Thank You to Communication with members via email
Michelle Roche In response to the recent Member Survey, the Society will communicate with
members, whenever possible, via email. Calender of events, notice and
Michelle has spent several years reservation form for meetings will be available on the website. The Society
editing the Newsletter. Council will remind you by email of upcoming events.
would like to extend their
appreciation to Michelle for her If you are not receiving email reminders from the Society then please email
enormous work over the years. Sarah Cahill at Sarah.Cahill@actuaries.ie and Sarah will update your details
The editorial team will miss Michelle in the membership database.
as she takes a well deserved break
from the Newsletter.
Fair Value & Solvency – the international dimension
This meeting will take place on the evening of Thursday 27 March in the
Conrad Hotel. We expect to have about 20 European actuaries, representing
the Groupe Consultatif, attending. We hope to have a good attendance from
our own members to meet our visitors and to join them for a reception and
dinner in the Conrad following the meeting. Further details and a reservation
form will be on our website.
Annual Ball - Saturday 26 April 2003
The Ball will take place in the Shelbourne Hotel. We will shortly announce
the theme for the evening! Meanwhile, please diary Saturday 26 April.
10th Anniversary Director of
Our December 2002 issue was the Professional Affairs
10th anniversary of the Society’s
Newsletter and thanks to Jimmy Joyce We will include an article on Aisling
for drawing this to our attention. Kennedy’s appointment as the new
Practising Certificates A copy of the December 1992 issue Director of Professional Affairs, in
is on our website. our next issue of the Newsletter.
Council has introduced the following
new requirement for applicants for
Appointed Actuary, Scheme Actuary
and Signing Actuary Certificates:
The Qualified Financial Advisory Board
Congratulations to Bill Hannan, FSAI, on his appointment as Chairman of the
All applicants are now required to Qualified Financial Advisory (QFA) Board. This new qualification for financial
submit the names of two referees advisers is expected to become mandatory, according to the Central Bank.
in support of their application. The QFA Board was recently established by the Central Bank to oversee the
introduction of the qualification in a joint venture with the Institute of Bankers
in Ireland, the Insurance Institute of Ireland and the LIA. Congratulations also
to Tony Gilhawley, FSAI, who will be the principal author and editor of the
syllabus and textbooks for the QFA examinations.
On the Move
➩ Fellow Members David Costello has joined Eagle Star from ESG Re
Brian Foley has joined Ernst & Young in the UK
Brian Heffernan has joined Imagine International Reinsurance Company
from Centre Solutions
Patrick Grealy has joined Imagine International Reinsurance Company
from XL Europe Ltd
➩ Student Members Tara Greally has joined Mercer HR Consulting
David O’Connor has moved from Ernst & Young to Norwich Union International
Society of Actuaries in Ireland
102 Pembroke Road, Dublin 4. Telephone: +353 1 660 3064 Fax: +353 1 660 3074 E-mail: firstname.lastname@example.org Web site: www.actuaries-soc.ie
SAI · 8 · February Newsletter 2003
The Society of Actuaries in Ireland
Pat Rabbitte, T.D., Leader of the Labour Party, John Bowman, Seminar Chairman and Eamonn Heffernan, President of the Society of Actuaries in Ireland.
Where next for Motor Contents
Insurance? Motor Insurance
Seminar pages 1, 2 & 3
Seminar 22nd November 2002. News in Brief page 3
Eamonn Heffernan, President of the prudential supervision and consumer Report of With-Profits
Society of Actuaries in Ireland, opened interests. The Irish model could be Working Party page 4
proceedings by outlining how topical described as free market, no failure,
Photo Diary page 5
the subject of Motor Insurance is, permissive, post hoc and indirect.
particularly with the publication In general, in all jurisdictions, there Actuaries at leading edge of investment
earlier in the year of the MIAB report, appears to be a tendency towards
evolution? pages 6 & 7
and subsequently the setting up of more regulation over time.
the PIAB. Communication with members via
An inequality between buyers and email, Diary dates, 10th anniversary,
Jimmy Joyce: Consulting Actuary, DETE sellers of motor insurance results from
Director of Professional Affairs,
Jimmy spoke of the choices of sellers having statistics not available
regulatory models for insurance to the buyers, a problem exacerbated Thank You, On the Move
supervision and explained the by the compulsory nature of motor
Q.F.A. Board, Practising Certificates
characteristics of the different models. insurance.
