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Actuary Australia April 2011

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					158 • APRIL 2011




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                   The Brisbane Flood
                   Nature’s Risk Framework
                   A General Insurance Approach to Credit Rating Transitions
                   Risk Appetite and Reinsurance Efficiency
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What’s New on the Web – April
                                                                               contents
Economic Valuations                                                       5    Nature’s Risk Framework
A new Practice Guideline 199.03 (Economic Valuations) has been                 CommENT – Brent Walker
released. This Practice Guideline replaces Guidance Note 552 (Economic
Valuations) which was issued in July 2004. In order to provide time for   8    President’s Column
Members to familiarise themselves with its content, the new Practice           Barry Rafe
Guideline 199.03 commences on 1 October 2011. At the same time,
Council approved the withdrawal of Guidance Note 252 (Economic
Valuations of Life Insurance Business) last issued in July 2004. The
                                                                          9    Actuary Unearthed
                                                                               Exposé – Chris Seddon
reasons for the withdrawal of Guidance Note 252 are set out in the
Explanatory Memorandum available at www.actuaries.asn.au.
                                                                          10   The Actuarial Pulse
                                                                               sURvEY– Kitty Ho
Prudential Reporting under the SIS Act
A new Practice Guideline 499.03 (Prudential Reporting under the SIS       13   The Brisbane Flood
Act) has been released. This Practice Guideline replaces Guidance              Lessons for the Future – the thoughts of
Note 460 (Prudential Reporting to Trustees and the Regulator) which
was issued in December 1994. The new Practice Guideline 499.03                 one actuary
commences on 1 April 2011.                                                     REpoRT – Peter Vinson


Professional Standard 402
                                                                          17   A General Insurance Approach to Credit
                                                                               Rating Transitions
Exposure Draft of revised Professional Standard 402                            REvIEW – Daniel Mussett
(Determination of Accrued Benefits for Defined Benefit
Superannuation Funds)                                                     20   Finding and Working with Mentors
An Exposure Draft of proposed revisions to Professional Standard 402           REpoRT – Institute Leadership Committee
(Determination of Accrued Benefits for Defined Benefit Superannuation
Funds) has been released for comment. The closing date for comments
is 2 May 2011. Exposure Draft available at www.actuaries.asn.au
                                                                          22   In the Margin
                                                                               pUzzlEs – Genevieve Hayes

                                                                          23   More than Maths
                                                                               CommUNICATIoNs – Martin Mulcare

                                                                          24   Risk Appetite and Reinsurance Efficiency
                                                                               CommENT – Daniel Maneval

                                                                          26   Our Volunteers
                                                                               REpoRT – Rebecca Moore

                                                                          28   Beach Day – Going Against the Odds
                                                                               sTUDENT ColUmN – Jenny Trinh

                                                                          29   CEO’s Column
Diary Dates 2011                                                               Melinda Howes

Wed 4 May          Sydney,           Insights: An Overview                30   Flood Resilience – Risks, Mitigation and
                   Institute         of Consumer Credit                        Funding Solutions
                                     Insurance                                 NoTICE – one-Day seminar
                                     Kevin Gomes / Marcus Arena

Wed 4 May          Melbourne         Insights Networking
                                     – Basel III – How
                                     Significant? Ian Paterson

Mon 16 May         Sydney,           Flood Resilience:
                   Westin Hotel      Risks, Mitigation and
                                     Funding Solutions
                                     One-Day Seminar

Thurs 2 June       Sydney,           APRA – Insurance Capital
                   Four Seasons      Review Seminar
                   Hotel

                                                                                            A C T U A RY A U S T R A L I A ■ April 2011
4   editorial




      T
                 here have been some challenges laid down to some                       What is our role as actuaries in these debates and decisions?
                 of our ‘standard’ insurance practices in the last few                  Do we as actuaries want to stand up for these rating factors?
                 weeks. The first relates to flood insurance definitions                But then isn’t gender equality at the heart of what our
                 and is the subject of an article by Peter Vinson (p13)                 profession stands for? Do we need to be creative in our pricing
      and the Pulse Survey (p10) this month.                                            and find other factors to price on?

      The second relates to the ruling on 1 March by the European                       This all made me wonder though, where will it stop? What other
      Court of Justice that from 21 December 2012 gender could                          “discrimination” might be outlawed? What if age is outlawed
      not be used as a rating factor for insurance. The differential                    as a rating factor (this is already the case in health)? What
      pricing was considered discrimination on the basis of gender.                     other rating factors could be considered discrimination? What
      My understanding is that all members of the European Union                        about occupation in group insurance? Or is postcode reflecting
      will need to comply.                                                              socio-economic status and therefore I am being discriminated
                                                                                        against in car or house insurance? If I can’t afford an alarm, am
      Could that happen here? But of course it already has in heath                     I being discriminated against? Where will it stop? ▲
      insurance. It has also been the case in the US for a number of
      years for pension purposes. Who would drive it in Australia?                      James Collier
      It will lead to higher premiums for women for a number of                         editor@actuaries.asn.au
      products – personally I am happy with my lower life and car
      insurance premiums (but give me equality on everything else                       Catherine Robertson-Hodder
      of course)!                                                                       editor@actuaries.asn.au




