the inherent risks, with only one lifetime annuity provider, as all products have historically been focused on the accumulation phase. Some suggest customers underprice the longevity and market risks because they don’t understand the value of protection against them.

A visionTo achieve our vision of “access for all Australians to a sufficient and sustainable retirement income for life” we still have some way to go. A road map to this vision will include:

● access to education and necessary advice for all;● simple products designed for the mass consumer;● adequacy for all (especially women / low income earners);● modern streamlined administration to remove barriers to

engagement;● needs / objectives of investors understood, and responsibility

taken to ensure investment strategy actually meets them;● investment risk properly managed, with more choice for

mitigating it; and● a range of options available to achieve an adequate retirement

income solution, with tools for managing market and longevity risk.

To achieve these goals, industry, government and regulators will need to continue to work together to share a broader vision if we are to meet the needs of all Australians. Actuaries will continue to have a significant role to play in this sphere, with their knowledge of investments, mortality and product and commission structures being invaluable in managing the expectations of all interested parties. ▲

Annie Liao [email protected]

Wade Tubman [email protected]

Please note that the views expressed in this article are the authors’ own and do not necessarily represent the views of the profession or the authors’ employer.

The full version of this paper The Australian Wealth Management Industry – Global gold standard, or fool’s gold? was presented at the Institute’s 2009 Biennial Convention. A copy can be downloaded from www.actuaries.asn.au


20

Outcomes from the Institute’s first Research Workshop

T he Research Council Committee regards the Research Workshop as a most important event in our research calendar. It provides opportunities for highly interactive

involvement of a range of stakeholders in thinking about, planning and shaping the research agenda.

Our column in last month’s Actuary Australia summarised the afternoon session at the first Workshop, held on 29 June. In particular, we described the priority areas for research that will drive the first round of the Australian Actuarial Research Grants program, which came out of that session.

The first round of this program is now under way; availability of the Grants has been widely notified, with applications closing on 2 October. Details are at http://www.actuaries.asn.au/PublicationAndResearch/Research/ResearchProjectFunding. Enquiries may be directed to Ron Murnain via his contact details at the end of this article. Our column in next month’s Actuary Australia will describe the Grants program, as well as the companion Australian Actuarial Research Contracts and Australian Actuarial PhD Scholarships programs, in greater detail.

The Workshop’s morning sessionThis other half of the Workshop provided an opportunity for the 50 participants – mainly practising actuaries and actuarial researchers from the universities, but with some researchers from other disciplines – to share experiences, knowledge and perspectives on interaction in research, between specialist researchers and practising actuaries and other financial professionals. The session primarily looked at three case studies of projects / organisations (see presentations at http://www.actuaries.asn.au/Events/eventDetails.aspx?eventID=2059) focused on bringing researchers and financial practitioners together:

CMCRC has concentrated on well directed research, performed by top-quality researchers, on problems of interest to industry, then sometimes spinning off a start-up company to exploit the research results. But they’re increasingly concentrating on generous PhD scholarships, with the stipend provided almost completely by industry partners, that allow top students to work on problems selected by the partner organisation. CMCRC has 59 PhD students in the pipeline, and that will soon exceed 70. They have already graduated 36.

MCFS, by contrast, has no PhD students in-house. They use a wide range of mechanisms to capture the ‘prac / ac space’ through encouraging linkages, including:

● grants and commissioned research (some $1¼ million allocated via 55 grants and several research contracts);

● tight integration into the business community (CBD location, top international speakers at their seminars and similar events);

● establishment of ‘reference groups’ to identify research topics for academics and research students that will be relevant to industry yet still result in quality publications, and to generally engage academics; and

● funding workshops and travel to help people present working papers on their research.

Follow-up discussion identified another important consideration: desirably, interaction should be accompanied by either, or preferably both, of interchange of people on a long-term if not permanent basis, and/or involvement of ‘straddlers’ – those who straddle both research and practice.

The Australian National University (ANU) and Rice Warner Actuaries (RWA) representatives summarised their Linkage project, its progress and lessons forthcoming at this early stage. In particular, this discussion illuminated what a firm and a university get from involvement in this sort of project. ANU got:

● a valuable return from their pre-existing ‘hard’ contacts with RWA;

● a route to AMP Ltd (AMP), the other project partner organisation;

● a route to data the project needs – even if RWA can’t provide the datasets, they can often direct the researchers elsewhere to locate them; and

● all that comes from partnering with a ‘nimble’ organisation like RWA.

research

Research Developments

Presented by

Peter Warne, Deputy Chairman, CMCRC board

Professor Deborah Ralston, Acting Director, MCFS

Tim Higgins, Australian National University and Phil Dewhurst, Rice Warner Actuaries

Organisation / Project

Capital Markets Cooperative Research Centre (CMCRC)

Melbourne Centre for Financial Studies (MCFS)

Australian Research Council (ARC) Linkage project: Expenditure in Retirement

http://www.actuaries.asn.au/Events/eventDetails.aspx?eventID=2059

http://www.actuaries.asn.au/Events/eventDetails.aspx?eventID=2059

21


RWA got:

● a say in the flow of significant research resources;

● access to ANU more broadly (including to the researchers in the project who aren’t actuaries);

● a reputation for involvement in high-quality research, through association with the work and publications of top ANU researchers;

● access they wouldn’t otherwise have to the public service (notably ARC people);

● intercompany contacts (with AMP) stimulated by the project;

● research-based know-how to inform their consulting work; and

● excellent marketing return – better return, some reckon, than the same investment in a formal marketing program.

Discussion at the end of the session covered:

● how the narrowness of actuaries’ training militates against their involvement in research;

● the (misinformed) view that any actuarial problem can be answered by actuaries alone;

● the serious barrier to effective actuarial research constituted by limited access to the datasets required. There are often major legal delays and complexities; a cultural change is required to persuade custodians of these datasets to think collaboratively, and to appreciate that methodologies are available to circumvent identification of individual companies’ data; and

● the question of whether actuarial research should concentrate on generating and articulating completely new paradigms for the profession, or on improving and consolidating knowledge in the fields traditionally serviced by actuarial research.

We and the Workshop facilitator have now reviewed the feedback sheets, which were provided by almost half of the participants. The assessments of the relevance, usefulness and structure of the Workshop were distinctly positive, but significant improvements have been flagged for incorporation into future workshops. ▲

Chris LathamConvenor [email protected]

Dr Ron MurnainManager, [email protected]

Bob Marshall, Tim Higgins, Phil Dewhurst

Deborah Ralston, Bob Stribling, Trevor Thompson, Alex Frino

Chris Latham, Frank Ashe, John Pollard


22

A Trip to the Dentist (AA140 – Solution) It is late on a Friday afternoon and a dentist has only three more patients to see before she can go home. Unfortunately, she only has two pairs of latex gloves left and no way of obtaining more before Monday. Assuming that the dentist must wear gloves on both hands, that both hands must touch each patient and that there is no way of sterilising the gloves between patients, how is it possible for the dentist to ‘safely’ see all three patients?

