actuaries · 28 opportunities for analytical techniques in life insurance john king / paul swinhoe...

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 OCTOBER 2012 ISSUE 174

8 The Actuarial Pulse

Do You Think You Are Healthy?13 Review

CPD National Tour – Be an Influential Actuary and the Influential Leader24 Report

ICAAP – An integral part of business strategy26 Review

Benefit Reform in NSW Workers Compensation28 Comment

Opportunities for Analytical Techniques in Life Insurance

Superannuation Member Benefit Projections: Age Pension – In or Out?

4 Comment

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

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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.

Top Tier ConsultancyMELBOURNE AND SYDNEY AUS $ MARKET COMPETITIVE

Our client, a leading global consultancy is seeking outstanding candidates to deliver actuarial consulting services to a broad range of blue chip clients.

Ideally, general insurance and/or accident compensation experience is sought after. However candidates with other relevant experience would be welcomed.

You should have strong analytic and data skills, and have high proficiency in Excel, VBA and a knowledge of SAS.

As a results oriented, analytically minded and commercially astute actuary you will have the

opportunity to work with market leaders in a dynamic and challenging environment.

Valuation Actuary – Life, Wholesale RiskINSURER – SYDNEY AUS $ MARKET COMPETITIVE

A large dynamic Sydney based life insurer seeks a motivated, independent thinker to identify and communicate the financial dynamics of the wholesale risk portfolio within the Actuarial team and to senior management throughout the business.

In this role you will be involved in a number of key initiatives including the valuation and forecasting cycle for wholesale risk business, experience investigations and producing critical monthly reports.

You will be a recently qualified actuary, with relevant life insurance experience.

Actuarial AnalystGENERAL INSURER – SYDNEY $ OUTSTANDING

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.

Vice President – Medical Insurance

GLOBAL REINSURER – SINGAPORE SGD $ OUTSTANDING

Based in Singapore this is your opportunity to lead the growth of a major reinsurer’s medical insurance business across Asia.

This is an excellent opportunity for you to showcase your medical insurance expertise and to become the key contact for all medical insurance needs across the continent.

Your strong medical insurance and sales background and a desire to travel will stand you in good stead for this role.

October 2012 Actuaries 1

ContentsOCTOBER 2012 ISSUE 174

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EvEnTS2 coming up / correctionEdITORIal3 risky pathways… ❙ Daniel cooper

COmmEnT4 Superannuation Member Benefit Projections: Age Pension

–In or out? ❙ Jules Gribble

ThE aCTUaRIal pUlSE 8 Do You Think You Are Healthy? ❙ ruth Lisha

UndER ThE SpOTlIghT11 Jacqueline reidpRESIdEnT'S COlUmn12 reflections ❙ David Goodsall

REvIEw13 cPD National Tour – Be an Influential Actuary and the

Influential Leader ❙ James richardson / Stuart Miles / Bianca Schutz / cheryl Lin / Paul Driessen / Bridget Browne

OpInIOn17 The emperor's Wardrobe Manager –making fun of the latest

fads in financial services… ❙ Phil Stott

EvEnT18 General Insurance Seminar 2012EvEnT22 enterprise risk Management Seminar 2012REpORT24 IcAAP – An integral part of business strategy ❙ Anton Kapel

REvIEw26 Benefit reform in NSW Workers compensation ❙ Harry Haggith

COmmEnT28 opportunities for Analytical Techniques in Life Insurance

❙ John King / Paul Swinhoe

aCTUaRIES TakIng ThE lEad30 Personal experiences ❙ Andrew Brown

REpORT32 The Young Actuaries Program – Quarterly Networking

Lunches ❙ Nick Li

STayIng ahEad33 cPD Support and Implementation Processes ❙ Sue Wetherbee

In ThE maRgIn34 Pink elephants on Parade ❙ Genevieve HayesREpORT

35 G20 Youth Summit ❙ Scott French REpORT36 Leadership Forum – Human Sounding Boards: A Users Guide

to Mentoring ❙ Angela Tong

STUdEnT COlUmn37 Tides of change ❙ cherryl Bhatia

CEO’S COlUmn38 Please evaluate… ❙ Melinda Howes

nOTICE40 Disciplinary proceedings against Mr Graham osbornnOTICEcov New Members – August and September 2012

Actuaries October 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 A175 - November 2012 A176 - December 2012 - Deadline for contributions: 1 November 2012

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 upRetired actuaries group melbourne – Inaugural meeting Thursday 25 october 2012, Melbourne

Retired actuaries group Sydney Thursday 1 November 2012, Sydney

young actuaries program – Job Opportunities Outside The Box Monday 5 November 2012, Perth

member networking – presidential dinner Tuesday 13 November 2012, London

general Insurance Seminar 2012 Monday 12 – Tuesday 13 November 2012, Sydney

Enterprise Risk management Seminar 2012 Wednesday 14 November 2012, Sydney

Retired actuaries group Sydney Thursday 6 December 2012, Sydney

actuaries Summit Monday 20 – Tuesday 21 May 2013, Sydney

CORRECTIOnThere is a correction for the article Greater responsibility for actuaries under NZ’s insurance regulations written by Jeremy Weight and richard Beauchamp published in the September 2012 issue of Actuaries.

It was mistakenly stated in the ‘Key facts at a glance’ box that the reserve Bank of New Zealand (rBNZ) has no regulatory oversight under the Insurance (Prudential Supervision) Act (2010). In actuality the rBNZ now has regulatory oversight under the Insurance (Prudential Supervision) Act (2010). Sincere apologies to our readers and particularly to the authors, Jeremy and richard for any confusion or inconvenience resulting from this mistake. We assure you that this inadvertent editorial error was through no fault of the authors. An amended version can be found at http://www.actuaries.asn.au/Library/AA/2012/Actuaries-SeP2012-WeB.pdf.

our world and our profession don’t always encourage us to take chances. As actuaries, we are often taught to be conservative with our time and our activities. We rarely take risks or push ourselves to operate

outside of our comfort zone. This may not apply to all members of the profession, but stereotypes often have their basis in observable facts.

Six months ago I inherited an internal team management role from a colleague of mine. We were recently sharing a joke about the time consuming burden this role has had on us both. I scolded him: “I should have known better when you told me that it was a great opportunity!”

We shared a good laugh and agreed that you know you are in trouble when somebody offers you a great opportunity.

Those of my colleagues who are actuaries (myself included) often seem to live by this advice and are unwilling to put up their hand to take on new challenges. We are content to keep our head down, do the work we’ve been assigned and do a good job on what we know well without ever testing ourselves. In contrast I’ve been struck by the willingness of my non-actuarial colleagues to put themselves out there and generally take a chance.

While these are sweeping generalisations and do not apply to every actuary, I believe that this is a general characteristic that can often hold our profession back. we should be masters at taking the calculated chance to try and achieve something sensational for our customers, clients, colleagues and even ourselves. rather we are often all too content to take the safe option, guaranteeing only a satisfactory outcome.

In regards of the role I joked about before – despite the long hours it has given me the chance to work closely with a very experienced partner in our firm. The opportunity to learn first-hand how he approaches difficult business decisions has been invaluable in my career development. I hope that the next person in this role will benefit as much as I have.

Two years ago I accepted another 'great opportunity' from an outgoing member of the editorial committee of this magazine. I have enjoyed the opportunity to meet and work with members of our profession and build many new skills. As I leave the committee I do not regret my time spent at all. I am glad to say that my next opportunity is to continue my career in Asia.

So why don’t you take a calculated risk today? Put your hand up for something new that you think you might enjoy. Accept a new role in your firm, get involved in your local community or perhaps even join the editorial committee of the Actuaries magazine!


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Editor

Risky pathways…

daniel Cooper Guest editor

[email protected]


Comment

I nTROdUCTIOnThe primary purpose of providing projections to members of super funds is to inform them of their potential financial position on retirement, so they

can better plan and manage their retirement. To achieve this, projections need to be both accessible and meaningful. Projections are estimates reflecting assumptions that change over time, so assumptions and resulting projections need regular review as part of a broader retirement planning process. Members receiving regular meaningful projections in their annual statements have increased opportunity to engage with their superannuation.

Projections should aim to be best estimates. About 75% of retirees now and through to 2050 are projected to receive a full or partial Age Pension. The cooper report emphasises that superannuation is part of a broader retirement system, including the Age Pension and other major public support programs. Projections which ignore the Age Pension do so at the risk of materially misleading many members. While including the Age Pension in projections may be challenging, the core question is not ‘if’ it should be included, but ‘how’.

pROJECTIOnSProjections of accumulated balances on retirement improve the member’s understanding of their potential future financial position. In contrast to members being provided with tailored individual financial advice by financial planner, projections provided with annual statements can only provide indicative and generic information. However, providing benefit projections to all members with their statements can play a key role of starting their financial planning process, although it does not finish it. ©

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Superannuation Member Benefit Projections: Age Pension –In or Out?


Jules gribble [email protected]

To be relevant, projections need to be informative and accessible. especially with the SGc increasing from 9% to 12%, projections of super balances at retirement age are likely to be large numbers. For many, such large numbers are not meaningful, just ‘big’. To be meaningful, retirement income projections need to be expressed in today’s dollars and compared to annual (expected) after-tax income.

Projections provide indicative results, not guaranteed outcomes. The usefulness of projections is limited to the quality and accuracy of the data input (e.g. current balances, future salary increases, assumed investment earnings rates, retirement age etc), assumptions made (e.g. no future changes in legislation or taxation), and the calculation methodology. When inputs change, as circumstances evolve, projected outcomes should be reviewed. That is, projections should be inputs to a recurring and ongoing process of assessing potential future financial positions.

There is no single ‘right’ projection to use, as there are many valid possible outcomes reflecting an uncertain future. When projections are used, an appropriate range of outcomes should be provided to give context. While important, we do not pursue the basic issue of educating members about the variability of projection outcomes here.

ESTImaTESMost parameters and assumptions used in making projections are based on estimates, so the projections are also estimates. When making estimates, a ‘best estimate’ (one which is neither deliberately overstated nor understated) is often the objective. It is also usually presumed that best estimate inputs or parameters will provide best estimate outcomes. While this is not true in general, it is a useful starting point. Different people may legitimately hold different views, so some variety in setting estimates should be expected. However, there is a limit to these variations and outside those limits calling an estimate ‘best’ is not defensible.

As the majority of retirees have access to the Age Pension, a projection process that automatically ignores the Age Pension (takes a best estimate of NIL) cannot provide a best estimate projection. So a best estimate of a member’s financial position on retirement needs to include an estimate of the Age Pension component. While this may be challenging, the option of ignoring the Age Pension in projections seems incompatible with an overarching ‘best interests of member’ ethos.

estimates rely on information available when the estimate is made. As new information or experience emerges, estimates and results that depend on them should be reviewed. Trends in projections, even if they are ‘only’ estimates, when made on a consistent basis still can provide valuable insight.

Some super fund members are actively engaged in review processes through the agency of financial planners, who should be expected to understand the need for ongoing review. The majority of fund members, however, do not use financial planners. Providing updated information on a regular basis by including it with annual statements generates an annual opportunity to encourage members’ engagement with their superannuation and their retirement planning.

ThE agE pEnSIOnIn the World Bank’s internationally accepted terminology, the Age Pension represents a Pillar 1 retirement benefit. While means tested (by both income and assets tests, as well as ongoing earnings), it is available to all eligible individuals as a social safety net. The purpose of the Age Pension is not to provide a comfortable lifestyle but to avoid poverty and provide a minimum standard of living.

The Age Pension is part of a broader system that includes further Pillars. Pillars 2 and 3, mandated and voluntary superannuation (SGc and additional super contributions, tax deductible or not) in Australia, encourage moving from minimal retirement income to a more comfortable level. Pillar 4 addresses financial support for retirement sourced from outside the superannuation system.

Although there are contrary views, recent publications from Mercer (2010) and ASFA (2012), considering both the 9% and 12% SGc levels, conclude that the current superannuation regime is equitable in terms of the overall level of government support provided.

The Age Pension is, by any measure, a ‘big business’. Treasury’s Intergenerational reports (IGrs) of 2007 and 2010, and APrA data from the same time demonstrate this:• In2010:Over75%ofthepopulationaged65andoverreceiveanage

of service pension (collectively referred to as the Age Pension). of a total age 65 population of about 3 million, over 2.25 million received the Age Pension and about 75% (about 1.6 million) of them received a full pension.

• In2050:Nearly75%ofthepopulationover65areprojectedtoreceive the Age Pension, although under 50% of them will receive a full pension. That is, about 5.5 million Age Pension recipients.

• In2009/2010,approximately$35billionwaspaidinAgePensions.Superannuationwithdrawalstotalledabout$62billion,madeupofabout$32billioninpensionsand$20billioninlumpsums.Thesenumbers will increase as the super system matures.

The SGc increase to 12% from 2019 will likely lead to some decline in the number of retirees receiving the Age Pension in 2050. However, it is clear a significant majority of retirees will continue to receive it.

The Age Pension provides some valuable benefits to its recipients, as it:• AddressesretireelongevityriskfortheAgePensioncomponentof

retirement income;• Addressesretireeinvestmentrisk,asitisguaranteedbythegovernment;• Addressesretireeinflationrisk,asitisindexed;• Addressesretireeliquidityrisk,asitisfundedbythegovernment;• Providesaccesstoancillarybenefitsforretirees;• Chargesnofeesandthegovernment,asprovider,isnotrequiredto

hold explicit additional capital reserves; and• Minimisescounter-partyrisk,asthegovernmentisregardedassecure.

Ignoring the Age Pension in projections and discussions of financing the retirement of the majority of Australians over the next 40 years seems inappropriate on both financial and political grounds.

The cost of the Age Pension will increase over time, as a percentage


Comment continued

of GDP, and sometimes it is implied this is an issue of concern. The 2010 IGr, in its Table A3, provides information, as percentages of GDP, to put this in context:• ThesixitemsintheTableaccountforthe

majority of projected federal spending, moving from just over 55% of the total to nearly 70% by 2050.

• TheHealthandAgecareitemsincreasefrom 4.8% of GDP to 8.9% (4.1%), significantly more than the total increase in total budget of 1.1% (26% of GDP to 27.1%).

• Thetotalovertheotherfouritems,includingthe Age Pension, decline from 9.9% of GDP and level out at about 9.0%.