     Actuary Australia
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      Next Edition                                                                      Published by The Institute of Actuaries of Australia
      AA159 May 2011                                                                    © The Institute of Actuaries of Australia ISSN 1035-6673
      AA160 June 2011 Deadline for contributions: 1 May 2011
                                                                                        Advertising Policy
      Actuary Australia Editorial Committee                                             Please refer to the Institute’s website for our advertising policy, and rates:
      James Collier Editor: editor@actuaries.asn.au                                     www.actuaries.com.au or email: actuaries@actuaries.asn.au
      Catherine Robertson-Hodder Editor: editor@actuaries.asn.au
                                                                                        Disclaimer Opinions expressed in this publication do not necessarily represent
      Katrina McFadyen Publications Manager
                                                                                        those of either The Institute of Actuaries of Australia (the ‘Institute’), its officers,
      Genevieve Hayes Assisting Editor                                                  employees or agents. The Institute accepts no responsibility for, nor liability for
      Kitty Ho Assisting Editor                                                         any action taken in respect of, such opinions. Visit:
      Ruth Lisha Assisting Editor                                                       http://www.actuaries.asn.au/TechnicalResources/ActuaryMagazine.aspx
      David Millar Assisting Editor                                                     for full details of our disclaimer notice.




    AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                            comment            5




    Nature’s
    Risk Framework


                                                           Earthquake, Christchurch New Zealand 2001 Source: © Kay Linton-Mann - reproduced with permission




T
           he paper by JB Dow FFA on ‘Early Actuarial Work                 of the ionosphere caused by “the extreme solar minimum”. He went
           in Eighteenth Century Scotland’ (Faculty of Actuaries           on to say “Sensors onboard the US Air Force C/NOFS satellites
           16 October 1972) reminded actuaries then how little             have recorded a record collapse of the ionosphere. The night-
           mankind knew about mortality and populations back in            time ionosphere is only 260 miles above Earth’s surface, a sharp
the 18th century. The paper discussed the contributions to what            decrease from the usual value of around 400 miles. The ionosphere
would become actuarial thought processes by Robert Wallace                 is also 100 degrees cooler than expected.” The consequences
(1697-1771), Alexander Webster (1707-1784) and Colin MacLaurin             of this are significant for the US Space program. This NASA
(1698-1746) in the development of a widows’ fund for the Church            scientist also indicated how this current “extreme solar minimum”
of Scotland. Colin was regarded as a mathematician second only to          is characterized by the “sun’s magnetic field being in a weird
Sir Isaac Newton, whom he knew. It was Sir Isaac who inspired “The         state”, the Earth being greatly more “exposed to cosmic rays”, “the
Falling Apple” article in the March 2011 edition of Actuary Australia.     radiation belts being charged with killer electrons”, all “contributing
                                                                           to a reduction in temperatures on Earth”. But he also said that in the
New space-age tools to analyse nature’s risks have become                  long term “this extreme solar minimum is not a permanent solution
available in the late 20th and early 21st Century. Without these tools     to global warming”. His frame of reference for these statements was
actuaries could be analysing nature’s risks with about as much             “since the dawn of the space age”.
relative sophistication as Wallace, Webster and MacLaurin analysed
mortality risks in the 18th Century. But to use these space-age tools      The framework that should be used for analysing nature’s risk is
actuaries also have to work within nature’s framework. This article is     not earth years but the sunspot activity within solar cycles. Solar
about the use of that framework and what it reveals. The tools and
their uses should be the subjects of many future actuarial papers by
actuaries who use and develop them, hopefully for purposes well
beyond the measurement of risk of major volcanic, earthquake and
extreme weather events that are included in this article.

‘The Falling Apple’ article indicated that the sun had entered a
state known as a solar grand minimum. There is skepticism about
this and what it means, particularly among some climate scientists
and presumably actuaries working on aspects of carbon dioxide
abatement schemes. In Vienna on February 10, 2011, there was a
United Nations committee meeting on the “peaceful uses of outer
space”. The Lead Program Scientist of the Heliophysics Division
of NASA gave a presentation about the risks to business of space
weather super storms. In this presentation he stated: “Space has           Aerial view of Minato, Japan, a week after tsunami devastation Source:
never been closer to Earth”! He was referring to the current collapse      Wikimedia Commons, (U.S. Marine Corps/Released photo by Lance Cpl. Ethan Johnson)



                                                                                                           A C T U A RY A U S T R A L I A ■ April 2011
6       comment                                                              Tsunami damage inOfunato, Japan Source: Wikimedia Commons, U.S. Navy photo by
    ▲


