actuaries...actuaries the magazine of the actuaries institute november 2012 issue 175 8 the...

Actuaries T h e m ag a z i n e o f T h e ac T ua r i e s i n s T i T u T e November 2012 ISSUe 175

8 The Actuarial Pulse

Micro-scope on Microfinance12 Comment

What can Psychology teach an Actuary?14 Actuaries taking the lead

Thought Leadership in a changing world16 Review

An actuarial approach to home equity release26 Insights

The obsession with peer risk

Mark Thorpe An Actuary with wings

4 Pathways

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Actuarial Analyst: SydneyGENERAL INSURER – $ MARKET RATE

An excellent opportunity for a recent graduate or a candidate with a few years’ experience to learn the ropes in a general insurance environment. The work you will be involved in will be varied and give you an excellent introduction to the industry. The role includes pricing, valuation and business budgeting/forecasting.

The successful candidate will be making steady progress with their actuarial examinations, be an excellent communicator and a team player.

Senior Consultant: MelbourneGI CONSULTANCY – $ VERY COMPETITIVE

Dynamic consultancy looking for an experienced consultant to manage client relationships, develop the team and source new clients.

As an experienced consultant or having a consulting persona, with strong communication skills you will be seeking an opportunity to grow and develop the Melbourne office of this exciting leading edge organisation.

You must be adaptable, hard working and willing to learn new skills.

The role is well remunerated, exciting and will allow you to grow professionally.

Actuarial Analyst: SydneyLIFE INSURER – $ MARKET RATE

If you have a passion for information technology then combined with your actuarial training, you will be a perfect match for this blue ribbon life insurer. You will work across the business, including the actuarial and finance teams and with their external technology providers, to streamline processes, automate actuarial reporting and improve their operational efficiency.

The successful candidate will have worked for a few years in a life insurance environment and ideally have Prophet and Igloo experience.

Senior Analyst: Sydney/Melbourne

GENERAL INSURANCE/NON TRADITIONAL CONSULTANCY – $ MARKET COMPETITIVE

An exceptional opportunity for a dynamic analyst, preferably with General Insurance experience, to join an exciting leading edge consultancy.

You must enjoy a challenge and be willing to apply your mind to new areas of expertise.

This is an exciting opportunity for the right candidate, you’ll be well remunerated, and given the opportunity to grow within the business.

November 2012 Actuaries 1

ContentsNovember 2012 ISSUE 175

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EvENtS2 coming up / Membership renewalEdItorIal3 The Actuarial Superhero ❙ Genevieve Hayes

PatHWaYS4 Mark Thorpe… an Actuary with wings ❙ ruth Lisha

UNdEr tHE SPotlIgHt7 Francois rademeyertHE actUarIal PUlSE 8 Micro-scope on Microfinance ❙ Michael Wulfsohn / Qing Wang

NotIcE11 2013 Actuaries Summit – pre-register todaycommENt12 What can Psychology teach an Actuary? ❙ Daniel cooper

actUarIES takINg tHE lEad14 Thought Leadership in a changing world ❙ Andrew Brown

rEvIEW16 An actuarial approach to home equity release

❙ christine Brownfield

oPINIoN20 Longevity Tsunami – more helpful policy suggestions needed

❙ Geoff Dunsford

oPINIoN23 The emperor's Wardrobe Manager –making fun of the latest

fads in financial services… ❙ Phil Stott

rEPort24 International mortality – launch of Mortality Working Group

'Information Base' ❙ Bridget Browne

INSIgHtS26 The obsession with peer risk ❙ Wealth Management Sub-committee of

the Life Insurance and Wealth Practice committee

rEPort28 The Young Actuaries Program – now in Hong Kong ❙ Alyse Kim

IN tHE margIN30 New Maths ❙ Genevieve HayesaSk gaE!

31 career path / Festive fun ❙ Gae robinson StaYINg aHEad32 closing the cPD Implementation Process Loop ❙ Sue Wetherbee

lEttEr33 Private health insurance ❙ Peter carroll

StUdENt colUmN34 A (Melbourne) actuarial student's microfinance project

❙ Daniel Tram

cEo’S colUmN35 A few too many notes? ❙ Melinda Howes

NotIcEcov congratulations –chairman of the Board appointments

Actuaries November 20122

CoNtributioNsContributions should be sent to theActuaries Institute, marked to the attention of Katrina McFadyen (Communications and Marketing Manager) and Nicole Sitosta (Communications and Marketing Coordinator) at: [email protected]@actuaries.asn.au

All contributions must conform to our submission guidelines which are available from the Communications and Marketing Team.

Next editioN A176 - December 2012 A177 - March 2013 - Deadline for contributions: 1 February 2013

ACtuAries editoriAl Committeeeditor [email protected] ANd mArketiNg mANAger Katrina McFadyen CommuNiCAtioNs ANd mArketiNg CoordiNAtorNicole Sitosta AssistiNg editorsDaniel Cooper Genevieve Hayes Ruth Lisha David Millar Solai Valliappan

mAgAziNe desigN Kirk Palmer Design, Sydney [email protected]

PriNtiNg Ligare, Sydney

Paper: Precision by Spicers PaperAustralian made, ECF, EMS

ACtuAries iNstitute ABN 69 000 423 656Level 7, 4 Martin Place Sydney NSW 2000 Australia T +61 (0) 2 9233 3466 F +61 (0) 2 9233 3446 E [email protected] www.actuaries.asn.auJoin us on Twitter®:http://twitter.com/ActuariesInst

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

AdvertisiNg PoliCyPlease refer to the Institute’s website for our advertising policy, and rates:www.actuaries.asn.au or email [email protected]

disclaimer Opinions expressed in this publication do not necessarily represent those of either the Actuaries Institute (the ‘Institute’), its officers, employees or agents. The Institute accepts no responsibility for, nor liability for any action taken in respect of, such opinions. Visit http://www.actuaries.asn.au/TechnicalResources/ActuaryMagazine.aspx for full details of our disclaimer notice.

Actuaries

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Coming upyoung Actuaries Program – Wider Fields and broader horizons Tuesday 27 November 2012, Sydney

brisbane Presidential dinner Monday 3 December 2012, Brisbane

retired Actuaries group sydney Thursday 6 December 2012, Sydney

insights – Capital, risk and Performance – A Case study Monday 10 December 2012, Melbourne

insights – super Policy Forum Tuesday 11 December 2012, Sydney

Actuaries institute and CFA society of sydney Networking drinksTuesday 11 December 2012, Sydney

insights – super Policy Forum Thursday 13 December 2012, Melbourne

Canberra Presidential dinner Monday 17 December 2012, Canberra

Actuaries summit Monday 20 – Tuesday 21 May 2013, Sydney

FiNAl NotiCe – you CAN still reNeW your membershiPTo avoid cancellation, you need to make your membership renewal payment by 30 November 2012.

We have five payment options available.• Onlineatwww.actuaries.asn.au/renewals.• ElectronicFundsTransfer(pleaseincludeyourMemberIDwhenmakingpayment).• CreditCard–Amex/MasterCard/Visa.• Chequeormoneyorder–payableto'TheInstituteofActuariesofAustralia'.• EFTPOS–paymentcanbemadeinpersonattheInstitute.

If you choose not to renew your membership please note that: • youwillneedtoprovidewrittennotificationandthiswillbenotedbyCouncil;• ifyouareaFelloworAssociatememberanddonotrenewyourmembershipyou

cannotusethepost-nominalsFIAAorAIAA;and• memberswhoresignordefaultontheirmembershipwillneedtopayare-joining

fee, in addition to their membership fee.

We hope you plan to continue your membership with the Institute. Please contact the MemberServicesTeamifyouhaveanyfurtherqueriesregardingyourmembership.

If Clark Kent (aka Superman) were anactuaryinhisdayjob,insteadofajournalist,whatwouldhedo?Would he race in at the last

moment to stop economies from collapsing?Wouldhissuperpowersallow him to predict future movements in share prices with 100%accuracy?

Or, perhaps he’d go to work for a regulator such as ASIC, and clean up the villains of the financial world. Havingjustfinishedwatchingthefinal season of Smallville, a TV series that chronicles Clark Kent’s

journeyfromfarmboytosuperhero,thesequestionshave been on my mind lately. Wouldn’t it be great if theactuarialprofessionhaditsownsuperheroes?ButmaybewedoalreadyhavethemandI’mjustlookingat things in the wrong way.

The Collins New English Dictionary defines a hero as “one greatly regarded for his achievements or qualities”.WhenIthinkbackovermycareerasanactuary, the people I have most greatly admired all possess several traits in common: they all demand the best of themselves, take personal pride in their work and expect the best in others. Working with these people, whether they were above me or below me on th e career ladder, has made me a better actuary, as through their expectations of others, they have the'super'abilitytoraisethosewhoareworkingalongside them to greater levels of achievement. Tome,thesepeoplearethe'superheroes'oftheactuarial profession.

And now that I come to think of it, these traits are the things that make Clark Kent a hero, not his powers. Sure, his powers make him super, but it’s how he uses them to help others that makes him a hero. By this rationale, if every member of the Actuaries Institute focused on developing these traits in themselves, then one day we could become an Institute of Superhero Actuaries.Now,wouldn’tthatbesuper?

Whattraitsdoyouthinkmakea'superhero'actuary?Pleaseemailmeandletmeknow.


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the Actuarial superhero

genevieve hayes guest editor

[email protected]


Pathways

Mark Thorpe…


The last time you flew Qantas internationally, one of your pilots maywellhavebeenanactuarywhois,quiteliterally,winginghisway across the world. This is the last in this series of Actuaries – Missing in Action and we meet Mark Thorpe – an Actuary

who became a Qantas pilot.

Where did it All stArt?There was no doubt that Mark had an interest in aviation whilst at school.Howcouldhenot?Hehadabrotherwhowasapilotandasisterwho was a flight attendant. However, as alluring as flying was, he didn’t consider it as a career option at that point – he had in mind a more academic profession. Having done well in senior school, Mark had a few options to consider. 1. An Aeronautical Engineering scholarship offered by Hawker de

Havilland. 2. Aeronautical Engineering through the Australian Defence Force

Academy.3. A cadetship offered through Towers Perrin to study actuarial science

atMacquarieUniversity.

Mark sought advice as to which direction to head in – speaking to someone in the Air Force and an actuary who was a friend of his father. Aeronautical engineering had an obvious link to flying, but in the end he chosetheactuarialpath–heenjoyedandwasgoodatmaths,andevenat that early age, had an interest in managing superannuation.

toWers PerriNMark started with Towers Perrin as a cadetship holder undertaking his studythroughMacquarieUniversity.Throughouthisuniversitydays,he

did holiday internships which provided exposure to office life, as well as a good sense of things to come in his career.

Mark was at Towers Perrin from 1991 to 1998. A substantial part of his work during that time related to converting defined benefit superannuation plans to accumulation funds, a common practice in the 1990s.Hefoundtheroleveryenjoyable;workingwithTrusteeBoards,employersandmembersofthefunds.Onesuchmajorprojectinvolveda conversion of a pension fund to defined contribution, as well as a complete remuneration review, for a large employer in Singapore.

Thisprojectstretchedoveracoupleofyearsfrom1996to1998andneedlesstosay,MarkspentquiteabitoftimetravellingtoandfromSingapore along with his mobile office – what would now be considered a relic of a laptop and a slow internet dial-up service (remember thosedays?)

uP iN the AirOnthemanytripstoandfromSingapore,Markrequestedtovisittheflight deck for take-offs and landings – finding this exhilarating. He became well known to the airline staff and began to be invited to the flight deck (before 9/11 – after which time the flight deck became a fortress).

At the same time, Mark’s brother, who was a pilot, told him about an opportunity to undertake a Qantas cadetship. Mark was 28 and, while not unhappy in his role, was looking for a change. Could this love of flyingbeacareer?

There are three points of entry to becoming a commercial pilot.1. Through the aviation route – lots of flying hours with the slim chance

of being offered a position with an airline.2. Training with the airforce.3. Being offered a cadetship – this involved a one year course –

essentially a fast track to becoming a pilot.

The cadetship option was tempting, and Mark went through some testing and interviews and was accepted. Clearly this was a big decision, as Mark had not done much flying as a pilot and the course was self-funded – costing over $100,000. This was a big commitment – a $100k investment with no income for a year.

Beingthetypicalactuary,hedidaprojectionofhissalarytodetermine the ‘pay-back period’. He also discussed the opportunity with his colleagues at Towers Perrin, and was surprised by the level of support and encouragement – many people said to him that their

ruth lisha [email protected]

an Actuary with wings

Mark Thorpe…


Pathways continued

childhood dream was to fly, and here he was about to live that dream. As he watched the planes landing and taking off from his home in Cronulla hethought–whynot?Decisionmade.Hetookleavewithoutpayasabit of a back-up and left for Adelaide to do the course.

A year later, Mark was offered a position as a second officer with Qantas. He was in this role as a cruise pilot for around four and a half years before becoming a First Officer. This latter role adds take-offs and landings to his responsibilities, which he has now done for around nine years.

ACtuAry versus PilotWorkingatTowersPerrinwasprojects,deadlinesandlonghours.Hewasyoungandenjoyeditall.

As a pilot – every flight has a deadline – there are not only schedules to meet, but the final deadline is, of course, the end of the fuel. He is always thinking about contingency plans – this is at the top of his mind. If you consider each flight to be like a triangle, the start of the flight is represented by the base of the triangle – the widest part with the most options available. As the aeroplane travels through the flight plan, the sides of the triangle narrow, with fewer options available. The idea is to not work yourself into the corner, the tip of the triangle, where the options are limited.

At Towers Perrin, Mark developed his management and leadership skills, which have been transferred and enhanced in his Qantas career – particularly in the First Officer role. Most of the time Mark has a collaborative leadership style, but on occasion on the flight deck, when needed, his style changes to being assertive.