Contd.➝ page 8
Regulatory systems balance both
February Newsletter 2003 · 1 · SAI
Where next for Motor Insurance?
Seminar 22nd November 2002. Continued...
In recent times, the unstable financial insurance in the last few years might an overlay of uncertainty with
and economic environment in which be prudent reserving. Dorothea felt increased regulation and legislation.
insurers operate has left insurers more the recent introduction of actuarial Correction of pricing deficiencies
vulnerable to underwriting setbacks. certification may have caused demands more capital, yet investors
Regulators’ confidence in audit actuaries to exercise more caution face this demand from insurers when
reliability has been shaken by than was necessary. capital is scarce and insurers reported
corporate scandals. Increases in profits are on the floor. From an
litigation and advances in medical The interim PIAB was set up on 25 investors perspective the market is
technology have altered the market October 2002. The PIAB brief has not undercapitalised following a long
environment further. Shareholders’ been fully determined yet, but all period of competition, latent claims,
attitudes have changed, they are less members of the Board agree some natural perils losses and equity market
concerned with the longer term, and broad principles: losses. The view of customers
are more concerned with short-term • Natural justice and due process is also negative with a general
returns on capital. These conflicting must prevail. perception of insurance being a
tensions added to market difficulties. • The PIAB awards must be ‘rip off’.
consistent with awards made by
Dorothea Dowling: Chairperson of the the courts. What’s the future? David set out the
MIAB and the PIAB features desirable in an insurance
• The PIAB will only deal with claims
Dorothea discussed some of the market and the balancing required
where there is no dispute as to
findings from the MIAB report, namely: to facilitate opposing elements.
• Irish motor insurance made He outlined the choices for the Irish
m343m profit in 17 years, which is • Claims will only be released to
market, in relation to legal /
a 4% return on capital. Consumers the courts after referral to the PIAB.
regulatory issues and to product /
resent this. The MIAB are advocating better value distribution issues. Finally, the
• On average, legal fees amount to for consumers, however the PIAB is headline issues for the Irish motor
40% of the claimant’s bodily injury not to be a means of reducing market were outlined. Whilst insurers
awards. awards. This inherent conflict was margins are now acceptable there is
not resolved. a lack of capacity in the market and
• The cost of insurance per vehicle
in Ireland is twice the EU average. this has resulted in some sectors
David O’Connor: Risk Management being hard hit. Also, with unlimited
• There is not a cartel in operation in Director, Allianz Ireland liability likely to go in 2003 there are
motor insurance in Ireland.
A history of catastrophe losses future problems to come. The only
• The industry should standardise showed an increasing trend not barriers to entry currently are our
renewal notices, and unbundle small size in an international context
recovered in pricing. The occurrence
costs. and the level of regulation in the
of the World Trade Centre loss
• The MIAB believes that while there hastened the scale and timing of the market.
is no national motor insurance reinsurance increases. A wholesale
data bank, there is a barrier to reassessment of risk and exposures by Insurers have welcomed the MIAB
entry. the insurance market was taking report and the 10 insurer
• There has been a reduction in place. Insurers also came under strain recommendations have been largely
competition in the market due from asset / liability correlations, implemented already. However the
to mergers and takeovers. There feeling the effects of the bear market 57 recommendations requiring
were 17 companies providing on investment returns. The overall Government action are already
motor insurance in Ireland in result was that markets began pricing behind schedule. The how and who
1993, now there are 5. the long-term trends in losses, of the main initiatives planned were
particularly catastrophes. set out and an indication of the
The MIAB suspects that one of the possible consequent reduction in
drivers for the poor results in motor The domestic market also provides insurance premiums was given.
