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									   Presented to the Institute of Actuaries Students' Society

                                     on 6th November 1970



         A. Spedding
                              THE ACTUARY IN AUSTRALIA


     (1.1) It is now almost fifteen years since D. Drybrough presented his paper
     on Life Assurance in Australia to this Society. The Australian Life Assurance
     industry has made rapid progress since then, and a number of significant changes
     have taken place. To take only one factor, sums assured in force quoted by Mr.
     Drybrough as having increased from about $A 1.4 x 10 in 1945 to $A 3.8 x 109
     in 1954, stood at $A 24.1 x 109 in 1969 (£stg     $A 2.15).

     (1.2) The Australian market has for many years been dominated by a few local,
     long established and powerful Mutual (or effectively mutual) Offices, but many
     local and overseas organisations have taken an interest in this market over recent
     years. At the end of 1969, of 47 Life Offices registered (excluding the 2 State
     Offices), 33 were companies incorporated outside Australia or were subsidiaries
     of such companies.

     (1.3) It is against this background of rapid growth and significant market changes
     that the current situation is examined, with particular reference to the role of
     the actuary; it is hoped that this will be of interest to the would-be emigrant
     actuary or student, and to those U.K. actuaries who become involved in their
     companies' Australian operations. Occasional reference will also be made to the
     New Zealand situation, where the large Australian Offices are a major market force.


     (2.1) Australia, comprising Territories and a Federation of States, supports a
     population of about 12½ million, of which approximately 2½ million are in each of
     Sydney and Melbourne. Canberra, the Federal Capital, is still small, but is
     emerging as an attractive and well planned city. The other States' capital cities
     are also relatively small, but major developments in Western Australia are
     influencing Perth's growth.

     (2.2) After many years during which grain and wool formed the basis of the
     economy, industry is expanding rapidly and although Australia is still regarded
     as being only a semi-industrialised country, it has a greater percentage of its
     work force in secondary industry than the U.K. In more recent years, the results
     of oil and mineral explorations have begun to make their mark on the trade figures.
     The average real growth in the Gross National Product over the last decade was
     about 6% per annum. The 19681/69 rate was 8½% in real terms, but the 1969/70 rate
     appears to have fallen to about 5½%. The average annual rate of inflation over the
     last decade was only 2.4% . Despite strong pressures on wages, this relatively low
     rate of inflation has been achieved possibly due to the steady increase in
     industrial productivity and the very active immigration programme being followed.
     At the present time there are signs of inflationary strains, the current annualised
     rate being about 5½%, compared with the "tolerated" rate of 3%.

     (2.3) The ruling Federal Government is a Liberal-Country Party Coalition (c.f.
     U.K. Conservative) which was re-elected in November 1969 with a reduced majority.
     The Labour opposition is showing signs of cohesion, after a prolonged period of
     internecine strife. The various State Governments administer most of the affairs
     of their own State, receiving a share of the total Income Tax raised by the Federal
     Government, as well as raising their own State taxes and duties from (inter alia)
     life policies and estates. The States will require a larger share of taxation revenues
     if services (schools, hospitals, transport, roads etc.) are to be maintained,
     let alone improved.

     (2.4) The New Zealand economy is still very dependent on the sheep, the country's
     greatest natural resource (in the words of a recent actuarial paper) being grass.
     Industrial developments are, however, taking place, including the establishment
     of a local steel industry.


     (3.1) The Australian Life Insurance Act 1945-1965 is administered by the
     Insurance Commissioner, who has fairly wide discretionary powers. The present
     Insurance Commissioner, an actuary, is a former President of the institute of
     Actuaries of Australia and New Zealand. A detailed account of the extent of
     Government Control is given by T.P. Scott[2] in his paper to the 1969 Pacific
     Insurance Conference (this paper also provides a comprehensive survey of the
     history and recent development of the industry). The Insurance Commissioner
     can have great influence on a Company's policy, particularly in respect of its
     investments and style of management. Adverse trends in expense rates, lapse rates
     and so on are "enquired into".

     (3.2) In broad terms, a Company has to be registered under the Act before it can
     undertake life assurance business in Australia, and it must establish and maintain
     at least one statutory fund, transfers out of which are controlled. The amount
     allocable to shareholders is also limited. Separate accounts are maintained for
     each major class of business (i.e. Ordinary, Industrial, Superannuation), and
     the auditors have to be satisfied that any apportionment between accounts has been
     done on an equitable basis. Detailed monthly and annual statistical returns on
     movements (e.f. Board of trade annual 3rd Schedule, Part IV) are required, together
     with quarterly statements on ledger balances and annual Revenue Accounts and
     Financial Balance Sheets. Some statistical returns are subdivided by State.