                                                                             Mass Communication Specialist 1st Class Matthew M. Bradley
    cycles change approximately with each elliptical orbit of Jupiter
    around the sun – every 11.86 earth years of its orbit. The sunspot
    activity within each of these cycles can vary significantly between
    cycles. Why solar cycle variations occur is not fully understood
    by scientists. During solar grand minimums the sunspot activity is
    severely restricted for several solar cycles and some of that activity
    could be uni-polar or negative sunspots. So, for example, data
    available from NASA on extreme ultra-violet emissions, the solar
    wind speed, the sun’s magnetosphere and F10.7 radio flux, which
    reflect the changing sunspot activity and account for the effect of
    negative sunspots will, in the future, provide the tools to develop
    even better frameworks for the measurement of nature’s risks.
    These and many other useful datasets are readily available on the
    NASA website and can be downloaded by anyone. Sunspot data               a solar minimum.1 Their paper explores how muon (sub-atomic
    going back to 1749 can be downloaded from the Solar Influence            particle) bombardment of the caldera of active volcanoes with silica
    Data Analysis Centre (SIDC) (http://sidc.oma.be/), which is the          rich magma causes explosive eruptions and shows how the number
    solar physics research department of the Royal Observatory of            of muons reaching earth during solar minimums is significantly
    Belgium. The SIDC includes the World Data Center for the sunspot         increased. Their paper explains the science behind the relatively high
    index and the ISES Regional Warning Center Brussels for space            incidence of volcanic activity during solar minima.
    weather forecasting. This data appears to indicate much higher
    sunspot activity in recent times but this is mainly due to more          A similar correlation appears for major earthquakes (defined as eight
    sophisticated telescopes and the use of satellites to observe the        or more on the Richter scale) and sunspot activity. Increased major
    activity on the surface of the sun.                                      earthquake activity does occur during strong solar minimums and
                                                                             grand minimums. A scientific explanation to the increased major
    The solar cycle framework enables a better understanding of the          earthquake activity during solar minimums has been provided by
    risk of major earthquake and volcanic activity. This is because there    some Russian scientists2. Basically their theory is that the reduced
    is a strong correlation between major volcanic activity (according       magnetic pressure on Earth during solar minima enables tectonic
    to cubic kilometers of ejected matter), major earthquake activity        plates to move a little more freely thus more easily allowing for the
    (8.0 or more on the Richter scale) and strong solar minimums or          releases of built up frictional forces between them.
    grand minimums. In the last 250 years the following major volcanic
    eruptions occurred during strong solar minima or grand minima:           Since sunspot activity started lessening significantly in 2004 there
    Grimvotn (Iceland) 1783/84 (14 Km3), Tambora (Indonesia) 1815            have been 11 major earthquakes (over size 8.0): Solomon Islands –
    (160 Km3), Krakatoa 1883 (5.0 Km3), Santa Maria (Guatemala)              8.1 (April 2004), Sumatra-Andaman & Indian Ocean tsunami – 9.2
    1902 (4.8 Km3), Novarupta (Alaska) 1912 (3.4 Km3). The only              (December 2004), Nias (Indonesia) – 8.6 (March 2005), Tonga – 8.0
    major eruption to occur during a solar maximum was Pinatabo              (May 2006), Kiril Islands (Russia) twice – 8.1 (November 2006 &
    (Philippines) 1991 (between 6 and 16 Km3) – see graph below.             January 2007), Peru – 8.0 (August 2007), Sumatra – 8.5 (September
                                                                             2007), Samoa – 8.1 (September 2009), Maule (Chile) – 8.8 (February
    Pinatabo’s eruption occurred immediately after Typhoon Yunya             2010), Sendai (Japan) and Pacific Ocean tsunami – 9.0 (March
    passed directly over the top of the volcano. Japanese scientists         2011). The previous 11 major earthquakes occurred over 38 years
    suggest this typhoon provided the same trigger as is provided by         or more than five times as many years.




    AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                     comment               7




                                                                                                                                 ▲
Earthquake Incidence Rate Multiple for Reduced Sunspot Activity        so after, a solar cycle with strong sunspot activity. Strong La Nina and
                                                                       weaker El Nino events tended to occur with, or during the decade or
                                          1750-1949     1950 -2010     so after, a solar cycle with weak sunspot activity. Presumably the lag
                                                                       affect of ENSO activity after indicative solar cycle sunspot activity is
Number of earthquakes > 8.0                       34            31     due to oceans very slowly absorbing or releasing the marginal heat
                                                                       increases and decreases caused by the changing sunspot activity.
Mean sunspots for month                        46.93         68.22     As the sun is now in a solar grand minimum it is seems likely that
                                                                       there will be a prolonged period of strong La Nina and weak El Nino
Incidence multiple under mean                   1.55          3.37     events as the oceans gradually release the marginal heat gained
                                                                       during the previous long period of much stronger sunspot activity.
Incidence multiple under 0.75 x mean            1.85          4.83     But if there is a large explosive volcanic event during this solar grand
                                                                       minimum then it is also possible that the additional airborne aerosols
Incidence multiple under 0.5 x mean             1.90          4.39     could trigger an extended El Nino event.