SAI · 2 · February Newsletter 2003
Hugh Mohan, SC: Bar Council of In presenting the views of the market, met on the 7 January.
Ireland ordinary citizen, including business The main items on the agenda were
The Bar Council thinks that legal people and company executives a discussion of a paper on The Role
of the Actuary in Regulation of
costs are too high and that the legal managing costs, Pat said that
Life Assurance in Ireland and
system needs root and branch policyholders feel exploited by the
consideration of a draft Guidance
reform. The current 3-year delay in insurance industry, that the regulators Note on PRE for cross-border business
accessing the courts could be have let them down and that there (complementary to GN22 for
reduced to 1 year. Expert witnesses are cosy cartels in operation. domestic business) which Sheelagh
could report to the court, rather than The motor insurance industry must Malin and her working group had
the plaintiff or defendant as they do bear some responsibility for these drafted. Both topics generated lively
opinions as fraudulent claims are not discussions. The Committee deferred
at present. He believes that it is not
approving the draft Guidance Note
barristers driving up legal costs and defended and claims are settled when
on PRE until some issues, relating
stated that there had been no the policyholder is prepared to go to primarily to the disclosure charges
increase in legal costs in the last 3-4 court. Then the insurance premiums on products such as tracker bonds,
years. Also our award system differs of the insured in question are are resolved.
from others in Europe, where loss hiked up.
of earnings and medical care are Life
provided by the State. This is the When in office, Pat Rabbitte had The Life Committee is considering
principal reason why our bodily injury found the financial services industry the implications for policyholders
to be very secretive and felt this is following on changes in the terms
awards are comparatively high.
at which critical illness business may
Added to this is the fact that inappropriate in a modern age.
be reinsured. A Peer Review
healthcare inflation has been very subcommittee will report back shortly
high in the last number of years. In his opinion, the PIAB is not the sole to the Life Committee with a broad
answer to motor insurance problems framework for the operation of a
In recent times the courts in Ireland, especially for young Peer Review system for Appointed
system has been overhauled with drivers. Our adversarial legal system Actuaries.
listing times radically reduced. is in crisis, is time consuming and
The PIAB may only add an extra layer expensive. Alternatives must be Pensions
of bureaucracy. He agreed with David found and Pat suggested a shift to The main issue for the Pensions
O’Connor that the PIAB might be just an inquisitorial system, with books Committee at present is the ability of
of quantum, guidelines and case defined benefit schemes to meet the
as useful as a catalyst for reform of
Funding Standard, and the
existing systems of compensation. management.
consequences of not doing so. The
The net point was whether the Pensions Board has been considering
economics of delivery could be There followed a very lively exchange changes to the Funding Standard
improved? of views, with Dorothea Dowling and system, and met with the Society on
Hugh Mohan to the fore. Finally Pat this issue in October.
With regard to a Book of Quantum, Rabbitte took the heat out of the The recently published Social Welfare
situation by stating that he had never (Miscellaneous Provisions) Bill 2003
the Bar would prefer a book of prece-
contains proposed changes in the
dence as the former suggests specific expected a seminar of the Society of
operation of Actuarial Funding
values for individual injuries and does Actuaries to be such an exciting
Certificates, Funding Proposals, and
not take into account personal cir- event! Laughter ensued, and a hearty transfer payments. Some of the
cumstances. However, Hugh felt that lunch followed. Society’s guidance notes may need to
the insurance industry must commit be amended as a result.
unequivocally to lowering premiums Catherine Murphy, Ger Bradley, The Pensions Board has also set up an
Sean McGrath expert group, chaired by Paul Kelly,
in response to changes.
to look at the nature of the Funding
Standard and related issues. The
Finally, Hugh referred to ‘justice’ and
was concerned that the underlying
agenda was to limit damages to
News Society has made a submission to this
Funding Standard issues will be
genuine injured plaintiffs. He argued
that the independence of the legal
system ultimately provided the best
in Brief covered at an evening meeting of the
Society on 26 February.