Solution: This solution assumes that the gloves can be worn inside-out. Label the two pairs of gloves G1 and G2. To treat Patient 1, the dentist should wear G1, with G2 over the top. To treat Patient 2, the dentist should remove G2 and just wear G1 (which were previously protected by G2). Then, to treat Patient 3, the dentist should invert G2 and wear them over the top of G1. The insides of G2 have not touched another patient or the dentist’s hands, and the dentist is protected from the previously soiled outsides by G1. Although this solution is technically possible, it is doubtful as to whether the ADA would approve.

18 correct answers were submitted. The winner of this month’s In the Margin prize, selected randomly from among the correct entries, was Jeffrey Chen, who will receive a $50 book voucher.

Ice Ice Baby!A fresh water ice cube is free-floating in a glass of fresh water (that is, it is not touching the sides or bottom of the glass). What will happen to the water level in the glass when the ice melts?

The solution to this question (shown below) often causes confusion when considered in the context of global warming. If this result is correct, then why are people worried about the melting of the world’s glaciers and ice caps? The answer lies in the fact that the global warming situation is different from that postulated above. Firstly, the ice caps of Greenland and Antarctica lie on land and are not free-floating. If the ice is supported in any way by the container it’s in (the planet, in this case), then the water level will certainly rise as the ice melts. Secondly, even if the world’s glaciers were all free-floating, glaciers are made of fresh water, whereas the sea is salt water. If the above problem was rewritten so that the ice cube was floating in a glass of salt water, then, due to the fact that salt water

is denser than fresh water, the water level would also rise when the ice melts. It is for these reasons that global warming is of concern.

Here are some more problems that are related to the principles of physics (some more so than others).

Highway to HellOn my 10km drive to work this morning, I drove at a constant speed of 40km/h. At what speed will I have to drive on my way home, if I wish to have travelled at an average speed of 60km/h over the entire return journey?

Take the Pressure DownHow can a barometer be used to determine the height of a building?

No Particular Place to GoA particular type of electric car runs at a speed that is inversely proportional to the amount of time that has lapsed since it was last charged. The owner of the car unplugs it to take it for a drive. If the distance travelled between 3pm and 4pm is three times the distance travelled between 4pm and 5pm, at what time did the owner unplug the car? You may assume that the owner drives continually between 3pm and 5pm.

For your chance to win a $50 book voucher, email your solution to this problem (with working) to: [email protected] ▲

puzzles

In the Margin with Genevieve Hayes “I have discovered a truly marvelous proof of this, which this margin is too narrow to contain” – Fermat.

with Genevieve Hayes

“I have discovered a truly marvellous proof of this, which this margin is too narrow to contain” – Fermat

i n themarg in@ac tua r i es .asn .au

Solutions Ice Ice Baby! A floating object displaces its own weight in water. When the ice melts and turns into water again, this volume of water will still weigh the same as the ice cube and will exactly take the place of the water that the ice originally displaced. Hence, the water level will remain the same. Highway to Hell: 120 km/h Take the Pressure Down: 1. Measure the atmospheric pressure at the top and the bottom of the building, then calculate the height using the exponential formula. 2. Lower the barometer from the top of the building to the ground using a piece of string, pull the barometer up, then measure the length of string. 3. Drop the barometer from the top of the building, timing the descent, then calculate the height using the formula for falling bodies. 4. Find the building’s manager and offer him / her the barometer in exchange for telling you the height of the building.


23communications

I recently attended a presentation to a board. It was a complex matter and the speaker was professional and used good quality slides. At the end he wrapped up with “OK, any questions?”

I could sense that there were plenty of unspoken questions but no-one was comfortable enough to actually speak up.

This must be similar to the challenge faced by actuaries who are often in a situation where they are attempting to explain complex or technical matters to a less informed audience. If the communication is to be successful, how might they more effectively confirm the understanding of the other party?

It seems to me that the solution lies in framing open questions to test comprehension, rather than adopt traditional closed questions. (Closed questions are those that require only one word answers such as “yes” / “no” whilst open questions invite fuller responses.)

In the above situation a closed question like “any questions?” or “does everyone understand?” is unlikely to elicit a valuable response from most audiences. It is human nature to avoid appearing ignorant.

A more effective question might be “what aspect would you like me to elaborate on?” If the open question was well-positioned it would put the audience at ease, for example “this is a rather technical matter, how can I help clarify the key points?” I believe this is a more genuine method of inviting queries.

Similarly, picture a scenario where an actuary is providing a series of recommendations. It is tempting for him / her to jump straight to “do you agree with these recommendations?” This doesn’t leave much room for the other party and doesn’t truly test the support for the recommendations.

An alternative open question may be “what concerns do you have about these recommendations?” This allows the actuary to clearly identify the issues and enable him / her to address them.

What would be the benefits of adopting this style? The open question lets the other party know that the actuary actually expects some concerns. Rather than risk appearing threatened by them,

the actuary is welcoming them. Ultimately the actuary should be more confident that the recommendations are accepted on merit. The actuary may well be respected for this open approach.

The same principle applies when actuaries are working together. Imagine a situation where a staff member is providing on the job training, explaining how to undertake a particular task or teaching the use of a new technique. The objective is for the junior person to learn the task / technique and eventually take full responsibility themselves. How might the senior person assess the confidence of the junior person?

Two closed questions that spring to mind are “do you think that you can do it by yourself?” and “are you ready to take it on?” Frankly, I don’t think these are very helpful for the junior person. Here are some alternative open questions:

● “How would you like me to assist you in your first attempt?”

● “What support would you like from me in taking this on?”

● “What level of supervision do you expect over the next week or so?”

What would be the benefits of adopting this style? Firstly, it provides a great indication of the confidence of the junior person. Secondly, it allows the junior to select a framework for further guidance – somewhere in between sink or swim! Thirdly, it should lead to higher quality implementation. Finally, the relationship between the two people should be enhanced from the learning experience.

It takes more than maths to use good questions to ensure that another person really understands what we have attempted to communicate. ▲

Martin [email protected]


24 review

This is the second part of a two-part article based on a presentation

given by Zac Roberts and John Evans at the Institute’s 2009

Biennial Convention. While Zac is a member of the Institute’s Risk

Management Practice Committee, the views expressed in this

article are his own, and may not completely correspond to the

views of the Risk Management Practice Committee.

T he ultimate goal of most commercial institutions is to optimise their expected return per unit of risk. My article in last month’s Actuary Australia outlined the basic risk management

framework given in Figure 1, and gave some practical examples of how it should be applied to liability risks and asset risks. It also reviewed the traditional actuarial risk management approach against this framework, and questioned whether the actuarial profession can justifiably claim to be financial risk management experts.

