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The Business of Consultant Actuary International Actuarial

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					2006 PARIS
The Business of the Consultant Actuary

Chairman: Adrian Waddingham UK
Presenters: Segundo Tascon           Mexico
           Ed Morgan                 Switzerland
           Stuart Leckie             China



       1st June 2006 09:00 – 10:30
   The UK “Morris Review” 2005
• Adequate choice of (actuarial) provider
• High concentration in advice to biggest
  pension schemes ( four firms have 70%)
• Choice might be limited in future if smaller
  firms have insurance problems and are
  exposed to uncapped liabilities
• Market testing of providers, and
  switching of actuaries, is low
• Preference for multi-service provision
  could limit competition by
  single service providers
 Growth of UK consultants
1600
1400
1200
1000
800
600
400
200
  0
         1990        1996         2000         2004

   (membership of the UK Association of Consulting Actuaries)
Choice of (actuarial) provider
• Significant entry by small/medium firms
  (and the “big four” accountants)
• So good choice – except for investment
  advice to large pension plans
• Recommended “un-bundling” of
  investment advice
• And to help small firms on PI insurance:
  –   Use liability caps
  –   Set up “collective” insurance schemes
  –   Improve risk controls
  –   Use proportionate liability clauses
Market Testing (of actuaries)
• Pension trustees should
  – Evaluate (informally) their actuaries
    annually
  – Formal evaluation every three years
  – Market test no less than every 6 years
• Trustees should report their
  compliance with this approach
  (or if not, why not?)
Scrutiny of Actuarial Advice
• Address the “understanding gap”
  between actuaries and their clients
• UK Pensions Regulator now giving
  “code of practice” on pension trustee
  knowledge and understanding
• Greater use of professional trustees
• Should the client’s existing actuary
  provide the trustee training?
The Business of the
Consultant Actuary

Segundo Tascón Newton
Director General
Watson Wyatt Mexico
In Mexico

The Retirement Consultancy has been more
dynamic over the last six years than in the last
three decades to the point that it requires high
specialization of various retirement disciplines,
being the result of…
Factors of Influence in the Consulting Work

  A.   - Social Security Law
  B.   - Legal Framework
  C.   - Demography
  D.   - Globalization
  E.   - Accounting Standards
Factors of Influence in the Consulting Work
      A. - Social Security Law
$35,000

$30,000

$25,000

$20,000

 $15,000

 $10,000

  $5,000

      $0
       2001
              2005
                     2009
                            2013
                                   2017
                                          2021
Law 1973                                         2025
                                                        2029
                                                               2033
Law 1997
Factors of Influence in the Consulting Work

  B. - Legal Framework
       Mexican Labor Code
        All companies have a statutory obligation to make a
        severance payment if employment is terminated without
        just cause.
        Attainment of retirement ages is not deemed to be just
        cause.
        Therefore, Legal Termination Indemnity is payable upon
        retirement.
        Legal Termination Indemnity = 3 months pay+ 20 days pay x
            Years of service
Factors of Influence in the Consulting Work

  B. - Legal Framework
       Income Tax Law
        Pension Plan Advantages:
        Tax deductible contributions
        Investment income not taxed
        Tax free pension up to 9 times the monthly wage salary
                         Factors of Influence in the Consulting Work
                                C. - Demography
                        60%
Population Percentage




                        50%



                        40%                                                                                       Age Groups:

                                                                                                                     0-19
                        30%
                                                                                                                     20-59

                        20%                                                                                          >60


                        10%



                        0%
                              1995   2000   2005   2010   2015   2020   2025   2030   2035   2040   2045   2055
                                                                    Years
       Factors of Influence in the
            Consulting Work

D. - Globalization
      Sox Law – PP Governance – Investment Strategy
      Trend toward DC Plans
      Global Actuary
      Reporting Coordination
      High level of Competitive Market
      Communication
         Factors of Influence in the
             Consulting Work

E. - Accounting Standards
    FAS 87
    Boletín D-3
    IAS 19
Evolution of Retirement Consultancy
  From - Annual Actuarial Valuation for
         Funding and Accounting
                   plus
  To   - Pension Plan redesign
         Pension Administration (benefit
         statements, etc)
         Workforce planning
         Investment consulting
         ALM
         Specialized communication
         Social Security and tax
          planning advice
Evolution of Pension Plans

  A. - DB plans equivalent to legal Termination
     Indemnity

  B. - Trend towards departure from traditional
       DB Plans
      Alternative Pension Plan Design
      Pension Equity Plan
      Seniority Award
      Strategic Bonus
      Health Retirement Account
Current Issues

   The constant ghost of a new pension
    legislation

   Rules and regulations of investment

   SOX law
The Business of the Consultant
Actuary – A European View
Ed Morgan, Principal
MILLIMAN
                                    SOMMAIRE/
                                    SUMMARY
Introduction to Ed Morgan and my
experience as a consulting