The sub-committee on Defined
Contribution schemes, led by
guarantee of justice. Cross-Border Life Enda Walsh, has prepared a position
The Cross-Border Life Committee, paper on funding rates for DC
Pat Rabbitte, T.D., Leader of the membership of which is open to arrangements, which will be issued
Labour Party actuaries working in the cross-border shortly.
February Newsletter 2003 · 3 · SAI
Report of the 2002 With-Profits Working Party,
chaired by Brenda Dunne, which was presented to the Society
on the 4th of December 2002.
Brenda Dunne, Shayne Deighton and when determining bonus rates. There Recommendations
Colin Murray presented the report is a general tendency to pay less than The Working Party formulated their
of the With-Profits Working Party 100% of asset share for surrenders, recommendations with a view to
established by the Society’s Life with a gradual increase to 100% as ensuring that with-profits business
Committee. Brenda introduced the policies approach maturity. does have a future in Ireland.
presentation by outlining the terms Recommendations were under 4
of reference of the Working Party, In terms of documentation of headings: Disclosure, Terminology,
established in March 2002. approach, this is generally achieved Principles and Practices of Financial
through reports to the Board and Management and Financial Condition
She then went on to describe the through policyholder Reports.
Irish with-profits market with some communications. No company
summary statistics. Since the market had one single document that fully Crystal Balls and Discussion
is entirely based on unitised with explains the principles and practices In terms of the future, this will
profits products now, conventional of management that are currently undoubtedly bring reduced bonus
with-profits business was not being adopted, although some are rates and reduced guarantees.
considered in the report. trying to achieve this. Some offices may increase their use
of hedging, or we may see increased
In terms of the products available, UK Developments use of reinsurance to strong UK
there are significant variations in Shayne Deighton then provided a funds. There is a question mark over
the guarantees offered by product summary of recent UK developments whether increased transparency, for
providers and it is not clear whether in relation to with-profits business. example the publication of the
consumers fully understand these There have been several initiatives smoothing account, will harm the
differences. In general, annual bonus prompted by events and/or vested product. With-profits products will
rates are falling at the rate of about interests or government agencies be acceptable as non-standard PRSAs,
1% p.a. currently. which have lead to a myriad of
but not standard ones.
reviews and reports, some of which
A review of product literature are still ongoing. Shayne then
There followed a wide ranging
revealed a lack of clarity in describing considered the likely future outcomes
discussion, covering topics such as
the key features of the product - arising from all this activity under
equity between generations of
the nature of the investments, how 4 headings - Product, Governance,
policies, the lack of clarity between
smoothing operates, the guarantees Transparency and Regulatory
smoothing and guarantee costs and
offered, how bonuses are calculated, Reporting. Most of the UK
where they are borne, the impact of
MVAs, annual notices and past developments will have some
performance. Different product relevance in Ireland, except that there the asset mix on projection rates, the
providers also used different are no indications of a change in the publication of appropriate measures
terminology, which the Working Party role of the Appointed Actuary here, of financial strength and various
believes is confusing for consumers. and the requirement for a smoothing communication issues. In conclusion,
No product provider shows the account may not necessarily develop. it was noted that with-profits policies
underlying investment return Nevertheless, there is no doubt that had historically provided good value
achieved by their with-profits fund change will increase rather than to consumers and it was important to
in the past. reduce the regulatory reporting educate product distributors so that
burden. they fully understood the product in
Current Financial Management the future.
As part of its research into the way Model Office Work
with-profits funds operate, the Colin Murray presented the results Eamonn Heffernan closed the
Working Party conducted interviews of the Working Party’s model office meeting by thanking all the members
with six appointed actuaries. Due work. The most thought provoking of the Working Party for their valuable
to variations in company structures, results were that, for single premium contribution.The paper is available on
there are fundamental differences in business written in 2000, assuming the Society’s website.
the nature and degree of profit a sample term of 10 years, a 4.6% The members of the Working Party
participation between companies. All annual investment return would be were: Brenda Dunne (Chairperson),
companies use asset shares but none required to support the maturity Anthony Brennan,
make an explicit charge to cover the payout even if no further bonuses Shayne Deighton, Colin Murray,
cost of guarantees and smoothing. were added. This required return Michael O’Briain, Edel O’Connell,
increases to 6.1% p.a. if bonuses Munro O’Dwyer, Craig Tunstall.