Figure 1: Basic risk management framework

This article introduces an investment framework consistent with this risk management framework, in that the key principle behind the investment framework is to give institutions the ability to optimise their expected return per unit of risk. This article then uses a few practical examples to illustrate how this investment framework could be used to manage equity risk.

Investment framework

Assume you are the Head of Strategic Asset Allocation at an institutional investor and are reviewing your exposure to different

risk premiums. You want to retain some exposure to the equity risk premium but want to reduce your downside risk.

The article in last month’s Actuary Australia examined how simple equity options can be tailored to help meet this goal. In order to properly investigate other equity risk management approaches, it is necessary to define a basic investment framework. Below is what I hope many professionals will agree is a sensible investment framework, despite the fact that it is followed by very few:

1. Understand the range of risk premiums available.2. Determine your desired mix of these risk premiums, considering

your liabilities, your investment objectives and your risk appetite.3. Determine the best way of gaining access to each risk premium.4. Investigate whether any form of down-side protection can be

incorporated economically.5. Review and adjust your mix of risk premiums frequently.

Now that we have defined a basic investment framework, let’s consider two practical examples to illustrate how it can be used to achieve the stated goal of retaining exposure to the equity risk premium with reduced downside risk.

Selling equity volatility

Equity volatility shows strong negative correlation to equity prices, with equity volatility tending to spike during times of sharp equity market falls. Thus, one possibility worth exploring is whether an investor could achieve a better expected return per unit of risk by selling equity volatility instead of purchasing equities.

An investor looking to sell equity volatility could use a variance swap, which requires no initial investment and is cash-settled at maturity. The payoff from a variance swap is illustrated in Figure 2. A variance

Financial Risk Management: Practical Methods to Improve Return on Risk

ARTICLE 2

Financial Risk Management: Practical Methods to Improve Return on Risk

The ultimate goal of most commercial institutions is to optimise their expected return per unit of risk. An article in last month’s Actuary Australia outlined the basic risk management frameworkgiven in Figure 1, and gave some practical examples of how it should be applied to liability risks and asset risks. It also reviewed the traditional actuarial risk management approach against this framework, and questioned whether the actuarial profession can justifiably claim to be financialrisk management experts.

Figure 1: Basic risk management framework

1. Understand your risk appetite

and your risks

2. Understand therisk management

approaches available

3. Manage risks to maximise expected

return per unit of risk

The article introduced an investment framework consistent with this risk management framework,in that the key principle behind the investment framework is to give institutions the ability to optimise their expected return per unit of risk. This article now uses a few practical examples to illustrate how this investment framework could be used to manage equity risk.

Investment framework

Assume you are the Head of Strategic Asset Allocation at an institutional investor and arereviewing your exposure to different risk premiums. You want to retain some exposure to the equity risk premium but want to reduce your downside risk.

The article in last month’s Actuary Australia examined how simple equity options can be tailoredto help meet this goal. In order to properly investigate other equity risk management approaches,it is necessary to define a basic investment framework. Below is what I hope many professionalswill agree is a sensible investment framework, despite the fact that it is followed by very few:

1. Understand the range of risk premiums available2. Determine your desired mix of these risk premiums, considering your liabilities, your

investment objectives and your risk appetite3. Determine the best way of gaining access to each risk premium4. Investigate whether any form of down-side protection can be incorporated economically5. Review and adjust your mix of risk premiums frequently

Now that we have defined a basic investment framework, let’s consider two practical examples to illustrate how it can be used to achieve the stated goal of retaining exposure to the equity risk premium with reduced downside risk.


25

swap seller will make a profit provided that the actual volatility over the term of the variance swap is less than the volatility strike price. Conversely, if actual volatility is greater than the volatility strike price, a variance swap seller will make a loss.

Figure 2: Variance swap payoff at maturity

Figure 3 (below) gives the actual five year volatility of the S&P 500 index since the early 1930s. Each point on the bold red line is the annualised volatility for the five years ending on that date. As can be seen, five year actual volatility peaked in the low 40s during the Great Depression, and has not been greater than 25% since the early 1940s.

As is also shown in Figure 3, in November 2008 investors could sell five year S&P 500 volatility at 40%. In other words, investors could sell volatility, which is mean-reverting, at greater than its 95th percentile historical level when measured over the past 75 years.

It is important to be clear that selling five year equity volatility at 40% is not a risk-free investment. An investor who did this would make a loss if actual volatility is greater than 40% for the next five years. However, as long as actual volatility is less than 40% for the next five years, the investor would make a profit.

So, what use is this to our Head of Strategic Asset Allocation who wants to retain some exposure to the equity risk premium but wants to reduce downside risk? The fact that selling five year volatility will

make a profit even if actual volatility is up to 40% means that selling volatility may well be a lower risk way of harvesting the equity risk premium than owning shares. It is difficult to imagine a scenario where actual volatility is greater than 40% for a five year period and share markets actually increase over those five years.

To illustrate this point, I have done some rough calculations to compare the performance of owning the S&P 500 to the performance of selling volatility at 40% over the five year periods covered by Figure 3. Unsurprisingly, in approximately 80% of the five year periods examined, both strategies would have been profitable, and in a very small proportion of periods both strategies would have made losses.

The more interesting statistic is that in more than 15% of the five year periods examined, selling volatility at 40% would have made a profit, while owning the S&P 500 would have made a loss. In contrast, there is not a single five year period for which selling volatility at 40% would have made a loss, while owning the S&P 500 would have made a profit.

Equity dividend swaps

Some of you may justifiably be thinking that while equity volatility is negatively correlated to equity prices, a short equity volatility position may have too much basis risk to be viewed as an alternative to a long equity position, despite its favourable risk / return profile. Also, given that there is no clear cap on how high volatility could be, it is difficult to estimate your maximum possible loss from an investment strategy that involves selling volatility.

To address these concerns, my second example will explain an approach that has a small quantifiable maximum possible

loss and is intuitively more closely related to equity markets, but still appears to have a favourable risk / return profile compared to owning equities. I am talking about equity dividend swaps.

An equity dividend swap is similar to an equity futures contract, in that the investor agrees to purchase a ‘financial asset’ at a fixed price on a fixed date in the future. However, whereas the ‘financial asset’ to be purchased under an equity futures contract is the share market index, under a dividend swap the ‘financial asset’ to be purchased is the dividends paid by all shares in the share market index during a specified period.

Selling equity volatility

Equity volatility shows strong negative correlation to equity prices, with equity volatility tending to spike during times of sharp equity market falls. Thus, one possibility worth exploring is whether an investor could achieve a better expected return per unit of risk by selling equity volatility instead of purchasing equities.