Contrast consulting and Insurance
businesses

A background to actuarial consulting in
Continental Europe

Opportunities and Challenges
   An introduction to Ed Morgan
 I am a UK actuary (FIA 1989)
 I am mainly a life actuary although I have also
  done some non-life work
 I have been based in a number of European
  countries (UK, Italy, France and now
  Switzerland)
     My experience in consulting
 I worked for 15 years in large insurance
  companies
 In 1999 I started as an independent consultant
 In 2001 I started to build a group of international
  consultants spread across several European
  countries
 In 2004 our group of consultants became part of
  Milliman
Consulting is very different from Insurance
 There are many fundamental differences between
  the insurance and consulting businesses in terms of
  the issues involved in managing a business. For
  example:
       Insurance workflows tend to be fairly predictable –
        consulting workflows can be very uneven (e.g. year end
        work) or unpredictable (e.g. M&A work)
       (Life) Insurance is a “hard” selling business. Consulting is
        (usually) a soft sale.
       Insurance is a very regulated business. Consulting is quite
        unregulated.
       Insurance company structures are hierarchical pyramids.
        Consulting structures are much flatter.
  Actuarial Consulting is relatively
underdeveloped in Continental Europe
There are a variety of reasons for a lower level of
development than in the anglo-saxon world:
  Insurance markets were significantly more
   regulated (at least until 10 years ago with the
   introduction of changes such as the 3rd EU Life
   Directive).
  More dominant role of state in pension systems
  The role of the actuary was traditional seen as a
   narrower “liability-side only” role.
European Actuarial Consulting Market
 Many small firms and independent
  consultants
 More generalists than specialists
 Relatively limited presence of large
  international firms (a situation gradually
  changing over the last 10 years)
                 Opportunities
 Continuing rapid pace of change (e.g. Solvency II,
  advent of stochastic modelling etc)
 M&A activity (although emergence of bigger players
  can eventually lead to more self-sufficiency)
 Greater awareness of the value of actuarial advice
 “Industrialisation” of some actuarial processes
 Various audiences want an external opinion (e.g.
  validation of internal models for Solvency II)
 Business Challenges Facing Actuarial
     Consultants in Europe Today
 Insurance companies are becoming better at
  purchasing consulting (not necessarily a
  disadvantage)
 Increasing risk of litigation and consequent impact on
  cost of Professional Liability Insurance
 Need for specialisation (insurance world is too
  complex for one person to cope with everything)
 Need for high-power tools (we need software
  engineers as well as actuaries)
The Business of the Consulting Actuary


“The Challenges of Consulting – China”
STUART H. LECKIE
O.B.E., J.P., F.F.A., F.I.A., F.S.A.
TEL: (852) 2147 9998
FAX: (852) 2147 2822
E-mail: stuart.leckie@stirlingfinance.com


1 June 2006




                                            29
Map of China
              China Demographics
Total:                      About 1.3 billion
Rural Population:
                            800 million
         +
                                +
Urban Population
                            500 million

Consider:
                            Ages:
   One Child Policy
                               0-14            90 million
   Greatly improved life
    expectancy                 15-59           370 million
   Dependency Ratio           60+             40 million
    deteriorating rapidly
      China Demographic Developments
                    77.1
             71.5


      59.6




                                                                                           28.2



                                                                                    10.9
                                 6.1                       7.8   6.2          6.8
                                       1.7   1.9                       2.0


      Life expectancy             Fertility rate      Old-age Dependency     60+ as % of total
                                                             Ratio              population

Source: UN Population Division
                                             1970   2005    2040
               History of Life Companies
   First insurance company in Shanghai, 1912
   AIA 1919
   People’s Insurance Company of China (PICC) restarted
    insurance business in 1980
   Today 34 life insurance companies operating in China
   6 national domestic life companies
   20 international companies with J.V.’s
 Growth rate extremely high
   Interest rates low/mismatching problem
   Life companies very restricted on investments
   PICC, China Life, Ping An + others to go public
   WTO restrictions to ease
    History of Chinese Actuarial Profession
   Introduction of overseas actuarial
    education systems, examples


       Graduate actuarial program at Nankai University jointly
        developed with SOA, 1987
       Exam centre of Institute of Actuaries at Central University of
        Finance and Economics, 1993
       Exam centre of Institute of Actuaries of Japan at Southwest
        University of Finance and Economics and China Finance
        College in 1998
       Exam centre of Casualty Actuarial Society at Shanghai
        University of Finance and Economics in 2002
    History of Chinese Actuarial Profession

    Construction of Insurance Regulation, 1995
    Chinese Life Insurance Mortality Table, 1996, 2005
    Actuarial Practice Standards and Actuarial Reporting
     System, 1998
    Organizational establishment, 2001
 Majority of actuaries are company actuaries
    Western consultancies active
    No real emergence (as yet) of local consultants
        Society of Actuaries of China (SAC)

   First Chinese actuarial exams in October 1999
   43 Chinese qualified actuaries
   SAC set up as subsidiary of China Insurance Association and
    under auspices of CIRC in July 2001
   14 exam centres, including Hong Kong
   2005, applied to become an independent organization
 SAC Annual Conferences and IAA International Forums
                Life Legislation
 Shanghai rules 1995
 Standardization of policy provisions
 Appointed Actuary system
 Embedded Value reporting requirement, 2005
 “Enterprise Annuities” – MOLSS
 Policy directive – State-owned enterprises to
  concentrate on primary business and withdraw from
  domestic partnership of JV insurance companies
                Actuarial Activities
8 Functions:
    •   Life
    •   Non-life
    •   Healthcare
    •   Social security
    •   Pensions
    •   Investments
    •   Education
    •   Regulation
                    Challenges
 Relationship based
 Data
 Fees
 Unsophisticated users
 Bonuses and “reasonable expectations”
 Accounting standards
 Governance
 Professional liability
                  Regulators
   Banking       China Banking Regulatory Commission


   Insurance     China Insurance Regulatory Commission


   Investments   China Securities Regulatory Commission


   Pensions      Ministry of Labour & Social Security
                  CIRC
                  CSRC
                  CBRC
                  Ministry of Finance
          Comparison with Hong Kong

   “1 country, 2 systems”

   No. of actuaries, associates & students
        Fellows:             China 50         Hong Kong 280
        Associates:          China 160 (ASACs) Hong Kong 250
        & Students

   Joint Activities
           IAA International Actuarial Forum
           Shanghai-Hong Kong-Taipei Actuarial Symposium
           Annual Joint Regional Seminars
                                                          Thank you!

				
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