Companies have various techniques gradually reduce from their
for applying smoothing to policies current level. Sheelagh Malin
SAI · 4 · February Newsletter 2003
Photo 1 Jim Kehoe, Peter Delany,
Eamonn Heffernan, Bob Willis
Photo 2 David Costello, Pat Ryan,
Jim Kehoe, Bob Willis
Photo 3 David Costello, Derek Bain,
Photo 4 Patrick Grealy, Paul Walsh,
Conor O'Neill, Michael Culligan,
Photo 5 Pat Ryan, Reamonn O'Sullivan
February Newsletter 2003 · 5 · SAI
Alternative Investment for Life
presented to the Society on the 22nd of October 2002,
A very interesting and topical for more details. that, in order to satisfy the implicit
presentation by Peter Caslin and requirements of the guidance,
Colin Murray was followed by a lively • Despite the above ‘health disclosures should include
discussion ably chaired by Society warning’, hedge fund indices exist a) quantitative information, such
President, Eamonn Heffernan. which attempt to mitigate or as: 95% confidence interval for
remove the impacts of the above the range of expected returns,
Peter Caslin made the first biases and there is a sound probability of losing money, and
presentation of the evening and rationale for investing in hedge maximum ‘drawdown’; as well as
covered sections 1, 2, 3 and 4 of the funds, subject to caveats. Returns b) qualitative information, such as:
paper (available from the Society’s must be at least comparable to parties involved in the hedge fund,
web site). Peter’s main points were: more conventional asset classes counterparty risks, and broader
and there should be a low statement of risks. These
• There is no regulatory barrier to a correlation between the hedge recommendations were well
policy being linked to a hedge fund being considered and the researched and included a review
fund or a hedge fund related existing portfolio. In such of Central Bank regulation of
structured product, provided a) circumstances the possibility exists investment fund sales and practice
the fund’s legal structure fits the to maximise expected portfolio in other overseas jurisdictions, such
requirements of Annex V of the return for a given level of risk. as the Isle of Man.
EC (Life Assurance) Framework A study by the University of
Regulations and b) it satisfies Reading suggests that a hedge • There could be difficulty in
certain liquidity and other fund allocation in the range of achieving equity in unit pricing,
requirements in Annex V. 10-20% of assets achieves this particularly when performance fees
objective. are involved. These fees are
• Future regulation should not payable when asset values move
follow the UK’s interpretation of • However, the key message is that above the so-called ‘high water
the Third Life Directive, which detailed due diligence of each mark’. The problem is that each
effectively prevents hedge fund proposed hedge fund would be generation of investors has its own
investment. The downsides of such required in order to minimise high water mark. One possible
a development would include the the risk of something going solution is to have different
removal of diversification wrong and to provide enough tranches of unit for different
opportunities for investors and the information for the purposes of investment date ranges. Colin
erosion of competitive advantage policyholder disclosure. suggested that this topic could be
for Ireland’s cross-border life Recommended criteria for due the subject of a paper in its own
assurance industry. diligence testing include whether right. (Any takers?)
the fund is OECD regulated,
• Whilst some surveys have holds highly liquid assets, has a Colin also presented an analysis
demonstrated that hedge funds transparent strategy and has of the risk/reward profile of some
historically out-perform equity exhibited normal distribution of investment strategies, including:
indices, one must be careful in returns. (Afterwards, one standard equity fund; geared equity
taking at face value the statistics contributor helpfully noted that product; ‘bomb and switch’ product;
that are presented. Measures such the Alternative Investments and ‘uncovered option’ product.
as return, volatility and Sharpe Managers Association (AIMA) has
Ratio (i.e. return – riskfree return, produced a useful ‘due diligence’ Attendance was high as was praise for
divided by standard diviation of template). the paper, its authors and presenters.