An investor looking to sell equity volatility could use a variance swap, which requires no initial investment and is cash-settled at maturity. The payoff from a variance swap is illustrated in Figure 2. A variance swap seller will make a profit provided that the actual volatility over the term of the variance swap is less than the volatility strike price. Conversely, if actual volatility is greater than the volatility strike price, a variance swap seller will make a loss.

Figure 2: Variance swap payoff at maturity

Notional * (Actual Vol2 – Strike Vol2)VarianceSwap Buyer

VarianceSwap Seller

Figure 3 gives the actual five year volatility of the S&P 500 index since the early 1930s. Each point on the bold red line is the annualised volatility for the five years ending on that date. As can be seen, five year actual volatility peaked in the low 40s during the Great Depression, and hasnot been greater than 25% since the early 1940s.

As is also shown in Figure 3, in November 2008 investors could sell five year S&P 500 volatility at 40%. In other words, investors could sell volatility, which is mean-reverting, at greater than its 95th

percentile historical level when measured over the past 75 years.

2 Figure 3: Five year S&P500 historical volatility


26 review

For example, Figure 4 (below) gives the market prices of the EURO STOXX 50 dividend swap market as at 30 January 2009.

As Figure 4 shows, the dividend swap market was pricing in a 38% fall in European dividends from 2008 to 2009, and a further 42% fall from 2009 to 2010, with little growth in the five years from 2010 to 2015. Once again, what use is this to our Head of Strategic Asset Allocation who wants to retain some exposure to the equity risk premium but wants to reduce downside risk?

An investor could have entered into a 2010 dividend swap under which the investor pays 36% ((1-38%)*(1-42%)) of 2008 dividends and receives actual 2010 dividends. Under this swap the investor will only make a loss if 2010 dividends are less than 36% of 2008 dividends.

Again, it is important to be clear that entering this 2010 dividend swap is not a risk-free investment. However, compared to owning equities, a dividend swap may well have a favourable risk / return profile.

For example, equity analyst consensus is for dividends to return to growth from 2009 to 2010. Even if you think analysts are too bullish and the most likely outcome is a 20% drop in dividends in 2010 (after a 38% drop this year), you would still make a considerable profit on the 2010 dividend swap. I am not sure that an equity investment would make a profit under this scenario.

Further, it is likely that the compound 64% fall in dividends in two years priced into the equity dividend swap market is more like a worst case scenario than an expected outcome. Even if that scenario materialises, a dividend swap would still break even. Again, I am not sure that the same could be said for an equity investment.

If you think that the current recession may be deep and prolonged, you may not like the idea of ‘betting’ on 2010 dividends. In this case,

an alternative approach to consider may be a 2015 dividend swap. Given the close to zero dividend growth priced into the dividend swap market from 2010 to 2015, you could have entered a 2015 dividend swap at 37% of 2008 dividends (compared to 36% for the 2010 dividend swap). Under this 2015 dividend swap the investor will only make a loss if 2015 dividends are less than 37% of 2008 dividends. Again, it is difficult to imagine this investment making a loss and an equity investment making a profit.

Inadequacies of the traditional investment approach

The traditional investment approach applies a very strong analytical process to determine the desired mix of the most basic methods of gaining exposure to a very limited number of asset classes. Investment professionals then focus on trying to maximise returns within each of these asset classes.

A critical review of this approach against the basic investment framework given above shows that, like the traditional actuarial risk management approach reviewed in last month’s Actuary Australia, this traditional investment approach is well short of the optimal approach required to achieve the greatest expected return per unit of risk. Also like the traditional actuarial risk management approach, the solution to improving the traditional investment approach is to spend more time understanding the basic tools available.

It is only when we understand the risk management and investment tools available and use these tools to actively manage our liability risks and our asset risks that we can justifiably claim to be financial risk management experts. ▲

Zac [email protected]

▲

Figure 4: EURO STOXX 50 dividend swap market – 30 Jan 2009

0

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-50.0%

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30.0%Div actualDiv impliedDiv growth

Div points YoY growth

As Figure 4 shows, the dividend swap market was pricing in a 38% fall in European dividendsfrom 2008 to 2009, and a further 42% fall from 2009 to 2010, with little growth in the five years from 2010 to 2015. Once again, what use is this to our Head of Strategic Asset Allocation whowants to retain some exposure to the equity risk premium but wants to reduce downside risk?

An investor could have entered into a 2010 dividend swap under which the investor pays 36% ((1-38%)*(1-42%)) of 2008 dividends and receives actual 2010 dividends. Under this swap theinvestor will only make a loss if 2010 dividends are less than 36% of 2008 dividends.

Again, it is important to be clear that entering this 2010 dividend swap is not a risk-freeinvestment. However, compared to owning equities, a dividend swap may well have a favourablerisk / return profile.

For example, equity analyst consensus is for dividends to return to growth from 2009 to 2010. Even if you think analysts are too bullish and the most likely outcome is a 20% drop in dividendsin 2010 (after a 38% drop this year), you would still make a considerable profit on the 2010 dividend swap. I am not sure that an equity investment would make a profit under this scenario.

Further, it is likely that the compound 64% fall in dividends in two years priced into the equity dividend swap market is more like a worst case scenario than an expected outcome. Even if thatscenario materialises, a dividend swap would still break even. Again, I am not sure that the samecould be said for an equity investment.

5

Figure 4: EURO STOXX 50 dividend swap market – 30 Jan 2009


27report

“W hat does the rock band AC/DC have to do with the economy?” asked Lisa Simpson (Partner, PricewaterhouseCoopers) as she opened her

presentation on the impacts of the GFC on the general insurance industry’s claims experience. According to a UK journalist, 14 of AC/DC’s 16 album releases either preceded or coincided with downturns in the US economy. In times of great uncertainty, the rock band’s predictable tunes often win people’s hearts and go straight to number one on the music charts.

Perhaps the forecasting ability is not just limited to the music industry. Less than a year ago, a friend of Ty Birkett (Head of Actuarial Services, Willis Re), a member of the Geelong Football Club (or ‘GFC’ for short) told him that he sees the global financial crisis as more of a “global economic crisis”. Interestingly, the club changed its name to Geelong Cats around late 2008. The timing couldn’t have been more coincidental. In the midst of gloom and doom, general insurance actuaries sure know how to put things into a light-hearted perspective.

The day began with a warm welcome from the Institute’s President, Trevor Thompson. Trevor pointed out that this was the fourth one-day general insurance seminar hosted by the Institute and, like the previous seminars, was well attended by colleagues from corporates, consultancies, government agencies and brokers. In addition to the 100 or so participants seated in The Westin Sydney’s ballroom, 50 delegates from around Australia and overseas joined the conference by webcast.