     (3.3) As far as the actuary is concerned, all premium rates have to he approved
     by an actuary, and Valuation Reports and Analyses of Business in force (e.f.
     Board of Trade 4th and 5th Schedules) are required. Minimum reserve, surrender
     value and paid-up value bases are laid down.

     (3.4) In order to register a new Life Office, a detailed submission is made to the
     Insurance Commissioner, incorporating estimates of income, expenditure, valuation
     and other strains over a 1O year period on "optimistit" and a "pessimistic" New
     Business assumptions. Normally, ear-marked funds of at least $A ½ million are
     necessary in addition to adequate capital. Other requirements are given in a set
     of "guide-lines" available from the Insurance Commissioner, who has to be completely
     satisfied as to the ability of the proposed management (including the Actuary)
     to successfully conduct Life business.

     (3.5) Taxation of Life Offices is based primarily on interest income in excess
     61 3% of a proportion of the "calculated liabilities" @ 4%, with some allowance
     for expenses. This often approximates to tax on interest income in excess of about
     2½% of the assets producing this income, with some expense allowance. Net
     realised capital gains are included in the income assessable for tax. The 3O/20
     rule, relating to the composition of investments, becomes an important factor
     in investment policy. Superannuation business is effectively tax free, provided
     that at cost at least 30% of the assets of each statutory fund are invested in
     Government and "semi-Government" Securities, with at least 20% in Government
     Securities. Resident companies (i.e. incorporated in Australia) are allowed a
     rebate of tax on Ordinary and Preference share dividends.

     (3.6) Personal taxation relief on Life premiums paid is generous by most
     countries' standards. The rate of Income Tax is on an increasing scale, and
     relief is obtained at the highest tax rate paid by the individual on a maximum
     premium outgo and superannuation contributions of $A 1,200. The taxation
     authorities are thought to be checking this aspect of personal taxation returns
     more carefully following some imbalance between "claimed" premiums and premiums
     received by the total Life Assurance industry.

      (3.7) In New Zealand, the regulation of Life Offices is more by persuasion than
     by legislation, and this seems to work reasonably well in this relatively snail
     market. The extent of this persuasion reaches into the investment policy of
     each Office, as far as determining the minimum percentage of funds placed in
     Government Securities. Taxation is basically related to the cost (on a prescribed
     basis) of bonuses declared, plus dividends to shareholders, with the consequence
     that most Offices offer low premium, low bonus policies.


     (4.1) Organisation structures are not dissimilar to many obtaining in the U.K.
     although there are proportionally fewer actuaries as either General or Investment
     Manager   in fact, there appears to be only one actuary whose title is Investment
     Manager. However, where the General Manager is not an actuary, the Deputy
     General Manager almost invariably is, and he also often acts as the effective
     Investment Manager, although not given that title. Actuaries are in evidence in
     the top management structures of Offices, and often actuaries are in charge
     of underwriting, E.D.P., sales etc.

     (4.2) Australian Life Offices were early in the field of mechanisation, and
     followed developments in the U.S.A. rather more quickly than many British
     Offices. Mechanisation has been pursued along differing courses, ending up
     with either highly centralised configurations, or, in one case, extensively
     decentralised local computer operations. The overall degree of mechanisation is high.

     (4.3) Most Offices operate with full time Agents who sell direct to the public
     and are remunerated by commission on the business sold. Groups of such Agents
     (say 10 to 2O per group) are directed by a Supervisor or Field Manager, who is
     responsible for recruitment, training and supervision. Some Offices have experi-
     mented with salaried salesmen and part salary part commission. There are also
     large numbers of Industrial Branch agents, who are allowed to write Ordinary Branch
     business. The member companies of the Life Offices' Association operate on the
     basis of sole agency agreements, with the result that Broker influence is minimal.


     (5.1) In the Ordinary Branch, With Profits business continues to dominate the
     scene, and Terminal Bonuses have now become a feature of most Offices' bonus
     systems. There is however a persistent trend to Non Profit business,
     resulting in a reducing average premium rate.             Team

     (5.2) In the Industrial Branch, the business (generally known as Collector
     Insurance) has grown steadily rather than spectacularly, and is mainly in the
     form of Endowment Assurances.