• WhiletheAgePensionitemincreasesfrom2.7% of GDP to 3.9%, the context suggests there are systemic offsetting items (education, in particular) to mitigate this increase.

reports of a long-term problem, therefore, may be exaggerated. The same cannot be said for Health costs or Age care costs, neither of which seem to be levelling out.

adEqUaCyWe are not suggesting the Age Pension provides an ‘adequate’ level of retirement income, but that is not its purpose. However, it will provide a significant portion of retirement income for the majority of retirees.

Determining what is an ‘adequate’ income in retirement, is something that to a large extent, ‘is in the eye of the beholder (retiree)’. A public policy perspective reflects a top-down view and is more focused on assessing ‘average’ needs, while individuals will have specific desires, wants and expectations based on their individual experience. complexity also arises from needing to consider future income needs (indexation and duration), home ownership status, marital status, etc.

We reflect amounts as proportions of (annualised) Average Weekly ordinary Time earnings (AWoTe) to allow comparisons and permit progress over time to be reviewed. At a high level:• CurrentAWOTE(annualised)is

approximately$70,000.• 95%oftaxpayershavetaxableincomes

under two times AWoTe.• Themedianwageearnerhastaxable

income of approximately 75% of AWoTe.• Amediansinglewageearnerhasan

effective tax rate of about 20%. So, at

retirement, to maintain post-retirement disposable income may seek about 75% x 80% = 60% of AWoTe as post-retirement income.

• Asinglewageearnerwithtaxableincomeof two times AWoTe has an effective tax rate of about 33%. So, at retirement, to maintain post-retirement disposable income may seek about 200% x 67% = 135% of AWoTe as post-retirement income.

The ASFA retirement Income Standard provides an accepted view of ‘modest’ and ‘comfortable’ annual income needs for both individuals and couples on retirement. For a modest lifestyle, singles need about 32% of AWoTe and couples 46%. For a comfortable lifestyle, singles need about 58% of AWoTe and couples 80%.

The Age Pension is approximately indexed to AWoTe (formally to the Male Total Average Weekly earnings (MTAWe)) and a full pension provides the comparative results of about 28% of AWoTe for a single and about 42% of AWoTe for a couple. The gap between the Age Pension and the ASFA retirement Standard, or higher, is for the super system to address. It is not as straightforward as making up the gap, since the Age Pension declines as other income (super or not) increases and also depends on marital and home ownership status.

clearly the Age Pension, especially for median and lower wage earners, will be a significant contributor to their retirement incomes and should not be ignored.

lOngEvITyThe question of ‘adequacy’ is complicated by the issue of longevity, particularly if retirees are expected to manage their own longevity risk, as in our defined contribution system.

The importance of longevity risk can be illustrated with data from the 2010 IGr. From 2010 to 2050, projected life expectancy of males aged 60 increases from 23.4 years to 29.2. That is, 5.8 years or 25%. For females aged 60, it increases from 26.6 years to 31.4. That is, 4.8 years or 18%. rates of increase are larger at later ages. The implication that average retirement planning horizons should now be in excess of 25 years (assuming retirement at 65, later than current typical retirement age) differs significantly from that generated by simply applying the current Australian population mortality tables without reflecting mortality improvement, giving life expectancies of 18.5 for males and 21.6 for females at age 65. Mortality improvement suggests about 60% of current 65 year olds are likely to outlive these life expectancies.

As a material contributor to retirement incomes for many retirees, the longevity protection provided by the Age Pension is a benefit of considerable value.

aSIC gUIdanCEIn December 2011, ASIc issued guidance regarding superannuation forecasts in its rG229. This guides fund trustees in obtaining relief so they may provide their members with superannuation forecasts, that is projections of benefits expected from the accumulation phase of their superannuation at age 65. To obtain relief, a number of assumptions required in the projections are mandated. rG229 is explicit that the purpose of

providing forecasts is to help members engage with their superannuation and to prompt further member investigations. Presumably, these further investigations include obtaining financial advice so members can better provide for their future in retirement.

rG229 specifies that the potential effects on member forecasts must not consider either the impact of the Age Pension or possible benefits from other superannuation funds. Section 54 states that ‘a member’s entitlement to the Age Pension, or the status of accounts they may hold with other super funds, are factors that are very difficult to take into account in a retirement estimate’.

Asserting it is ‘very difficult’ to include an estimate of the Age Pension does not justify not addressing the issue. Applying an estimate of NIL for the Age Pension, for the majority of fund members, is clearly not a good estimate and remains potentially misleading.

projections provide indicative results, not guaranteed outcomes. The usefulness of projections is limited to the quality and accuracy of the data input, assumptions made and the calculation methodology.

SOlUTIOnSIn any case, solutions are available. As with other aspects of projections, they rely on assumptions and estimates. Since the key purpose of providing projections is not to obtain some desired ‘correct’ outcome, but to promote awareness and engagement, the use of assumptions in addressing drawdowns is just as valid as when addressing accumulations.

The Actuaries Institute and AFSA have jointly proposed to ASIc a process explaining how the Age Pension can be included in superannuation projection in a way funds and plan sponsors can easily implement. The inclusion is based on a ‘look-up’ table, proposed to be determined by the Australian Government Actuary to assure impartiality. The projection process relies on assumptions, as any projection of a future benefit (including those permitted under rG229) must do. The main assumptions include:• Retirementincomeprojectionswillbein

today’s dollars and reflect annual income streams;

• Theretireeispartofacouple(approximately 70% of Australians 65 and over are);

• Theretiree’sassetsincludeahome(approximately 80% of Australians over 65 are homeowners) but there are no other assets, other than the superannuation balance, that impact the Age Pension;

• Themember’spartnerhasthesameaccumulated balance as the member;

• Futurenet(offees,etc)investmentearnings rates (specified by rG229); and

• Adrawdownpatternfromthesuperbalance (specified by rG229).

The Age Pension from the look-up table and specified drawdown pattern allow estimated annual income streams to be separately identified. These, individually and in total, should be reported in today’s dollars and compared to AWoTe or other valid measures, providing meaningful insight to the member.

There can be valid debate about the best estimates used in projections, and varying estimates may significantly vary the projection results. However, the key assumptions required for the drawdown phase are no more ‘heroic’ than the investment return assumptions required for the accumulation phase. The flexibility of projections also allows the impact of longevity to be understood, which would

be a marked improvement on the current common use of life expectancies.

If a member has multiple funds and when there is no primary fund holding the majority of the member’s balance, there is a risk Age Pension information may not be fully understood. If that provokes the member to seek advice, then a key purpose of providing projections has been fulfilled. The provision of that advice is a separate issue, and if it is then not received, the problem lies with the advice giving process, not with the projections. Not providing projections on the basis that advice may not be available or appropriate commentary may not be read is just ‘shooting the messenger’. Auto-consolidation of super accounts may materially reduce the impact of having multiple funds.

In April 2012, ASFA and the Actuaries Institute jointly requested ASIc to reconsider its decision not to grant super funds class relief if they include Age Pension calculations when providing superannuation forecasts. This reflects their common view that the Age Pension plays an important role in member’s post-retirement financial outcomes.

COnClUSIOnFor the majority of Australian retirees, now and in the future the Age Pension is likely to

form a significant portion of their retirement income stream. consequently, projections of retirement incomes need to reflect the Age Pension, otherwise they cannot provide a best estimate (or even a realistic estimate) of financial resources in retirement. The issue is not ‘if’ the Age Pension should be included, but ‘how’ it can best be reflected.

The primary purpose of providing members with projections is not to provide ‘accurate’ estimates of future dollar outcomes, but to increase their engagement with their superannuation and to encourage them to participate in an active cyclic planning process.

Projections that provide annual outcomes in today’s dollars are meaningful to members and can be augmented to reflect estimates of Age Pension amounts.

current ASIc guidance prohibits consideration of the Age Pension in projections. This is clearly not in the interests of super fund members and this prohibition needs to be removed.

Jules Gribble is an actuary and the director of Enterprise Metrics•This is an expanded version of the article In or Out? that was published in Superfunds in September 2012.

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nEw SURvEy qUESTIOnS wIll BE avaIlaBlE In OCTOBER 2012.whaT wOUld yOU lIkE TO knOw? If yOU havE a qUESTIOn yOU wOUld lIkE TO pUT TO ThE mEmBERShIp, EmaIl IT TO [email protected]

RESUlTS: REpORT gEnERaTEd On 15 SEpTEmBER 2012. 325 RESpOnSES.

This month’s Pulse Survey focussed on aspects of Health – from exercise and food to the extent to which you insure your most important asset – yourself.

phySICal aCTIvITyIt is well recognised that participating in physical activity is good for the mind, body and soul. With this in mind, the Australian Government Department of Health and Ageing recommends at least 30 minutes of moderate intensity physical activity almost every day. Following its 2009-10 Multipurpose Household Survey, the Australian Bureau of Statistics (ABS) published the following results in their June 2011 Australian Social Trends series (catalogue 4102.0):• 64%ofAustraliansaged15yearsandoverhadparticipatedinsport

or physical recreation at least once within the previous 12 months.• 30%ofalladultshaddonesoregularly–morethantwiceeach

week.

While participation in sport generally declined with increasing age, this was not the case for regular participation with the 18-24 year olds (26%) less likely to be regularly involved in physical exercise than the 55-64 year olds (34%).

hOw dId RESpOndEnTS TO ThIS SURvEy faRE?• 88%ofrespondentsreportedparticipatinginexerciseatleastonce

each month.

• 69%ofrespondentscanbeclassedasregularparticipants(morethan twice each week).

While I have to recognise the potential for self selection of respondents towards those who are more energetic, this is a starkly different result compared to the national average. It is however more in line with the ABS results for the segment of the population in the higher education and income groups.

mOST pOpUlaR SpORTS and phySICal RECREaTIOn aCTIvITIESThe graph below shows the ten most popular sports for the respondents of this survey.

Around 60% of respondents participate in two or more types of activities. However walking for exercise is clearly the most popular for both men and women. The order of popularity is generally consistent across age groups, with the exception of males up to age 35 for whom running for exercise is preferred over walking. The ABS survey had similar results. The top five sports (in order from most popular to least) for the general Australian population in 2009-10 were:

The actuarial pulse

Do You Think You Are Healthy?

0% 10% 20% 30% 40% 50% 60%

Other Field Sports

Yoga/Pilates

Football Codes

Golf

Tennis

Swimming

Cycling

Gym Work

Running

Walking

Female Male

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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.

• Walking;• Gymwork;• Cycling;• Running;and• Golf(Males),Swimming(Females).

hOw fIT and hEalThy aRE yOU?Firstly, of the 325 respondents, 73% considered themselves to be fit and healthy (slightly higher for females than for males) with the statistic generally increasing with age.

The question of ‘Are you fit and healthy?’ of course is subjective. However there was reasonable consistency between respondents as to what level of fitness was considered as being ‘fit’. Using the survey scale – around 90% of respondents stating they were ‘fit’ gave themselves a fitness ranking of six or above. 80% of this group exercise at least a few times a week. The remaining 20% who classified themselves in the ‘fit and healthy’ category exercise no more than once per week. Perhaps it is the case that this group are thinking more of the ‘healthy’ part than the ‘fit’ or are kidding themselves.

why ExERCISE?The main reasons why those that exercise do so, are to stay fit and healthy, feel good and to release stress.

The importance of exercise for staying fit, feeling good and stress release continues as we get older, with even more relevance placed on staying fit. In the ‘other’ group the most popular answers were ‘walking

the dog’ or ‘it’s part of the daily commute’. conversely – the two most common responses in respect to not

exercising relate to lack of time and motivation – they just can’t be bothered.

ThE fOOd wE EaTThe ABS stated in the June 2012 release of their Australian Social Trends series, that:

‘There are a small number of risk factors that account for much of the morbidity and mortality attributed to non-communicable disease. These include: tobacco use, excessive alcohol consumption, being overweight or obese, insufficient physical activity, high blood pressure, high concentrations of cholesterol in the blood and inadequate intake of fruit and vegetables.’

Through this and a previous survey we will have covered off – tobacco use, alcohol consumption, physical activity and diet. Assuming the respondent sample is indicative of the actuarial community, we can rule out tobacco use as being an issue as there were very few smokers.

According to the ABS, apparent alcohol consumption in Australian in 2008 was 10.3 litres of pure alcohol (higher than the oecD average of 9.6 litres per person). This equates to an average of 2.2 standard drinks per day per person. Alcohol consumption may be an issue for the health of a segment of the respondents to the previous survey (those who had more than 10 drinks per week). But for most, alcohol is unlikely to be a significantly contributing risk factor to their health.

What about diet?

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Look Good

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dIET – ThIS SURvEy..54% of female respondents and 60% of male respondents believe they have a healthy diet. Those who put themselves in the unhealthy zone represent 9% of females and 13% of males. of those that have a healthy diet, approximately 85% also put themselves in the ‘fit’ category (with a slightly higher percentage for females than males). So, what is this telling us – females are fitter and eat better than the guys – or they just believe they do?

How does this perception of a healthy diet stack up against our junk food frequency scale? You have probably heard the statement that junk food should be a ‘once in a while’ food rather than a regular part of your diet. And we all know there are good reasons for this – junk food is usually higher in any of sugar, fat, salt or preservatives. 85% of the respondents who classified themselves as having a healthy diet eat junk food less than once per week, which I classify as ‘once in a while’. The remaining 15% ate junk food at least once per week – including three respondents who admitted to eating junk food every day. Hmmm. can you eat that much junk food and still have a healthy diet?

Just over half of all respondents are regular participants in junk food enjoyment (and yes you can’t deny it – junk food usually tastes very nice!) In this case regular has been taken as being at least once per week. 25% of all respondents admit to eating junk food more than once per week. There is a clear difference between the diets of those under 35 and those over 35. A whopping 65% of the under 35s undertake regular junk food indulgence compared to 38% of the over 35s.

InSURanCEIn December 2011, the Money Management website (www.moneymanagement.com.au) had an article detailing the results of the comminsure Life Insurance Survey undertaken by Newspoll in November 2011. 1220 Australians aged between 18 and 64 were surveyed. The article acknowledged through various sources the level of under insurance in the Australian market. In particular the survey found that only 18% of participants had increased their life insurance beyond the default level. In addition respondents were more likely to have life insurance through superannuation only, rather than hold it separately.

This compares to the respondents of the Pulse survey – 45% have levels of life insurance above the default level, 29% have additional levels of total and permanent disablement and 29% have additional levels of disability income.