Beingapilotisnotjustmultitasking,itismanagingmultipleprocesses simultaneously. A pilot needs to stay in the big picture, makingdecisionsquickly,whereasinhisroleasanActuaryatTowersPerrin, there was time to think and get into the detail.

suPerANNuAtioN trustee roleMark kept up his interest in superannuation after leaving Towers Perrin and was asked to stand as an employee representative on the Trustee Board for the Qantas superannuation fund. With five years of experience as an employee representative, he now has a different perspective onthesuperannuationindustry.Itisnolongerjusttheactuarialor employer view, but a much broader perspective – investments, insurance, as well as balancing employer and employee views.

ThetimecommitmentrequiredtofulfilhisTrusteeroleisnotsmall.In addition to attending the six Trustee meetings each year, Mark is

also on the investment sub-committee which involves another six meetings each year and he undertakes continuing education to keep his knowledge up to date. The most challenging parts of his Trustee role he summarises as relating to:1. Death and Total and Permanent Disablement benefits – decisions

made in relation to these benefits have a real impact on people’s lives and if issues make themselves through the delegations up to the Board of Trustee, they are complicated – both legally and in their impact.

2. Member communication – it is very difficult to get it right. It is a challenge for the industry to lift members’ engagement in their finances. Delivering information in bulk, which is meant to satisfy individuals, is problematic. Yet, superannuation represents, for many, their largest and most important investment.

3. Investment decisions – investment concepts are complex and, like the insurance benefits, have a real impact on the lives of others.

Mark feels the considerable responsibility of looking after the life savings of his colleagues – it involves a lot of trust. Making decisions taking into account all members is difficult, but that’s the role – acting in the best interest of the entire membership.

Interestingly, Mark has been able to transfer some of the skills learnt as a pilot to his Trustee responsibilities. As a pilot, following procedure is key,butit’snotjustaboxtickingexercise,aseachprocessorprocedurehas a distinct and important purpose. He has found this to be a great skill in his role as a Trustee, along with his skills in decision-making, leadership and risk assessment – as a pilot he lives and breathes these skills.

WhAt he misses About beiNg At toWers PerriNWhile there were long hours at Towers Perrin, they were relatively known hours. As a pilot, his time is rostered – but not regular – and he can be away from his family for more than a week at a time when he is completing long haul flights. Travel was great when he was young, but the time away from home and his family is missed more these days.

I couldn’t help but ask about the impact of the stress and immense pressure of being a pilot. Mark considers intense moments on the flightdeckasjustanotherchallenge.Theconstanttrainingandtestingundertaken as part of his pilot role is all preparation for those times.

Mark sees some amazing things, not least of which is the magnificence of the earth’s geography. He has the best view in the world from his office. I’m not sure who could top that.

Apart from the challenge long haul flights present in terms of time away from his family, Mark seems to have the best of both worlds – combining flying with his Trustee duties, which fulfils his need for a deep intellectual challenge.

Markwasquicktopointoutthathedidn’tstopworkingasanactuary because he disliked his role – it was a great challenge and he sees superannuation actuaries as being highly trusted, respected and relied upon enormously.

iN good hANdsI can see much similarity between Mark’s roles as a superannuation actuary, an employee representative on a Trustee board and as a pilot. He is entrusted with people’s lives and livelihoods. Whether physical or financial, there is considerable responsibility.

Next time you fly, as you buckle up and are pushed back in your seat as the plane accelerates, you can feel a little more comfortable knowing you are in good hands.


title… Actuarial Manager organisation… QBE

summarise yourself in one sentence… I manage a team that looks after the actuarial functions (pricing and reserving) for liability, professional indemnity, and property products

my interesting/quirky hobbies… pub trivia

my favourite energetic pursuit… bushwalking

the sport i most like to watch… cricket,butIfollowquiteafewsports

the last book i read (and when)… Dead Souls by Nikolai Gogol (currently reading it)

my favourite artist/album/film… Jimi Hendrix

the person i’d most like to cook for… no-one I like, because I am a terrible cook

i’m most passionate about… work-life balance

What gets my goat… people talking loudly on their mobile phone on buses

i’d like to be brave enough to… attend every day of an Oktoberfest

in my life i’m planning to change… my putter

Not many people know this but i… had articles written about me in the newspapers in Zimbabwe for being the first person to qualifyasanactuaryatthelocalexaminationcentre (it was a slow news day)

Four words that sum me up… easy going, practical, reliable

What i wanted to be when i grew up… when I finally accepted that I wasn’t going to be a professional sportsman, something to do with maths

Why and how i became an actuary… someone told me it uses maths and you would get more money for less work than if you were an accountant. That piquedmyinterestsoIwrotetotheInstitute to find out what it was about

Where i studied to become an actuary and qualifications obtained… Bachelor ofScienceinStatistics(UniversityofCapeTown), FIA, FIAA

my work history… Old Mutual (Zimbabwe), William M Mercer (London), NMG (Malaysia), QBE (past 10 years)

What i find most interesting about my current role… providing practical advice to non-actuaries

my role’s greatest challenges… providing practical advice to non-actuaries

Who has been the biggest influence on my career (and why)… the person who suggested I move from working in pensions to working in general insurance

my proudest career achievement to date is… normally the most recent year-end reserving process

10 years from now, i will be… not where I predicted 10 years earlier the most valuable skill an actuary can possess is… to see things from the point of view of non-actuaries and communicate it to them

if i was President of the institute, one thing i would improve is… nothing I can think of

At least once in their life, every actuary should… take a long holiday and travel

my best advice for younger actuaries… sense check your results from a number of different viewpoints

if i could travel back in time i would… have had golf lessons when I was young

if i win the lottery, i would… stock the bar fridge and buy a round-the-world ticket

Francois [email protected] the spotlight

Francois rademeyer


NeW survey questioNs Will be AvAilAble iN FebruAry 2013WhAt Would you like to kNoW? iF you hAve A questioN you Would like to Put to the membershiP, emAil it to [email protected]

results: rePort geNerAted oN 19 oCtober 2012. 220 resPoNses.

This month’s survey aimed to measure actuaries’ involvement in microfinance. For the purpose of this article, microfinance refers to the provision of financial

servicestothepoor.Theseservicesfrequentlyincludesuchthings as credit, savings, insurance and fund transfers. Many of those who promote microfinance generally believe that such access will help poor people out of poverty. Microfinance has arisen because banking and related services are often lacking in the context of poverty, notably due to the high transaction costs associated with serving this type of customer.

questioNsWereceivedmanyvaluablecommentsinresponsetothesequestions,and it is plain to see that a considerable number of members have well-thought-out views on this topic. There were 220 respondents, whose composition by age, gender, practice area and membership status are shown opposite. These results are similar to previous Pulse surveys.

Age band Female Male Total

<25 0% 4% 5%

25-34 15% 25% 40%

35-44 6% 16% 22%

45-54 4% 17% 21%

55-64 2% 8% 10%

>65 0% 2% 2%

Total 27% 73% 100%

Count, by qualification level Total

Practice area Student Associate Actuary Fellow (%)

Banking & Finance 1 0 2 8 5%

General Insurance 9 12 1 39 28%

Health Insurance 1 0 0 5 3%

Investments 0 3 3 7 6%

Life Insurance 7 5 5 51 31%

Risk Management 0 0 1 1 1%

Superannuation 4 4 3 25 17%

Wealth Management 0 1 0 2 1%

Other 1 2 3 11 8%

Total 11% 12% 8% 69% 100%

the actuarial pulse

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Micro-scope on Microfinance

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qing [email protected]

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.

questioN 1: WheN did you First heAr oF miCroFiNANCe (or miCroCredit, miCroiNsurANCe etC.)?

Response Count %

More than 10 years ago 55 25%

More than 5 years ago 83 38%

More than 1 year ago 53 24%

Within the last 12 months 9 4%

Never 18 8%

questioN 2: Would you be iNterested to leArN more About miCroFiNANCe?

Response Count %

Yes 117 53%

No 67 31%

Undecided 35 16%

Microfinance is not a new concept, so it is not surprising that most respondents have known about it for some time. It is also not surprising thatthemajorityofrespondents(53%)areinterestedinlearningmoreaboutthistopic.Commentsonquestiontwodrewattentiontothesources of information already available to actuaries and other members ofthepublic,andthefactthatsome'informationsessions'turnoutto be promotional attempts to obtain funding or volunteers. Some respondents expressed interest in learning about the technical details of the provision of microfinance products.

questioN 3: Would you be iNterested iN voluNteeriNg to Work iN A miCroFiNANCe orgANisAtioN?

Response Count %

Very interested 24 11%

Interested 49 22%

Undecided 65 30%

Not interested 80 37%

Althoughthe'Notinterested'optionwasthemostpopularresponse,a third of respondents indicated an interest in volunteering. These respondents mostly cited the potential to make a positive difference as their reason, and were also generally keen to learn more about microfinance,basedontheirresponsestothepreviousquestion.Uninterestedorundecidedrespondentsweregenerallymoreconcernedwith other priorities in life, and many suggested that financial contributions are a more valuable way for them to help.

questioN 4: hAve you ever Worked For A miCroFiNANCe ProgrAm or orgANisAtioN? iF yes, WAs the exPerieNCe Positive?

Akeyresultemergeswhenconsideringtheresponsestothisquestion

and the last in combination: although a third of respondents are interested in volunteering, only 5% have previously done so. The experiences of this 5% were overwhelmingly positive, and all but one indicated that they would be interested in volunteering in the future. This suggests that there are benefits that could potentially be realised by providing more accessible opportunities for actuaries to become involved in microfinance.

Response Count %

Yes - Strongly positive 5 2%

Yes - Positive 5 2%

Yes - Neutral 2 1%

Yes - Negative 0 0%

Yes - Strongly negative 0 0%

No 205 95%

questioN 5: do you thiNk ACtuAries should be ACtively iNvolved With miCroFiNANCe? Why / Why Not?

Response Count %

Strongly agree 28 13%

Agree 92 43%

Neutral 91 42%

Disagree 4 2%

Strongly disagree 1 0%

Thisquestion,alongwiththeonesthatfollow,allowedtherespondentsto move beyond their personal situation and consider the role of the actuarial profession more broadly.

Themajorityofrespondentsthinkthatactuariesshouldbeinvolvedin microfinance, with people who have known of microfinance for longer generallyrespondingmorepositivelytothisquestion.

One respondent summed up the main two recurring themes among the responses by commenting “Actuaries are well placed and appropriately skilled to assist, but are by no means the only or the bestgroup”.Makingapositivedifferencetothelivesofthepoor,enhancing the profile of actuaries and the need to be wary of the very different operating environment of developing countries were also mentioned.

questioN 6: iF you ANsWered Positively to questioN 5, do you thiNk ACtuAries should be iNvolved With miCroFiNANCe more broAdly, or oNly be iNvolved With miCroiNsurANCe? Why / Why Not?

Response Count %

Microfinance more broadly 105 67%

Microinsurance only 9 6%

Undecided 43 27%



Ofthe43respondentsindicatingthattheyare'undecided'onthisquestion,65%hadgivena'neutral'responsetoquestionfive.Oftheremaining responses, a high proportion (81%) thought actuaries should be involved with microfinance more broadly. In the comments section, respondents overwhelmingly expressed the more general view that actuarialskillscanbeappliedmuchmorewidelythanjustininsurance.One respondent commented: “I hate being bucketed as an insurance specialistasanActuary.Ourskillsetisbroaderthanthat.”

questioN 7: iF you ANsWered Positively to questioN 5, iN WhAt WAys do you thiNk ACtuAries Could or should CoNtribute to the miCroFiNANCe iNdustry?

Many insightful comments were proffered in this section, covering various technical areas relevant to microfinance, as well as training, volunteering, knowledge and experience sharing, helping with the responsible management of financial risk, and helping with the active management of the interests of multiple stakeholders. Other notable comments included that it would raise our profile if the Institute linked up with potential organisations, that “listening is an underappreciated skillmanyactuariesaregoodat”andactuarieshavean“abilitytoseethebigpicture”.

questioN 8: do you believe it is Possible For miCroFiNANCe iNstitutioNs to AChieve breAk-eveN ProFitAbility ANd CoNtribute to reduCiNg globAl Poverty, or do you believe thAt it is ultimAtely NeCessAry to Choose betWeeN these tWo goAls?

Response Count %

Possible to achieve both 133 62%

Impossible to achieve both 28 13%

Undecided 55 25%

Themotivationforthisquestionarosefromthefactthat,inrecenttimes, the social benefits of microfinance (in particular microcredit) havebeencalledintoquestionsomewhat.However,overall,

respondents believe that microfinance has positive potential, although many recognise the difficulties associated with the dual social and financial goals targeted. There was a wide range of views expressed: “Povertyisasolelyrelativemeasure…Povertyisaprerequisitetothecreationofprofit.”“Lifeinsurancemutualswereoncethepredominantcompany type. An appropriate charter can keep the microfinance institutionawareofitsdualobligations.”“Ideallyitstaysinthenotforprofitspacesopeoplearenottakenadvantageof.”

CoNClusioN

The original purpose of this survey was to assess whether a gap exists between actuaries’ current vs potential involvement in the microfinance industry. This assessment was deemed worthwhile in part because, while actuaries arenotnecessarily'purist'altruists, we are generally quitesociallyconscious,asreflected by our mandate to look after all stakeholders’ interests, as relevant to the decisions we advise on. Therefore, since microfinance is an industry that contributes to significant social goals, it may represent an opportunity for actuaries to make a significant difference to the lives of the world’s neediest people. This notion is reinforced by those individuals within our profession who have already made inroads into microfinance in a significant way.

The results of this survey show that there is material latent interest inmicrofinanceamongactuaries;inparticular,thereisunfulfilledinterest in volunteering to work in microfinance organisations. Tapping into this latent interest could help advance the social goals that survey respondents have identified, and would also help promote our profession and facilitate our move beyond the traditional actuarial disciplines, as most of the survey respondents believe we should.

The Actuaries Institute plans to start a microfinance web portal within its website, in order to facilitate these aims. In the meantime, if, in the words of one of the survey respondents, you are interested in “doingit,nottalkingaboutmaybedoingit”,pleasefeelfreetocontactthe authors of this article and we will try to help.

the actuarial pulse continued

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Although a third of respondents are interested in volunteering, only 5% have previously done so. the experiences of this 5% were overwhelmingly positive.