     (5.3) The development of Superannuation business has been notable for the use
     of non-allocable funding techniques, and the facility whereby the policyholder
     can vary from time to time the percentage of the funds' investments in equities,
     fixed interest and Government securities. The main emphasis is still on lump
     sum benefits, a situation which the present personal taxation rules do little to
     discourage. One State (Victoria) is considering the concept of compulsory
     portability of pension rights, and the Commonwealth Government too is investigating

     (5.4) The prospects for Equity-linked contracts are not bright at present, due
     mainly to the restrictive guide-lines laid down by the Insurance Commissioner.
     There is much interest being shown in this field, but little can be done in
     the present circumstances.

     (5.5) Following changes in the taxation basis of Non Cancellable Disability
     Insurance business, a number of Offices have entered this field and there has
     been much interest shown in developing this form of cover. Previously, this
     business was taxed as Non Life (i.e. on profits, after allowance for unearned
     premiums, expenses and claims), with the result that profits were taxed before
     they were earned. Now, subject to certain conditions, the Office is allowed to
     deduct the increase in the actuarial reserve from the excess income before
     arriving at a taxable profit. There are unfortunately some problems still remaining
     in the treatment of claims reserves in the taxation return.
                             - 4 -


     (6.1)    There is now an active professional reinsurance market which has
     in the main replaced the reciprocal exchange system previously operated
     by the local Offices. The world's largest professional reinsurer (Swiss)
     and two major British reinsurance companies are registered, and provide
     comprehensive underwriting facilities in Melbourne and Sydney. Large
     individual cases are quickly underwritten and placed on the international
     reinsurance market.

     (6.2)    The reinsurance companies have been mainly responsible for the
     introduction of the numerical rating system, and for the marked change
     in the ability of the direct Offices to offer cover on even heavily
     substandard lives.

     (6.3)    Both Coinsurance and Risk Premium methods of reinsurance are
     used, and special methods have been developed for handling the reinsurance
     of group Term business with "free cover". Catastrophe reinsurance is
     normally available, but Stop Loss coverage is not offered by the locally
     registered reinsurance companies.

     (6.4)    A local Office may reinsure with a non-registered reinsurer, but
     gross reserves have to be set up and reinsurance premiums cannot be paid
     out of the statutory fund. Consequently, virtually all reinsurance is
     placed with the locally registered reinsurance companies.


     (7.1)    The I.A.A. & N.Z. was incorporated in May 1963, following the
     dissolution of the previous "Society". It is a very active body and the
     steady flow of papers usually generates lively discussions. There seems
     to be a lack of awareness in the U.K. of the range of topics discussed
     in papers in the Transactions and in contributions to the Institute Bulletin.
     The following list illustrates the wide scope of subjects written on over
     the past two years:-

              Transactions                              Bulletin
     1968: Australian Mortality (1958-63)       Analysis of Surplus
           Non Life Insurance                   Growth Rate of an Economic Time
           Appraisal of Fixed Interest                            Series
                         Securities             Effective return on Fixed Interest
           Interpolation                                          contracts
           Vesting and Preservation of          Graduation Operators in Time
             Employee Superannuation benefits              Series Analysis

     1969: Urtit Linked Life Assurance
           Assessment of Ordinary Shares
           Distribution of Capital Growth
           Life Insurance Act and Policies
           Training of Actuaries (Macquarie University)

     In addition, the Presidential Address (which is discussed as a paper)
     appears in each Transactions, and details of legal matters affecting
     the insurance industry are given in the Bulletin. Notes are also
     published in the Bulletin on items of general interest to the profession,
     such as population mortality statistics.

     (7.2) There are two Branches (New South Wales & Victoria) and each Branch
     operates a Branch Committee, from which are drawn the members of the Institute
     Council. Many sub-committees deal with such matters as professional guidance,
     tuition, university liaison, recruitment, journal, publicity, new entrants and so
     on. Close links are maintained with other actuarial bodies, particularly the
     Institute and Faculty.

     (7.3) Tuition and marking of tests (apart from the marking of Fellowship tests)
     are provided for students in both Melbourne and Sydney. The system of twice
     yearly Institute examinations has been especially welcomed in a country where
     a long hot summer can cover much of the normal study year.