The proportion of respondents with additional life insurance and disability income increased with age (up to age 60). The proportion of those with additional total and permanent disablement did not vary significantly between age 25 and age 60.

of those with additional cover, 36% had only one type of cover, 30% had two and 34% had all three. Where only a single additional cover was in place, it was mostly life insurance.

TRaUma InSURanCETrauma Insurance first appeared in the Australian Market in the 1980s. The purpose of the policy is to mitigate the financial exposure associated with the occurrence of a medical trauma.

Since its origin there has been considerable change to the definition of what constitutes a trauma. Initially it covered the major traumas – heart attack, cancer, stroke. Definitions were refined to ensure a certain severity and proof of trauma before the policy was able to be called upon.

More recent market discussions regarding Trauma Insurance have centred on the definition of a heart attack and whether it can be purchased within a self-managed superannuation fund without breaching the sole purpose test.

Based on the group of respondents to the survey it is not a highly desired cover – taken out by only 14%.

InflUEnza vaCCInaTIOnI put this question in the survey because it is related to health, but mainly because I get the flu jab most years and wondered how many others do as well. It is considered by many companies financially beneficial to fund the cost of the vaccination for employees with the expectations of reducing time off work due to illness.

40% of respondents received a flu shot this year. The proportion was slightly higher for females (45%) and slightly lower for men (38%) and generally increased with age.

Although I get the flu shot most years, each year I always hesitate – through fear of the needle even though it is almost completely painless. I read an interesting article written by Brad Newsome from the Sydney Morning Herald (5 May, 2011). He finished the article by stating ‘...Assessing risk is something that humans are notoriously bad at. Most of us probably don’t know anyone who has been killed in a car accident in recent years but we all still wear seat belts. And since the flu toll is probably higher than the road toll, mightn’t it make sense to wear a seat belt against the flu?’ Perhaps. Perhaps. Perhaps.

The actuarial pulse continued

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Title… Principal Actuary Organisation… Marsh

Summarise yourself in one sentence… Wife, mother and actuary

my interesting/quirky hobbies… owning and managing a sheep farm

my favourite energetic pursuit… Bushwalking and shearing

The sport I most like to watch… Anything live. Sadly nothing at all regularly

The last book I read (and when)… I’m still working my way through Potty Training in 24 hours. It’s technical. I’ve also been reading There’s a House Inside My Mummy to my toddler this last week to explain to him why I’m getting so fat. (I’m currently waiting for child number two)

my favourite artist/album/film… Bach and Playschool

The person I’d most like to cook for… My husband. I know he will eat it and love it

I’m most passionate about… Publicly? The beauty of the Australian countryside and sheep. I’m passionate about just about anything that I think is important

what gets my goat… Waffle. Inefficiency

I’d like to be brave enough to… Never worry about what anyone else thinks

In my life I’m planning to change… My mind

not many people know this but I… Am currently training to be a Breastfeeding counsellor and I am an active volunteer in my local Australian Breastfeeding Association group

four words that sum me up… Practical, logical, creative and thoughtful

what I wanted to be when I grew up… A ballet teacher as a girl, a vet in my teens and a successful actuary from 18. Now when I grow up I just want to try to continue to be as happy as I am right now

why and how I became an actuary… I thought an actuary was the real life equivalent of superman – travelling around the world solving problems. Now I’m pretty sure that’s what it’s all about

where I studied to become an actuary and qualifications obtained… Initially for four years at the Australian National University. Then I carried my study notes with me around the world for another six years before I managed to finally pass the exam. I’m a FIAA and BActS (1st Hons)

my work history… Pwc GI consulting, cBA operational risk management, Tillinghast GI consulting (based in UK) and then Marsh

what I find most interesting about my current role… The variety of work (we get to choose the work we want to do)

my role’s greatest challenges… Fitting everything I want to do into three days in the office

who has been the biggest influence on my career (and why)… I’ve been lucky enough to work with and learn from lots of people. George Maher (client-focus), Dave Powell (professional obligations) and Ian Phillips (managing others). My husband has probably had the biggest influence on my career. As well as working together for six years previously, his support to return to work part-time when our son was three months enabled me to continue in my current role

my proudest career achievement to date is… Probably qualifying. Not that there aren’t other things I’m proud of, but nothing that took quite so darn long to achieve!

10 years from now, I will be… Wondering what on earth I was thinking when I wrote some of these responses when I retire, my legacy will be… Any influence I’ve had on less experienced actuaries, or on others’ perceptions of what an actuary is

The most valuable skill an actuary can possess is… Listening

If I was president of the Institute, one thing I would improve is… reinstatement (or introduction) of some archaic actuarial traditions and a bit more pomp. Not really sure that would improve anything, but gosh I’d have a good time doing it

at least once in their life, every actuary should… Do something that scares them

my best advice for younger actuaries… Ask for advice from more senior actuaries

If I could travel back in time I would… Umm… be able to improve on my estimates of actual outcomes up till now?

If I win the lottery, I would… Be very surprised! I might buy myself a plane

Jacqueline [email protected] the spotlight

Jacqueline Reid These are two of our rams. does your office have a view like that?

This is me bushwalking. I always wear that dress in the bush!



I n September I went on the cPD National Tour – Be an Influential Actuary and The Influential Leader presented by

Dave Miller, accompanied by Melinda Howes and Lisa Pronesti from the Institute events Team. We visited six cities over 12 days and Dave presented eight sessions. It was an enlightening experience for me as I had the opportunity to meet and speak to many of our members in various locations. reflecting on the experience, a few things struck me that I would like to share with you.

Wherever I travel outside of Sydney I find the profession has a strong sense of community although it is not expressed as frequently as it once was. Many people commented on the opportunity our visit provided for them to catch up again with colleagues or meet other members for the first time.

When I began in the profession as a student in the late 70s there were about 400 Fellows and we had the luxury of time - time for people to write relevant papers for discussion at regular sessional meetings, time to read and think about the papers (usually at the office) and time to attend the meetings in the AMP Theatrette. Meetings were more formal then and the first thing you did on arrival was let the President know if you wanted to speak so you could be put on the list. There were no presentations because the paper was read beforehand. The author spoke at the end to respond to the speakers whose comments usually began with “I would like to thank the author for such a timely paper”. It was a great way to get to know people from

the most senior ceos to fellow students.To me, this was the golden age of the

professional community. But today we no longer have the luxury of time and it is the professional community that pays the price. Although there are some notable exceptions, the major employers of actuaries, those who benefit from the profession in many cases, give little or no support to the professional development of actuaries, apart from perhaps paying fees. I find it hard to understand why the extensive training budgets are often

directed to a one-size fits all training programs rather than allow flexible professional development to enrich the skill sets of the organisation and in all professions, not just actuaries.

It was in this community environment that I learnt my first lessons in influencing by speaking and arguing (in the true sense of the word) a point with my peers,

but today it’s difficult to attract a wide range of the profession to regular events (apart from the conventions and forums of course). We can’t turn back the clock but we can do our best to encourage and participate in a professional community. This is how we learn, how we share ideas and how we continue the profession for those who follow us. I know as well as any of you the pressures on our time and I encourage you to participate, to prepare as best you can for meetings and to spend time talking to your colleagues rather than rushing off as soon as a meeting ends. For those presenting, abandon the multitude of PowerPoint slides and leave at least half the time for input from the floor. Help your colleagues out by issuing at least a synopsis of your points before the meeting, so we can come prepared to debate and to challenge and so we can learn form each other, as this is one of the great strengths of a profession.

In my travels I heard a number of comments such as “My friend has moved on from Actuarial work. He is now a decision support analyst and is thinking of leaving

the Institute because he doesn’t do actuarial work anymore.” My initial reaction is delight that we are branching out and using our skills and training in what I think is a great example of actuarial work. I then become concerned that too many of our members think that to be an Actuary you need to work in insurance or have a title with 'Actuary' in it. While our training historically has focussed on traditional industries the skills you form are applicable very widely. There are many accountants and lawyers who work in diverse fields doing no traditional accounting or legal work at all yet they still identify with their profession. I believe that pursuing this narrow definition of actuarial work both limits the opportunities for personal advancement and fulfilment and perpetuates the stereotype of the technical actuary.

The goal of council is that Actuaries are in demand as trusted advisers and partners to businesses (not just financial services businesses). The Institute will do all it can to realise this goal but the quickest and most powerful way is for you, who are the profession, to live the vision. I encourage you not to hide your professional qualifications, because your job isn’t exclusively actuarial and say proudly “I am an Actuary” and demonstrate the value you can add to whatever line of work you turn your mind to.

I was very encouraged by the many positive comments I received on passion for the profession, the value of the cPD Tour, the introduction of the Actuary designation, the Institute’s strong public policy and the work of Melinda and her team in improving member services. While there is always more to do, the initiatives of the last few years have been well received.

Speaking of initiatives, council met in September and agreed to continue the strategic direction by focussing on promoting the Actuarial Brand (how others perceive us) and reviewing our education to better equip our members for working in a broader range of areas and better meet the needs of employers. We will be developing specific initiatives around these areas over the rest of the year.

My thanks to the many members who took the trouble to give me their views. It is one of the best ways we have to find out what you think so we can serve you better.

david [email protected]'s Column

Reflections

David Miller, David Goodsall, Melinda Howes –on the CPD National Tour


Review

pERTh

on Monday 10 September Perth welcomed David Miller all the way from the US, along with selected travellers from the Actuaries Institute,

including the President and ceo. Perth was the first stop on the national cPD tour – Be an Influential Actuary and The Influential Leader.

It’s good to see events reaching over to Perth and the Institute being active in its aim to connect more with members.

David’s session was based around the DISc assessment method, with focus on personality types and understanding the environment we are most comfortable in. This allows us to adapt how we work and interact with others to be more effective.

We started the session with a chance to look at our own preferences and to discover where we sit in the ‘DISc world’ quadrant. This gave a chance for the penny to drop as we looked around the room to see how other people liked to work and how this translates to our everyday workplaces.

With our own style in place, we had a chance to go through a series of interactive tasks to practice recognition of other styles and then how best to tailor our approach to these. Through this tailoring we can become more influential in our day-to-day lives, ably connecting with those around us and achieving the desired outcomes from our conversations and interactions with others.

cocktails and an informal chance for networking, ‘DISc world’ style, followed the session – a good chance for the small group of Perth actuaries to get together.

Interestingly, the support act, our own David Goodsall adorned with presidential medal, regaled a large networking crowd, with his actuarial Boardroom ‘war stories’.

A good turn out and an interesting session, thanks for coming across and hope to see you back this way again soon.

James [email protected] Twitter: @J_P_richardson

CPD National Tour – Be an Influential Actuary and the Influential Leader

Renowned international speaker david miller recently visited australia as key presenter of the Institute's Cpd national Tour – the following are reviews by some participants at the various national venues…

Elmear Joyce, Janice Jones, Yan Zhao – Perth

David Miller presenting in Sydney

Ian Hyland, Geoff Baars, Stephen Long – Perth


adElaIdE

The cPD National Tour hit Adelaide on Wednesday 12 September. Many of the local actuaries (and an interstate guest) had an enjoyable dinner with

the President and ceo the night before. While not all who attended the dinner were able to attend the morning session, we had a total of 10 attendees which represented a good cross-section of the local actuarial community. It was pleasing to see the appearance of the presidential medallion in the morning after it was missed the night before.

The session itself was a big success. There were initial concerns that we would all be typecast into only one or two personality groupings, but as Melinda Howes had assured us, there was a good distribution of dominance, conscientiousness and steadiness amongst us. However, no-one fitted the influential mould.

The older members mixed with the younger ones and as the morning progressed it was clear from our behaviour and comments, that most of us had made the correct choice. I am sure we all obtained some valuable insights into what makes ourselves and our work colleagues tick. Preparation for internal and external meetings should now involve some time spent assessing the personality of the attendees to stand a better chance of influencing the outcome. I also observed the value of having a mix of different personality types in the one organisation. Too many of one type could spell trouble.

Many thanks to David Miller for leading the session and to David Goodsall and Melinda Howes for their participation across both days.

Stuart [email protected]

mElBOURnE

Working in the corporate world, you would have come across many instances where you would have had to convince or

influence someone. Being the 'typical' actuary who struggles with communication, I thought attending the sessions Be an Influential

Actuary and The Influential Leader would help improve my ability to communicate with – or better yet, convince someone.

During the course, we were first shown two posters with descriptive words – one tacked on the front of the room and the other at the back. We were then asked to stand by the poster we thought best described ourselves. This was such that people in the front of the room were more active and fast-paced, while people in the back were more thoughtful and careful.

Another two posters were shown on either side of the room. People who were more logical and objective would belong to the left side and people who were more empathising and agreeable were on the right side. This is where we were introduced to the 'DISc' model. People in the front left corner were 'D's, they were more results-oriented and direct. In the front right corner were the 'I's, who were more social and 'ready to party'. In the back left corner stood the 'S's, who were agreeable and disliked conflict. Finally, everyone in the 'c' corner were more detail-oriented and careful.

The concept behind the DISc model was that influencing one 'type' of person required different techniques from another 'type'. For example, small talk would work well with an 'I' person, but not as well with a 'D'. In another instance, a 'c' would appreciate a lot of details, but an 'I' would not.

overall, it was an interesting concept to help us find ways to influence people according to the way in which people think and behave. Perhaps I’ll put some of this to good use!

Cheryl lin [email protected]

Review continued

Adelaide

David Goodsall (far right) with Melbourne delegates


BRISBanE

I recently had the opportunity to attend the session The Influential Leader presented by, US actuary and author of The Influential Leader, David Miller in Brisbane. What made

this session memorable was the interactive way in which it was presented and the entertaining acting involved in portraying the various scenarios. In a typical actuarial manner, there were various opinions involved in interpreting the scenarios which added another dimension to the session. David introduced various tools that can be used in evaluating anyone including colleagues, clients or even spouses to influence and motivate them. Watch this space as I will let you know how it goes with my husband…

This session formed part of the cPD National Tour hosted by David Goodsall and Melinda Howes. The enthusiasm shown by both David

and Melinda on the future of the actuary makes me believe that this profession still has some places to go. And the profession in Brisbane is along for the ride as is evident on its

inclusion in the National Tour dates. With such a group of enthusiastic actuaries

who attended the session and of course the network drinks afterwards, there was a

true sense of fellowship. I look forward to the President’s dinner that will be hosted in Brisbane later this year to meet up with everyone.