36% 30%

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Not interested Undecided Interested Very interested

Respondents interested in volunteering to work in microfinance

No previous microfinance experience Previous microfinance experience


About the Seminar…

Be provided with insights to new developments in traditional actuarial areas, as well as learn

from the experiences of actuaries practising in emerging areas.

Meet and connect with fellow professionals at the networking opportunities. Enjoy the sights that Sydney has to offer.

Pre-register today – www.actuaries.asn.au/Summit2013

Key speakers so far:• Ita Buttrose*, AO, OBE, legendary media editor, businesswoman,

best-selling author and President of Alzheimer’s Australia • Nick Green*, OAM, Olympic Gold Medallist, Chef de Mission,

2012 Australian Olympic Team• Adam Driussi, Director, Quantium• Jim Minto, Managing Director, TAL• Donna Walker, General Manager of Claims and Chief Actuary,

CGU Insurance• Brett Ward, Group General Manager, Strategy, IAG

Ita Buttrose AO OBE

Nick Green OAMJim MintoAdam Driussi Brett WardDonna Walker

*Ms Ita Buttrose and Mr Nick Green appear by arrangement with Saxton Speakers Bureau.

Actuaries Summitget involved, get ahead20 – 21 May 2013 Hilton Sydney

Time to get involved and get ahead… Pre-register for the profession’s flagship event – the

2013 Actuaries Summit


Comment

Those of us fortunate enough to have finished our actuarial exams are often presented with an interesting dilemma. Whattodowithallthatsparetime?While

some of our colleagues get adventurous and take up a new hobby or even leave the profession, mostendupjustworkingharder.Ididneither,andenrolled myself almost immediately in a Graduate DiplomaofPsychologyatMacquarieUniversity – I didn’t even try a new campus!

Three years later and I am now on the verge of completing my Diploma. My original goals were to try something different and see if I couldenjoylearningforlearning’ssake,withno great need to do well for the sake of my career.Ihaveexperiencedthejoyoflearningagain, the embarrassment of feeling very old in undergraduate classes and the calm satisfaction that comes with achieving something for myself. The following article amounts to, on one hand, an actuarial dummy’s guide to psychology, and on the other hand, a summary of what I learned that I thought was most relevant for me as an actuary. My studies were at an undergraduate level, so if interested, this is largely information you can research on the internet yourself. There are also obvious similarities with fields such as behavioural economics and management.

soCiAl PsyChology – the most iNterestiNg ANd relevANtOne of the most interesting things you learn very early on in psychology is that contrary to the model of rational behaviour taught in traditional economics,humansareactuallyquiteirrationalintheir behaviour. The really interesting part is that we are completely predictable in our irrationality, especially when it comes to groups. A good example for general insurance actuaries is why doesaProjectedCaseEstimates(PCE)modelwork?Itessentiallyreliesoncasemanagersasagroup consistently and predictably getting wrong their predictions of the ultimate cost of claims.

Ultimatelywearealwaysgoingtobedealing with people. It may be a co-worker, a boss, a client or a customer. Thus I have found that a basic understanding of human biases and behaviour is really helpful.

Some of my favourite research findings from social psychology include:

• Priming and anchoring: which refer to the effect that prior information can have on your future decision making. A good example

What can Psychology teach an Actuary?

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daniel Cooper [email protected]

ishowlasttime'svaluationassumptionmay bias future selections to be similar despite evidence to the contrary. This issue is covered in more detail (and with experimental data!) in a paper and presentation written for the upcoming general insurance seminar.

• Fundamental attribution error: this is oneofmyfavourites,andnotjustbecauseit has a cool name! This theory predicts that we look strongly to personal factors when describing the behaviour of others and lessen the importance of situational factors. In a work context, when someone else does a poor piece of work we will tend to blame the person and lessen the role of the environment (which may include, say, yourself, or the fact that they were over worked). Conversely if they do something well the credit often goes to the environmental factors (it must have been their manager!) and not to the person themselves. Very interestingly, these attributions are reversed when we are reflecting on our own behaviour. If we do something well it is all thanks to us, we never needed any help! However when something goes wrong we are very good at pointing out how the environment contributed and even caused the error or mistake. Obviously the truth is always somewhere in between but this is one of the strongest and most enduring findings in social psychology and something I think we can all do with some better perspective on – myself included!

some PrACtiCAl thiNgs i leArNed About the WorkPlACe Psychology also teaches us a lot about the workplace itself, which is related to experiments on the behaviour of people in groups when doing tasks. Some of the good, and some of the bad from modern psychology research is summarised below.

• social facilitation: is the theory that people work harder on simple tasks when in the presence of others. It assumes that the task is already within their ability and implies that the presence of others creates an environment of evaluation that stimulates production. This is an interesting theory

as it assumes performance is not solely driven by ability, rather is also influenced by perceived evaluation. Perhaps a supporting factorforopenplanworkspaces?Howeverthe other side of this research implies that on complex tasks, or where someone is not an expert, the presence of others leads to worse performance. So go easy on your grads next time they start in the open-plan office!

• diffusion of responsibility: this refers to the reduced responsibility felt by members of a group when faced with a problem or challenging situation. A common way to try and get around this is to isolate individuals and break down the informal group. Think about the last time you emailed three people asking for a volunteer. This is a perfect way to get no responses. Rather send it to each person individually and you'llprobablygetthreevolunteerswhoareall afraid of being evaluated!

• groupthink:isacommonandquitescarypsychological phenomenon. It refers to a set of circumstances where the desire to maintain harmony (often in the presence of a strong willed leader) can lead a group of intelligent, well-meaning individuals to deviate from a realistic and rational review of their options. The message here is to not be afraid to speak up if you do not fully agree with what is proposed. Also make sure to include outsiders in the decision-making process as it progresses, they may be the only ones able to see your Groupthink in progress!

the most imPortANt thiNg i leArNed – the imPortANCe oF Culture

“It’s not wrong, it’s just different.”

How can you fairly evaluate a person or belief whensignificantculturaldifferencesexist?Cultural psychology teaches that it is not fair or necessarily possible to apply a belief or social construct from one culture to another. A good example is the prevalence of depression between individualistic (Western) and collectivistic (Asian) cultures.

Depression is a debilitating mental illness

that is defined around Western norms and the Western science of psychology / psychiatry. Studies have shown that in China, for example, the rate of depression is much lower than in theUS.DoesthismeanthatChinesepeopledonotgetdepressed?Perhaps.Howeveritis much less culturally acceptable for people in a collectivistic culture to talk about how they feel. It is much more common for people in such a culture to speak about how their body feels. Does this explain why the rate of somatoform disorder (where no medical explanation can be found for physical symptoms) is so much higher in Asian than Westerncountries?Perhaps.Orperhapsitis inherently flawed to apply psychological constructs developed in a Western culture to people from an Asian culture. I am not saying that no comparison or interaction should ever happen. Far from it. Rather I think this is a good reminder to always be aware of the role that culture plays on human behaviour and interactions.

Cultural understanding is especially important in our increasingly multicultural and international workplace and profession. The next time someone does something that annoys you or that you don’t completely understand, take a moment to consider if there might be a cultural aspect to their behaviour. You’ll probably realise that what they’re doing is not so strange after all.

I have learned that there are many different lenses through which to view the world and to approach problems. The actuarial and psychology lenses are only two broad approaches and while I believe both to be very useful, it would be unwise not to give value to others. If you have a view on another view of the world that you find valuable as an actuary please email [email protected] and help us start a discussion!

Cultural understanding is especially important in our increasingly multi-cultural and international workplace and profession. Cultural aspects of behaviour may be responsible for many simple misinterpretations.


It is one of the oddities in life that we sometimes need a catastrophic event to really learn and adapt. Prior to the GFC, we had all heard

the mantra that “today’s business environment is increasingly dynamic, fast-changing and interconnected through people,ideas,technologyandproducts”.Yet it is only in the wake of the GFC that significant action has been taken to manage the risks that were emerging for several years.

I suspect if we look at challenges facing the actuarial profession that we may find a similar theme – unprecedented changes occurring on a global scale that may be opening up risks at a faster rate than the profession has traditionally been able to respond to. If this is the case, and for the purposes of this article I will assume that it is, then there are significant implications for the actuarial profession and how we develop thought leadership to adapt and flourish through the rapidly emerging future. This article outlines how recent research in the field of cognitive development can help actuaries to be effective thought leaders in our dynamic new world.

Recent research by Dr Otto Laske, Director of the Interdevelopmental Institute and expert in human cognitive development, has focused on identifying the limitations in human thinking that leads to ignoring or underestimating the consequencesofsignificantchange.AccordingtoLaske,ourtraditionalanalyticaland rational ways of thinking have often treated knowledge in the following ways: • asbeingfixedorstable;• aschangingincrementally;and• sittinginisolationtowhatsurroundsit.

While that may enable one to focus on a specific issue or to build a specific skill, it is notadequateintimesofrapidchangeandaninterconnectedworld.

Laske believes that there is a growing need for an evolution in human thinking to adapt to our changing world. His work focuses on cognitive development that goes beyond the traditional analytical rational thinking processes we have all been taught. This advanced cognitive development is often called dialectical thinking or meta-systemic thinking. It is based on three core ‘principles’:

Actuaries taking the lead

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“you can tell whether a man is clever by his answers. you can tell whether a man is wise by his questions.” NAgUIBMAHFOUz(NOBELPrIzEWINNEr) Thought

Leadership in a changing world


1. Principle of Change: unceasing change is the rule, not the exception. Everything is a process, constantly evolving and adapting. Dynamism and fluidity are the norm.

2. Principle of Contradiction: due to unceasing change, conflicts, paradoxes and anomalies are continuously created.

3. Principle of holism: nothing exists in an isolated or independent form but is connected to a multitude of different things. Everything exists and makes sense only within a context, or specifically in relation to other things.

While many people will demonstrate one or two of these principles in theirday-to-daythinking,Laske'sresearchhasfoundthatonlyaverysmall proportion of people can apply all aspects of these principles on a consistent basis. The good news is that these thinking capacities can be developed.

Victoria Wilding and John Stewart of Symplicitus have been exploring how these capabilities can be developed. It seems that what needs to occur in a person’s cognitive development to bring these principles into our every day thinking is, at a minimum, the following:1. You begin to see the world including yourself as an organised whole

that is in constant transformation, engaging with process, context, andrelationshipssimultaneously.Youperceiveanobjectwhichis seemingly fixed as constantly changing in the face of different contexts. You also appreciate relationships with its surroundings.

2. You are aware of using concepts as models of reality, and you can separate the act of conceptual modelling from the ‘reality’ that is being modelled. Actuarial models are the most useful approximation of reality you can make with the information and methodologies you have available.

3. You are able to dis-embed from your immediate emotions or thoughts. Instead of being beholden to them you are able to use them as useful inputs into the problem at hand. In that way, you are not limited by your historical information, beliefs or mindsets. Nor are you limited by a need to be the expert, to be liked, or whatever needs may limit your perspective.

4. You are able to build your own complex mental models in a new situation, taking into account context, process and relationships. You constantly refine these models with new information as you test them in multiple contexts.

One method Laske uses for teaching people to develop these thinking capacitiesistoapply'mindopeners'.Mindopenersareopen-endedquestionsthatprobetheprocesses,contexts,relationshipsandtransforming systems that are at play in a particular situation. The mind openers are a way of increasing fluidity, and accelerating the process of cognitive development.

Let’s imagine that we are exploring how the actuarial education system may need to adapt in a constantly changing world.Usingamindopenersapproach,wewouldopenuppossibilitiesusingquestionsapplyingtoprocess,context,relationships and transforming systems. For example:

Andrew brown [email protected]

ProCessWhat would need to happen to the education system if the rate of externalchangewastoincreasefurther?

What are the enabling pattersn in other fields that are influencing actuarialeducation?

How might we strengthen our understanding of evolving education systemsbyinvolvingotherexperts,professionalsorcommunities?

CoNtextHowdorecentoccurrencesdisturbtheequilibriumoftheeducationsystemasawhole?

What are the different contexts that play a role in this event or situation?Whatarethesocial,technological,environmental,economicorpoliticalcontextsthatareplayingarole?

What might the action steps look like in the context of another educationsystem?

relAtioNshiPDo we separate out components of the actuarial education system fromeachotherorfromothereducationsystems?Whatarethepotentialconsequencesofthis?

How are potential changes in the actuarial education system relatedtochangesinothereducationalsystems?

What is the pattern of influence of different stakeholders on differentpartsoftheactuarialeducationsystem?Doesthenatureoftheserelationshipsenhanceorlimitthesystem?

trANsFormAtioNWhatmakestheeducationsystemsoeasilyperturbed?

Whatarethepositiveimplicationsofthesystembeingperturbed?What could be included in the education system that would increasestability?

Throughtheseseriesofquestions,weexplorepossibilitiesthatmaysitoutside of our usual conscious awareness. By bringing these into our conscious awareness, over time they become part of our normal thinking process. These could be explored individually, as teams or in broader professional groups.

TheLaskemodelofdialecticalthinkingisitselfjustamodel.AccordingtoLaskethatmeansitisn’treality,justthemostusefulmap he has been able to construct at this time, with the current information he has about human cognitive development. It is a model that intentionally develops thought leadership, in a way that is highly congruent with our changing world. It has application in many areas of actuarial practice to increase capacity and capability to deal with the complexity and interconnectedness of financial systems.

If you are interested in further exploring cognitive development, a couple of sites worth checking out are:•symplicitus.com•interdevelopmentals.org/


In2011Ibecameinvolvedinthehomeequityreleasefield,atasmall company called Homesafe Solutions (Homesafe). I’ve found it to be an interesting field. The product I work with is the only one of its kind currently on offer in Australia, and not a product I

had heard of previously. After a year of trying to explain the product whenever someone asks me where I work, I’ve realised that not many other people, actuaries included, are aware of it either. Some automatically assume that the product is a reverse mortgage, which it is not.

Working in this field has also led to me becoming more interested in the issue of retirement funding – which is much bigger than any single product, and not an issue I had previously given a lot of thought to.

This article considers the Homesafe product, covering those aspects of the product that I hope will be of interest to actuaries, and ends with my thoughts around the potential use of the family home as part of retirement funding. As outlined in many forums recently, dynamics including large numbers of retirees and increasing longevity will lead to the funding of retirees being a challenge both from an individual perspective and, increasingly, from a community perspective.