The morning sessions were filled with useful information for practising actuaries. Presenters from different backgrounds and experiences discussed the early signs of the GFC impact on claims experience in various classes of business, which was particularly helpful for the reserving actuaries in the audience. Pricing actuaries benefited from insights from the insurers’ survey conducted by Taylor Fry on expected pricing changes. We were also reminded that reinsurance is still an economical option compared to other sources

of capital such as equity and debt. The morning sessions closed with a presentation on the three key assumptions that no general insurance actuary can live without – inflation rates, discount rates and risk margins.

The lunch break offered an opportunity for delegates to meet or catch up with fellow actuaries. The afternoon sessions commenced with Helen Rowell from APRA sharing the regulator’s perspectives on how general insurers have performed in the tough GFC economy. Helen emphasised that APRA is there to keep the insurers on their toes in thinking about the key risks they are exposed to. Her reminders were followed by insightful comments from Brett Ward (Group Actuary, IAG) on lessons for risk management frameworks. The discussions urged actuaries to take a step back at times and look at the big picture to understand different risks and how they may relate. As a member of the panel, Gert Rossouw (Manager, Risk Services, Deloitte) told the audience: “What matters can’t always be quantified, and what can be quantified doesn’t always matter.” Claude Imhof (Executive Director, Ernst & Young) also provided another piece of handy advice in light of the AIG experience – if an area of business is making money to the extent that it’s too good to be true – look into it.

The final session was lead by three experienced actuaries – Geoff Atkins (Principal and Chairman, Finity Consulting Pty Ltd), Adrian Gould (Director, Taylor Fry Consulting) and Peter McCarthy (Director General Insurance, Ernst & Young) – sharing their insights on dealing with the practical challenges of the GFC and, in particular, professional issues for

actuaries. Peter’s tips on how to deliver bad news were welcome reminders that communication should be ongoing and effective.

After some closing remarks from Trevor Thompson, drinks flowed and delegates mingled, with plenty of time for networking and catching up on actuarial qualifications and exam passes, as the seminar coincided with exam results day.

GI in a GFC World was an opportunity to debrief on the impacts of the financial crisis in general insurance and discuss learnings for a post-GFC world. Our thanks to the organising committee of Peter McCarthy, Kevin Gomes, David Koob, Darren Davis and Rosemary Ryan for this timely seminar. For those interested, all presentations are available on the Institute’s website. ▲

Kitty [email protected]

Joyce [email protected]

GI in a GFC World

General Insurance Seminar, Sydney

Peter McCarthy


28 comment

P owerPoint is an invaluable, powerful and exciting tool used by actuaries to create visual aids that transform average speakers into masterful presenters. Or is it? You have

probably noticed that PowerPoint slides have become so content heavy and difficult to read that the phrase, ‘death by PowerPoint’ has been coined. Actuaries need to do what they can to make sure they don’t cause ‘death by PowerPoint’ when they present. Whilst the typical audience for an actuary is used to seeing a plethora of small numbers in tables, you still have a responsibility to yourself, your company and your audience to provide information in a way that ensures key messages are easily perceived and your audience says “yes” to what you want. It’s critical that you use your slides to reinforce your key selling messages to your audience.

Are you setting yourself up to use PowerPoint as a lethal weapon?Are you guilty of the ‘kid in a toyshop’ syndrome, where your enthusiasm for communicating absolutely everything you know on your slides is clouding your judgement as a presenter? Have you thought enough about the need to concentrate more on your verbal and non-verbal communication than your visual aids?

Try the, ‘Will my slides cause death?’ test to work out whether you are relying too much on your slides at the expense of influencing your audience:

● Do you lack confidence as a presenter? Would you be horrified at the thought of presenting to an audience without the use of visual aids?

● Are you guilty of using PowerPoint slides to take the focus off yourself?

● Do you use PowerPoint slides as convenient palm-cards? Do you find yourself looking back at your slides to remember what to say?

● Do you use PowerPoint to write your presentation?

● Do you try to use the entire functionality of PowerPoint as a way of improving your presentation? (Have you even sent your Personal or Executive Assistant on a PowerPoint training program?)

If you find yourself answering “yes” to these questions, then there is a good chance you have been relying on PowerPoint slides to carry you as a presenter, rather than simply as a visual aid to highlight the key messages for your audience. You may have impressive technical skills and you may be an expert in your profession, but your slides may well be preventing you from connecting with your audience, and communicating your ideas. In fact, your slides might well be causing your audience to ‘switch off’ from your presentation and think about their own concerns and challenges – obviously not good for business development!

What is the purpose of slides? What should they look like?The purpose of slides is to reinforce your key messages for your audience, not to remind you, the presenter, what to say next. Slides have the potential to create a visual, kinaesthetic and maybe even an auditory connection between your audience and your message. In other words, they help stimulate your audience in a variety of ways that will help them to remember your content.

An ideal presentation with slides doesn’t cause ‘death by PowerPoint’. An ideal presentation is delivered with confidence and charisma and

Death by PowerPoint – Are You Setting Yourself Up?


29

ensures your audience doesn’t disengage from your message. I believe the main reason many people don’t use PowerPoint to their advantage is they are so busy. It’s easier to rely on PowerPoint to ‘tell the story’ than to look into the eyes of the audience and engage them person to person and use the slides as a back up.

Have a look at these 10 tips for designing slides to help you set yourself up to be a powerful presenter who uses slides as an aid to influence audiences to your way of thinking.

Top 10 tips for designing beautiful slides

1. Dark text on a light background. This is so you can keep the lights on and increase the engagement levels of your audience. Remember the last time you were at a movie and the lights went off, you bonded with the screen didn’t you? In business presentations you don’t want the audience bonding with your screen. You want them to bond or connect with you, the presenter.

2. Minimum 30pt font. If you must use a small font then print out your slide and use it as a handout instead of projecting it onto a screen.

3. Times New Roman or Verdana fonts are the easiest PowerPoint fonts for your audience to perceive from a distance.

4. Reduce the number of slides to a minimum and use handouts, whiteboards and flipcharts to supplement your slides.

5. Replace words with pictures or graphs as often as possible. You’ve heard the saying ‘a picture paints a thousand words’ and it’s certainly applicable to workplace PowerPoint presentations.

6. Colour code graphs so people see the point of the graph easily from a distance. If the graphs are too small to see on the screen then give them as handouts.

7. Use beautiful clever graphics, not overused, tired ones.

8. Ensure your transitions from one slide to the next don’t distract.

9. Sound clips should add value not distract from the message.

10. Don’t use underline, italics, bold or shadow on your fonts. Only use key words on your slides and change the colour of the font if you must highlight a word.

GraphsI recommend that you should reproduce only the important parts of your graphs for a slide presentation i.e. the key figures and the key trends, not the whole graph.

You shouldn’t just copy and paste the graphs from your reports into your PowerPoint slide shows. The slide show is a different medium and intended to be seen at a distance, not close range like a report. The graph on PowerPoint should be a lot simpler than a graph in a report.