In closing, I want to encourage the rest of the Brisbane actuarial community to attend the future cPD sessions. As we all know if there is a demand for something, the supply will follow and hopefully the opportunity to take another glimpse of David’s medal…

Bianca [email protected]

SydnEy

With high IQs, great numeracy skills and superior problem solving abilities, actuaries are undoubtedly an intelligent

bunch. But what about when it comes to emotional intelligence? How good are we at understanding people (including ourselves), at reading situations, and at relating and communicating to others in the workplace?

I see room for improvement in those areas, both personally and in the profession generally. And so I attended the Sydney hosting of the cPD National Tour event Be an Influential Actuary and the more advanced session The Influential Leader presented by David Miller. Due to high demand I had missed out on these same sessions last year and I was keen to make amends.

The cPD National Tour was facilitated by David Goodsall and Melinda Howes, who opened proceedings on the day. David and Melinda reminded us of some of the good

Brisbane

Ralph Collins, Paul Sivyer, Bil Konstantinidis – Brisbane

David Quinn-Watson, Jan Brewer, Hazel Barnett- Brisbane


Review continued

work that the Actuaries Institute is doing, including the recent release of the White Paper ‘Australia’s Longevity Tsunami – What Should We Do?’ which has generated good discussion. David told us that being on a national tour he felt a bit like a rock star, even relating a story of how ‘groupies’ in one city asked if they could touch his presidential bling! But that’s another story….

We were then in the hands of David Miller, who over the course of the day gave us insights into various styles of human behaviour, including identifying which style best described each of us. David is the founder and ceo of Leadership Growth Strategies and is an actuary and internationally recognised expert in human development. Using the DISc framework, David soon had the room divided into decisive, direct and daring doers (the D-types); intuitive, inclusive and interactive I-types; steady, supportive and security conscious S-types; and compliant, cautious, careful checkers (the c-types). All groups were represented, but some clearly in greater numbers than others (no prizes for guessing)!

David acknowledged that the divisions were approximate (and he provides a more comprehensive on-line assessment for those interested) but they were still highly indicative and informative. each of the behavioural styles has a different preferred style of communication. Understanding your own style, and the various styles of people that you interact with, provides a powerful means by which your communication can be tailored to become much more effective and influential. As we found out on the day, effective communication is consistently cited as the most important factor in the careers of successful and influential actuaries.

If you get an opportunity to attend these sessions in the future, then I recommend that you take it. With an actuarial background, David clearly understood the communication challenges faced by the profession, and the tools that he provided, while not unique, were well targeted and very useful in meeting these challenges. Kudos also to the Actuaries Institute, both for recognising this common gap in the actuarial skill set and for organising David to undertake this national tour.

paul [email protected]

CanBERRa

canberra was the last stop on the cPD National Tour, so the team was well-practiced when they reached us. There was a good mix of attendees with

private, education and government sectors all represented as well as a wide range of levels of experience. (Yes, there is a private sector in canberra and it does employ actuaries!)

David brought us quickly back up to speed on the different behavioral 'styles'of people. We then went through the techniques he recommends help bring about desired outcomes when one needs to influence someone: be it a manager, a peer, a team member, or even in a personal relationship. David used three differing but complementary 'lenses' for how to view a given situation. The tools used to bring about change essentially boiled down to a few key factors – perhaps the most prominent was that people make decisions in life in order to gain more control. So where a decision is required, ensuring that someone 'stays on board' with a shared goal requires recognition be given to this need.

As a small group there was a high level of participation and interaction – everyone had something to say through the course of the session. The scenes were almost jovial when discussing the video examples of one manager dealing with the various personality types in her team.

I wasn't able to stay for the drinks afterwards, but by all accounts this was a highlight. Thanks to the Actuaries Institute for making the effort to bring this type of event to canberra: we're a small actuarial community and opportunities to get together are appreciated.

Bridget Browne [email protected]

David Miller, Debbie Hansen, Tracy Thomas, Jonas Lloyd, Melinda Howes – Canberra

Sydney participants


This month I’ll talk about something that has been popular with our emperor for a generation, but which current circumstances demonstrate is as much a fad as anything else. I am talking about the

absurd oxymoron – 'market value'.

lIvIng In wIldE TImESoscar Wilde understood stock markets better than most experts, it seems. He knew that only someone who is impossibly lost in cynicism thinks that the price something sells for in the market in any way represents 'value' for the commodity. The 'value' of something is what you get out of it; the 'price' is what it costs. The difference between 'value' and 'price' determines whether you should be buying or selling (if you are sensible). Mix the two up, and you run around in circles like a dog chasing its tail.

So why do our regulations give credence to market prices by insisting that we use them to value our assets? Presumably because we have 'nothing else objective' to use. That makes about as much sense as beating a dog with a stick and then arguing, “Well, what else am I supposed to use the stick for?”

gIvIng CREdEnCE TO ThE InCREdIBlEWhen asset portfolios are valued using the market price, exactly the wrong message is sent to the average investor. When bananas skyrocketed in price a couple of years ago, did the newspapers proclaim: “Bananas triple in value”? of course not! The headlines read 'Bananas expensive this year' – so people stopped buying them until the price came down again. That is how a market is supposed to work.

Stocks and shares are different, apparently. When prices go up, the experts rush to buy more – because their 'valuations' tell them they are giving 'positive returns'. When prices go down, they earn 'negative returns' so they sell out. The result? A goldilocks market – it’s either 'too hot' or 'too cold'. Supply and demand, which should bring stability, just exaggerates the swings.

wanT TO BUy a Bank?one of my clients in UK was recently trading on the LSe at about 60% of embedded value. What we are talking about here was a life company that was running off closed fund

business. I have tried hard to work out how this fund could possibly be worth much more (or less) than embedded value – but presumably the market knows best.

even more absurd is the current price of bank shares in Australia – I am sorely tempted to write the following letter to my bank manager:

Dear Sir,I note that you are currently willing to lend money for investment purposes at 7.04%. I have become aware of a great business opportunity – a blue chip company with a dividend yield of 9.65% after tax. can you therefore pleaselendme$74billiontobuyoutyourbank?

How is it possible (in a sensible business environment) for Westpac and other similar bank shares to be trading at a dividend yield almost 3% higher than business loan rates?

On a SERIOUS nOTEAustralia’s superannuation industry is worth something inexcessof$1trillion.Thismoneyoughttobeinvestedsignificantly in Australian businesses – in the interests of the businesses, and also in the long term interests of the members of the super funds. Instead, the GFc has members spooked, which has caused a massive disinvestment, which has further depressed prices, etc.

How long will it be before the 'solvency' of some financial institutions is threatened because the market is scared of its own reflection in the mirror?

Here’s an interesting thought: suppose the regulator got pro-active and prescribed a valuation basis for ASX 200 stocks based on historical average dividend yields or Pe ratios? My guess is that market forces, driven by the solvency needs of the major institutions, would drive prices back towards the regulator’s valuation. Might not this approach fix the current economic 'crisis' (at least in Australia, where the fundamentals of the economy are sound) by giving the emperor back some real material to make his next suit of clothes with?

phil Stott [email protected]

“what is a cynic? a man who knows the price of everything and the value of nothing.” – oScAr WILDe, 'LADY WINDerMere’S INveSTMeNT PorTFoLIo'

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The Emperor’s wardrobe manager –making fun of the latest fads in financial services…


kEynOTE and plEnaRy SpEakERS

The keynote address will be given by Ian harper, one of Australia’s leading economists. Ian was a member of the Wallis committee which led to the

establishment of APrA. Ian’s address will lead into the first plenary session I Regulation, where Ian will be joined by Ian laughlin from APrA, Blair nicholls, Independent Actuary, and Tim Clark, chief Actuary of IAG. The panel will discuss the state of regulation in the general insurance industry, what has been achieved over the last 10 years, and whether we are in danger of being over-regulated.

The second plenary will have a presentation from peter mcCourt summarising industry’s response to recent catastrophe experience, which will lead into a discussion with peter martin, daniel Smith, Charles pollack and david Sinai on current issues facing insurers and reinsurers, and whether a national flood pool is still a good idea.

Tuesday morning will kick off with the third plenary – Pricing in Mandated Markets and the Actuarial role. Prompted by the Motor Accident Authority’s rejection of all insurers’ rate filings late last year, the panel will discuss how to balance the conflicting aims that inevitably arise when a compulsory line of insurance is sold for profit, and the actuarial role in rate making. andrew nicholls from the Motor Accidents Authority will be joined by darren Robb, Estelle pearson and vicki mullen from Insurance council of Australia.

The seminar will conclude with the fourth plenary – The Future of Insurance, framed by a talk from Scott fergusson from Pwc, with participation from gloria yu, ash Evans, and keri lee.

COnCURREnT SESSIOnSThe concurrent sessions deal with several areas of change faced by the general insurance industry.

The large number of catastrophes that have occurred in the last couple of years have been a material driver in reducing profits for general insurers. Public discussions on climate change

point to a future where natural catastrophes will continue to play a big part in the volatility faced by insurers, thus fuelling the demand for more sophisticated catastrophe modelling. Several papers will deal with modelling issues, while others will propose ways of better managing catastrophe risks.

The regulatory landscape is also undergoing change. APrA’s new regulatory requirements, IcAAP, are to become effective from January 1 2013. A number of papers will look at the key considerations of the new capital calculations and management process. In addition, the recent reforms to the NSW accident compensation schemes have spurred the debate around the possibility of privatisation of such schemes and the appropriate premiums to charge. This will be looked at in detail by several papers.

As in past general insurance seminars, a number of papers will also explore the challenges of pricing decisions. There is a good mix of papers that are more technically focused and those that deal more in the application of commercial decision making in determining the price.

In addition there are papers looking at strategies for the management of general insurers and a number of niche products. Papers and presentations in each section will cater for the interests of a wide audience.

nETwORkIngThe Gala Dinner will be held at the Ivy Ballroom and will be a fantastic opportunity to network with colleagues and friends. The entertainment on the night will showcase the musical talents of the Actuarial profession. Be sure to come and watch ash Evans hip hop version of The Final Countdown and be mesmerised by rick Shaw’s Neil Diamond medley – "I am," I cried "I am," said I. This is a not-to-be-missed event!

ORganISIng COmmITTEErick Shaw Andrew Smithvivian Tse Gae robinsonDan Tess Hayley ShepherdAngela Tong Ash evansemma Simonson Lisa Pronesti

Event

Partners

gis general insurance seminarTides of Change12-13 November 2012 • Sofitel Sydney Wentworth

Register online now for this event www.actuaries.asn.au/GIS2012

•AMajorBiennialIndustry Event

•HighProfileSpeakers

•FourPlenarySessions

•27ConcurrentSessions

•BusinessNetworking

The Seminar attracts: Senior Executives; Chief financial Officers; Chief Investment Officers; Risk professionals; actuaries; Underwriters and Regulators from australia and overseas.


Ian laUghlInMember, APRAIan was appointed as a Member of APrA on 1 July 2010 for a three-year term. Ian has extensive board and senior management experience in the Financial Services industry, including as Managing Director of the United Kingdom life insurance subsidiaries of AMP (Pearl, London Life and NPI) and as a Non-executive Director and Audit committee chairman of AMP Life. He has worked at AMP, Suncorp and National Mutual, in Australia, New Zealand and Hong Kong.

TIm ClaRkChief Actuary, IAGTim is the chief Actuary at IAG. Prior to joining IAG, he spent 19 years at Swiss re, working in a variety of senior positions in Australia, Switzerland, Hong Kong and the United Kingdom. With over 20 years of international experience as an Actuary and risk Manager, Tim has led underwriting and pricing teams, operated as Appointed/Approved Actuary in multiple regulatory regimes throughout Asia, as well as Head of Group operational risk Management. Tim's experience spans both the property and casualty (general insurance) and life and health insurance industries.

BlaIR nIChOllSIndependent ActuaryBlair has worked at QBe for 18 years and was appointed Group chief Actuarial officer in 2006. He has been with QBe since 1994 and has undertaken a variety of roles including spending three years in QBe’s London office as the chief Actuary for QBe’s european operations and, prior to that, a number of positions in QBe’s Australian operations. He will be stepping down from his role at QBe on 31 December 2012 to pursue another exciting opportunity.

ChaRlES pOllaCkChief Actuary, Youicharles has been working in General Insurance for 18 years. Through that period he has focused on personal lines, in particular pricing analysis, pricing systems, customer behaviour and portfolio optimisation. charles was heavily involved in the implementation of the first full risk-address-pricing solution in the market and subsequently the introduction of full flood cover with risk- address-pricing. He was also a member of the Insurance council of Australia's Flood committee.

pETER maRTInAustralian Government ActuaryPeter has been the Australian Government Actuary for most of this century. In this role, he has advised Government on a wide range of public policy matters. Following the 2011 floods he has dabbled in several aspects of policy around natural disaster relief and recovery. He is still dabbling in it.

Ian haRpER – kEynOTE SpEakERPartner, Deloitte Access EconomicsIan is one of Australia’s best known economists. He has worked closely with governments, banks, corporates and leading professional services firms at the highest level. Prior to his current role as Partner at Deloitte Access economics, Ian held various roles at Melbourne Business School for over 16 years and was elected emeritus Professor in recognition of his service on his departure. He has also served as inaugural chairman of the Australian Fair Pay commission and was one of three panelists on the Independent review of State Finances in victoria.


Event continued

pETER mcCOURTDirector, PwCPeter is a director at Pwc Actuarial and has over 13 years experience consulting to general insurance companies and accident compensation schemes. For a number of years he has been interested in the way that property losses from natural disasters are funded post-event, and at the 2010 General Insurance Seminar he co-wrote a paper on the topic. The paper highlighted the variable nature of post-event funding, and concluded that a natural disaster insurance scheme would be a good thing for Australia.

davId SInaIHead, Property Treaty Underwriting ANZ and Director, Property & Specialty, Swiss ReDavid started his career at Swiss re 15 years ago as a natural catastrophe analyst and then as an underwriter. In 2003 he became the Head of Property Treaty Underwriting for Australia and New Zealand, focusing on managing a market-leading portfolio of catastrophe excess of Loss treaty business for the last several years. David is a co-author of the Swiss re publication Natural Perils in Australia and New Zealand and holds positions on both the Leadership Team of Swiss re Australia Branch and risk Frontiers Advisory Board.

daRREn ROBBSenior Manager of Actuarial Research, Allianz AustraliaDarren is the Senior Manager of Actuarial research at Allianz Australia and is responsible for pricing and monitoring across their general insurance products. He has worked in the General Insurance industry for 13 years in both corporate and consulting roles, with a particular focus on the cTP schemes. He has been involved in premium rate filings for the NSW cTP scheme since the current scheme began in 1999. He is currently the chair of the Actuary Institute's working party on Profit Margins.