Thereisnoeasysolution.Increaseduseoftheequityinthefamilyhome could be part of the solution – at the current time in Australia though, this is an emotive and contentious issue.

The Actuaries Institute White Paper Australia's Longevity Tsunami – What Should We Do? outlines (on page 10) three principles to guide retirement incomes policy. One of these is “The need to encourage intergenerational equity whereby, to the extent possible, each generation funds their own cost of retirement.” It would be difficult to develop policies around retirement incomes, consistent with this principle, if the value that retirees have locked up in their homes is ignored.

There is a role for actuaries to play in developing mechanisms for homeequitytobeaccessed.Solutionsmightlayinproductdesign,orin changes to tax and legislative environments, for example perhaps lessening the friction costs involved in downsizing.

Long-term thinking is needed, the issues to consider are complex and there are parallels with the types of products actuaries have traditionally helped to develop. There may also be a role for actuaries to play in public policy surrounding this, whether individually or as a

review

An actuarial approach to home equity release

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Christine brownfield [email protected]

professional body. The opinions expressed in this article are my own.

ProduCt overvieW Homesafeoffersasingleproduct;adebt-freeequityreleaseproductforseniors.Customersare senior homeowners who sell a portion of the future sale proceeds of their homes in return for cash advances today. The product is suitable for asset-rich, cash poor retirees and is an alternative to a reverse mortgage, without the longevity and future interest rate risks of a reverse mortgage.

A special purpose investment vehicle ('theTrust')providesthefundingforthecashadvances. On entering into a contract with Homesafe in respect of a specific percentage of their home, a customer receives a cash advance, in exchange for that percentage of thesaleproceedswhenthehomeissold('thefuturesaleproceeds').

The product is provided on a single or jointlifebasis,withtheoccasionaltriplelife contract thrown in to keep the pricing interesting. The homeowner(s) retain the right to live in the home for life. The homeowner(s) may rent out the property, and are entitled to all rental income. The Trust receives its share of the sale proceeds when the contract completes – when the house is sold, either when the homeowner chooses to sell, or when it is sold by their estate.

Of course the cash advance paid to the homeowner(s) for a share of future saleproceedsisnotequaltothatshareofthefacevalueofthehometoday;whatisbeing sold is a share of the reversionary interest, but not the life interest. The life interest is the right to use the assets (or the income produced by those assets) until the homeowner(s) die or sell the assets. This makes sense under classic actuarial theory but can be difficult to explain to people. I find

that a simple pie chart often does the trick. The proportion of the home represented

by the reversionary interest is, naturally, higherforsinglelifecontractsthanforjointlife contracts, and for older homeowners than younger homeowners.

Customers access the product for a range of reasons, including:• debtrepayment;• homealterationstocaterforreduced

mobility;• topayformedicaltreatment,ornursingor

supportservices;• tosupplementretirementsavings;and• toprovidefinancialsupporttofamily

members.

Financial advice may be needed to understand the impact, if any, on pension and social security entitlements. Customers are requiredtoobtainindependentlegaladviceinorder to transact.

The product is only offered on a lump sum basis. To offer an income stream would expose customers to a credit risk with the Trust,andwouldrequirequiteadifferentset up, as an income stream offering would

effectively be an annuity purchased with a share of future sale proceeds. However, homeowners are able to transact on a lumpsumbasismorethanonce,subjecttoselling a maximum of 65% of the future sale proceeds of their homes.

rebAtesSomething I’ve found refreshing at Homesafe is the effort that has gone into developing a 'fair'product–theproducthasbeendesignedwithaclearphilosophyofaimingforequitybetween the homeowner and the Trust.

Homeowner and trust outcomes are considered in the context of a range of property return scenarios and a range of contract exit scenarios – contracts might remain in force for less than a year, or they might be in force for nearly 50 years, or perhaps more with longevity improvements. 'Fairness'hasbeendevelopedasanintegralpart of the product via two rebates which mightapply;whenthepropertyissold,Homesafe’s share of the sale proceeds will be reduced by the amounts of the rebates.

The first rebate is an Early Sale Rebate which applies if the home is sold in the earlyyearsofthecontract.Fora'younger'homeowner taking out a contract in their 60s there might be a rebate for 20 years, whereas for a homeowner taking out a contract in their 90s there might only be a rebate for a few years. This rebate is designed to ensure that the Trust does not make a windfall gain if a customer dies, or sells the home, early on. In the very early years this rebate can be substantial. The rebate also works to protect the yield of the Trust. If the contract completes in the early years and the growth in the property value over that period has been low, or even negative, then the Early Sale Rebate is reduced.

The Family Home – Components

Life interestReversionary interest

Homesafe purchases a share of the reversionary interest only. The homeowner retains all of the life interest.


review continued

Charts 1 and 2, illustrate the Early Sale Rebate with an example contract relating to 50% of a property initially valued at one million dollars. In Chart 1, property appreciation is at ‘expected’ levels whereas in Chart 2 there is zero property appreciation.

The second rebate is an Excess Proceeds Rebate which shares with the customer, or the estate, the impact of very strong appreciation of the property value over the term of the contract. The Trust bears the risk of an underperforming asset and takes the initial portion of any excess performance, but after this the Trust and customer share in further excess performance. Chart 3 illustrates the operation of the Excess Proceeds Rebate where property returns are materially in excess of 'expected'levels.

The rebates that apply at contract completion are calculated in accordance with formulae which are set out in the contract. There are no discretions. The rebates cannot be negative. The homeowner/estate will therefore always receive, at a minimum, the retained share of the sale proceeds.

The formulae for the two rebates use minimum/maximum functions and while they are not particularly technical, they are rather complex, and have been developed by actuaries. A glance at them does not provideanintuitiveunderstanding;rathertheyneedtobeworkedthrough to appreciate their outworkings under different scenarios. Well, that was the case for me.

Whilsttheyworkcleverlytomanageequitybetweenthehomeownerand the Trust, there is a degree of paternalism about the rebates as few customers would understand them. Homeowners are provided with illustrations which can be tweaked to show the outcomes under a range of property return and exit scenarios, which should help, but realistically this would not help everyone.

risk mANAgemeNtAs with any product development, there has been a strong focus on risk management in developing the Homesafe product. There has been a lotofthinkingalongthelinesof'whatcouldgowrong'andalsoaboutbrand protection. There is a clear intent to avoid the risk of the product being mis-sold to vulnerable homeowners.

There is a range of eligibility criteria that apply. Homeowners must be aged 60 or over to transact, and the product is currently offered only in certain postcodes in greater Melbourne and Sydney. The land value of the property must be at least 60% of the total value. There are also other criteria,andsomesubjectivityaroundaccepting'unusual'properties.

Clearly protection for the Trust is needed to ensure that when a property is sold, the appropriate share of the sale proceeds is actually received. All names on title must be parties to the contract. Homesafe registers a mortgage and lodges a caveat on the title of the home, tosecureitsshareofthesaleproceeds.(Useoftheterm'mortgage'creates confusion from time to time as its use is commonly associated, not always correctly, with debt).

Salaried customer consultants liaise with homeowners. There are no incentives around the numbers/ values of contracts written. Along with therequirementforindependentlegaladvice,itisintendedthatthisremoves the risk of a homeowner being/ feeling pressured to transact with Homesafe.

In time I could see the possibility that financial planners might become familiar with the Homesafe product and include it in their advice toseniors.Thisismorelikelyina'feeforservice'worldastheproductdoes not have any inbuilt commissions. A challenge is that cash-poor, asset-rich seniors are less likely to seek advice from a financial planner

0 1 2 3 4 5House Value 1,022,000 1,093,540 1,170,088 1,251,994 1,339,634 1,433,408 Homesafe Share 511,000 534,741 572,173 612,225 655,081 700,936 less Rebates 211,925-‐ 200,230-‐ 198,027-‐ 193,748-‐ 187,020-‐ 177,417-‐ Net 299,075 334,511 374,146 418,477 468,061 523,519

Net Homesafe Share Net of Rebate 288,075 334,511 374,146 418,477 468,061 523,519 Rebate Early Sale Rebate 211,925 200,230 198,027 193,748 187,020 177,417 Total Homeowner Retained Share 500,000 534,741 572,173 612,225 655,081 700,936

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Homeowner Retained Share Early Sale Rebate Homesafe Share Net of Rebate

0 1 2 3 4 5 6House Value 1,022,000 1,022,000 1,022,000 1,022,000 1,022,000 1,022,000 1,022,000 Homesafe Share 511,000 499,758 499,758 499,758 499,758 499,758 499,758 less Rebates 211,925-‐ 172,628-‐ 141,941-‐ 108,375-‐ 71,660-‐ 31,502-‐ -‐ Net 299,075 327,130 357,817 391,383 428,098 468,256 499,758

Net Homesafe Share Net of Rebate 288,075 327,130 357,817 391,383 428,098 468,256 499,758 Rebate Early Sale Rebate 211,925 172,628 141,941 108,375 71,660 31,502 -‐ Total Homeowner Retained Share 500,000 499,758 499,758 499,758 499,758 499,758 499,758

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0 1 2 3 4 5 6House Value 1,022,000 1,165,080 1,328,191 1,514,138 1,726,117 1,967,774 2,243,262 Homesafe Share 511,000 569,724 649,485 740,413 844,071 962,241 1,096,955 less Early Sale Rebates 211,925-‐ 200,230-‐ 198,027-‐ 193,748-‐ 187,020-‐ 177,417-‐ 164,453-‐ less Excess Proceeds Rebates -‐ 9,470-‐ 21,234-‐ 35,709-‐ 53,386-‐ 74,832-‐ 100,707-‐ Net 299,075 360,024 430,225 510,956 603,665 709,992 831,795

Net Homesafe Share Net of Rebates 288,075 360,024 430,225 510,956 603,665 709,992 831,795 Rebate2 Excess Proceeds Rebate -‐ 9,470 21,234 35,709 53,386 74,832 100,707 Rebate1 Early Sale Rebate 211,925 200,230 198,027 193,748 187,020 177,417 164,453 Total Homeowner Retained Share 500,000 569,724 649,485 740,413 844,071 962,241 1,096,955

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Homeowner Retained Share Excess Proceeds Rebate Early Sale Rebate Homesafe Share Net of Rebates

0 1 2 3 4 5House Value 1,022,000 1,093,540 1,170,088 1,251,994 1,339,634 1,433,408 Homesafe Share 511,000 534,741 572,173 612,225 655,081 700,936 less Rebates 211,925-‐ 200,230-‐ 198,027-‐ 193,748-‐ 187,020-‐ 177,417-‐ Net 299,075 334,511 374,146 418,477 468,061 523,519

Net Homesafe Share Net of Rebate 288,075 334,511 374,146 418,477 468,061 523,519 Rebate Early Sale Rebate 211,925 200,230 198,027 193,748 187,020 177,417 Total Homeowner Retained Share 500,000 534,741 572,173 612,225 655,081 700,936

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0 1 2 3 4 5 6House Value 1,022,000 1,022,000 1,022,000 1,022,000 1,022,000 1,022,000 1,022,000 Homesafe Share 511,000 499,758 499,758 499,758 499,758 499,758 499,758 less Rebates 211,925-‐ 172,628-‐ 141,941-‐ 108,375-‐ 71,660-‐ 31,502-‐ -‐ Net 299,075 327,130 357,817 391,383 428,098 468,256 499,758

Net Homesafe Share Net of Rebate 288,075 327,130 357,817 391,383 428,098 468,256 499,758 Rebate Early Sale Rebate 211,925 172,628 141,941 108,375 71,660 31,502 -‐ Total Homeowner Retained Share 500,000 499,758 499,758 499,758 499,758 499,758 499,758

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0 1 2 3 4 5 6House Value 1,022,000 1,165,080 1,328,191 1,514,138 1,726,117 1,967,774 2,243,262 Homesafe Share 511,000 569,724 649,485 740,413 844,071 962,241 1,096,955 less Early Sale Rebates 211,925-‐ 200,230-‐ 198,027-‐ 193,748-‐ 187,020-‐ 177,417-‐ 164,453-‐ less Excess Proceeds Rebates -‐ 9,470-‐ 21,234-‐ 35,709-‐ 53,386-‐ 74,832-‐ 100,707-‐ Net 299,075 360,024 430,225 510,956 603,665 709,992 831,795

Net Homesafe Share Net of Rebates 288,075 360,024 430,225 510,956 603,665 709,992 831,795 Rebate2 Excess Proceeds Rebate -‐ 9,470 21,234 35,709 53,386 74,832 100,707 Rebate1 Early Sale Rebate 211,925 200,230 198,027 193,748 187,020 177,417 164,453 Total Homeowner Retained Share 500,000 569,724 649,485 740,413 844,071 962,241 1,096,955

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Homeowner Retained Share Excess Proceeds Rebate Early Sale Rebate Homesafe Share Net of Rebates

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than more wealthy people who do not have the same need for the product.

The Homesafe contract contains a number ofotherrequirementswhichacttoprotecttheinterests of the Trust.

For the Trust, the biggest risk is of course the risk of low property appreciation. In the early years of a contract, this is largely mitigated by operation of the rebates, but a long period of sustained low appreciation will be reflected in the returns of the Trust.

The Trust is also taking on longevity risk. I initially expected the impact of this tobegreaterthanitis;thelongevityriskisswamped by the impact of property returns, and dampened by the operation of the Early Sale Rebate.

An advantage of taking on longevity risk the way that it is taken on by the Trust is that there is a natural hedge. If on average the sale proceeds are received, say, two years later than expected, there will have been an extra two years of property appreciation, and possibly areductioninrebates.Thisisquitedifferentfrom a product such as a life annuity, where an across the board two-year increase in life spans results in two extra years of payments on the liability side, with no corresponding asset side benefit.

the AssetSo far I have covered only the customer /product side of Homesafe but there is also an interesting asset being created in the Trust. With over $250m having been advanced to senior homeowners, a diversified pool of interests in residential property has been created, which provides exposure to properties without any of the management issues associated with being a landlord.