There is an alternative to slidesHandouts are often a better alternative to PowerPoint slides in meetings and small presentations. It’s also wise to use handouts for complex patterns and information like an organisational chart or a series of comparative graphs that no one will be able to see on a PowerPoint slide unless they have laser vision!

If you are going to use handouts, then remember to explain to your audience what to do with them. In other words, guide their attention from you to your handouts. For example: “Please turn your attention to page seven, where you will see a table outlining XYZ, compared with the proposed assessment”. Or, “You will find the table in your handouts. May I ask that you don’t turn to it just yet. This way you will understand the rationale before going to the comparison. Thank you.”

In summary…It’s a terrific idea to revisit your PowerPoint slides and ask yourself this fundamental question: “Will this help my audience to say ‘yes’ to my proposal?” If the answer is not a definite “yes”, then amend your slides until you’re sure they will do their job for you.

Using these tips will set you up to be an influential presenter who showcases their professional expertise with confidence and clarity. This will maximise the likelihood of changing your audience’s behaviour. ▲

Michelle [email protected]

Michelle Bowden is one of only 19 female Certified Speaking Professionals (CSP) in Australia, (the CSP is the highest designation for speakers in the world). Michelle is the author of STOP! Your PowerPoint is killing me! and DON’T PICTURE ME NAKED.


30

Part III Results Semester One 2009

S emester one 2009 was the first time that the Institute has had three different delivery models:

● Access Macquarie for Course 1 Investments and Course 5B Investment Management and Finance;

● the Staff Actuary model for Course 2B Life Insurance; and

● the typical Part III scenario using Course Leaders and volunteer markers for all other Part III courses.

Last semester saw a slight decrease in the overall Part III pass rate from 49% in semester two 2008 to 44% in semester one 2009. The pass rate had been steadily increasing since 2005, with this semester being the exception to this trend.

2009 2008 2008 2007 2007 2006 2006 2005 2005

(1) (2) (1) (2) (1) (2) (1) (2) (1)

44% 49% 44% 41% 38% 38% 37% 34% 30%

Below are the pass rates for each course in semester one 2009 compared with the last two semesters:

2009 2008 2008 (1) (2) (1)

Course 1 Investments 49% 51% 39%

Course 2A Life Insurance 40% 48% 34%

Course 2B Life Insurance 38% 42% 39%

Course 3A General Insurance 37% 41% 52%

Course 3B General Insurance 32% 37% 40%

Course 5A Investment Management and Finance n/a n/a 49%

Course 5B Investment Management and Finance 50% 31% n/a

Course 6A Global Retirement Income Systems 36% n/a 58%

Course 6B Global Retirement Income Systems n/a 58% n/a

Course 10 Commercial Actuarial Practice 55% 71% 49%

Despite the different delivery models, there has been no significant impact on the pass rates for this semester, with the exception of Course 5B Investment Management and Finance, where the pass rate has increased by 19% on the previous semester. It is too early to conclude whether the delivery model has impacted on the pass rate.

Pass Rates and Exam CentresAnother encouraging result is the fact that pass rates for candidates in other exam centres (i.e. not Sydney or Melbourne) are continuing to be similar to those of candidates in Sydney and Melbourne. In semester one 2009 the Sydney pass rate was 50%, the Melbourne pass rate was 44% and the pass rate for other exam centres was 43%.

A breakdown of the pass rates for exam centres in Australian locations other than Sydney and Melbourne, and overseas exam centres reveals some interesting results. Students in Australian locations other than Sydney and Melbourne actually had the highest pass rate of all with 55%, while overseas exam centres had a pass rate of 41%. While overseas exam pass rates continue to be the lowest, the gap seems to be closing over the last few semesters.

Part III Enrolment Numbers Semester Two 2009A total of 564 students have enrolled in Part III courses for semester two 2009. The global financial crisis appears not to have had a negative impact on Part III enrolments.

Below are the enrolment numbers per subject compared with the last two semesters:

2009 2008 2008 (2) (1) (2)

Course 1 Investments 157 192 134

Course 2A Life Insurance 57 64 68

Course 2B Life Insurance 63 59 54

Course 3A General Insurance 63 72 60

Course 3B General Insurance 64 52 66

Course 5A Investment Management and Finance 50 n/a n/a

Course 5B Investment Management and Finance n/a 47 38

Course 6A Global Retirement Income Systems n/a 17 n/a

Course 6B Global Retirement Income Systems 19 n/a 18

Course 10 Commercial Actuarial Practice 91 78 89

Total 564 581 527

▲

Philip Latham Education [email protected]

education update


31

S ince its establishment, the vision of the Actuarial Students’ Society of the University of Melbourne has evolved significantly. This vision now encapsulates the enhancement

of both the professional and social lives of its members. Members are encouraged to participate in social activities and forge new relationships between students from different year levels. As bridge builders (figuratively; not to say we have a hidden skill that could potentially undermine the entire engineering faculty), we help bridge the professional services industry to our students. The marriage of these two has the aim of assisting students integrate seamlessly into the workforce, with a focus on work-life balance upon graduation. With the commencement of semester two underway, it is the perfect opportunity to reflect back on the highlights of the past six months.

As mentioned in April’s edition of the Student Column, we decided to bring back Trivia Night in 2009. This year saw a revamped version of this social event (based on the positive feedback from our members) with the inclusion of a few extra surprises for our competitors. With well over 70 participants divided into 16 teams, the wide range of activities tested more than just brains, with left field activities including the push-up challenge and the best-actuarial-joke-under-10-words. The competition concluded with a spelling-bee showdown between three teams; never has the word ‘accommodation’ been more critical. The success of the event was shown in the diverse participation, with students across various year levels coming together, meeting new people and having fun.

More recently, our society was involved in the Commerce clubs and societies exhibition located in the new Commerce and Economics building. Stationed strategically next to the barbeque (nothing attracts students like free food), the successful afternoon saw many students expressing interest in our Society. Enquiries about the career prospects of an actuary were common, reflecting genuine interest in the profession rather than the financial rewards of it.

Semester two is shaping up to be just as exciting as the first half of the year, with a greater focus on enriching the professional lives of our members. During the first few weeks of the semester, we will be hosting two career luncheons for our Gold Sponsors, the Institute of Actuaries of Australia and Watson Wyatt. These career luncheons serve to enrich our members’ knowledge of available pathways upon graduation. As it is our aim to provide our members

with assistance on various recruitment processes, we will also be hosting a careers workshop with Bronze Sponsor QED Actuarial. Another highly anticipated event will be Contact Night, which provides opportunities for our members to meet with sponsor representatives whilst enjoying magnificent views of Melbourne. With the success of enlisting three new sponsors over the past six months: KPMG, Ernst & Young and PricewaterhouseCoopers; growth is certainly still a goal of the society.