ESTEllE pEaRSOnManaging Director, Finityestelle is Finity’s Managing Director and is a qualified actuary with 20 years experience in general insurance. Her particular areas of expertise include medical malpractice insurance, cTP insurance, public liability and professional indemnity insurance, reinsurance and lenders mortgage insurance. estelle holds a number of Appointed Actuary and external Peer review Actuary positions.

andREw nIChOllSActing General Manager, Motor Accidents AuthorityAndrew has been the Acting General Manager of the Motor Accidents Authority (MAA) since November 2010. Andrew has more than 25 years experience in a number of policy, strategy and planning roles for the NSW Government. Prior to joining the MAA, he was the Director of Policy and reform at NSW Transport and Infrastructure. Andrew is currently a Director of the Personal Injury education Foundation and former vice President of the NSW Institute of Public Administration Australia.

danIEl SmIThActuary, Taylor Fry; Vice President, Actuaries Institute Daniel is an actuary at Taylor Fry and is currently the vice President of the Actuaries Institute. In relation to the challenges faced by natural disasters, Daniel is of the view that although awareness is increasing, meaningful actions have been side-tracked and resilience is potentially only a dream.


SCOTT fERgUSSOnPartner, PwCScott is the Insurance Sector Leader for Pwc Australia. Scott has been with Pwc for over 20 years focusing on providing assurance services and advice to insurers and other businesses involved in wealth creation and protection. He also has experience in due diligence, regulatory compliance, risk advice and change delivery services. Scott chairs Pwc’s quarterly Insurance cFo discussion group lunches and is responsible for Pwc’s leading publication in the Australian insurance sector, Insurance Facts & Figures.

kERI lEESenior Consultant, PwCKeri is a Senior consultant at Pwc in the General Insurance team. She specialises in the pricing, incentive structure calculations and monitoring of accident compensation schemes. Previously Keri worked part-time as a tutor for the Actuarial Department at Macquarie University and developed a passion for teaching and effective communication with her fellow peers and students. Keri is active in the actuarial community as President of the Young Actuaries Program and a volunteer for the Actuaries Institute.

aSh EvanSActuary, Taylor FryAsh is a recent addition to the actuarial ranks. Having completed his PhD in 2008, Ash joined Taylor Fry in order to change the world. everybody agreed that this was ambitious for somebody who doesn’t know how to change his car’s oil. Ash became a Fellow of the Institute of Actuaries of Australia in 2011. He specialises in personal lines, providing insurers with risk pricing and demand modeling advice. As a member of Taylor Fry Analytics, he provides tailored solutions to complex problems.

glORIa yUDirector, DeloitteGloria is a Director at Deloitte, where she is helping build the General Insurance actuarial practice. She has been working in the General Insurance industry since 2001 and has experience in various corporate and consulting firms. Prior to joining Deloitte, Gloria worked at Westpac/BT on the merger between Westpac and St George. She is heavily involved with theActuaries Institute and has served on the council since 2009 and is a member of a number of committees. She has a strong interest in enterprise risk Management (erM) and has worked on developing strategic and operational plans for erM within the actuarial profession. Gloria has also assisted with the Institute’s education program in numerous capacities.

vICkI mUllEnGeneral Manager, Consumer Relations and Market Development, Insurance Council of Australiavicki has been the General Manager, consumer relations and Market Development at the Insurance council of Australia (IcA) since January 2012. She is a lawyer with more than 18 years of experience in legal, public policy and regulatory affairs. Previously, vicki was a Senior Policy Manager at the Financial Services council (FSc) and responsible for the FSc's Life Insurance Board committee. She has also worked for IAG (Senior Manager in cTP), the Actuaries Institute (Director of Governance), a senior NSW Minister, the NSW cabinet office and the NSW Parliament.

REgISTER nOw – www.actuaries.asn.au/gIS2012

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Event

erm enterprise risk managementseminarERM Means Business

In an ever changing business world, developing and embedding erM to the operation and culture of an organisation is something that every

corporate should be striving to do! This Seminar's Keynote Address will be

delivered by david murray. The extensive one day program will examine:

Register Nowwww.actuaries.asn.au/ERM2012

davId mURRay– kEynOTE addRESSSenior Advisor, Credit Suisse; Member of the Senior Advisory Board, Oliver WymanDavid has over 39 years banking experience and is currently a Senior Advisor at credit Suisse in Sydney. He is also a member of the oliver Wyman Senior Advisory Board and a consultant to olbia Pty Ltd and the commonwealth Treasury. Prior to joining credit Suisse, David held positions as the ceo of commonwealth Bank of Australia and chairman of the Future Fund. He has previously served as a member of the Finance Sector Advisory council and the APec Business Advisory council and is the inaugural chair of the International Forum of Sovereign Wealth Funds. In 2001 he was awarded the centenary Medal for service to Australian Society in banking and corporate governance and in 2007 he was made an officer of the order of Australia (Ao).

JaRROd maRTInDirector, Banking and Finance Equity Research, Credit SuisseJarrod Martin is a Director at credit Suisse in Sydney, covering the Banking sector. Jarrod joined credit Suisse in March 2010 from rBS/ABN Amro where he has covered the banking sector since 2004. In 2009 Jarrod was rated 1st by the Peter Lee Survey (Top 15 investors). Prior to rBS/ABN Amro Jarrod held positions within the Strategy and Merger and Acquisition team. Jarrod holds a PhD in Physics along with a 1st class Honours degree (Physics) from the University of New South Wales.

Supporting Partner

CFA SocietiesAustralia

14 November 2012 • Sofitel Sydney Wentworth

• ManagingAssetRisk• RiskAppetite• Stress Testing• The integration of risk into one holistic

picture• RiskCulture• WheretoFromHere

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Keynote Address

Plenary Speakers


BEn BOlOTChief Risk Officer, Origin EnergyBen joined origin energy as chief risk officer in october 2011 and is responsible for the enterprise risk management systems across the business. He has over 15 years experience in the energy and utilities sectors across a number of geographical jurisdictions, primarily in mergers and acquisitions. Ben has either led or been involved in a number of private acquisitions, divestments and complex joint ventures. Prior to joining origin energy, he was a founding partner of Minerva Advisory. Ben has also held senior roles in the infrastructure division of an Australian investment firm as well as at centrica plc. He is a chartered Accountant, Barrister and Solicitor.

phIlIp TwymanCompany Director, Medibank PrivatePhilip is a professional company director who holds several directorships in Australian public companies in the insurance and financial sector, including Perpetual, IAG, Medibank Private and the Swiss re Group. He was formerly Group executive Director, Aviva plc, based in London and director of several other insurance and stock broking companies. Prior to joining the Aviva Group he was a senior executive at AMP.

CRaIg mEllERManaging Director, AMP Financial Servicescraig has been the Managing Director of AMP Financial Services since october 2007 and he has more than 28 years experience in the finance industry. craig started his career at Lloyds TSB (United Kingdom) in a number of management roles across the business. He has also held positions as Director of Product Manufacturing for AFS, Managing Director of virgin Direct, Managing Director of the Ample and Interactive Investor subsidiaries (AMP’s United Kingdom business) and Managing Director of AMP Banking. craig is Deputy chair of the Financial Services council Board (FSc) .

SEan CaRmOdyHead of Credit Risk, Group Risk, Westpac Banking CorporationSean is the Head of credit risk at Westpac Banking corporation (Westpac). Prior to his current role, Sean was an independent consultant, including working with Westpac on redeveloping their operational risk capital model. He has also held positions as the Head of Fixed Interest at Barclays Global Investors Australia, Head of credit Portfolio Management at Westpac, Director at categorical Solutions and Head of Quantitative Analysis at Deutsche Bank Australia.

Ian laUghlInMember, APRAIan was appointed as a Member of APrA on 1 July 2010 for a three-year term. Ian has extensive board and senior management experience in the Financial Services industry, including as Managing Director of the United Kingdom life insurance subsidiaries of AMP (Pearl, London Life and NPI) and as a Non-executive Director and Audit committee chairman of AMP Life. He has worked at AMP, Suncorp and National Mutual, in Australia, New Zealand and Hong Kong.

lESlEy BROwnRegional Practice Leader of Employee Surveys, Towers Watson Asia-PacificWith over 22 years experience in the field of employee survey research, Lesley’s key areas of expertise include employee engagement measurement and analysis, employment brand and well-being. Lesley is currently the regional Practice Leader of employee Surveys at Towers Watson Asia-Pacific. Before joining Towers Watson, she worked for the Department of Defence, the Australian Bureau of Statistics and another Australian-based employee research firm.


Since APrA released the formal IcAAP requirements in May this year, the insurance industry has needed to come to grips with its scope and criteria. rather than being an overly prescriptive requirement, the IcAAP aims to ensure robust processes are

developed that support effective risk and capital management in the insurance industry.

It is not intended to be a compliance activity. APrA noted in a recent response paper that “the IcAAP is fundamentally an internal process that must be overseen by the insurer’s Board and adapted to the specific nature of that insurer’s business and structure”. Indeed, a key aspect of the IcAAP requirements is that companies must take it into account when making business decisions.

clearly, APrA’s new capital standards, part of its Life and General Insurance capital (LAGIc) review, extend beyond the technical detail of calculating regulatory capital. So, what is IcAAP, how does it differ from what is required by the current regulatory framework, and what can companies do now to integrate it into their business?

whaT IS ThE ICaap?This is the process by which the company ensures that it operates with an appropriate level of capital. However, the prudential standards require the IcAAP to cover a broad range of activities beyond simple capital management. In fact, the IcAAP encompasses a large part of a complete enterprise risk Management (erM) framework. The IcAAP brings together risk and capital management activities in a form that can be used to support business decisions.

companies without a fully embedded erM framework should view the IcAAP as an opportunity to package aspects of erM activities in a format that allows the business to gain benefits from them.

Given that the IcAAP is fundamentally about how a company manages its risk exposures, it makes sense that its level of detail will vary depending on the nature, complexity and scale of the risks inherent in an individual business.

The IcAAP standards incorporate certain minimum requirements, while the recently released draft Prudential Practice Guide (PPG) focuses on what the IcAAP is intended to achieve, rather than how it is to be performed, leaving considerable room for companies to decide on how they implement it. This flexibility should allow each company to iteratively improve its IcAAP over time to better reflect its specific business structure and risk profile.

whO wIll wanT TO UndERSTand ThE ICaap?regulators in a number of markets are looking to incorporate similar concepts as part of their prudential supervision packages. In time, as these practices become standard for insurers across the globe, we would expect aspects of the IcAAP to become key reference points for not only APrA but also other stakeholders such as rating agencies, analysts and shareholders.

hOw dOES IT fIT wIThIn a COmpany’S ERm fRamEwORk?The IcAAP brings together risk and capital management activities in a form that can be used to support business decisions.

It will obviously be immediately reflected in capital management activities but over time, it should also become entrenched in other key operational activities such as strategy, business planning, pricing and product design, risk transfer and asset/liability management.

currently, the Board of a life company is required to submit a risk Management Declaration to APrA every year, however its scope is quite narrow relative to the new IcAAP report. While some companies may already carry out much of the analysis required to complete the IcAAP report (and may include this in the Financial condition report), for others, a significant amount of additional analysis will be required. See the diagram (to the right) for an overview of an erM framework.

IS ThE ICaap JUST anOThER namE fOR a TaRgET SURplUS?The capital management aspects of the IcAAP could be just “target surplus” under a new banner, but this would be an outworking of a deeper consideration of internal capital targets rather than a starting position. APrA has made it clear that it will continue to expect companies to operate with a buffer above regulatory capital.

Although APrA has not mandated the form that target surplus should take under the current regulatory capital basis, there has been a convergence of practice in the industry. While there are variations, generally companies:• holdtargetsurplusasabufferagainstabreachoftheCapital

Adequacy requirement

Report

ICAAP An integral part of business strategy

apRa has set new capital standards for the insurance industry. Towers watson’s anTOn kapEl explains the new Internal Capital adequacy assessment process (ICaap) and how it will impact on business decision-making.

ERm framework


anton [email protected]

• adoptaoneyeartimehorizon,and• targetaprobabilityofsufficiencyaround

97.5% to 99.0%.

Going forward, companies should be considering the issue of how much capital to hold more broadly. The IcAAP effectively requires each company to form its own assessment of how much capital it should hold given the risks it faces and its risk appetite, with APrA explicitly choosing not to prescribe the approach to setting target capital.

various stakeholder views will influence any individual insurer’s position. A pure policyholder view may focus on an ability to meet claims. A regulator view may consider the ability to meet regulatory capital, while a shareholder/debtholder view may target a rating. For many companies, we suspect that the strength of the Australian regulatory capital basis, combined with a low appetite for breaching regulatory capital, will mean that a target surplus relative to regulatory capital will prove the dominant internal capital target.

hOw Can a COmpany USE ICaap and whaT ShOUld ThEy BE dOIng nOw?Some of the benefits of the IcAAP requirements are that companies are forced to explicitly articulate approaches to risk and capital management, to produce results in a format that can inform business decisions, and to report on the operation of the risk management framework.

It is unlikely that integration of the IcAAP into all decision-making across an organisation will be achievable by its start date of 1 January 2013. However, over time we would expect to see that the business cases supporting key decisions will include an impact assessment of the IcAAP’s forward looking aspects.

In this way, the IcAAP would inform:• theannualbusinessplanningprocess• considerationofanyacquisitionsor

divestures• productpricinganddesign,and• asset-liabilitymanagement,reinsurance,

and other risk mitigation/transfer activities.

Most companies should by now be well advanced in planning for the IcAAP. It is important to recognise that the IcAAP is not completely 'new' – as shown in the following table, many of its parts will already exist.

whERE TO fROm hERE?companies should pull together existing materials and processes, then undertake a gap analysis to identify if any parts of the IcAAP are missing (with a focus on the process more so than the calculations required to support the IcAAP report).

once this step is complete, there is

an almost unique opportunity to revisit the approaches taken to risk and capital management, to ensure that there is an alignment between them and risk appetite. Then any gaps in processes can be filled, and finally work can commence on the quantitative aspects of the IcAAP.