The return on this asset will differ from that of other property investments, as there is no concept of a rental or leasehold yield. As well as being impacted by house price increases, the return profile of the asset is driven by the pricing basis which applied when contracts were written and by the rate at which contracts complete. The operation of the Early Sale Rebate provides significant downside protection in respect of contracts that complete in the earlier years.

The asset is only suitable for long-term investors, at least until such time as the asset class becomes well developed in Australia, creatingaliquidmarket.Thisneedstocomeabout via a secondary market as the asset itselfisnotflexibleintermsofliquidity.Homesafe has no influence over when

contracts will complete. This also means that the asset is not as useful in matching long-term liabilities as it might otherwise be. Although Homesafe is starting to build credible experience around completion rates in the first few years of the contract, it will be many years before experience for the later contract years is credible. Experience to date suggests that more contracts are completing'voluntarily'thanduetodeathofthe homeowner(s).

This type of asset could perhaps fit well in a large diversified asset portfolio, either as part of a property asset class or under the 'alternatives'banner.Perhapsitsinclusionwould help to reduce expected volatility in a diversified fund. It could also be useful to fund long-term liabilities, provided that cash flow matchingisnotrequired.

the bigger PiCtureHomesafe commenced operations in 2005 and, with 2000+ contracts written to date, has moved beyond proof of concept. However, it is still fairly niche, and not very significant in the scheme of Australian retirement funding. To date, reverse mortgages have played a greater role. In recent years, a number of lenders have withdrawn from the reverse mortgage market, limiting availability, and other lenders have increased the minimum ages applying to their offerings.

In the current climate of baby boomers retiring, often without substantial superannuation savings, discussion around thepotentialuseofhomeequitytohelpfundretirement and aged care costs is starting to make its way into the public arena. This discussion, in my view, has a long way to go.

If Australia is to move in the direction of each generation funding its own retirement, consistent with the principles of the 'Australia’sLongevityTsunami'WhitePaper,

then the current practice of retirees receiving taxpayerfundedpensionsandbequeathingsubstantial wealth in the form of the family homeisproblematic.Itisalsonotequitable.As demographic changes lead to proportionally more retirees and less tax payers, nor will it be sustainable.

With the family home’s complete exclusion from assets tests being seemingly sacrosanct in Australia, it will be a brave government that addresses this.

Long-term thinking is needed and perhaps this can be viewed as a classical actuarial problemofequitybetweendifferentgroupsofpeople. On one hand you have the taxpayers – who could be viewed as one group or divided up (for example into those expecting to inherit nicely and those not, or into those with high household income and those with low household income). On the other hand you have the seniors seeking funding from the public purse. Some are homeowners and some are not.

Ina'negativetontine'effect,theproportionof taxpayers to seniors is gradually reducing over time. Policy development around this is an area for potential actuarial input.

If an increasing number of retirees seek toaccesstheequityintheirhome,eitherbytheir own initiative or perhaps as a result of government encouragement, it will be interestingtowatchthehomeequityreleasesector. New solutions will be needed, with plenty of capacity. I would hope that there wouldbenewparticipantsandarangeof'fair'products developed.

Homeequityreleaseiscertainlyafieldthatcan benefit from actuarial involvement. Both policy development and product design need to take into account time horizons that stretch for decades, and a range of factors around which there is plenty of uncertainty and often little experience. ©

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geNerAl observAtioNs The Institute’s September White Paper introduces us to the disaster charged expression–LongevityTsunami.Disaster?Surelythough,itisagood thing that peoplearelivinglongerandhealthierlives?Atthesametimeitisrighttodraw

attention to the impending retiree needs implications for the government. Moreover, a tsunami is a sudden brief disaster, whereas the cost of supporting longer living retirees willcreepupgraduallyandcontinuetogrowintoacrisis.Actionisrequirednowtosetin place the changes that will impact the population to ensure that we appreciate and accept (if reluctantly) the potential modifications to future expectations.

What must be of particular concern to the government is the dramatically increasing'greypower'whichwillnotonlyhavetheincreasingnumberstobeamajorpoliticalforce,butwillhavemanywell-tunedpeoplewithplentyoffreetimetoarguefortheir'rights'.

Already, many, including the Actuaries Institute, look upon the Age Pension (and the increasing value of its fringe benefits) as a right. They should not. It is a safety net. Like unemployment and disability benefits, it is means tested.

The problem is that the means testing structure is especially generous to retirees. Despite decades of taxpayer supported build up of private retirement benefits, the majorityofindividualsretiringnowanticipateatleastapartAgePension.(Andthoseretiring in 2050 will do so as well.) So, to use the Institute’s words, superannuation is seenasawayof“supplementingtheAgePension”!

The Institute makes a number of suggestions to try to ameliorate the potential problems from the increasing longevity. However, their possible impacts have not beenevaluatedand,overall,seemlikelytorepresentmerely'runningtofindthereducingamountofhighground'tominimisetheonslaughtofthe‘taxationtsunami’which will hit future generations.

Some more suggestions on balancing future budgets might be helpful to the government – particularly coming from our profession as acknowledged experts on longevity.

The paper notes that Treasury has forecast that the ageing population will cost an additional 4.2% of GDP by 2050 (and that’s before accommodating the paper’s nowthreatening'longevitytsunami').Mostreadersmoveonwithoutappreciatingthe impact of this. It would help the message if this number was translated into a meaningful change in tax rates, eg gst rising to 22% in today’s terms.

Or say, withdrawal of all the superannuation tax concessions plus…

opinion

Longevity Tsunami – more helpful policy suggestions needed

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the suggestion that “(government) consider increasing the Age Pension eligibility age...” is too soft. they would do this anyway over time. What is needed is legislation to commit future governments to doing this in an objective way.


geoff dunsford [email protected]

In this regard, it is worth noting that superannuation tax concessions maybejustifiedtoencouragevoluntarysavings;however,suchjustificationhardlyapplieswherethesuperiscompulsory.

White PAPer ProPosAls:“The objective ...is to highlight structural changes in the current retirement income rules that are needed to mitigate the financial risks of unpredictable increases in life expectancy. These changes include…”1. Providing greater incentives to individuals to take the majority of

their retirement benefits as an income stream.This proposal is made despite acknowledging that there are already 'sometaxincentivesforassetstoremaininthesuperannuationsysteminretirement'.'Sometaxincentives'seemstoratherplaydown the currently very generous tax free investment income, tax free capital gains and tax free withdrawals taken in whatever form. (This is the obvious (albeit apparently surprising to the authors) reason for “little evidence that a material number of retirees… draw all their retirement funds at the earliest opportunity, spend these savings,andthenfallbackontheAgePension”.)

Itseemshardtoimaginewhatfurtherincentivecouldjustifiablybeprovided–unless“compulsion”foraparticularformofincomeisconsidered one!

2. increasing the Preservation Age to three to five years less than the Age Pension age. Whypussyfootaround?Thelogicalpositionissurely'PreservationAge=AgePensionage'.WhatisthepointoftaxpayerfundedsuperifitdoesnotrelievepressureontheAgePension?

We already have rules permitting taking of superannuation prior to the Preservation Age in the event of disablement.

3. extending the mysuper regime to include post-retirement solutions with 'intelligent defaults' that provide retirees with secure income streams.

Whereisthedemandforfixedannuityproducts?Throughtheaccount based pension system, retirees have all been given the flexibility that lump sum drawdowns provide, and there will not be too many who want to give them up. Certainly, not those in less than good health.

As during their working life, retirees will have lumpy expenditure. Working people look to savings or bank overdraft to cover this. retireesoftenonlyhavetheirsuperannuation.Consequentlylumpsum drawdown without the previous tax and messy administration has been a boon to them.

Currently around 85% of employees are in default funds. Most of these people will have less than average earnings, and are likely to be not particularly financially savvy. Conning such people into taking a secure income stream and losing full access to their expected lump sum is not going to have much effect under current means test rules, other than to annoy them.

4. removing the impediments that discourage older people who want to work.The main proposal here is to ignore earned income in means testing the Age Pension. This is a good suggestion as there is every chance that the additional income tax from productivity improvement, and removal of some workers from the black economy, will more than offset the extra Age Pension paid out.

The proposal for increasing the Age Pension for those delaying retirement is attractive to such people, but will be an extra cost to government – benefiting particularly those who were working later anyway.

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5. removing the legislative barriers preventing innovation in developing post-retirement income stream products such as annuities. This is important for the development of products that meet longevity needs.

Since the government allows total flexibility in drawing down account based pensions above a defined minimum, there is little point in their restricting the range of annuities eligible for superannuation tax treatment where a suitably defined minimum annual payment is observed.

All the suggestions have merit. Some examples illustrating how such products meet retiree needs would be useful.

6. moving to link changes in the Age Pension eligibility age to improvements in life expectancy. The suggestion that "(government) consider increasing the Age Pension eligibility age…" is too soft. They would do this anyway over time.

What is needed is legislation to commit future governments todoingthisinanobjectiveway(withplentyofadvancenoticeofeffect) – say every five years.

Further thoughtsThe paper supports the principle where “(to the extent possible) each generationfundstheirowncostofretirement”.Laudablethoughthisis, with an expectation that even by 2050 most retirees would still receive some Age Pension under current rules, we must be realistic and recognise the limitations of the superannuation system with only 9-12% of salary compulsory contributions.

Arguablythesystemwillcontinueto“fail”inthiswayforaslongas there is no compulsion to effect lifetime pensions with preserved superannuation lump sums.

retireeswhodonotqualifyforanyAgePensionundercurrentmeans test rules are unlikely to need to be channelled into a lifetime income stream.

Ontheotherhand,thosewhowouldqualifyforapartAgePension certainly need to be given strong encouragement to take one–perhaps,viaan'incentivised'meanstest–likemovingto$1for$1 income reduction, except for lifetime annuity income where the current 50c reduction for each $1 of income would continue to apply.

Another approach would be to provide for those eligible for a part Age Pension to be given one only if they used part of their assets to purchase the balance. This has the following benefits:• Theretireeobtainsalifetimeincomeatleastequaltothe

AgePension;• Lumpsumreceiptswillassistthegovernmentinbalancingthe

budget;and• Timeconsuming,demeaning,continuousmeanstestsareavoided.

To deal with the reasonable “if I die early I will have lost the benefit of/myfamilywilllosepartof,mylumpsum”objection,thepartoftheAgePensionpurchasedcouldbeprovidedon'capitalprotected'terms.

Thisisarguablyajustifiabledemandinreturnforthesuperannuationtaxconcessionsenjoyedduringtheworkinglife.Initially, this could simply be an option – becoming compulsory for new retirees at a later date. And in any case, the retiree would retain the option to live off their superannuation until eligible for the full Age Pension.

And at the same time, how about a gentle reminder to simplifythemeanstest?Forexample,asingleincometestbased on a deemed interest rate applied to total assets.

And toughen it: When a couple on $65,000 pa (which is morethantheminimumwagefortheequivalentworkingcouple) who already have $1 million of assets plus a home of unlimited value, can obtain a part Age Pension and all the fringe benefits, the system appears to be unnecessarily generous.

Bettertofixtheproblemnowbeforethegrowing'greypower'perpetuates it!


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opinion continued


Last month, we talked about one absurd oxymoron –'marketvalue'.Thismonth,wewilltalkaboutoneevenmoreabsurd:'marketconsistency'.Ifirstencountered this strange fad a couple of years ago

when I was working in the corporate office in London of one oftheworld’slargestinsurers,andmyjobwastointroducethisnewtechniquetosubsidiariesaroundtheworld.ThemoreIenquiredintowhatitallmeant,thelessitmadesense.And it still doesn’t make a whole heap of sense to me.

hoW is it Possible?The first thing I don’t understand is how market consistency is even possible. I mean, you can only be consistent with something that is itself consistent – and there is nothing so gloriously inconsistent as the financial markets. Our emperor has a new mood every morning, and plenty of experts are ready to tell us what his logic is for the day: “Markets are up because of fears about the colour of Obama’s socks.” Please!

When I learnt my share of economic theory at university, Iwastaughtthatthemarketpriceincorporated'allknowninformation'aboutastock,andthissomehowmadeit'rational'.Thetroubleis,themarketpricealsoincludesalotoffear and paranoia – enough to make it completely irrational. But nobody taught me that.

Last month, I mentioned how Australia’s top banks are all trading at the moment at dividend yields several percent above the rate those same banks would (hypothetically) lend youthemoneytobuythemout.Ifthisisconsistentwith'allknowninformation',thenthe'bestestimate'scenariomustbe that the future long-term profitability of our banking system is under serious threat. But somehow, I don’t see APRA running around warning people about an imminent banking crash.Sowhoisright–themarketortheregulator?

A lemmA For lemmiNgsLet me give you a complicated formula that will give credence to what I am saying. (Everyone knows that, in order to have credibility in financial maths, you need a formula with integrals in it.) Here is my formula: define IRRe(t) as therateofinterestthatsatisfiestheequation:

Pe(t).vt + ſ Ie (u).vu du = Po … (1)

This formula tells us that the expected rate of return an

investor has with a time horizon t(IRRe(t)) is the rate at which the present value of the future expected sale price at the end of the investor’s time horizon (that’s Pe(t)) and all income achieved until then (that’s the integral term) equalsthepricepaid(that’sPo).

Markets are driven by fear, and that fear takes two forms: thefearthatyouwillbe'inthemarket'whenpricesgodown,andthefearthatyouwillbe'outofthemarket'whenprices go up. To the sophisticated investor, nothing else matters. And so, if you take a time horizon small enough, you can forget about that pesky integral and come up with an interpretation that our emperor seems to understand well:• IfPe (tomorrow) > Po, then IRRe(till tomorrow) is

infinitelypositive,so'BUY!!!';and• IfPe (tomorrow) < Po, then IRRe(till tomorrow) is

infinitelynegative,so'SELL!!!'.

Now that’s a strategy that even our emperor can understand!

I call this a lemma for lemmings, and it is without doubt the overriding principle that drives market prices. And it does have a certain logic to it.

Why Would you WANt mArket CoNsisteNCy?Given the blindingly obvious (that markets are driven by the lemming lemma), why would you ever want to calculate a marketconsistentvaluation?