Earthquake recording equipment has been more prevalent and             Actuaries should now be aware that there is substantially increased
more sophisticated since 1950 than it was for the previous 200         risk of calamitous events of nature during a solar grand minimum.
years. Modern telescopes observing the sun can see many more           They should also be aware that there are alternate methods of
sunspots than could be seen in earlier times. For example a sunspot    predicting the risk of nature’s calamities. But to understand these
the size of Earth would not have been detected prior to about 1950.    changing risks actuaries must also use nature’s risk framework.
So data for earthquakes over size eight on the Richter scale has       I am not aware of any actuaries using this risk framework, nor am
been divided into those occurring prior to 1950 and those occurring    I aware of any using the techniques that I have suggested. I would
from 1950. The incidence rate per month has been calculated            be delighted to hear otherwise. I am sure that many actuaries will
according to whether the earthquake occurred in a month with           use nature’s risk framework, the techniques and space-age data
above or below the mean sunspot activity with similar calculations     sources in the future. I look forward to reading many actuarial
for months with above or below 0.75 times the mean and 0.5 times       papers on this in the future. ▲
the mean. The multiples of the incidence rates for the lower sunspot
activity were then determined. The results are shown in the table.     Brent Walker
It seems that very large earthquakes occur between four and five       bwas@bigpond.com
times more frequently in periods of low sunspot activity. That means
large earthquakes are four to five times more prevalent during solar
minimums and grand minimums.

There is also a significant link between the El-Nino and La-Nina
weather patterns and sunspot activity. Data of the El Nino Southern
Oscillation (ENSO) Index, obtained from the National Oceanic and       1 ‘Explosive volcanic eruptions triggered by cosmic rays: Volcano as a bubble

Atmospheric Administration (NOAA) website, was mapped against            chamber’; Toshikazu Ebisuzaki, Hiroko Miyahara Ryuho Kataoka, Tatsuhiko
sunspot activity (see graph, top of page). The ENSO data is only         Sato Yasuhiro Ishimine. November 2010.
available since 1950 but a pattern appeared. Strong El Nino and        2 ‘About possible influence of solar activity on seismic and volcanic activities:

weak La Nina events tended to occur with, or during the decade or        Long term forecast’; Khain V. E. Khalilov E. N. Moscow State University. 2008.


                                                                                                     A C T U A RY A U S T R A L I A ■ April 2011
8   president’s column
                                                                              employers have been keen to protect their employees. The
                                                                              issue however is that we have now seen governments and large
                                                                              employers collapse under the weight of DB schemes.

                                                                              So, if not employers and the government, who should be carrying
                                                                              the financial risk of longevity? I remember Darren Wickham’s
                                                                              paper from a few years ago where he suggested that we abolish
                                                                              retirement. I supported Darren’s successful nomination for Actuary
                                                                              of the Year off the back of that paper but it is not until now that
                                                                              I appreciate the message. In effect it is that individuals need to
                                                                              take more responsibility for managing the financial implications of
                                         Barry Rafe
                                                                              their own longevity. I believe therefore that the role of the actuarial
                                                                              profession is to develop policies that promote the removal of
                                                                              barriers to working later. We should also continue to educate the
    Have actuaries been complicit in some of                                  government and the community generally that there are significant
    the Global Financial Crisis pain?



    I
                                                                              costs in supporting older people who are still capable and willing
         now have the humble privilege of contributing to Actuary             to work.
         Australia (AA) as President. I used to be the Editor of AA and one
         of the advantages was that I could say what I thought without        Now, I may sound like the Christmas Grinch promoting the idea
         worrying that anybody would take it too seriously. I think that I    that people should ‘work till they drop’ but the reality is that, if we
    will need to be more careful now because by definition I am also          want a better world for our great-grandchildren, then we need to
    obliged to speak on behalf of the Institute. But don’t fear I won’t       face the fact that we are the profession that is best placed to blow
    be neutered!                                                              the whistle on increasing costs.