COmpaRISOn Of nEw and ExISTIng REqUIREmEnTS

Monitoring of the life company’s compliance with regulatory and target capital requirements

Yes LPG200

IcAAP report (annual report on implementation of IcAAP)

No (other than risk Management Declaration)

requirement to notify APrA of significant deviation from IcAAP

Yes (material deviations from rMF)

LPS220

review process covering adequacy and effectiveness

Yes (for rMF including rMS)

LPS220

Approved by Board Yes (for rMS) LPS220

Aligned with Board-approved risk appetite Yes LPS220

IcAAP Summary Statement (summary of the capital assessment and management processes of the life company)

Some overlap with rMS

Stress testing Yes LPG200

Processes for reporting on the IcAAP to the Board and senior management

Yes (material deviationsfrom risk Management Strategy (rMS))

LPS220

Processes for ensuring that the IcAAP is taken into account in making business decisions

Not explicitly

Policies to address the capital impact of material risks not covered by explicit regulatory capital requirements

Yes (within regulatory capital calculation itself)

LPS3.04

ICaap requirement (lpS110) Existing requirement1 Source

Appropriate to the life company’s size, business mix and complexity of its operations

Yes (risk Management Framework (rMF))

LPS220

Adequate policies, procedures, systems, controls and personnel to identify, measure, monitor and manage the risks arising from the life company’s activities on a continuous basis, and the capital held against such risks

Yes (“continuous basis” is new)

LPS220

A strategy for ensuring adequate capital is maintained over time

Yes LPG200

The means available for sourcing additional capital where required

Yes LPG200

1. For the purposes of this table, we have considered the recommendations included within lPG200 to be “requirements”.

An integral part of business strategy


Review

HOw dId wE gET hERE? TheWorkCoverbalancesheetshiftedfroma$600millionsurplustoa$4.1billiondeficitovertheperiodJune 2008 to December 2011.

Deputy Premier Andrew Stoner said there was "... a growing $4.1billiondeficitmakingtheschemeunsustainablewithoutstrong and decisive reform."

Triggered by this financial situation, policymakers reconsidered the structure of the scheme and whether it was meeting its objectives. These objectives, to paraphrase the Workplace Injury Management and Workers compensation Act 1998 are injury prevention, recovery and support for injured workers, efficiency for employers, sustainable scheme finances and the fairness of the scheme.

A few months earlier, an issues paper presented concerns to parliament, such as premium rate levels, which were higher than victoria and Queensland. The paper suggested:• incomereplacementrateswerelowforseriouslyinjured

workers;• claimantsreturnedtoworkatalowrate;and• healthoutcomeswerepoor.

Workcover’s “limited power to strongly discourage payments treatments and services that do not contribute to recovery and return to work” was another concern.

In May, a parliamentary inquiry into the Workcover scheme was established, reporting in June on its findings around scheme issues and reform options, as well as responses by stakeholders to those options. The stated aims of the parliamentary inquiry were to consider how the scheme was promoting the health of claimants, their return to work and the financial sustainability of the scheme. Submissions were sought from scheme stakeholders and the general community. These revealed quite different

Benefit Reform in NSW Workers Compensation

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“nSw workCover benefits slashed” Sydney Morning Herald, 19 June 2012

“new workers compensation laws a victory for commonsense” NSW Business chamber, 22 June 2012

“The great workers' compensation con” The Drum on ABc, 2 July 2012


harry haggith [email protected]

views on the scheme and the desired outcomes of any reforms. reform legislation passed the NSW parliament in the early hours of the morning on Friday 22 June 2012.

kEy ChangESThe details of the reforms are necessarily complex, as they deal with a range of available benefits and include separate provisions for existing and new claimants. I’ve put together a quick summary of the main changes as I see them:• Generally,higherbenefitswillbeofferedtoworkersuntiltheycan

return to work.• Workcapacityassessmentswillbeintroduced,providingan

opportunity for claim managers and injured workers to consider what the claimant is able to do. These assessments align with similar provisions in schemes in several other states. The benefits available to workers will then depend on deemed work capacity rather than the actual work being undertaken.

• Severelyinjuredworkerswillcontinuetoreceivebenefitsuntilretirement, and will receive a higher rate of weekly compensation.

• Lumpsumbenefitsareofferedthroughasinglepaymentforwhicheligibility now depends more on the claimant’s impairment level.

• Fornon-severeclaimantsongoinglongtermaccesstomedicalbenefits has been limited and the provisions around which medical treatments are 'reasonable and necessary' have been tightened.

• Employershaveagreaterresponsibilityto“findsuitableworkforinjured workers who have a capacity to work” as explained in the Workcover reform fact sheets.

Some workers are exempt from the changes, such as police officers and firefighters, who will continue to receive benefits under the old arrangements together with some additional occupation specific arrangements.

Broadly, these changes direct a greater proportion of the scheme resources to more severely injured workers, which is consistent with other trends in Australian accident compensation schemes.

whaT ImpaCT mIghT ThIS havE On STakEhOldERS?Since the reforms are yet to be implemented, impacts on stakeholders are uncertain, but I will cover some of what I think may happen.

It is likely that employers will avoid an increase in premiums. Since the new benefits line up more closely with schemes such as those in victoria and Queensland, premiums could perhaps, over time, become more closely aligned to the premiums in those states (although there are lots of other factors at play).

Work capacity assessments may shift the emphasis from what a claimant cannot do to what they can do, empowering injured workers and helping them find job opportunities - in either their own or another role. This reflects the growing body of evidence of the detrimental effect of not working on peoples' overall health. Thus returning claimants to work or work-like activities rather than staying at home, improves their long term health outcomes.

Severely injured workers are likely to be better off under the new arrangements. If there are claimants with less severe injuries who are still unable to return to work, their workers compensation benefits will

cease after a period and they will need to rely on other support systems, such as the disability pension or public healthcare system.

For the Workcover scheme and the self and specialised insurers operating in the state, there will be new challenges created by change management and the uncertainty around the reforms. Greater focus on returning claimants to work provides opportunities to improve health outcomes after injury.

And for me, personally, as an actuarial analyst working in accident compensation, the reforms provide interesting challenges for providing information to management, valuing liabilities and determining premiums.


A recent study of Life Insurance Profitability and Pricing conducted by Deloitte highlights that industry participants expect profit margins to reduce across most of their risk business. Profit margins on Disability Income products have deteriorated

significantly over the past two years and lapse experience on Individual risk business has been on the increase over the past five years. Adviser churn was one of the main concerns of participants in the study, and most participants expect new business opportunities to worsen in the next 12 months.

The current challenging market conditions mean that insurers have to look for alternatives to improve profit margins. Data analytical techniques have been used successfully to improve business decision making, leading to:• costreduction;• betterperformingportfolios;• improvedprofitability;and• bettercustomerexperience.

Data analytics identifies correlations between variables and can help suggest outcomes. It interrogates data in an objective and unbiased way, enabling clusters and sometimes unexpected relationships to be identified. This in no way replaces the power and value of actuarial training and experience for interpreting the results, but the beauty of using such analytical techniques is they can be completely objective and unbiased in identifying correlations.

SO whaT SORT Of daTa aRE wE TalkIng aBOUT? Potential data sources for this technique can be classified into two categories: traditional (internal) data sources and non-traditional (internal and external) data sources. Traditional data sources, such as an application form and medical history provide insight into an applicant’s life expectancy. However, it is the non-traditional data sources, such as lifestyle, purchasing, household and even social network data, which are not yet fully used, which can enrich actuarial predictions.

Data analytical techniques to improve decision-making is well embedded in the banking and insurance industries for instance. credit scoring is a classic example of predictive modelling used in both general insurance and banking. credit scores can improve the selection and pricing of home loans as well as personal, auto and home insurance risks.

Applying these techniques for more objective, consistent and optimal decision making in the life industry is still at an early stage in Australia with most developments pioneered in the US. We outline three case studies below which demonstrate ways that analytical techniques have been used to improve the profitability of life insurance portfolios.

UndERwRITIng wITh pREdICTIvE mOdElSUnderwriting is very much about grouping applicants into segments and deciding whether they should be treated as ‘standard’ risks, or whether they belong in some other risk categories. This process can involve quite a number of tests, checks and questions in order to make a decision. It can be costly and time consuming, and can even act as a deterrent to the sales process.

What if, by combining application data with other available data sources about the applicant, we could make inferences about the applicant’s risk profile, based on results from ‘similar’ applicants?

case studies from the US have found that by using an underwriting triage model it is possible to quickly identify applicants who fall into the lower risk categories and so, fast-track their applications. There is no need to send them for tests as the results are accurately predicted by the triage model. This streamlined approach reduces processing time, where the process is more automated, and hence acquisition costs.

Data analytics does not remove the need for experienced underwriters as part of the application process, as the triage model indicates when ‘full’ underwriting should be carried out. However, the benefit is that underwriters can spend their valuable time on the most deserving cases. Underwriters have welcomed this better use of their skills.

Comment

Opportunities for Analytical Techniques in Life Insurance

Disability Income Profit Margins

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25%

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15%

10%

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-10%

-15%

Individual Business Group Business

2011

source: APrA statistics, Deloitte Analysis

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The Graph above compares the outcomes from underwriting using a traditional approach (green line) to that of an algorithmic approach (blue line). While there are areas where the model did not score highly, it is evident from the alignment of both lines on the right hand side of the graph, that there are areas where the model showed high predictive ability.

maRkETIng TO OpTImal CUSTOmERSMarketing is an area where Data Analytics appears to fit naturally. In the early days of direct marketing, companies largely followed a volume approach. In a marketing campaign, the number of new policies sold was broadly proportional to the number of people contacted so, in theory, maximising sales meant maximising contacts. Marketing departments quickly learned that some people were more likely than others to take out a policy, and the science of targeted marketing was born.

With credit card companies and supermarket loyalty programs quietly accumulating huge amounts of data on our spending patterns, the possibilities to fine tune targeting are endless.

At its simplest, a couple who has moved from the city to the suburbs and has started to include nappies in their weekly shopping might display a higher propensity to take up a ‘special offer’ for a new life insurance policy.

However, the power of data analytics really comes into its own when you combine the ability to identify those most likely to take up insurance, with those identified above as being low risk (right hand side of the graph above) and therefore most likely to qualify once taken up. Targeting these optimal customers enables you to get the biggest ‘bang for your buck’.

Benefits:• makethebestuseofalimitedmarketingbudget;• helptoreduceacquisitioncosts;and• helpwithcross-sellingthroughusingdatafromotherproducts.

managEmEnT Of In-fORCE pORTfOlIOThere are a number of ways that data analytics can be used to improve the performance of an in-force portfolio. Segmentation analysis can be used to identify groups of members with high risk behaviours. This can cover a multitude of areas but unusual claim payments (especially on income protection policies) or lapses are likely to get the most interest given their financial consequences. This is one of the areas where data analytics could be used to assist

businesses make better decisions by identifying the policies which are most at risk of lapsing. It may be possible to identify policies that are about to lapse by monitoring policyholder behaviours around premium anniversary dates such as repeated requests for surrender values, or by noting numerous missed or late premiums. A company may choose to focus their retention strategies on those at risk of lapsing and who are profitable to the company. Alternatively, a company may decide that some policyholders are no longer desirable.

Their behaviour might indicate they belong on the left side of the graph. When one of these people misses a premium, the lapse would be allowed to take its natural course. This will enable a company to spend its retention efforts on those policies they want to keep.

BETTER CUSTOmER ExpERIEnCEWith this ability to better understand and identify with their customers, insurers can tailor their interactions with them so that they are more relevant to their needs, and unnecessary communications can be minimised. For example, a well-timed and targeted offer for an increase in sum insured is more likely to be welcomed than discarded, leading to a better customer experience.

whERE TO fROm hERE?The implementation of these techniques in Australia is still emerging. Although the data revolution is underway, getting real meaning from data is key. There are legal and ethical concerns to consider in particular the correct use of potential customer profiles – i.e. they should not be used to discriminate against certain groups, nor to deny access to insurance services.

That said, there are significant opportunities from embracing this technology. 1. Data analytics puts all the available data to use.2. employing these techniques provides new insights and highlights

unexpected correlations.3. The synergies can increase substantially when companies partner

with other organisations with extensive data, or for those companies able to draw on the data available within their wider group.

When life insurance companies first started to provide preferential rates to non-smokers, the rest of the market quickly had to catch up, or risked being left with a portfolio full of smokers who were happy to pay aggregate premium rates. When analytical techniques become embedded in the acquisition, maintenance and retention strategies of a life company, who will be left with the deteriorating portfolio of policyholders still happy to pay aggregate premium rates? or alternatively, who will be the disruptor and move first to cherry pick the best customers from their competition’s portfolios, and bring them across to their books because they know more about them and want them on their books?

John king [email protected]

paul Swinhoe [email protected]

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over the last few months this column has explored the ways that leadership development takes place, as applied in an actuarial context. We have, so far, explored challenging assignments, developmental relationships,

adverse experiences, and coursework and training. The final article in this series on developing leadership capability focuses on developing leadership through our personal experiences.

Personal experiences could include an overseas trip; moving to a new state or country; changing career; starting or ending an important relationship; beginning a family; or any other significant personal development. How might personal experiences support you in developing leadership capacity? For development to take place, robert Kegan, world expert in adult development, has identified four criteria that must be present:1. Feeling of frustration or challenge in life; recognition that

the way I bring myself to my current situation is no longer serving me.

2. I can start to see / feel the limits of my current way of thinking.

3. This is an area of my life that I care about deeply.4. There is sufficient support that I am able to persist in the face

of anxiety and conflict.

To explore this a little further, take a few minutes to reflect. recall a personal experience in which your life circumstances were no longer serving you - and then you chose to act or respond. The experience could have played out in the short term or over several years. It should be in an area that is meaningful for you. Perhaps your actions and beliefs had been limiting you and you needed to change.

As you look back over that event, reflect on how it has shaped you and your leadership capacity. How are you different today as a result of that personal experience? consider your self esteem, your resilience. Ponder how you now relate to other people. How do you influence others? What impact do you have on particular outcomes?

When I have facilitated this exercise in workshops, there are several insights that people consistently share about how their leadership capacity has developed. Four common ways are:1. Finding new resources and capabilities. That is, identifying

self leadership capacities people never knew they had. examples include the courage to leave a relationship in the face of family or cultural expectations; the presence of mind to navigate a way through a dangerous situation; and the resilience to keep down a particular course of action despite obstacles and setbacks.

2. opening up new possibilities and identifying hidden systems that previously were invisible. These are essential components in developing leadership and strategic leadership. examples include seeing new ways of approaching a difficult technical challenge; identifying how politics in an organisation may

actuaries taking the lead

Personal experiences“Experience is not what happens to a person: it is what a person does with what happens to them.” – Aldous Huxley

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drive outcomes that run contrary to a rational analytical approach; and realising how family culture or expectations drive what we believe to be true and how we see the world.