return) are easily distorted by This synopsis cannot do justice to
a) survivorship bias; b) selection Colin’s presentation covered sections the quantity and quality of the
bias; and c) stale or managed 5, 6 and 7 of the paper and his main subsequent debate and sound-bites.
pricing. Space constraints preclude points were that: Highlights included:
an attempt at explanation but for
the record, Sharpe ratio = (return – • One can look to GN1 and GN22 • A well-timed comment about the
riskfree return) divided by standard for guidance on policyholder importance of the quality of the
deviation of return. See Chapter 3 disclosure. The recommendation is sales process and of the advice
SAI · 6 · February Newsletter 2003
Assurance Companies & Pension Funds
by a working party of the Life Committee, chaired by Peter Caslin.
given and the need for a • A distinction between disclosure to take on these challenges and
well-trained salesforce. and understanding should be thereby to play a leading part in the
made, not only at point of sale but continuing evolution of the retail and
• One member’s warning that also in the Boardroom and the institutional investment markets.
we are handling ‘commercial consequent leadership opportunity In the absence of a ‘nanny state’
dynamite’; his apocryphal vision for the profession. who else can serve the public interest
of an actuary in court after so well?
‘something goes wrong’ at the There seemed to be consensus that
mercy of a good barrister who in determining the level of due I would recommend the paper as an
would ‘walk through’ the actuarial diligence and disclosure required, interesting read to any actuary.
profession; and his concern about there could be some differentiation Along with the recent prize-winning
the ‘backside’ of the profession. between investors with different levels paper on hedge funds written by
Needless to say, this sparked some of sophistication. Suggested proxies John Caslin, it should be considered
lively discussion with mentions of for investor sophistication included as required reading for all actuaries
‘Enronitis’ and ‘Endowments product type (e.g. Personal Portfolio who are connected with a decision
revisited’. Nevertheless, the point Bond); amount available for to invest in or to offer a hedge fund
about the need to be robust in investment; and investor net wealth. or for those who must deal with the
our logic and arguments was There was also some support for practicalities of implementing such
well made. the suggestion of allowing access a decision.
to hedge funds only through the
• Concern was voiced about managed fund route in order to Finally, this paper was written by a
potential commercial pressure on remove the risk of policyholder working party of the Cross-Border Life
the Appointed Actuary to approve over-exposure to hedge funds. Committee and credit is due to all its
hedge funds and to scale back authors: Peter Caslin; Adam Lyon;
due diligence or disclosure In response to the various comments, Colin Murray; Jim Murphy;
requirements. One conributor Peter and Colin pointed out that Martin Considine; Mark Maguire;
noted that with no regulation to in making selected hedge funds Philip Ingram; Brian Grimes and
point to, the Appointed Actuary is available the life assurance industry Eamonn O’Lideadha.
left on his own as the ‘thin blue would be operating within existing
line’. On the other hand, another regulation. Moreover, hedge funds Stephen Devine
contributor (who is not an are already available to retail
acturay!) suggested that directors customers in countries such as
would be well advised to follow Germany, Japan, Hong Kong, Italy
the Appointed Actuary’s advice in and France. They emphasised that
discharging their duties. the key issue is whether it is in a
client’s interest to offer hedge funds
• Many comments emphasised the for diversification, subject to
current difficulties in marketing disclosure and having conducted
hedge funds and the pent-up due diligence, not least in respect
demand for access to hedge fund of liquidity.
products that could be satisfied
by developments in the life It is clear that the ‘hedge fund’ label
assurance industry. covers a widely heterogeneous
grouping. What is required is the
• The point was made that, in the skill and the application to carry out
light of FRS 17, pension scheme thorough due diligence on the range
sponsors will be interested in of funds available and the ability to
hedge fund investment and that communicate a) the risks and benefits
trustees will have a huge reliance of investment in selected hedge
on the actuarial profession to lead funds; and b) the fit of these funds
the way. within the client’s broader investment
strategy. Actuaries are well equipped
February Newsletter 2003 · 7 · SAI