     (8.1) For many years the I.A.A. & N.Z. has been liaising with the Australian
     universities in recruiting graduates into the profession. There have also been
     investigations into the feasibility of some university courses being modified
     so as to follow more closely the actuarial syllabus. Eventually, following close
     co-operation between the I.A.A. & N.Z., the Life Offices' Association of
     Australia, other employers of actuaries, and the governing board of Macquarie
     University (Sydney), a School of Actuarial Studies was founded in November 1967.
     The Life Offices and other employers agreed to donate a sum of $A 100,000 spread
     over 5 years in order to establish the School, after which period it will be
     supported through the normal university financial system.

     (8.2) A leading Australian actuary, with high academic qualifications, was
     appointed as Head of the School; he and a number of actuaries on the staff of
     Maquarie University are actively associated with the development of this
     important link between the profession and the academic world. The actuarial
     subjects are covered as part of Macquarie B.A. degree. Full details of the
     operation of the School are given in Professor A.H. Pollard's[3] paper.

     (8.3) There are now some 13 students in the 3rd year, 20 students in the 2nd year
     and 34 students in the first year (1970), including 2 from New Zealand and 4
     from Malaysia. Of these students, 32 are on generous full-time scholarships
     provided by 11 different organisations. It seems likely that the School will
     eventually settle down at a final year size of about 20. Further details are
     given by Mr. C.J. Stevens[4] in his 1970 Presidential Address to the I.A.A. & N.Z.


     (9.1) The role the actuary plays will depend very much on the type of Life
     Office. With the larger Offices, it is generally similar to that in a large U.K.
     Office, although heavier responsibility can come at an earlier age because
     of the shortage of actuaries. In a smaller newer office, the actuary (often the
     only actuary in the Office) is likely to become involved to a significant degree in
     sales problems. Incidentally, one of the largest Offices has an actuary as its
     Sales Manager.

     (9.2) Apart from this broad generalisation, much obviously depends on the
     capability and inclination of the actuary. Actuaries are employed in many positions
     ranging from General Manager to more technical and less managerial situations.

     (9.3) An increasing number of actuaries are in consulting practice, some are in
     Commonwealth and State Government service, and a few are in Banking. With the
     development of the School of Actuarial Studies, there are now 3 Fellows and 3
     Associates at Macquarie University. As at the end of September 1969, there were
     196 Fellows of the I.A.A. & N.Z. of which 156 were resident in Australia and
     17 in New Zealand, There are relatively few retired actuaries in Australia and
     New Zealand, and there is a significant number of former U.K. actuaries.


      (10.1) A survey of salaries of actuaries with up to 10 years experience
      since qualification was undertaken in 1968 by I.A.A. & N.Z. The main purpose
      of this was to provide a more concrete presentation of likely future salary
      patterns to possible recruits to the profession. At that stage (early 1968)
      entrants direct from school generally commenced in the range of $A 1,700 -
      $A2,100 (official exchange rate is £stg.l $A2.15), whilst graduates started
      at $A 3,100 - $A 3,650. Most Life Offices were paying newly qualified actuaries
      $A 6,500 - $A 7,500, and actuaries in responsible positions with about 10 years
      post-qualification experience were receiving of the order of $A 10,000. Those
      actuaries in very senior positions command considerably greater salaries. In
      New Zealand, salaries were in general about 80% of the above levels, expressed
      in $NZ (parity with $ A ) .

      (10.2) Most Life Offices offer in addition a valuable range of "fringe benefits",
      including superannuation and favourable mortgage facilities. Salaries in
      Government service are higher in many parts of the "scale", whilst actuaries
      in consulting practice normally earn more, with possibly fewer "fringe
      benefits"than comparable actuaries in Life Offices.

      (10.3) Since 1968, there has been a general increase in salary levels. For
      example a recent survey by Monash University of starting salaries for graduates
      in mathematics showed an average starting salary of $A 3,900. Also recent
      advertisements for actuaries have quoted salaries in excess of $A 10,000.

      (10.4) There is a minimum salary scale for all employees in the insurance
      industry, and the current scale reaches $A 4,264 (males) after 14 years adult
      service, and $A 2,616 (females) after 7 years adult service. In many cases,
      employees are well above this scale, and special structures apply to typists,
      key punchers etc.

      (10.5) Salaries in other professions are high. A few examples of median
      salaries in the 26 - 30 and 36 - 40 age groups as at mid 1969, were :-

                                                 26 - 30          36 - 40

             Accountancy                         £2,944           £3,589
             Dentistry                           £4,112           £5,981
             Medicine                            £2,794           £6,495
             Lw                                  £2,570           £5,953

             (these figures have been converted to £stg at the current rate of

      Salary rises averaging 7% have taken effect since mid 1969.
      (These figures, produced by the University of Melbourne, were published in the
      21st June 1970 edition of the Sunday Times).