3. Deeper personal insight and wisdom. This is the bedrock for self leadership. examples include the perception of self as an evolving human that continues to grow and develop, rather than being a static organism that is just that way and cannot change; recognition of defining assumptions about the world and how they influence day-to-day behaviour; and the realisation that what most annoys me in someone else may be what I least accept about myself.

4. richer appreciation of diversity and respect for differences. These are essential in people leadership. examples include an appreciation of the beliefs and rituals of another country; an understanding from the perspective of another professional body; being open to being influenced by peers; and recognising strengths of people with different capabilities and styles.

My own personal experience was transitioning from an actuarial career to learning and development. Having achieved my long term goal to qualify as an actuary, I found myself in a strangely dissatisfying place. I did not know what I wanted to do next. I had never thought beyond qualification. I remember my post-qualification period as being somewhat bleak – my “second mid-life crisis” as it were.

After reflecting for some months on the contribution I wanted to make, it suddenly dawned on me. The one thing I was most passionate about was learning and development. The time when I felt most alive and most connected was when I was helping other people to learn and develop. It reminded me of why I had completed a Diploma of education in the late 80s.

Sharing my decision to focus on learning and development with a couple of people, the response was, “That’s great, but you are an actuary. How are you going to do that?” Wow, what a kick in the guts. And the truth was, I did not know.

What was apparent to me was that to be successful in the transition, I had to improve my communication. I needed to better influence and coach people. I needed to improve in building rapport in groups. In addition I needed to develop my capabilities in adult learning methods and course designs.

I had no idea how to achieve my goal. Yet having set the aspiration and identified what I felt were the key attributes gave me a sense of freedom. It provided me with focus. It enabled an intention to seek development opportunities which would help move me towards my goal.

A starting point was how I worked with the people in my team. overnight, I delegated far more and gave far more responsibility to the people in my team - sometimes too much. I saw my role differently. I was no longer just a technical expert, but also responsible for developing the actuarial team. I became much more focused on communicating actuarial messages to broader audiences and understanding what influenced different people.

While this provided me some opportunities to develop capabilities, I didn’t feel it was going to be sufficient to transition my career. So I began using my holiday leave to be trained in coaching, emotional intelligence, positive psychology and just about anything I could to build the necessary capabilities for the transition.

Ironically, as I moved further away from a purely technical role and broadened my capabilities, I became a much more highly regarded actuary by my business colleagues. I found myself with several promotions and much broader responsibilities. This was a blessing in that it gave me some great stretch opportunities, and a curse in that it often

moved me further away from my goal. Yet having such a strong intention helped me to find development opportunities in each role that would be useful in a career in learning and development.

Along the way I stumbled, took wrong turns and learned some wonderful stuff that I have never used. After nine years and numerous times when I thought I was never going to get there, an opening appeared within my organisation: I was finally able to transition to a learning and development role.

over that journey, I grew and developed in many ways. There is little doubt that this personal experience accelerated my development as a leader well beyond what it would have been without a clear aspiration...

As you reflect on your own personal experiences, what are the traces of leadership development and personal transformation you can see? What may be the next personal experience for you that will help transform your leadership capability?


andrew Brown [email protected]


Nick [email protected]

Many of us have opportunities to interact with actuaries within our own firm, or with actuarial friends from university. However, it can

be more challenging to find opportunities to meet actuaries working in other firms and create genuine positive relationships.

The 2012 series of quarterly Networking Lunches, initiated by the Young Actuaries Program (YAP), provides an opportunity for young actuaries from a diverse range of firms to interact with each other in a relaxing and casual environment over lunch. This is the second year YAP has been running the networking lunches after receiving excellent feedback last year. So far, the level of engagement has been very impressive with some groups even meeting on a monthly basis rather than quarterly. From an organiser’s perspective, this is great to see.

I’m often asked the question – what’s the age limit of ‘young’ actuaries? YAP doesn’t define ‘young’ actuaries in terms of age. Anyone interested is welcome to join the networking lunches or come to our seminars (and we’ve had a few senior people attend our seminars in the past). Having said that, the target market of YAP is actuaries with less than ten years of experience, and our seminars are catered to the interests of this group. So the next time you might be wondering if you should join the networking lunches or come to one of our seminars, don’t consider age as a barrier.

If you’re interested in joining the YAP quarterly networking lunches next year, keep an eye out for the opening of registrations which will be communicated via the Institute Bulletin early next year. Alternatively, feel free to email me to express your interest.

The Young Actuaries Program – Quarterly Networking Lunches

Jennifer Hu – Non-Insurance PricingWe’re constantly being advised by senior actuaries that ‘who you know’ is very important in our life development. What better way to get out of the office, meet new friends, catch up with old ones, learn something new and it’s all organised by someone else (if you’re lucky)! Highly recommend it.

Nathan Bonarius – SuperannuationThe YAP networking lunches are great. They are an easy way to make new and interesting friends who work in a variety of different roles. The lunches have also meant that when I have gone on to study GRIS6B I actually know quite a few people in my class!

Christopher Ong –Life InsuranceBeing new in Sydney, I found that the YAP networking lunches were a great way for me to meet new people in the industry.

Elsa Cheung – General InsuranceThe YAP lunches create an informal and fun opportunity for us to network with other young actuaries who work nearby and establish long lasting friendships.

Jia Yi Tan – Life InsuranceIt's a great place to meet people in the actuarial circle and stay in touch with current issues!

Ben Heung – Data AnalyticsThe YAP networking lunches have provided me with the opportunity to meet with people who work in various areas, allowing me to gain an appreciation of those disciplines that I am unfamiliar with. Not only that, my group has not disappointed on the lunch side either – the locations have been excellent.

Jo Chidwala – Investments /EntrepreneurNetworking lunches have been fantastic and what particularly got my attention was the strong appetite for young actuaries to venture into non-traditional actuarial roles. Those who have tried to make the grand switch shared some of the challenges they faced, however, we all agreed that there are many opportunities out there and the sky is the limit


As part of the cPD re-vamp Project, the Institute HQ will support Member cPD in many ways. The four processes below will be aided by the coming launch of a cPD Handbook and improved website technology in the future. Members will

be supported holistically to consistently build their capability and to achieve PS 1 compliance requirements.

InSTITUTE hq SUppORT pROCESS

A cPD Handbook will enable Members to understand the four-step cPD implementation process outlined below. The process will be driven by the use of new documents, tools and templates, some of which, like the capability Framework, capability Assessment Tool, report and Development Planner, have already been introduced to Members.

Cpd ImplEmEnTaTIOn pROCESS

SO whaT wIll ThIS pROCESS lOOk lIkE In aCTIOn?Let’s look at the PLAN and AcTIvITY steps first.

JOSEph planJoseph is a Fellow who was selected for PS 1 audit last year. He 'just' met his compliance by quickly registering for activities to meet the audit deadline. He admits he left it late and didn’t plan well or at all. Noticing new information about cPD in the Institute website, he is determined not to fall into the same situation again and is excited and motivated about the new options he sees. See what Joseph experiences this time…

• Josephfoundthenew Cpd handbook on the website and easily found the four-step cPD implementation process.

• Helikedtheprocess,asitstartedwith the need to 'plan', which is what he didn’t do well before.

• Hewasmotivatedandinterestedtousethenewprocessestoplanto make the right decisions to enable him to comply with pS 1.

CaTh aCTIvITycath recently became a Fellow and is very enthusiastic about her career development. She read about her PS 1 requirements and wants to ensure that she is completing not only enough, but the right kind of activities to meet her career pathway needs. She received an email about the launch of the Actuarial capability Framework and Assessment Tool. She now wants to make sure that whatever cPD she plans to undertake meets these capabilities. See what cath does to ensure that her development needs are met…

• Cathopenedherlaunchemailandclickedonthelinktotheactuarial Capability framework. She was inspired to discover that the framework could be used to guide her development over her career.

• SheclickedontheCapability assessment Tool and completed the self assessment in 30 minutes.

• TheCapability assessment Report she received identified gaps between the capabilities important for her work and her ability to perform them.

• Withthatinformation,CathclickedontheCapability development planner at the end of the report to plan for cPD activities to meet her development and cPD needs.

• AttheendoftheCapabilityDevelopmentPlannersheclickedonthe link to the Upcoming Events area of the website to search for any activities that she could attend to close her gaps.

Watch out for the next issue of Staying Ahead to hear more about the RECORD and REFLECT process steps and other tools and technology coming your way.

Sue wetherbee CPD [email protected] ahead

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The next stop on our world tour is India, where approximately one third to half of Asia’s remaining elephant population can be found. Unlike the African elephant, of which, at last estimate, there were around 500,000 left, there are now only around

30,000 Asian elephants left in the world. The Asian elephant population has declined so rapidly in recent years (due to habitat loss and poaching) that they now face almost certain extinction in every place where they currently exist. It would be a great tragedy if the world’s elephants were to die out, since elephants have given so much joy to the people of the world in a multitude of ways – including through providing the inspiration for the elephant joke.

elephant jokes first appeared in the early 1960s but have continued to remain in circulation almost 50 years later, primarily due to their popularity among (as Isaac Asimov expressed it) children and 'unsophisticated adults'. This month’s puzzle is, therefore, aimed at any unsophisticated adults among the readership of this magazine (or any readers who can still remember their childhood).

Solve each of the following elephant jokes and then use your answers to decipher the code and produce one final elephant joke for you to solve. The numbers in brackets beside the joke give the numbers of letters in each word of the answer.

A. How can you tell if an elephant has been in your refrigerator? (10, 2, 3, 6)

B. How do you stop a charging elephant? (4, 4, 3, 6, 4)c. Why do ducks have flat feet? (2, 4, 3, 5, 3, 6, 5)D. Why do elephants have flat feet? (2, 4, 3, 5, 3, 7, 5)e. Why is an elephant large, grey and wrinkled? (7, 2, 2, 3, 5, 5, 3, 6, 2,

5, 2, 2, 7)F. What time is it when an elephant sits on your fence? (4, 2, 3, 1, 3,

5)G. How many elephants can you fit in a Mini? (4, 3, 2, 3, 5, 3, 2, 3, 4, 3,

3, 2, 3, 5, 3)H. Why did the elephant cross the road? (2, 3, 3, 8, 3, 3)J. How do you know if there is an elephant under your bed? (4, 4, 2,

8, 3, 7)K. Why do elephants paint their toenails red? (2, 4, 3, 4, 2, 3, 10, 5)q. B2-e7-B4 K3-A7-D8 K7-H2-c4 F4-e5-G4-K5-J9-B3-F5-c6 H8-

J5-D3-J1-K3 c2-A8 F1-K9-G4 e12-D3-B6-c5-e16-F3-G9-e4-e5-A3-e6? (2,2,7,4,4,3,3,9)

Foryourchancetowina$50bookvoucher,emailyoursolution(withworking) to: [email protected] .

genevieve hayes [email protected]

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

In the margin

pink Elephants on parade

pRImE TImE (aa172 SOlUTIOn)Replace the letters with numbers in the magic square given in AA172 so that: (i) All squares in the puzzle contain prime numbers; (ii) The sum of the numbers in each row, column and main diagonal sum to prime numbers (although these prime numbers are not necessarily the same); and (iii) The sum of all nine numbers is prime, given that the nine numbers contained in the puzzle are consecutive primes and the total of the three numbers in the first column is 109.

Solution: Four correct answers were submitted. The winner of this month’s prize, selected randomly from among the correct entries, was peter davies,whowillreceivea$50book voucher..

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I am Scott French, one of the Australian youth delegates at the G20 Youth Summit and prospective actuarial graduate at Macquarie University. earlier this year, I was given the opportunity to represent Australia in one of

the largest international youth conferences, travelling to Washington D.c. and canberra to negotiate on important issues relating to development, economics, finance and the environment on a global scale. The aim of the Summit was to produce a communiqué which was to be presented to each of the respective governments just prior to the G20 Summit in Los cabos, Mexico. each country’s delegation represents their national government and each individual delegate represents a particular policy portfolio. My assumed role was the Minister of Finance.

I met the other five Australian youth delegates in canberra to gain a range of perspectives and bring forth the Australian opinion in the coming negotiations in Washington. During the canberra pre-departure, the youth delegation met privately with the Prime Minister, the Honourable Julia Gillard, the Honourable Wayne Swan, the staff of the treasurer, the shadow treasurer, the Honourable Joe Hockey and department of the Prime Minister, all shedding light on the world of politics and sharing their wealth of knowledge and experience with us.

returning from canberra, each of the delegates completed a research fellowship on a particular theme relating to the G20. My paper When Microfinance and Megafinance meet assessed microfinance as a tool within the G20’s agenda to architect ways to effectively and sustainably eradicate poverty. The paper had particular focus on the oppression of women as individuals and as a community within the Global South and having the G20 as a catalyst to eliminate this systematic disadvantage. I also wrote an opinion piece published in the east Asian Forum challenging the current actions of the G20 and its member states individually.

In June this year, I attended the Youth Summit in Washington, well-equipped to represent the Australian culture, interests and values from the unique viewpoint of the youth. over the week of intense negotiations, the finance delegation reached consensus on issues regarding regulation and supervision in the financial system and international monetary system reform. recommendations were made pertaining to topics within these agenda items such as oTc derivative market regulation and the role of emerging and developing countries in the International Monetary Fund (IMF).

outside the negotiations, we were privileged enough to hear from important Australian international civil members such as Kim Beazley, the directors of the IMF and the World Bank and also attended the Australian Ambassador’s Speaker Series.

Not only did the Youth G20 Summit promote understanding, it developed friendships between like-minded individuals from across the globe in such a fun and engaging way. everyday in Washington, the delegates were running on the adrenaline of the experience, having the time of their lives, soaking in the atmosphere and getting the most out of every minute.

The entire experience of being a youth delegate for Australia was challenging but highly rewarding. I gained new perspectives and acquired knowledge on how to bring further youth diplomacy in Australia and practically apply them in my studies and future career endeavours.

Scott french [email protected]

g20 youth Summit

Delegation with Prime Minister Julia Gillard

Listening to Kim Beazley at the Embassy in Washington


Report angela Tong [email protected]

In early September, I attended a talk entitled Human Sounding Boards. It was a lunch session on mentoring presented by Martin Mulcare, Andrew Gale and Gloria

Yu. The session provided interesting food for thought and promoted a compelling argument for the need for a mentor in one’s career development, and more importantly, one’s self development.