Last month, I mentioned a client of mine who was trading on the LSE at around 60% of embedded value. That client was a closed fund insurance operation, and the embedded value was (you’ve guessed it) a market consistent embedded value. It seems the calculation wasn’t as market consistent as they thought! Logically speaking, they should now revise their assumptions and write their valuationdownby40%toretain'marketconsistency'.ButIwonder what reaction thatwouldprovokefromthemarket?

oN A serious NoteIamseriouslyconcernedthatthisobsessionwith'marketconsistency'couldleadtosomeseriousfinancialproblemsin the foreseeable future. Its principles are reaching like tentacles everywhere these days – even into the latest calculationsofcapitaladequacy,bothinAustraliaandoverseas. But if those principles are (as I believe) flawed, whatwilltheconsequencesbe?Andwillittakeanothereconomicdisasterforustofindout?

Phil stott [email protected]

“having, then, once introduced an element of inconsistency into his system, he was far too consistent not to be inconsistent consistently …” –SAMUELBUTLEr

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the emperor’s Wardrobe manager – making fun of the latest fads in financial services…


What does mortality look like internationally?Whatmortalityissues are actuaries working onaroundtheworld?Ifthese

questionsinterestyou,havealookatthe mortality section of the International Actuarial Association (IAA) website: www.actuaries.org/mortality .

The IAA Mortality Working Group (MWG), chaired by Australia’s own Martin Stevenson, was set up to study and share information about aspects of mortality of interest to actuaries and others. Over the past four years members of the group have prepared papers and presentations on a varietyofsubjectssuchas:• theavailabilityofglobalmortalitytables;• mortalitytrendsindifferentpartsof

theworld;• effectsofsocialanddemographic

differencesonmortality;• mortalitybycauseofdeath;• projectiontechniques;• uncertainty;• mortalityrelatedfinancialproducts;• mortalityofdisabledpeople;• underwritingoflifeannuities;and• healthylongevity.

Sources of information such as the Human Mortality Database, the Society of Actuaries Table Manager, the Continuous Mortality Investigation Library and experience studies conducted in various countries are invaluable information for someone who is starting out to study mortality. The MWG has endeavoured to provide information about what is available internationally. Similarly, access to past conference papers and news of future conferences aim to inform users.

Members of the MWG, who directly represent 23 countries, also provide periodic updates on what is happening in mortality in their country.

report

International mortality – launch of Mortality Working Group 'Information Base'


bridget browneIAA mortality working group member

[email protected]

A World oF mortAlity issues ANd iNsights

TheUSSocietyofActuariestookadvantageof the MWG being in town during their Life and Annuity Symposium in May 2012. Members presented information on areas of mortality they have been researching. The seminar tapped into the mortality expertise fromtheUnitedStatesandaroundtheworldto discuss the hot mortality topics of the day.

Questions that were discussed during sessions included:• Whatdoeshealthhavetodowithit?

What are the societal implications of healthylongevity?

• Howdodisabilityandobesityimpactmortality?

• Whatisthepotentialfutureimpactofpandemicsontheindustry?

• Willmortalitycontinuetoimprove?• Whatareleadingpracticesinmodelling

mortalityuncertainty?• Howdoesmortalityvarybyseasonality,

geographiclocationandincomelevel?• Whywillthelatestvaluationmortality

tablesbethebestevercreated?

This type of focussed update on mortality issues is a great way for local practitioners to catch up with global practices, and the MWG plans to offer more of these in the future.

shAriNg tools, sPreAdiNg PrACtiCes

The MWG both promotes awareness of and contributes to a variety of tools and programmes around mortality.

The Society of Actuaries Table Manager, nowknownas'TheMortalityandOtherrateTables'application,wasdevelopedbytheSOAto provide easy electronic access to a variety of rate tables of interest to actuaries. The current inventory of rate tables available via this webpage (http://mort.soa.org/) numbers over 900 and includes various international tables from 40 countries, several of which were contributed by MWG members.

The MWG is actively involved with the InternationalExperienceStudy(IES),ajointresearch venture of the SOA, the International Actuarial Association, local actuarial associations and corporate sponsors. It aims to provide actuaries around the world with practical experience information in emerging markets. Without such data it has been difficult for actuaries to evaluate and illustrate business performance and / or market attractiveness to senior management.

The IES has published studies of mortality and persistency in Argentina, Estonia, Philippines, Poland and Vietnam. Current activities include completing the 4th annual Vietnam study and the 1st Caribbean study and discussions with the Colombian insurance association (FASECOLDA) and the Croatian actuarial society.

However the collection and study of all this information about mortality is of little use unless it is available to people who are interested in it. We have therefore been developing an online Information Base which contains information on the studies made to date by the Group, and references to other relevant papers and websites. It cannot be exhaustive, but we hope it will be of interest to non-specialist actuaries and others looking for general information about the mortality topics listed. It is available here: www.actuaries.org/mortalityinfo.

The Information Base is continuously under development, and we are keen to improve it and to make it as valuable as possible for you. Please provide feedback, andifyoufeelthereareadditionalsubjectareas, important papers that should appear, or additional sources of information that could be referenced, please do contact the appropriateSubjectAuthor.

We look forward to hearing from you, and hope that with your help we can develop a resource that is of real value to the international actuarial profession.

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'The obsession with peer risk’ is part of the Wealth Management Subcommittee’s (WMSC) initiative to explore and expose the agency

issues that cause investment managers and institutional investors such as superannuation funds to inappropriately worry about peer risk when making investment decisions.

Insights panel discussions on the topic were hosted by the Actuaries Institute in May and August in Sydney and Melbourne respectively. The panels were chaired by Russel Chesler, Executive Director, Sunstone Partners and panel members included:• Chris Condon, Principal, Chris Condon

Financial Services• Jack gray, AdjunctProfessor,Centrefor

CapitalMarketDysfunctionality,UniversityofTechnology and Director, Brookvine

• Alistair barker, Investment Manager, AustralianSuper

• Jeff bresnahan, Chairman, SuperRatings• brett elvish, Founder, Financial Viewpoint

Both sessions were well attended by both actuaries and guests and the feedback received on each session was very positive. A summary of the key themes raised by the panel and the audience follows.

FuNd mANAger busiNess riskThe panel discussed the issues faced by fund managers that periods of short-to-medium term underperformance can result in ‘business risk’ from clients terminating mandates. It was considered that this generates considerable agencyrisk.Itwassuggestedthatittakes'moralcourage'toignorethisrisk.Anexamplewasgiven of GMO losing two thirds of its business in the period leading into the tech bubble. Jeremy Grantham was derided by industry commentators and even by some internal staff. It took leadership and enormous courage not to cave into the pressure. The backing by a strong Board is crucial in these times. It is only at times like these that principles are tested and it is rare to find a manager who has that level of courage to tell you to take money back when investment markets are overvalued. If you do, then treasure the relationship.

Asset AlloCAtioN by suPerANNuAtioN FuNdsMuch of the debate during the sessions surrounded the perception that superannuation funds (both retail and industry) held very similar asset allocations and possibly exhibited herding behaviours. The reasons suggested were much the same as those observed above for fund managers, i.e. where decision-makers were more concerned with business risk (or career risk) than with the investment outcomes for members.

But the panels did not form a consensus as to whether this perception was accurate. Jeff Bresnahan of SuperRatings mentioned evidence thatsuggestedthatassetallocationswerequitedifferent.Isthisindeedthecase?Howandwhereisitoccurring?Aremembersbetteroff? Istheindustrybetteroff?

There was also much discussion about the extent to which superannuation funds wereadjustingassetallocationinthefaceof changing market conditions. Most returns of diversified funds have struggled to match returnsavailablefromcash,evenoverquitelong periods. Would a more aggressive approach tochangingassetallocationhavehelped?Didpeer-obsession hold funds back from making suchadjustments?Oristhismuchhardertodoin real time than Harry Hindsight would have youthink?Whatskillsareneededtodothis?And, is it realistic to think that superannuation trusteeboardscanexhibitthem?These,and

insights

the obsession with peer risk

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update from the Wealth management sub-Committee of the life insurance and Wealth Practice Committee – a previous article on this topic was published in the may edition of Actuaries magazine


more,questionsaresuggestedforfutureresearch.The growth of self-managed superannuation

funds (SMSFs) was also discussed. Peer risk plays a very different role (if any) for SMSFs. This aspect was only briefly mentioned, but does raise questionssuchas:WhathasbeentheexperienceofSMSFs(basedonevidence,notanecdote)?Howmuchofthisisduetoluckandconservatism?Caninstitutional investors learn from how SMSFs make assetallocationdecisions?

oPtimAl Number oF iNdustry suPer FuNdsThere are currently around 100 Industry Superfunds. Some of the panel were of the view that this number is not optimal and the current consolidation in the market will continue. One member even suggested that we should only have two default funds like Sweden, or one as is the case in Canada. This is based on the premise that the membership base is reasonably common across all funds and thatmembershaveverysimilarrequirements.Thereis no logical reason why a health worker should havedifferentsuperandinvestmentrequirementsto construction workers. The more moderate view is that the Super Fund arena will look more like the banking and insurance sector in the next five to 10 years with six to eight main players, together with some niche specialist funds. An example of a specialist fund that could emerge is a pre and post-retirement fund aimed at members who are 50 and over. On the other hand, the view was expressed that avibrantevolutionofideasrequiresmanyagentsacting independently and in competition.

No consensus was reached in the sessions, other than perhaps the view that if peer-obsession is truly pervasive, then the arguments in favour of consolidation are powerful.

PrACtiCAl thiNgs boArds ANd iNvestmeNt Committees CAN do to mitigAte the stroNg FoCus oN Peer riskTakeastepbackanddon'tforgetthekeylong-termobjective.Toomuchfocusontheshort-termreturnsisadistraction.Alwaysaskthequestion–arewetrackingtoourlong-termobjectivesand,ifnotarewehappytoholdorcloseourposition?Thisrequiresanelementofcourageandconviction.

Courage is needed in order to look beyond agency costs which can influence investment decisions. For example, temporary under-performance can lead to members leaving the

fund, which in turn influences investment decisions even though the chosen investment strategy may outperform over the longer term. Should a not-for-profit fund be concerned about losing impatient members, or doing the right thing for those memberswhostay?

In practice it is also important for the CIO and Trustees to take control of the agenda to make suretherightquestionsareasked.researchhasshown that the amount of time a committee spends on a decision is in reverse proportion to the complexity. It is necessary to understand what the key issues and decisions are, and what should be addressed at a trustee governance level, and what should be delegated to management. Ultimatelygovernanceisaroundidentifyingwhatthe key decisions are and how potent they are to investment results.

Trustees should ensure that investment objectivesarealwaysmeasurableandassessable.The panel cited that a recent review found that 300outof415surveyedfunds’objectivesdidnotmeetthesecriteria.Forexampletheobjectiveof'moderatetohighreturnovermediumtolong-term'isnotmeasurableoreasilyassessable.

The panel was asked what the optimal size is for an investment committee and what types of people should be on it. The panel suggested that five to six is about right. The key criterion is that they have enough confidence and respect in the other individuals to foster serious conversations. It was suggested that investment committees shouldn’t be'suckedin'totheday-to-dayconsiderationsof investment professionals. Instead they should focus on higher level considerations such as the investment logic, investment psychology and economic history. The Board members need to have the right type of character and the right temperament.Theycan’tjustbe‘ordinary’people–it’s not IQ, but a different sort of character that isrequired.

Helping investment committees and superannuation trustee boards make better decisions may be an area in which the Actuaries Institute can become involved. This is an area that the WMSC will investigate.

Next stePsThe WMSC is currently determining a framework to continue exploring this topic and the wider initiative of agency risk. Members are invited to submit their views and suggestions on this topic to the Institute – [email protected]

in practice it is also important for the Cio and trustees to take control of agendas to make sure the right questions are asked. research has shown that the amount of time a committee spends on a decision is in reverse proportion to the complexity.

Wealth management sub-Committee of the life insurance and Wealth Practice Committee: Alistair barker [email protected] Chesler [email protected] Condon [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]


YAP, short-hand for Young Actuaries Program, was a catchy title that caught my eyes when I was skimming through emails that had piled up. With a glimpse of hope, I wished that I could attend this event. My physical remoteness,

beinglocatedinHongKong,oftengavemetheanswer'No'.Thistime,itwasaresounding'Yes'!Yes,itwasgoingtobeheldin Hong Kong. I registered without a moment’s hesitation.

Thesessionwascalled'It’snotjustaboutnumbers',andIsoonrealisedwhy this was the title. My experience with YAP was a pleasant one, one that I will remember for a long time. The presentation was captivating, keeping everyone’s attention. Eyes sparkled with interest, admiration and curiosity and we forgot that it was after work and it had already been a long day.

The panel speakers, Paul Carrett and Melinda Howes, talked about their experiences and the skills they considered to be important to be successfulasanactuary.Melinda’sjourneytoherpositionasCEOoftheActuaries Institute was intriguing. How many people would be fortunate enoughtohearthesefascinatingstoriesfirsthand?OnelessonIlearntfrom her is that there are abundant opportunities available to all of us,

and it is up to us to make the best use of them. For instance, Melinda shared the story of how she was surprised to see familiar faces at her interview for the Institute CEO position. The faces were familiar because she had already built a credible reputation through her active involvement in committees as a volunteer.

The next speaker, Paul, also shared the story of his career and decisions he had to make at different stages of his life. One point he emphasised was the importance of ‘finding the right environment and people’. We all talk about it. We know it by heart. But do weknowwhatitreallymeans?Theterm ‘right people’ does not necessarily mean'peoplelikeyou',butrather,ones

the young Actuaries Program – now in hong kong

report

Paul Carrett and Melinda Howes presented at the YAP session

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who can complement you in the areas where you are relatively weak, and who can share their own views, adding value to one another.