    I will depart from past practice in this column by focusing on            As we have seen in Europe and the US, neither governments nor
    public policy issues for actuaries. Traditionally this column has         large companies can hold back the tide of increasing retirement
    served as a part travel log of presidential visits. Not that there is     and health costs. We have seen government pensions being
    anything wrong with these, on the contrary we need to recognise           reduced out of austerity measures and large corporations that
    the importance of the global profession, rather it is because my          cannot afford to meet pension payments and hence collapse or
    personal focus this year will be on public policy issues. In an           renege on ‘guarantees’ that were never going to be met.
    effort to redefine the role of the President, to reduce workloads
    and encourage more interest from young, busy and successful               Are actuaries complicit? As it turned out, the supposed guarantee
    actuaries to become President, Council has agreed that the                was never real, even from government funded arrangements.
    President needs to allocate only up to 30% of their time on               Companies that were supposed to build cars were laden down
    presidential duties.                                                      with liabilities linked to life expectancies, share markets, investment
                                                                              strategies and expectations from their beneficiaries that they were
    This means that there needs to be an allocation of leadership             never going to meet over the longer term. I know it’s easy to look
    responsibilities amongst the presidential trio and others. Our            back and proclaim on these matters but now we know what
    international relationships will be managed by our Senior Vice            should we do about it and given what we now know should we
    President David Goodsall. David is not only very good at it but he        accept some responsibility? We probably shouldn’t beat ourselves
    has committed up to three years to ensure that we get the most            up too much but I think it is a debate worth having. ▲
    out of our investments in this area. My focus will be in meeting
    membership, public policy and education policy issues.                    Barry Rafe
                                                                              barry.rafe@actuaries.asn.au
    Anyway, to the issue at hand, I presented a paper to the Financial
    Services Forum last year arguing against government support of
    a lifetime annuity market in Australia. My motivation was the issue
    of longevity and who it is in our community that needs to foot the
    bill. There was interesting debate over this paper and I did back
    off a bit on the issue of protection against longevity risk of some
    of the less wealthy in our community, who have managed to
    save for retirement, but not sufficient to carry their own risks. The
    bigger issue however that has emerged from the Global Financial
    Crisis (GFC) and the ever increasing projections on increasing life
    expectancy is the question of whether actuaries were ever right in
    promoting defined benefits (DB) plans to employers.

    Yes I know this is heretical because DB plans were the mainstay
    for the actuarial profession almost from our inception, and altruistic


    AC TUARY A U S T R A L I A ■ April 2011
                                                                                                         actuary unearthed                      9




Chris seddon
                                               Where I studied to become an actuary...           I’d like to be brave enough to…
                                               Macquarie University                              Cope with heights (take a look at http://
                                                                                                 www.liveleak.com/e/07b_1284580365)
                                               Qualifications obtained...
                                               BA, FIA, FIAA                                     In my life I’m planning to change…
                                                                                                 My listening skills, which have room
                                               My work history...                                to improve!
                                               I’ve never changed jobs – I started on a
                                               cadetship with Legal & General while at           At least once in their life, every actuary
                                               uni and stayed with them after uni in 1975        should…
                                               until they were taken over by Colonial in         Work closely with others in areas
                                               1998 and then Colonial was taken over by          considered ‘not traditionally actuarial’
                                               CBA in 2000 (someone has to keep the              so they appreciate others’ perspectives
Title…                                         corporate history!)
                                                                                                 If I won the lottery, I would…
Portfolio Actuary                              What’s most interesting about my role...          Use it wisely to benefit others e.g. through
Organisation...                                Helping people in the business to                 SIM
CommInsure, CBA                                understand the business they are in
                                                                                                 People say I look like…
My favourite energetic pursuit…                My role’s greatest challenges...                  My father (and some random person years
Being a father!                                Working with people with whom I don’t             ago) said Malcolm Fraser – work that out!
                                               have a natural affinity; to understand them,
The sport I most like to watch...                                                                I should publish a video of myself on
                                               show patience and still deliver
Rugby Union – Wallabies, Waratahs,                                                               YouTube doing …
                                               good outcomes
Gosford and other teams                                                                          My brain can’t even start to imagine
                                               Who has been the biggest influence on my          how I could embarrass myself so much to
The last book I read (and when)...             career (and why)...                               do this
Simple Church, in February this year           All the various actuaries who have
                                                                                                 My most embarrassing moment…
                                               enabled me to enjoy such a broad career
My favourite artist/album...                                                                     If I told you, that really would be
                                               in life insurance e.g. Trevor Matthews,
I enjoy specific songs more than a single                                                        embarrassing
                                               Rocco Mangano
artist e.g. He ain’t heavy, he’s my brother
by the Hollies                                                                                   If I could travel back in time I would…
                                               My proudest career achievement to date is…
                                                                                                 Talk with significant people e.g. Jesus,
                                               Being part of a team that developed a
My favourite film...                                                                             Moses, then come back to share their
                                               product and wrote the administration
I don’t have one but these are among my                                                          insights with others now, then go back
                                               system for it at the same time, under tight
favourites – Star Wars, Star Trek, Crocodile                                                     and forth
                                               time pressures
Dundee and Miss Congeniality
                                                                                                 My best advice for my children…
                                               The most valuable skill an actuary can
My interesting / quirky hobbies...                                                               Follow Jesus, show concern for others
I don’t think I have quirky hobbies – I just
                                               possess is…
                                                                                                 and do something they enjoy
                                               Understanding the power and dynamics
love my hobby of holidays!
                                               of compound interest and being able to            Four words that sum me up…
The person I’d most like to meet...            communicate effectively                           Integrity, reliability, serious, fun ▲
Captain Picard (trekkies will know!)
                                               If I were President of the Institute, I would…    Chris Seddon
What gets my goat...                           Wonder how I’d fit that into my life and          chris.seddon@cba.com.au
Unfairness, arrogance, unsafe drivers          then try to encourage actuaries to be
                                               good communicators of solutions to
What I wanted to be when I grew up...          complex problems
I only knew I loved maths, until year 12
(next question)                                My most important decision…
                                               To follow Jesus
Why I decided to become an actuary...
Year 12 when David Knox and I discovered       I’m most passionate about…
there was this profession called actuaries;    My family, enjoying time with close friends,
it seemed to combine maths and business        my church, being involved in a cross-
which appealed to me since I could see a       cultural Christian mission organisation
purpose in doing further maths                 called SIM




