Actuaries Newsletter FEB.03 17 by AndyHobson


									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 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.
                                                    Diary Date
                                                    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.

                                                    Diary Date
                                                    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: Web site:

 SAI ·   8 · February Newsletter 2003
                                                                                                                                                           February 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
Christmas Drinks

1                                                2

3                                                4

    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,
              Chand Kohli
    Photo 4   Patrick Grealy, Paul Walsh,
              Conor O'Neill, Michael Culligan,
              Michael Daly
    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

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