Three points from the session particularly stood out for me:

1. The word 'mentor' actually has its etymological root in Greek mythology. When odysseus set out for the Trojan War, he placed his son Telemachus in the care of his trusted friend Mentor. Foreseeing the challenges that Telemachus will have to face, Athena, goddess of wisdom, assumes the form of Mentor to impart advice to the young prince and guide him through his obstacles.

The story aptly describes the basis of a mentoring relationship in which an older, more experienced person willingly shares his/her wisdom to help a younger colleague grow and mature. In essence, finding a great mentor is a godsend.

2. The focus of a mentoring relationship is the development of one’s emotional intelligence.

This may initially sound rather counter-intuitive given that the majority of our tertiary education and actuarial qualification assessments are based on demonstrating a certain level of technical aptitude. Since starting work, I have worked with respected and more experienced colleagues. and have come to realise from my own experience, that emotional intelligence plays a much greater role in the success of one’s career than technical competency. Simply consider how many times you have been asked to describe an example where you have shown good communication skills at interviews. Isn't emotional intelligence at the heart of good communication skills?

It was also interesting to learn that emotional intelligence does not exclude technical competency. As Andrew explained during the session, emotional astuteness is only one of the two underlying aspects of emotional intelligence. The other complementary aspect is intelligence, which requires appropriate application of technical knowledge.

While this latter aspect can come through the likes of training courses and books, emotional astuteness only comes with experience, feedback from role models, and how well we absorb such lessons through self-reflection. Having a mentor will not only help one reflect on experiences through different perspectives and thus gain greater insight, but through the sharing of the mentor’s experience, also broadens the mentee’s horizon.

3. A mentoring relationship is a high tension relationship (amongst other things of course).

The tension in this case is referring to the positive tension, in which the mentee is challenged by the mentor to move beyond his/her comfort zone. I can remember multiple occasions during my career when I have had to work with senior colleagues who had such different thinking

or implementation styles to me that initially, it was hard work, and at times even confusing, to see the situation through a different lens. However, in hindsight, it was the experience of working with these colleagues that has fuelled some of the greatest personal growth in me.

I kept this point in mind when I was thinking through who I wanted to ask to be my mentor at the start of this year. I sought out someone who I felt had a rather different working style to me to push me to think beyond my sometimes myopic views.

I would encourage you to check out the audio and slides of the session on the Institute website, and see what three points stand out for you.

Finally, I’d like to leave you with a quote that kept coming to mind while I was drafting this piece of reflection. It is a quote from the chinese emperor Tai Zhong who ruled from 626AD to 649AD, and is a succinct reminder to me of the importance of having great mentors:

With bronze as a mirror, one can correct one’s appearance;

With history as a mirror, one can understand the rise and fall of a state;

With good men as a mirror, one can distinguish right from wrong.

leadership forum– human Sounding Boards: a Users guide to mentoring

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Cherryl [email protected]

"W hat’s Basel III? Is that a new computer game?!" / "It sounds like a new diet plan!" / "I’ve never heard of it – though it sounds like the name of an old ship!"

These are just some of the many responses that I received upon asking my Actuarial Studies cohort about the regulatory global framework known as Basel III. It’s a name that’s being thrown around in the world of banking and finance and affects almost all risk actuaries in the banking industry in some way or another. However, as a first year Actuarial Studies student, I had not heard of this mysterious Basel III until very recently.

I suppose that the majority of my first year cohort had not heard of this reformed framework simply because we’re just learning the ropes and it does not yet affect us. In fact, after speaking to several people working in the banking and financial industry, I came to realise that perhaps Basel III does not affect them directly either. Many said that they had heard of Basel III in passing but had no direct involvement with it; in multiple cases, it seemed as though Basel III was perceived as simply being an issue for compliance teams to deal with, along with a few actuaries, accountants and management.

So, although the new reforms of the Basel III framework have slipped under the radar in many circumstances, not affecting day-to-day work for many, they had certainly piqued my interest. To dissect this new framework, I decided to start at the beginning – the Global Financial crisis (GFc). essentially, Basel III was created to address the problems that led to the GFc. Basel III aims to make banks more resilient by improving their ability to absorb shocks that stem from financial and economic stress to prevent yet another spiral of severe economic downturn.

But, how will this aim be fulfilled? Where did its predecessor, Basel II, fail? What are the main changes in Basel III and the resulting practical implications? These are just some of the many questions that arose in my mind once I got an insight into the reforms.

Two of the most significant changes from Basel II to Basel III relate to new capital requirements and liquidity buffers for banks, essentially equipping the banks to retain a strong financial position in both short term and long term periods of stress. There is much speculation as to the effects of these changes – Australian banks seem to be well equipped to meet new requirements, but what about other banks around the globe? Will they crumble or thrive under this added pressure of increased reserves and quality liquid assets? The commonwealth Bank of Australia is the first of the ASX listed banks to issue a Tier 1 hybrid security that is compliant with the Basel III framework. What will the other Australian banks do in the near future? Will this in fact inspire more creativity in the banking industry as current financial instruments are being reshaped? The implementation of Basel III begins in January 2013 – which is the same time that Solvency II (a regulatory framework for the insurance industry, which also involves increased capital requirements) is going to begin implementation. What consequences, if any, will this overlap of timing bring? All of these questions will be answered in the near future and perhaps this is why I found the new reforms to be so interesting. A global solution has been formed and will be implemented soon, but the results of this well intentioned change can only be revealed by time.

So, although Basel III is an interesting framework, it’s understandable that it’s probably not relevant to the majority of actuaries today. However, it does appear that the role of the actuary in this field is becoming more and more prominent as the new qualification cerA (chartered enterprise risk Actuary qualification) has been specifically shaped to enable actuaries to respond to both the Basel III and Insolvency II frameworks in the best possible way by focusing on how economic capital can be utilised most effectively and by ensuring that actuaries with this qualification are proficient in modelling and managing risk.

Though many students and professionals in the actuarial field find the Basel III framework to be irrelevant to their studies or work, or haven’t had the chance to get to know much about it, it seems as though Basel III is going to play an interesting role in the future, so let’s wait and see how it unfolds!

Student Column

Tides of change

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River boat, Basel, Switzerland


Y OUR 2012 pERfORmanCE appRaISalAs we enter the fourth quarter of the year, it's that time of year when many of us will soon be undertaking performance appraisals for ourselves, our teams and perhaps even giving 360

degree feedback on our boss. So I thought it would be timely to give you, dear Member, your performance appraisal for 2012. In this appraisal, I am going to use the following time-honoured methodology:• Iwillgivethe'constructive'feedbacktowardsthestart,thengivethe

positive stuff at the end so we finish on a good note;• Iwillgivemorepositivemessagesthannegative,asthehuman

brain tends to focus on the negative messages much more than the positive ones. That way you will feel that you’ve received a balanced review; and

• Iwillleaveyouwithsomesuggestedactionsfor2013thatwillhelpyou develop in your role as an Actuaries Institute Member.

Please feel free to reciprocate – I would love to hear what you think of my performance this year. And any feedback you can give about the HQ team would also be gratefully received.

yOUR appRaISaloverall you have done a great job in 2012. You’re showing a real enthusiasm for your role. All our measures of Member engagement have trended upwards over the last 12 months and we are getting fewer complaints and more incidents of positive feedback than last year. I will go into more detail about a number of things you’ve done really well in a moment.

ThIngS TO dO lESS Of In 2013Whilst your performance has been very strong, there are two things that I think, if you could do less of them in 2013, it would really enhance your performance and take you to the next level.

1. please stop using aI I know it’s tempting to shorten our name – Actuaries Institute –

to AI. But please desist! When our branding work was done last year, it was made very clear to us by our brand consultants that we should under no circumstances use AI as our acronym.

At best it’s most commonly used for Artificial Intelligence (probably not too bad) but as someone who went to an agricultural high school, for me the acronym means Artificial Insemination. So every time I read AI I imagine someone with their arm up a cow’s whatsit. Not the brand image we were looking for.

If you must shorten our name, and I know it’s a national sport in Australia, please just call us 'the Institute'.

2. your Cpd doesn’t have to be actuarial! Dear member, you need to update your professional

knowledge – you are out of date. Three years ago, a key change was made to PS 1 – our cPD professional standard. council realised that the previous cPD requirements were overly restrictive for the 35% of members who are now

working outside of pure actuarial roles. In fact the whole distinction between actuarial and non-actuarial

cPD was removed. We are the only profession that defines ourselves by what we do rather than the way we think and how we do things. It’s not helpful.

I’ve lost count of the number of conversations I’ve had with members who ask for a cPD exemption because they are “not working as an actuary and cannot do actuarial cPD”. We have communicated this far and wide, but the message hasn’t gotten through. So here it is again.

your Cpd should be done in an area that is relevant to your job. The example given in our professionalism Course is that if you are an actuary running a gym, your Cpd should be in things relevant to that e.g. around exercise and nutrition. my Cpd as an actuary running a business is quite different to what it would be if I was doing pricing or valuation.

PS 1 is a short, and fairly important, read and can be found at www.actuaries.asn.au/library/Standards/PS1Aug091.pdf.

ThIngS TO dO mORE Of In 2013As I said at the start, overall you have had very strong performance in 2012. There are a number of things I am particularly pleased with and if you can do more of these in 2013 your performance will continue to be very good.

1. Events participation It's great that you are coming to our events much more often. Sarah

Hodgkinson’s fabulous events Team has responded by increasing the number and geographic location of our physical events, with cPD coordinators appointed in key cities around the Asia Pacific. We’re in the process of installing state-of-the-art teleconferencing facilities to improve the quality of our webinars. So in 2013 you’ll have even more options to participate and I’d encourage you to keep doing just that.

CEO’s Column

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2. Actuaries magazine We’ve had some fantastic new energy

injected into Actuaries magazine this year by an increase in funding from HQ so that our designers Kirk Palmer Design, could have their heads; we’ve commissioned professionally-written profiles, we’ve run competitions and the magazine is now distributed electronically via the web and Twitter. This is all due to the drive and energy of communications and Marketing Manager Katrina McFadyen and a great editorial committee driven for most of the year by former editor Ben ooi.

We are getting an increase in content being submitted, more letters to the editor, and I would love you to keep this up in 2013.

3. Engagement Your Member engagement scores had a big kick upward at

the end of 2011 and I expect to see these rise again in the Beaton Professions survey this November (we participate in this as do other professions). Please keep being involved, or get involved in 2013 if you haven’t already done so.

4. feedback You have been getting much better at telling us what you

think and what you want, which has let us continue to improve our services to you. We log each piece of positive and negative feedback we receive, and review them to look for patterns in feedback to identify areas where we are doing things well, or where can improve. We have just started a new survey where we collect feedback from a quarter of our members each quarter so we’ll get real-time info on what you think. We’d really appreciate you keeping up this communication. It’s great!

dEvElOpmEnT gOal fOR 2013There is something that you can do for the profession in 2013. Something that will greatly support some of the brand awareness work we will be doing in the coming months and next year to raise awareness of 'brand actuary'. And it’s very simple – Please tell people that you are an actuary!

Perhaps you are flying under the radar. Do your colleagues and clients know? If not, why not? Try dropping it into your next conversation.

If you do this it creates a virtuous circle. Because you are so fabulous, simply telling people you’re an actuary starts to change their (stereotypical and probably quite inaccurate) perception of what an actuary is. If all the under-the-radar actuaries do this, think how many peoples’ perceptions will be changed. Then you will be happier to tell the next person you’re an actuary.

OvERall COmmEnTI have greatly enjoyed working with you in 2012. The sheer intellectual horsepower and talent you bring to our profession is awe-inspiring. And you so altruistically volunteer your time and effort, taking time out of your busy life, because you believe in the profession. What can I say but thank you. I hope we can continue to work together successfully next year. I’m looking forward to it.

melinda howes [email protected]

CPD National Tour – Sydney

Cpd national Tour photos

Melinda Howes, Yan Zhao– Perth


notice

on 20 May 2011, the Professional conduct committee received a complaint from the Australian Prudential regulation Authority (“APrA”) with respect to the role of Mr Graham osborn as the Appointed Actuary for AcN 000 007 492 Limited (previously rural & General Insurance Limited (“rGIL”)) as at 30 June 2008 and his preparation of an Insurance Liability valuation report (“ILvr”) for that entity.

Investigating Sub-committee 1004 (“Sub-committee”) was formed to investigate the complaint and determined, on 25 May 2012, that there was a prima facie case of Actionable conduct (as defined in rule 3 of the Scheme) having been committed by Mr osborn, being unsatisfactory professional conduct.

The convenor of the Professional conduct committee then provided a copy of the Sub-committee’s determination to the convenor of the Tribunal Panel who, in turn, established Professional conduct Tribunal 12.01 to determine the matter.

Following an admission by Mr osborn of having committed, or been engaged in, Actionable conduct, and the conduct of a hearing, the Tribunal determined, on 16 August 2012, that Mr osborn had committed, or been engaged in, Actionable conduct (being unsatisfactory professional conduct), namely that:

(a) in failing to separately specify in his ILvr the allowances for risk margins, claims handling expenses and “IBNer” claims, he had breached paragraphs 9.1.2 and 11.1.1 of PS 300, as well as paragraphs 15 and 45(i) of Attachment A of GPS 310;

(b) in failing to sufficiently highlight or document in his ILvr the uncertainty arising from the circumstances of rGIL and the potential consequences of this uncertainty, he had breached paragraphs 4.3.1, 8.9.2, 10.1 and 10.2 of PS 300 and paragraph 85, as well as paragraphs 11 and 13 of Attachment A, of GPS 310; and

(c) in failing to sufficiently document in his ILvr deficiencies in the data, he had breached paragraph 5.2.1 of PS 300 and paragraph 5 of Attachment A of GPS 310.

Tribunal 12.01 determined that Mr osborn:

(a) be given a warning in relation to the conduct set out above (pursuant to rule 6.4(a)(iii) of the Disciplinary Scheme); and

(b) as a condition of the determination in the preceding paragraph, and pursuant to rule 6.4(c) of the Disciplinary Scheme, that he be required to undertake to attend a Professionalism course conducted by the Institute of Actuaries of Australia at his own expense within 12 months of the date of the Tribunal’s determination.

Neither party appealed the Tribunal’s determination.

17 September 2012Institute of actuaries of australia

dISCIplInaRy pROCEEdIngS agaInST mR gRaham OSBORn

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