Paul had an interesting career, starting out in traditional actuarial employment and taking that experience with him into banking. His uniquecareerpathreflectedthetransferabilityandapplicabilityofourskillsandknowledgeacquiredduringactuarialeducationtonon-traditional actuarial fields. He conveyed the need for planned career, strategic moves and learning from mis-steps. We all need to know our own strengths and weaknesses and strive to realise our potential. An interesting anecdote of his was when he saw a great potential in sales from a colleague in an actuarial role who did not believe in it. However, after being convinced, he became the top salesperson in the company. Through Paul’s experience, those curious about the future direction of their careers came out of the session proud of their actuarial credentials, knowing there is a large variety of work to challenge you if you so desire. With ‘the sky is the limit’ sounding more right than ever, it is vital to find out what motivates us.

The common theme of the two panel speakers was the concept of'actuaries'tackledfromadifferentangle.Whatdefinestheterm'actuaries'isnotthefieldofpractice,butrather,how we think. They bothconveyedaveryclearmessage“don'tstayintheactuarialshell–getoutandtakerisks!”

I sat there and revisited the thought on my mind, that I was always ready for challenges. Yes, I considered myself brave, leaving Sydney to come to Hong Kong to begin my career, a new chapter of my life after graduation. Yet, sitting there that night, I was gently alerted to the fact that there will be many more and greater obstacles and opportunities in my life. We are living in a world of uncertainty, and unexpected events do happen. Do not be afraid of setbacks, they may be another name for opportunities.

At the end of the session, I added something new to my to-do list. A time will come when I will stand in front of young actuaries and give them a presentation about my own experience as an actuary and share insightsgainedalongmyjourney.

I would like to take this opportunity to thank Paul and Melinda, who shared some wonderful tales, becoming an inspiration for young actuaries and students who attended the program.

The smile upon my face told me that I had made the right choice to spend my Tuesday night this way.

Yu Kobayashi, Chair of the newly formed Hong Kong YAP Committee, invites Institute members to suggest potential speakers, topics and provide feedback on future Hong Kong sessions. Yu’s email address is [email protected]. The Institute would like to thank CPD Representative Paul Carrett for mentoringtheYAPCommitteeinthisproject.

Alyse [email protected]

Yu Kobayashi and Paul Carrett

Yu Kobayashi and Melinda Howes

YAP attendees listening intently


The second last stop on our puzzle tour of the world is the Greek island of Samos, birthplace of Pythagoras in around 570BC. As well as being one of the greatest and best known mathematicians of all time, Pythagoras was also a

philosopher who founded a religious group known as the Pythagoreans. Pythagoreanism ultimately developed into two schools of thought, one focussingonPythagoras'mathematicalworkandtheotherfocussingonhis religious beliefs, with each group believing that they were more true to Pythagoras’ teachings than the other group.

Readers of this column are undoubtedly familiar with Pythagoras’ theorem. However, his other, more mystical beliefs are rarely talked about in schools. With respect to these beliefs, Pythagoras taught that reality is essentially mathematical in nature and that numbers are not simply measures, but that each number has an esoteric character with its own special attributes. Some examples of what is represented by the numbers are as follows:1= Unity.Itrepresentsthefirstbeing(i.e.god).2 = Diversity. It represents the fundamental polarization of all

phenomena (e.g. day vs. night, male vs. female, etc).3 = Peace. 4 = Justice. 5 = Life, vitality and power. The Pythagoreans symbolized the number

5 with a pentagram and used this as a secret sign to recognize each other.

It is generally conceded that the mathematical Pythagoreans were among the first to study number theory, which is the inspiration for this month’s puzzle.

Opposite is a picture of an ancient tablet found by archaeologists on Samos. At first glance, the tablet seems to be showing a series of arithmetic sums, although the calculations clearly do not follow the rules of addition, subtraction, multiplication and division as we know them. However, the calculations do follow some consistent rules that are different for each of the mathematical operators.

Given the information on the tablet, deduce the mathematical rule defined by each of the four operators (+, -, x, and ÷) and then use these rules to calculate the following:

[(((8 ÷ 6) ÷ 24) ÷ (35 x 79)) + (57 + (13 – (10 x 2)))]x [(4 – (65 – (7 x 89))) x ((98 + 67) ÷ (5 + (43 x 12)))]

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

genevieve hayes [email protected]

“Ihavediscoveredatrulymarvellousproofofthis,whichthismarginistoonarrowtocontain”–Fermat.

in the margin

New maths

CryPtiC CrossWord (ActuAries•173 solution)

Two correct answers were submitted. The winner of this month’s prize, selected randomly from among the correct entries, was robert thomson, who will receive a $50 book voucher.

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geNerAtioN Nexti am 12 now and thinking about what i’m going to do when i grow up. my mum is an actuary and when i ask her whether i should be one too she always says 'No'. should i take any notice of her?

Perhaps your mum’s a bit like me. I’m a fan of family diversity – a dinner tablediscussionofriskmarginsandAPrAregulationsjustdoesn’tappeal. I’d be encouraging everyone to do something different, so the family group has some different angles on life. Actuary mum can cross-pollinate with HR consultant dad, and dietician daughter and lawyer son can tell them both where they’re going wrong…

I reckon choosing your career is like searching for your life partner. There’sno‘TheOne’outthere–noonebestjob,nooneandonlyperfectmatch.Inbothcasesthere’llbemanydifferentoptionsthatjustmight make you happy. Maybe your mother imagines you trying one of thepathsshedidn’tchooseforherself?

Butyourchoiceofcareerisjustthat–yours!Inthis,asinsomanyotherthings(whichhairstyle,boyfriend,schoolsubjectsetc.),youcan,andpossiblyshould,ignoreyourmother.Unlessshecanchangeyourmind in a fair argument.

Sowhy(orwhynot)beanactuary?It’sasolid,challenging,rewarding, well-paid career you can do in a comfortable office environment working with (mostly) nice people. Don’t consider it if you’re not excited by maths! And it won’t be for you if you want to work outdoors,ifyoudon’tlikecomputers,orifyouwantajobwhereyouproduce something you can hold in your hands. You won’t be working on a film set or beside a tropical lagoon.

If you do decide to head down the actuarial path – here’s my ‘wish list’ for the actuaries of the future. Don’t spend all your time in the classroomoronacomputer;wedon’tneedacademicrobots.Chooseschoolsubjectsbecauseyoulovethem.Playsometeamsport,dotheDukeofEdinburgh,joinarockbandandtrydebating.Learntowritereally good English and how to talk to people – in groups, and one to one. Oh, and be nice to your mother!

greetiNgs oN demANd it will soon be the season of writing Christmas cards – or 'season’s greetings' cards – and i always struggle to come up with a range of insightful comments for my clients. 'best Wishes' and 'happy holidays' are just boring. Any ideas for making my card stand out?

'BestWishes'isn’tthatbad–didyoueverfeelannoyedwithanyonewhosentyouaChristmascard,evenifthat’salltheysaid?–butyoucan do better, I’m sure.

Sincerity and basic thoughtfulness are the key elements here. How doyoufeelabouttheperson?Whatdoyouwishforthem?Agreatholidaybreak,ahappynewyear,abetterpricingmodel?Sosaythis.Dobe sensitive to religious beliefs.

You’ll have a personal connection with some people – demonstrate it. Include their wife and kids’ names, ask after the dog, say you’re sorry you haven’t seen them this year. Feeling guilty that all you’re doing is writingonalousycard?ringthemupandorganiseadrinknextweek.

If you’re struggling through a huge pile of cards, and keeping

yourself motivated is a problem, by all means mix in some fun for yourself:• Establishacode:'HappyHolidays'forbrunettes,'BestWishes'for

bald men etc. Or the categories could relate to gender, girth, age, whether you like the person or not.

• gangupwithsomeoneelsewho’ssigningandmakeitacompetition:thefirstpersontousetheword'aardvark'onacard,orthe first to use a German word.

• Setsomerealchallenges:canyoucoinapalindromicgreeting,oronethatusesnovowelsexcept'i',ortwodifferentgreetingsthatareanagramsofeachother?

• Ifyou’reintonumerology,developluckygreetingsforyourfavouriteclients.

• Throwinafewenigmaticcommentsandseeiftheygetnoticed:'remembertheSinai‘93','Let’scallitatie','Artforart’ssake'.

After you’re done, reward yourself with a mince pie and a loud performance of your favourite Christmas carol. The office can be too quietsometimes.

gae robinson [email protected]

gaeanswersseriousandnot-so-seriousquestionsaboutlifeintheoffice,career,studyandcopingasanactuaryintherealworld

Ask gae!

Career path / Festive fun

und danke für all yur aardvarkdis jahr


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The four-step CPd implementation process is designed to guide you along the right path to transfer learning effectively back to the business. Last month we displayed the model and depicted what the first two steps will look like in action.

Sometimes development experiences stop at the Activity stage – never finding the way back to the workplace – unless the learner continues processes to transfer their learning.

TheCPDre-VampProjectisdesigningavenuestoenableyoutotransfer your learning back to the business. Before we see what this will look like in action, let’s understand a bit more about some of the future tools, templates, technology and processes depicted in RED above.

AutomAtiC CPd log

CPD activity will be automatically registered for all Institute events attended. You will be invited to accept your credits via email. The CPD Log will be both automatically and manually fed to save time in recordingyourrequirementsforPS1.

CommuNities oF PrACtiCe (CoP)

If you share a common interest within a particular practice area or live and work overseas in another country,youcanjoinaCoPtonetworkwithothersvia blogs and other social media methods in a dedicated area of the website.

imPACt oN PrACtiCe rePort

Members are invited to put their learning into practice in the workplace. This report is completed, workplace acknowledged and submitted for additional CPD credit.

ProFessioNAl develoPmeNt heAt mAP

This template is provided to Members to confirm CPD activity across the Capability Framework per month and year. It is a valuable reflection instrument to be used prior to the next year’s Capability Assessment and CPD planning.

AFter blog Ever walked out of a seminar wanting to keep talkingwithothersaboutwhatyoujustlistenedto?The After Blog will provide a forum to continue to collaboratively discuss topics, challenge thinking and invite implementation and trial of initiatives.

so WhAt Will this ProCess look like iN ACtioN?Let’s look at the RECORD and REFLECT steps through the eyes of Niki and Harry.

sue Wetherbee CPd [email protected] Ahead

Closing the CPd implementation Process loop

1.PlAN

2.ACtivity

3.reCord

4.reFleCt

• Ps i• capabilities Framework• capability Assessment tool

• capability Assessment report• capability Development Planner• lMs• upcoming events

• capability Development Planner• Ps i• communities of Practice (coP)• impact on Practice report• Professional Development Heat map• After Blog

• Website Member log• Automatic cPD log


deAr editor,

Jamiereid’sarticle'ShouldPrivateHealthInsurersbemorecompetitive?'istimely.Itisinterestingthattheverycommentators who were recently advocating consolidation of the industry are now expressing concern about competition.

Competitionhasalwaysbeenajustificationforkeyelementsin the design of the Australian national health system. This commenced after World War 2, when access and pricing rules were mandated and underwriting and administration was allowed to a competitive market, which at that time was operated entirely on a not-for-profit basis. For-profit entrants were later permitted to help address capital shortages which became apparent when prudential regulation was strengthened. The private system has been in competition with Medibank/Medicare since 1975 and after nearly 30 years, more than half the Australian population still voluntarily buys private insurance.

SomeinformationderivedinpartfromtheMacquarieUniversitydatabase on Australian private health insurance*:• buyers: 11,901,915 people in 5,727,566 different families are

buyers (as at June 2011), most (>80%) acting independently as individuals.

sellers: 35 insurers are currently active sellers, 27 on a not-for-profitbasis,eightasfor-profits;morethan20ofthemhavelessthan a 1% market share.

• Products: More than 5,000 distinct product and price combinations are currently offered.

• Consumer information: By law, every price and product description must be published and displayed by insurers in both a hard copy brochure form and on a centralised website maintained by the industry ombudsman, and furnished on requesttoanyinquirer;Everychangemustbenotifiedinadvanceinwritingtopolicyholders;Insurersmostlymaintainwebsiteswithcomprehensivepriceandproductdetails;There are numerous brokers who publish price and benefit comparators on the internet.

• exit and new entry: There is continual churn, the current 35 sellers being survivors from more than 200 insurance providers who have participated in the market since 1971, when the Commonwealth Department of Health started collecting and publishing details of the operations of the individual organisations.Threeofthemajorinsurersfrom1971havesinceexited (HBA, Mutual Community, MBF) while two continue (HBF, HCF). The current largest two firms are new entrants since 1971, one from organic growth (Medibank Private), one from acquisition(BUPA).Numerousmajorplayershaveenteredandexited profitably during the period (e.g. National Mutual, AXA, SGIC and NRMA). There is continual predation, some successful (recentlyMedibankPrivate/AHM,BUPA/MBF,HCF/MU)somenot (NIB’s recent attempt on GMHBA). There has been a regular flow of innovative new entrants, the most recent being NHBA in 2010, and health.com in 2012.

People can form their own conclusions about the intensity of competition in the industry.

Peter [email protected]* database developed by dr sachi Purcal of macquarie university, with data from

PhIAC and funding from the Institute of Actuaries of Australia.

letter

Niki reCord

NikihasbeenaFellowforfouryearsandhasjustlandedinChinatostarthernewrole.ShehasalwaysmaintainedherCPDrequirementsand successfully passed a recent PS 1 audit. Niki is excited to be in China but is a bit lonely, as she is the only Aussie in the business. She is uncertain as to whether any other Institute Members are in her city or inareascloseby.Shewouldliketojoinanetworkofexpatcolleagues,ifpossible, as well as feel connected with those she left behind in Australia. AlthoughsheunderstandsherCPDrequirementsarethesameastheyhave always been, she is anxious about whether or not she will find it easy to maintain her CPD records while away. See whether Niki does grow her networks and comply with PS 1…

● Niki was guided by the CPD tools and templates to: • quicklyascertainherneedsandwheretofindoutinformationto

assist her in the planning of the activities she would complete to meet those needs.