As the term of the 2008/09 Committee comes to a conclusion, it will soon be time for us to pass on the baton of responsibility to a new team. With the AGM set for late September, we anticipate eager and enthusiastic students vying for the highly regarded roles. Bringing fresh blood into the Committee will definitely generate new ideas and we look forward to their efforts and the expansion of the Actuarial Students’ Society. ▲

Zezan Tam [email protected]

Daniel Zhang [email protected]

Yii-May Phang [email protected]

student column

Report from the University of Melbourne

The Vision Today of Future Actuaries

Trivia Night push-up challenge


32 report from the chief executive

S ince my departure to Switzerland was announced, many people have asked me what I will be doing in Basel at the International Association of Insurance Supervisors (IAIS)

and what does the IAIS itself do.

The IAIS is one of the global financial regulatory peak bodies and represents insurance regulators and supervisors of some 190 jurisdictions. The Basel Committee on Banking Supervision (BCBS) has set banking guidelines for many years, while the International Organisation of Securities Commissions (IOSCO) has set guidelines for securities regulators since 1983 from its Spanish headquarters. The International Organisation of Pension Supervisors (IOPS) was established in 2004.

These peak bodies have coordinated their activities through various mechanisms, including the Joint Forum and the Financial Stability Forum, which was recently expanded to include all G20 countries and renamed as the Financial Stability Board (FSB). The IAIS, FSB and BCBS secretariats are all based in Basel at the Bank for International Settlements (BIS).

My first attendance at an IAIS meeting was in 1996 in Paris when I was Executive Director of the Life, Investment and Superannuation Association (LISA) which is now part of the Investment and Financial Services Association (IFSA). At that meeting, the IAIS decided to establish a permanent secretariat based at the BIS in Basel to support the development of insurance regulation standards and perform other activities for the IAIS.

Since then, I have maintained an interest in IAIS activities and publications, especially in recent years via my participation in International Actuarial Association (IAA) committees and meetings. The IAIS usually sends several representatives to IAA meetings and regularly provides speakers at actuarial conferences. Much of the work undertaken by the IAA’s technical committees (insurance regulation, solvency and insurance accounting) is very relevant to the IAIS. There is a strong degree of mutual interest between the global actuarial profession and the IAIS to improve the quality and effectiveness of global insurance regulatory standards, especially where there is a significant actuarial component to those standards.

The impact of the global financial crisis and the failure of large banks and insurers (especially AIG) has generated intense scrutiny of financial regulation by the world’s leaders. The G20 leaders’ meeting approved a demanding work program over the next few years from all of the global financial standards setters and other parties.

My role at the IAIS is a newly created one to help progress the various activities emerging from the G20 work plan and from ongoing developments by the Financial Stability Board. These activities include:● development of a macro-prudential framework and toolkit to

complement the micro-prudential framework currently utilised by most insurance regulators;

● liaison with the Financial Stability Board to help coordinate enhanced regulatory responses to future causes of financial instability;

● support to the IAIS’s Executive Committee on financial stability and related issues;

● support to the IAIS’s Finance Stability Taskforce;● management and oversight of IT projects related to the

development of a macro-prudential toolkit;● implementation and assessment of IAIS standards;● development of insurance industry early warning indicators;● analysis of insurance markets’ key risks and trends;● support for other IAIS committees and work groups impacted

by the global financial crisis and related initiatives;● liaison with the International Actuarial Association’s key

committees of relevance to IAIS (especially solvency, actuarial and research issues); and

● assisting with planning and organising of regular and ad hoc meetings and conferences of IAIS members and committees.

I am excited to be commencing this new role in September. Having visited friends in Switzerland on several occasions over the past 20 years, I am familiar enough with the beauty of Switzerland to realise that it is a wonderful opportunity to be able to experience life there for a few years. I hope to maintain contact with my Australian colleagues, so please let me know if you are visiting Switzerland or nearby.

Nevertheless, there is always some sadness in leaving one role to start another, especially when the new role is on the other side of the world. I have really enjoyed my three years at the Institute and have had the privilege to serve four Councils and Presidents. I will hold many fond memories from this part of my career.

The Australian actuarial profession is very fortunate to have so many enthusiastic and willing volunteers to serve on Council, committees, taskforces and in the education system. While we try to thank them B

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33

Dear EditorIn my letter (Actuary Australia December 2008) I wrote “I remain hopeful that at some point Actuary Australia will publish the letters disputing anthropogenic climate change received from individuals far more qualified on the topic than any actuary.” When Geoff Dunsford quoted this sentiment (Actuary Australia July 2009), an editorial comment was inserted, “I have not received any such letters.” Oh, how quickly we forget.

I duly and humbly remind the Editor of:1. the letter that she circulated to the Editorial Committee on

10 April 2008 from Peter Carroll on the address by Professor Don Aitkin, former Chair of the Australian Research Council, to the Planning Institute of Australia on 19 March 2008;

2. the report tabled by me to the Editorial Committee, written by Steve Lytte, Fairfax environment reporter, dated 14 October 2007; and

3. the letter from Justin Castagna dated 20 June 2007 on evidence from Dr David Evans, consultant to the Australian Greenhouse Office 1999-2005 (Dr Evans’ research was subsequently reported in The Australian on 18 July 2008 and by various ABC media 18-22 July 2008).

Again, I call for the publication of these letters, so that our members might form their own opinion on this issue. I have retained a copy of each if you need to borrow them.

Stephen [email protected]

My recollection is that the Committee sought to obtain a copy of the address by Professor Aitken as it was agreed it could be of interest to the membership. In the event, this was not possible as we had no response from Professor Aitken’s office. Neither 2 nor 3 in Stephen’s letter were letters addressed to the Editor and, as such, I do not think my comment can be construed as deliberately misleading. If any member has an interest in seeing these letters please contact me and I will organise this. If the interested members then feel publication is worthwhile I will be happy to consider it further. Editor

for their contributions, we can never thank them enough. So please let me personally thank all our volunteers on this final occasion and wish them well for the future.

The profession is also fortunate to have an enthusiastic and professional secretariat that has supported me and helped to deliver high quality services to members in partnership with the various volunteers. I am

proud of the contribution they have made during my tenure and wish all my staff well for the future.

The members of the Australian actuarial profession are highly regarded by our international peers and contribute very significantly to the growth and development of the global actuarial profession. This should prepare us well for continued success both internationally and at home.

Farewell… Auf Wiedersehen. ▲

John Maroney [email protected]@bis.org (from 1 October 2009)

John Maroney

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letter

Dear editor…

Dear member…


34

Peter Wickens – Some Notes in Memoriam 23 July 1912 – 10 August 2008

W hen Peter Wickens died last year at the age of 96 we said goodbye to one of the last central identities whose working lifetime was spent in a life insurance

industry dominated by reversionary bonus contracts. The following memories of Peter draw on that time.