      (11.1) The official rate of exchange between two currencies is not always the
      most suitable for comparison purposes, and each U.K. Appointments Board
      circular makes reference to this. Many factors entering into a cost of living
      comparison depend on personal circumstances, and individual judgement must be
      exercised. There are however a number of factors which have general application,
      and these are, now considered.

      (11.2)* Taxation in the middle income group is as high, if not higher, than
      in the U.K. Taxation allowances for wife and children are smaller than in the
      U.K., mortgage interest is not deductible, but education and medical expenses
      are deductible. There is no earned income relief, but family allowances are
      not taxable. The rate of tax increases for each band of taxable income, and is
      about 50% for the band $A 8,000 - $A 8,799, and almost 60% for the $A 12,000 -
      $A 15,999 band. As an example, a married man with two young children, earning
      a salary of $A 10,750 (£stg 5,000 @ 2.15) could expect to pay, after the usual
      allowances, about 26% of income in fax.

      (11.3) It is difficult to generalise on house prices, partly because the cavity-
      wall type of construction, which is usual in the U.K., is becoming the exception
      rather than the rule in Australia; there, most new houses are timber frame
      with a single brick skin. However, in the capital cities, housing costs are
      dominated by the high price of land. This seems to be principally due to two
      factors, namely, the difficulty of providing services (water, power, sewerage,
      transport, education) to outlying areas, and the necessity to live within a
      reasonable distance of work in one of the most urban communities in the world.
      In suburban Sydney, Melbourne and Canberra, house prices seem to be somewhat
      higher than in comparable London suburbs.


      (12.1)The future of the Australian Life Insurance Industry is bright, linked
      as it is both by its investments and business prospects to the developing economy
      of the country. Some Offices, even the large ones, are experiencing growth rates
      in excess of 25% per annum. The demand for actuaries will grow, and a survey
      made in 1966 indicated that the then employers of actuaries would require 225
      qualified actuaries by 1975. This compares with the end of September 1969 figure
      of 151 actuaries who were employed in Australia.

      (12.2) It seems likely that Australia will play a leading role in assisting
      countries in South East Asia in developing Life Assurance on sound lines. The
      Pacific insurance Conference, held biennially, was created to further the
      exchange of concepts and experiences between Life and Health Insurance Companies
      of the Pacific Rim", and the fourth such conference was held in Sydney in 1969
      and was strongly supported by Australian Offices.

      (12.3) New Zealand, more English and more green than Australia, does not at
      present seem to have the bright economic future facing Australia, but further
      industrialisation, and if successful, mineral and oil explorations, could have
      a marked effect on the country's future.

      • The August 1970 budget proposed some reductions in the taxation burden on
        salaries up to $A 32,000, which would improve the figures quoted in (11.2).
(12.4) And the emigrant actuary's future? Following a thorough assessment
of such factors as likely living costs, taxation, housing (with due
allowance for house agents' descriptive powers). overall future prospects,
the new arrival faces a new way of life in a new country. The language, though
not new, is unusual in parts - "the wife's'crook, and spent the weekend
in bed with a wog" should not be misinterpreted, and there is only a modicum
of truth in the rumour that an adjective with sanguinary connotations is
used in everyday speech with a frequency exceeding that achieved by current
British T.V. plays.


[1]    D. Drybrough:      Life Assurance in Australia - J.S.S. 14(1)

       T.P, Spott:        Life Assurance in Australia - Pacific Insurance
                                                        Conference, April 1969.

[3]    A.H. Pollard:      The Academic Training of Actuaries with Particular
                             Reference to the Programme at Mscquarie University -
                             T.I.A.A. & N.Z., 1969.

[4]    C.J. Stevens       Presidential Address - T.I.A.A. & N.Z., 1970.

Additional references:-   24th Annual Report of the Insurance Commissioner for
                             the year end 31st December, 1969.

                          September 1st and 2nd 1970 editions of The Financial

                          Economic Trends (Australia) - Development Finance
                             Corporation Limited.


Acknowledgement is made to the Management of the Australian Reinsurance
Company, who provided much information on the current Australian scene, and
to Professor A.H. Pollard and Development Finance Corporation Limited
for assistance with economic data.

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