● Niki found it easy to find other Institute members in China by:• clickingon'other CoPs', where she connected with the China

COPs members.● Niki was relieved to see that the recording of her CPD activities ,

while working overseas, was easy to do by:• respondingtoandacceptingheremail reminder to accept

automated CPd activity for Institute programs and maintaining herlogofotherCPDactivitiesonline;and

• seeingherCPDactivitydisplayedonherpersonalCPDLog.

hArry reFleCt

Harry is a young, intelligent and energetic new Fellow who impresses his colleagues as well as his employer. Harry has set himself an ambitious year of CPD activity and has found it very interesting and challenging. He has learned plenty, broadened his professional network, made new friends and found a mentor. One of the most interesting things to come out of his CPD activities is a new direction for his career. See what Harry did that changed his development pathway and how he has planned to continue his development…

● Harry was guided by the new CPD tools and templates to:• ablymanagehisplanningandregistrationforactivitiestomeethisCPDrequirements;and

• accepthispointsgainedfromparticipationinInstituteactivitiesattended.

● His CPD activity enabled deeper learning when:• heparticipatedinan “after blog” and led a workplace practice

project.● Harry used his CPD activity to spawn new interests and inform

future CPD needs and career path planning by:• completingan impact on Practice report and reviewing his 2012

Professional development heat map.

Watch out for the launch of the RED tools, templates, technologies and practices to help you to close the CPD Implementation Process Loop and Stay Ahead.


daniel [email protected]

In July of 2012, six students, including myself, spent two weeks working with a microfinance institution in Cambodia. Microfinance is all about providing small loans to those in impoverished countries to allow them

to develop their businesses. We have been working with our partner, Non-Government Organisation (NGO), for the past year and a half. This was our second annual trip to implement the deliverables and recommendations that we have been working on by correspondence from Melbourne.

The deliverables that we worked on for the trip included creating a microfinance glossary, troubleshooting the microfinance software used, creating a loan collection handbook and designing a risk scorecard to cut down on the time needed to assess potential borrowers. In addition we ran a series of classes for the NGO’s volunteers with topics

that varied from basic excel functions to credit risk.

Workingontheseprojectswas truly rewarding as we were able to see the knowledge and skills that we had learnt from countless lectures and tutorials put into action and have a direct positive effect on people’s lives. I will forever remember the moment when one of our team leaders, Simon, was able to solve a problem that our partner NGO was having with the microfinance software they use.

Themicrofinanceproject

manageractuallywhoopedwithjoy,smilingwidelywhen he was able to back up their database as they had been having problems for several months. It was moments like this – knowing we had been able to use our knowledge in a practical setting – that were exceptionally satisfying.

Meeting all these borrowers, who we’ve been working to help, was a truly eye opening experience. Seeing the way these people lived, with so little, yet having the determination to take out a loan to try and improve their lives was inspiring. The fact that these people had limited material possessions, yet they were still able to smile (althoughtheymayhavejustbeenlaughingatmyattempt to speak Khmer!) was truly humbling.

With all the marketing for charities that we are exposed to in Australia, I half expected to see all these people living with so little, to be sitting down, depressed, with little to no will to live. Seeing that this was not the case and that people in poverty were not a different species, but also humans who deserved a life they could be proud of, has strengthened my resolve to keep working with NGO.

Another valuable experience that we had was when we went to visit some local universities. At these universities, we had the chance to interact with some of the students and it was particularly interesting chatting with them. Hearing about their experiences and how determined they were to learn English was truly humbling. One person I talked to spent three hours a day learning English – one hour translating the newspaper, one hour on grammar and one hour on listening.

Stories like these show the immense determination of the Cambodian people I have come to see and admire. In addition, after chatting to the lecturer andmentioningthatIwasmajoringinactuarialstudies, the lecturer actually invited me to give part of the maths lecture! Connecting with the students and being able to transfer some of my knowledge to a very receptive audience was amazing.

Having spent two weeks on the ground with our partner NGO, my team and I feel like we have justbeguntodoourparttohelptheCambodianpeople help themselves. It has been an amazing opportunity to have a real life impact, as well as a holistic experience with the people of Cambodia. It has been two weeks that I will not forget in a hurry and the memories of the places I’ve been, the people I’ve met and even the food I’ve eaten will remain with me for a very long time!

student Column

A (melbourne) actuarial student’s microfinance project

Daniel with some of the borrowers' children

daniel and fellow students with rest of the team from the Ngo


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Ceo's Column

A re ACtuAries more musiCAl or Just leFt-leANiNg?Bythetimeyoureadthis,ourgeneralInsuranceSeminar'TidesofChange'willhavebeenrun.Thisyearwedidsomething

unusual – at the Gala Dinner for GIS2012, all of the musical entertainment was provided by actuaries! (Yes, before you ask, my Events Team was having kittens.) Prior to the event I had decided that if it was a success, it was all my idea and if it was a dismal failure, it was Rick Shaw and Gae Robinson’s idea!

This got me thinking, because in putting together this entertainment Gae apparently had a very deep pool of musically talented actuaries to draw from, and I also know a lot of musical actuaries. I play several instruments–allquitebadly!Isthisjustmyperception,orareactuaries(andperhapsalsoothermathematicalpeople)pronetobemusical?

musiCAl ACtuAries Back in January 2000 the Society of Actuaries magazine The Actuary publishedanarticlebyKellyMayocalled'Perfectharmony:actuaries&music'whereactuariestalkedabouttheirloveofmusic.

We all know some actuaries who are highly musical. I clearly remember nightsatUniwhensomeofmyfriendswouldcomeoverandAndy yang (at ING in Hong Kong) would play the piano most beautifully. gloria yu (of Deloitte and one of our Councillors) is a very accomplished pianist.

gavin buckley (of Buckley Actuaries), who I met on the professionalism course, is a professional flamenco guitarist who has been living in Spain for many years, and recently returned to work as an actuary in Melbourne. Jason marler of Russell plays a mean electric guitar.

AregeneralInsuranceactuariesmoremusical?TwoofourmajorgIconsultancies have enough musicians to form their own bands.

At Finity there is dave gregory (electric guitar), luke Cassar (bass guitar), Jon tindall(drums,sax&voice),gae robinson (voice), keith Almeida (drums) and minh Phan (keyboard).

At Taylor Fry we have greg taylor (jazzguitar),Paul driessen (electric guitar), Jonathan Cohen (bass guitar) and Jessica egan (voice).

At PwC we have C J yong (guitarist) and sylvia Wong (voice), and rachel driessen of Berkely Re plays keyboard.

melinda howes [email protected]

A few too many notes?

Andy Yang

Gavin Buckley and Miguel Donaire


mAths ANd musiC: FACt or FiCtioN?The common wisdom is that mathematical people are good at music, and/or that if you play your baby classical music they will get smarter. Isthereanytruthinthis?InanarticleintheUKIndependentpublicationlastyearcalled'The enduring myth of music and maths'1, Cambridge UniversitymathsprofessorTimgowers,saysthat:

“As a mathematician with strong musical interests who grew up in a family of musicians, I have been asked about this connection many times. And I have bad news: although there are some obvious similarities between mathematical and musical activity – and although many musical patterns can be fruitfully analysed mathematically – there is (as yet) no compelling evidence for the kind of mysterious, almost magical connection that many people seem to believe in. I'm partly referring here to the 'Mozart effect', where children who have been played music by Mozart are supposedly more intelligent, including at mathematics, than children from a control group.”

Whilst there doesn’t appear to be solid evidence that maths and music go together, Tim does conclude his article by posing some interesting questionsforfutureresearch:

“In my view, the general question of whether mathematical ability and musical ability are related is much less interesting than some similar but more specific questions. I have already mentioned the possibility that mathematicians are more drawn to the piano than to other instruments. Are they more drawn to certain composers (Bach, for instance)? Are musical mathematicians more drawn to certain areas of mathematics? Do mathematicians tend to listen to music in a more analytical 'A is to B as C is to D' way rather than simply allowing themselves to be caught up in the emotion? One can imagine many interesting surveys and experiments that could be done, but for now this is uncharted territory and all we can do is speculate.”

A siNister2 CoNNeCtioNPerhaps the answer lies in another factor. Around 10% of the population is left-handed, and there are studies that have shown that 'mathematicians,musicians,architects,andartistsaremorecommonlyleft-handersthanwouldbeexpected.'3

ChrisMcManusofUniversityCollegeLondonhaswrittenabookcalled'right-Hand,Left-Hand'4 , where he states that the proportion of left-handers is increasing and left-handed people as a group have historicallyproducedanabove-averagequotaofhighachievers.According to Wikipedia5,fourofthelastsevenPresidentsoftheUShave been left-handed. So bear with me here whilst I draw a long bow. There are logic holes all over this, but here we go…

if left-handers are smarter, perhaps more actuaries are left-handers, and perhaps their left-handedness is what makes them more likely to be both musical and mathematical.

I’d be interested in your thoughts, and more examples of musical actuaries.Perhapsthe'handedness'ofourmemberswouldbeagoodtopic for a future Pulse Survey!

I’ll leave you with a link for some light entertainment. This contains actuarial songs, including one of our own members strutting his stuff in the first one listed: http://www.workerscompinsider.com/2010/12/actuaries-gone.html.

Ceo's Column continued

Gloria Yu (Deloitte), Sylvia Wong (PwC), Gae Robinson (Finity), Keith Almeida (Finity, obscured), Jessica Egan (Taylor Fry), Dave Gregory (Finity)

Gloria Yu (Deloitte), Minh Phan (Finity)

Greg Taylor (Taylor Fry), Sylvia Wong (PwC), Jonathan Cohen (Taylor Fry), C J Yong (PwC)

Ben Schindler (Berkeley Re), Keith Almeida (Finity), Dave Gregory (Finity), Luke Cassar (Finity), Paul Driessen (Taylor Fry)

1 http://www.independent.co.uk/arts-entertainment/classical/features/the-enduring-myth-of-music-and-maths-2307387.html

2 latin for 'left'3 santrock, john w. (2008). motor, sensory, and Perceptual development. mike ryan

[ed.], A Topical Approach to life-span development(pgs.172–205). boston, mA: mcgraw-hill higher education

4 http://www.righthandlefthand.com/ 5 http://en.wikipedia.org/wiki/handedness

rehearsals for the 2012 gi seminar entertainment sessions

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Australian Office: Contact Tony Snoyman. Level 34, 50 Bridge Street, SydneyUK Head Office: Contact Geraldine Kaye. 22 Bevis Marks, London , EC3A 7JB

Call: +61 2 8216 0771 or email: [email protected] or call +44 (0)20 7397 6200 or email: [email protected]

For the most up to date Australian and global opportunities, register today

We welcome any questions you have regarding this role or on any other actuary jobs. At GAAPS, we tailor our research to your needs and would be delighted to have a conversation about the future of your career.

Actuarial Analyst: SydneyGENERAL INSURER – $ MARKET RATE

An excellent opportunity for a recent graduate or a candidate with a few years’ experience to learn the ropes in a general insurance environment. The work you will be involved in will be varied and give you an excellent introduction to the industry. The role includes pricing, valuation and business budgeting/forecasting.

The successful candidate will be making steady progress with their actuarial examinations, be an excellent communicator and a team player.

Senior Consultant: MelbourneGI CONSULTANCY – $ VERY COMPETITIVE

Dynamic consultancy looking for an experienced consultant to manage client relationships, develop the team and source new clients.

As an experienced consultant or having a consulting persona, with strong communication skills you will be seeking an opportunity to grow and develop the Melbourne office of this exciting leading edge organisation.

You must be adaptable, hard working and willing to learn new skills.

The role is well remunerated, exciting and will allow you to grow professionally.

Actuarial Analyst: SydneyLIFE INSURER – $ MARKET RATE

If you have a passion for information technology then combined with your actuarial training, you will be a perfect match for this blue ribbon life insurer. You will work across the business, including the actuarial and finance teams and with their external technology providers, to streamline processes, automate actuarial reporting and improve their operational efficiency.

The successful candidate will have worked for a few years in a life insurance environment and ideally have Prophet and Igloo experience.

Senior Analyst: Sydney/Melbourne

GENERAL INSURANCE/NON TRADITIONAL CONSULTANCY – $ MARKET COMPETITIVE

An exceptional opportunity for a dynamic analyst, preferably with General Insurance experience, to join an exciting leading edge consultancy.

You must enjoy a challenge and be willing to apply your mind to new areas of expertise.

This is an exciting opportunity for the right candidate, you’ll be well remunerated, and given the opportunity to grow within the business.

Two actuaries have recently made headlines as they take on Chairman of the Board responsibilities. Ian Pollard has been appointed Chairman of Billabong International and Michael Barker Chairman of PaperlinX. Congratulations to Ian and Michael and we wish you all the best in your new roles!

“Billabong International is a great company with iconic boardsports brands including Billabong, Element, Dakine and RVCA. It has been through challenging times in an industry undergoing major change.

I look forward to working with the management team in their implementation of their transformation strategy which involves major changes and opportunities in brand development, sourcing and supply chain, eCommerce and retail operations. This will be an invigorating role, somewhat outside the traditional actuarial fields.”

Ian Pollard

“The Actuary in a Goldfish Bowl…

As a recently elected Chairman of a listed company, I was asked the question “What makes you think you, an actuary, is qualified for the role?” This got me thinking.

First, is Chairmanship a ‘role’? As actuaries we are used to playing various roles – usually as an expert, or with some sort of positional power. As experts, we know more than our audience and people look up to us. As Chair of a meeting, we sit at the head of the table and command automatic respect – or do we?

There are many stakeholders in a company, each wanting to know how this key person – the Chairman – will impact upon their future. You are scrutinised from every angle – hence the goldfish bowl analogy. Role playing is not enough. What stakeholders want of a Chairman is leadership and personal power, not positional power. They want to see a real person, who has a set of values, and lives those values.

What qualifies actuaries for a Chairmanship role? I believe that actuaries generally have a very strong set of values. The actuarial training imbues in us a sense of balance and fairness. We understand that optimal results come from understanding and reconciling different points of view. But we are often shy in putting our views forward, preferring to appear as unbiased technical advisers. We are not good at acting from our values.

Perhaps actuarial training falls short in developing our ability to motivate and influence others. Personally I have tried to lead by example, hoping that others will follow. According to the literature, that is necessary but probably not sufficient. It is too passive. Should actuarial education focus less on analytical ability and more on the ability to persuade? We should be perceived as strong advocates for our beliefs, rather than technicians who spell out alternatives. To be a future leader requires nothing less.”

Michael Barker

Congratulations – Chairman of the Board appointments

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