                                                                                                A C T U A RY A U S T R A L I A ■ April 2011
10   survey

      The Actuarial



     Pulse
     Next Survey New questions will be available in May 2011.
                                                                            The Actuarial Pulse is an anonymous, web-based survey of Institute
                                                                            members, run on a monthly basis, giving members an opportunity to
                                                                            express their opinions on a mixture of serious and not-so-serious issues.




                                                                            As expected, price is the main driver when it comes to purchasing
                                                                            home and contents insurance, although many respondents added
     What would you like to know? If you have a question you would          they would compare the price with the coverage they expect to
     like to put to the membership, email it to editor@actuaries.asn.au     get. Some of the respondents in ‘Other’ referred to considerations
                                                                            such as multi-policy discounts, staff discounts and ensuring specific
     Results Report generated on 14 March 2011, 318 responses to            items can be covered. Some commented that they are too lazy to
     the survey.                                                            switch and tend to renew with the same insurer without doing any
                                                                            further research.



     T
            his month’s Pulse survey consisted of questions on
            Insurance (including flood insurance) and Mentoring,            Q2: Do you read the terms and conditions of your home and
            the results of the Mentoring questions are discussed in         contents insurance policy?
     another article published in this issue – Finding and Working With
     a Mentor (p20).                                                                                                                 No.        %
                                                                            Thoroughly                                                94      30%
     Whenever there is an insurance matter in the media, the opinion of     Just a skim through                                      189      60%
     one or two actuaries is often asked for and published. This survey     No                                                        34      11%
     aims to gain a more general view of the opinions of the actuarial
     community, when it comes to purchasing insurance and as to what
     you think of the issues surrounding flood insurance.                   It is comforting to know that close to 90% of respondents read
                                                                            their insurance policy’s terms and conditions. Many commented
     Q1: What is the main consideration when you purchase                   they read the policy thoroughly at the initial purchase and will just
     home and contents insurance?                                           skim through upon renewals. For three of the respondents who
                                                                            answered ‘no’ to the question, their comments were:” ● I specify
                                                                No.     %   the conditions required and rely on the broker to inform me of
     Price                                                      152   48%   any differences. ● It would take hours! ● When I claim, I’m very
     Policy terms and conditions                                 65   21%   stubborn.
     Brand name                                                  41   13%
     Customer service (e.g.own past experiences with insurer)    35   11%   For those who read their terms and conditions, did you check
     Other                                                       22    7%   whether flood was covered? The next few questions relate to flood
     Broker recommendation                                        2    1%   insurance and how actuaries view this type of cover.


                      Home and Contents Insurance
                      Purchase Considerations

                     Price

                     Policy terms and conditions

                     Brand name

                     Customer service

                     Other

                     Broker recommendation




     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                      survey        11