Peter Wickens was born in 1912, grew up in Melbourne and, when he left university in the 1930’s, had degrees in Law and Mathematics. His first choice, to follow a career in Law, saw him admitted to the Victorian Bar in 1936. After three years working with Sir Hayden Starke, a notable justice of the High Court, Peter decided to change careers to exploit his love of mathematics, so he commenced actuarial studies. A spell during the Second World War instructing RAAF crews in mathematics and physics led him to move to Sydney where he joined The City Mutual Life Assurance Society.

Never a person to do things by halves, Peter threw himself into his life and work in Sydney. He married Helen Gandy in 1947 and by 1951 they had three children. He started building a far reaching role in the insurance industry of the time, and beyond actuarial matters he became involved in the broad needs of the industry. He became a member of the Australian Insurance Institute and a prolific writer on matters of general interest to insurance people. His first book – The Law of Life Assurance in Australia – was published in 1948 and, with many updates, is still in use today. That was followed by further publications and contributions on industry matters to a range of industry journals.

Since the origins of modern life insurance, reversionary bonuses had dominated the contracts issued, especially in the case of mutual societies where all profits were expected to go to the members. It is no surprise then that in those years actuaries like Peter would spend much of their time involved in the complexities of finding and applying methods of distributing surplus in as equitable a way as possible. Throughout Peter’s career, first as Associate Actuary, then Actuary and finally as CEO of the City Mutual, this need would have been of the greatest importance. The City Mutual was relatively small but a proud and successful Society which has now been absorbed into another institution. Peter would have been proud of the contribution he and his colleagues made towards the fortunes of the members of that Society.

Peter retired in 1977, before a lot of the very substantial changes affecting insurance in Australia came into effect. In particular: the extremely rapid growth in superannuation, the emergence of

non-life insurance competitors, the growth side by side of life and non-life insurance and the decline of the reversionary bonus as the central feature of life insurance contracts. All of these changes have led to a reduced role for the life insurance industry as the dominant player in providing long-term savings and insurance facility.

Peter made a significant contribution to the profession and the insurance industry in the times in which he worked. Some of his many awards reflect this: The E E Vines Memorial Prize awarded by the Insurance Institute on four occasions, a Silver Medal from The Institute of Actuaries of Australia awarded in 1987, and an OBE “for exceptional services to the insurance industry”. Even after retirement Peter continued working and spent five years as a member of the Administrative Appeals Tribunal.

In his younger years Peter was a strong tennis player and cricketer, in more recent years he distinguished himself in lawn bowls.

Peter and Helen enjoyed 61 years of happy marriage during which time their family grew by the addition of seven grandchildren. They were avid world travellers, lovers of classical music and subscribers to the Australian Opera for many years. Peter was a prolific reader of non-fiction and a raconteur of note when he drew on his wide range of experiences.

In the many circles in which Peter moved he was respected as a man of integrity and honour. ▲

Ian [email protected]

obituary

Peter Wickens

Strategically placing Actuaries around the globe.

Market Update We are often asked our opinion on the employment trends for actuarial roles in the coming months; and everyone is anxious to see more positive times returning. We are definitely seeing an upturn in confidence with many companies lifting hiring freezes and planning to increase their teams.

Certainly we don’t foresee a lot of pay increases for candidates moving to new roles that were a feature this time last year; instead the focus is on job security and career progression.

With the nature of the current market, it is often perceived that there are more candidates to choose from, and whilst this is true to a certain extent, once the experience, qualification, skill set and cultural fit is defined this often narrows down the field with fewer candidates to choose between.

Overall, there is a definite up beat feeling in the market and people are looking forward to a positive year end.

For more information on the global actuarial recruitment market, please call Lesley Traverso on +61 2 9226 7459.

One of Australia’s leading commercial insurers is looking for an experienced General Insurance Actuary with proven people management ability to bring out the best in their established actuarial team. A key part of this leadership position is being the interface between the business and your actuarial team so your communication expertise is as important as your technical knowledge in this “internal consulting” role

• 4-8 years working experience

• General Insurance experience, including GLM

• Strong technical, analytical and problem solving skills

• Excellent communication and interpersonal skills

• Good career opportunities

• Positive team environment

Melbourne - General Insurance, Actuarial Analyst

Looking to grow and diversify their business our client is looking for experienced General Insurance and/or Reinsurance actuaries to its already established team. This is a pivotal career move offering excellent professional development opportunities for passionate actuaries with excellent technical, analytical and problem-solving skills. Areas of work where the successful candidate could contribute are:

• Pricing, Retrocession and Reserving

• Natural Catastrophe Management

• Rating Agency Management

• Dynamic Financial Analysis

• Operation Risk Management and ERM

Singapore - General Insurance/Reinsurance Actuaries - All levels

Contact Claire Street for more information.

Major financial services company is looking for an Associate or newly qualified Life Actuary to work within their Life Risk Pricing team. This role will appeal to those hungry for knowledge with plenty of opportunity to move between different teams and broaden your experience as your career progresses. It will also help you develop essential people management and strategy skills.

• Life Risk Products experience

• 3+ years working experience

• Strong academic background with good exam progress

• Great organisation and problem solving ability

• Outstanding mentoring programme

• Excellent career development prospects

Sydney - Life Risk Pricing

Contact Lesley Traverso for more information.Contact Claire Street for more information.

This leading International Consultancy firm is looking for exceptional candidates to join their assurance team. Successful applicants will be exposed to a wide range of multinational insurers and reinsurers located across Asia, working on Pricing, Reserving, modeling and other insurance projects.

• Qualified Actuaries with at least 6 years Life Insurance experience for Manager level and a minimum of 8 years for the Senior Manager position

• Exceptionally strong communication, client management and project management skills

• Financial Reporting & Modeling experience preferred

• Fluent in English and Chinese or another Asian language

Hong Kong - Senior Manager & Manager Insurance Consulting

Contact Claire Street for more information.

Having recently acquired their license to provide life and health products to the Gulf market this multi national company is seeking the appointment of their first actuary for the Gulf Region.

• Appointed actuary

• Valuations sign off

• Product design input

• Several years experience in life and health

• English language

• Arabic and regional experience a distinct advantage.

• Reporting to the COO

Dubai - Life Actuary

Contact James Harrison for more information.

EUROPE | ASIA | AUSTRALIA & NEW ZEALAND | MIDDLE EAST | NORTH AMERICA | SOUTH AMERICA

1300 22 88 279 (1300 ACTUARY) www.dwsimpson.com

Lesley Traverso James Lecoutre Claire Street James HarrisonT: +61 (0)2 9226 7459 T: +61 (0)2 9226 7412 T: +61 (0)2 9226 7418 T: +44 (0)203 005 9939 M: +61 (0)433 129 390 M: +61 (0)404 397 503 M: +61 (0)401 606 171 M: +44 (0)7941 333 902 [email protected] [email protected] [email protected] [email protected]

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