                                                                                                                                  ▲
Q3: Do you think home and contents insurance policies                      As well as some ideas for implementation: ● Market disclosure on
should include flood cover at all?                                         purchase – “this is on a flood plain” in the marketing/contract. What
                                                                           about premium discounts for those who take measures to improve
                                                        No.        %       flood worthiness. ● Maybe it could be incorporated into their council
Yes                                                     252      79%       rates, the councils could arrange ‘group policies’ for the whole area.
No                                                       57      18%
                                                                           And from the other half who think it should not be made
82% of respondents say that flood cover should be included, but            compulsory: ● It is an economic decision as long as they can
many of the comments put in conditions such as: ● Only as an               make it with knowledge. ● If you don’t want to buy home and
optional extra; ● Only if properly priced / fully funded premium; or ●     contents insurance, it’s your problem. CTP is different as you may
If not in a flood prone area.                                              accidentally injure someone else. ● Flood insurance should only
                                                                           be made compulsory if the government is prepared to release all
For the ‘no’ respondents, here are some of their comments:                 information about flood prone areas to insurers. ● Flood cover will
● As long as the government will help out in the event of a flood.         be unaffordable for many in flood-prone areas. Who is going to be
● Not as standard because those houses built on known flood                able to pay $25,000 p.a.?
plains will not be able to afford it. Governments should face up to
the reality that they will have to either divert the water or move the     Q5: Should each insurer wishing to be in the market have
houses. Re-building in the same swamp is ridiculous. ● I would vote        to provide cover only for all types of flood combined (not
“yes” if I could be confident that policies covered all floods, the bulk   various types separately)?
of home owners insured their houses for a realistic amount and
premiums for “riskier” areas had an appropriate loading for floods                                                                No.       %
and other risks e.g. earthquake. ● If I lie down on train tracks, I        Yes                                                    141     44%
expect to get run over by a train. Same with buying a house in flood       No                                                     167     53%
prone areas.
                                                                           Actuaries seem to be quite divided on the flood definition question
With that last comment, perhaps those who are aware of living in           as well. Here are the ‘yes’ respondents’ comments: ● Too confusing
flood-prone zones should definitely take out insurance. Our next           to have multiple types of floods and allows insurers to try to wriggle
question asks whether this should be made compulsory.                      out of paying. ● Standard definition of ‘flood’ in the industry would
                                                                           increase competition and remove ambiguity. Let’s not try to trick
Q4: For home owners who live in flood-prone areas, should                  customers into thinking they are getting more than what they paid
they be compelled to obtain flood insurance akin to the                    for by having slight tweaks to terms and conditions.
requirement for car owners to have CTP insurance?
                                                                           Here are the ‘no’ respondents’ comments: ● Each insurer should
                                                                           be able to issue whichever type of cover they like. If people can’t
                                                        No.        %       be bothered to find out what their policy covers, they shouldn’t
Yes                                                     158      50%       complain. ● Riverine, flash and rain flooding are different types
No                                                      156      49%       of risk. ● No, but they should make it part of the compulsory
                                                                           disclosure to explain which floods are covered and which are not.
Actuaries can’t be more divided on such a question! Let’s hear
from the respondents who think it should be made compulsory: ●             Q6: Should each insurer wishing to be in the market have
The current situation where people choose not to insure because            to provide flood cover at the same premium rate for all its
they assume the government will bail them out is not sustainable.          customers – i.e. community rating which involves cross
● However, this would probably require some sort of government             subsidy (but able to compete with each other)?
subsidy or support. Would still probably be cheaper than current
levies. ● I don’t see why my taxes should pay for someone who                                                                     No.       %
chooses to live in a flood-prone area and then refuses to obtain           Yes                                                     40     13%
flood insurance.                                                           No                                                     272     87%




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12       survey
     ▲



     Clearly a lot of ‘no’ responses to the suggestion of community                     on acceptable grounds, I will consider it my own fault for not
     rating involving cross subsidies for flood insurance. Some of the                  reading the terms carefully. ● Absolutely not. Some customers have
     arguments were: ● This would encourage building in flood prone                     knowingly elected to not to purchase flood cover – this turned out
     areas. ● Surely cross subsidy isn’t going to work because those                    to be an expensive mistake. For those who were unaware it was not
     who know they are of less risk are discouraged to buy flood cover,                 covered – an expensive lesson in reading your PDS.
     whilst those who are of more risk know they are getting a discount,
     and so will be encouraged to do so. ● With community rating,                        ● On this basis, Westinghouse should be compelled to give a new
     the government (i.e. taxpayers) ends up picking up pieces when                     fridge to people who have lost their fridge in the flood. ● Ex-gratia
     the pricing is deficient. ● I think if you are in a fire prone (bushfire)          payments set a precedent in the market and would encourage
     area your premium could be higher so the same should be said                       purchasing insurance in the market based on the cheapest price
     for those prone to flood. ● Look where community rating has got                    as opposed to coverage provided. ● Unless public relations /
     us with health insurance – inefficient funding of health services via              risk of being sued for non-disclosure encourages them to take a
     piecemeal notionally private sector insurers supported by the threat               softer stance.
     of punitive taxes in order to compel purchase of their product by
     those whose interests would clearly be better served by not buying                 On that last point, one ‘yes’ respondent had this argument: “Yes,
     health insurance. ● Community rating with self selection is a recipe               if the customers in the selling process were not clearly told they
     for disaster.                                                                      were subject to flood and they would not be covered.” So, whose
                                                                                        responsibility is it? Should insurers disclose every single detail at the
     Q7: With the recent flood events in mind, should insurance                         point of sale including what is NOT covered explicitly? Would this
     companies be expected to pay claims under cover which                              make the policy terms and conditions an even longer document than
     has not been paid for?                                                             it already is? Remember that only 30% of the survey respondents
                                                                                        read their policy conditions thoroughly!
                                                                  No.        %
     Yes                                                           24       8%          Thank you to all respondents for your contributions and thoughtful
     No                                                           288      91%          opinions in this survey. One actuary has already made his opinion
                                                                                        known to the Queensland government on this very debatable issue
     As actuaries, the majority of respondents don’t think the insurers                 through a submission – I refer you to Peter Vinson’s article opposite. ▲
     (most likely their employers or clients) should pay for claims that
     were not covered: ● Develop unrealistic expectations of what                       Kitty Ho
     insurance is. Insurance isn’t charity. ● If my current claim is refused            KHo@munichre.com




     Classic Queenslander style houses flooded in Brisbane, 2011 Source: iStockphoto © Andrew Clelland

     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                     report        13




                The
                Brisbane
                Flood
                 lessons for the Future – the thoughts of one actuary


                Peter Vinson gives an overview of his recent submission
                to the Queensland Floods Commission of Inquiry

                Background



               I
                      am a retired actuary living on the Gold Coast. I was
                      not physically or financially affected by the recent floods.
                      However, as the drama unfolded, I got increasingly upset and
                      angry about (a) the appalling way in which the media was
                attacking the insurance industry, and (b) the cause and effect of
                the flood in Brisbane.

                As a result, I decided to lodge a submission to the Queensland
                Floods Commission of Inquiry. Unfortunately this will not be
                published on their website because I could not resist including
                inflammatory comments. I can provide a copy of my submission
                to anyone who asks me for one. The submission is specifically in
                the context of the Queensland floods. However, the issues are of
                national importance and the insurance issue applies equally to
                bushfires and cyclones.




Flooded Eagle Street in Brisbane Source: Wikimedia Commons, photo taken by Bidgee

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     ▲




                                                                                          Brisbane River in flood Source: Wikimedia Commons, photo taken by Bidgee

     Flood Insurance                                                              I basically believe in ‘freedom with disclosure’. I am generally opposed
     Many people in Brisbane were not covered for the flood which                 to compulsion. However I do think that there are some circumstances
     occurred when the river level rose. Many claimed they thought they           which justify restriction of freedom in the interest of community
     did have flood cover. Many others claimed they could not get the             protection. A good example is compulsory CTP insurance.
     cover. There was much emotion. The media inflamed this along the
     lines that the insurance industry was avoiding moral obligations by the      I came to the conclusion that the disasters caused by major floods
     use of ‘small print exclusions’. There was clamour for the introduction      justify statutory compulsion for all homeowners to have insurance
     of standardised definitions.                                                 covering all types of floods. As an extension it should also apply to
                                                                                  bushfires. I am confident that if this compulsion occurs, the general
     I am not a general insurance actuary but, by reading a few PDS’s,            insurance industry will be completely capable of providing this viably.
     my understanding is that companies typically do not define flood as a
     single risk but as three separate ones (flash flood, riverine flood, storm   I further believe that the requirement should be that insurance is
     surge or sea incursion) with different definitions and separate pricing.     obtained at ‘location specific premiums’. I am opposed to cross
     They then decide which of the three types they wish to offer. That is        subsidy. I believe that if people choose to live on high ground
     how choice and competition works.                                            nowhere near a river or a stormwater channel, it would be very unfair
                                                                                  for them to have to subsidise people who choose to live in a flood
     It seems to me that the fundamental problem is that the public does          prone location. Beachfronts or river banks are premium locations, as
     not understand that there are three different risks. They mostly think       well as being high risk, and owners should not be subsidised. There
     that a flood is a flood is a flood, however caused, and that insurance       is a lot of moral risk involved in subsidisation.
     should be structured that way. The clamour for standardised definitions
     is really a clamour for flood insurance to always cover all types of flood   The result would be that people would be incurring a properly priced
     and not the three types separately. For reasons actuaries understand,        yearly cost, up to several thousand dollars (reflecting the actual
     the insurance industry is reluctant to do this voluntarily.                  risk), rather than the huge capital cost when the event occurs. If
                                                                                  people want to live in high-risk areas, then they would have to take
     Nevertheless, the recent floods caused a lot of suffering. There was         into account the insurance cost of living there together with other
     loss of life, injuries and huge financial loss. There was anger and          maintenance costs when making the choice. This would have the
     despair. Some people were made unexpectedly destitute – generally            further advantage of assisting councils with the dilemma which they
     the weaker members of the community. To me, this was all an                  have when deciding whether to approve such developments. The
     avoidable tragedy.                                                           issues would be transparent to everyone.


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                                    report   15




                                                                                                                                                ▲
The Brisbane Flood                                                               always the possibility of accident or mismanagement and it will not
Wivenhoe Dam Mismanagement                                                       prevent flooding during the inevitable really major event.
There is no doubt in my mind that the January 2011 flood in
Brisbane should not have happened, or at the very worst should                   The result should have been that, in those flood prone areas,
have been minimal.                                                               either building was not allowed, or it was only allowed subject to
                                                                                 construction methods which ensured that living areas were above
The dam is intended to manage both storage for city water supplies               likely maximum flood levels. There should also have been regular
and also flood mitigation. It has two notional ‘compartments’. It has a          public reminders about the issues of floods so that newcomers
storage compartment of 1.15 MML (million megalitres). Above that, it             buying existing properties in flood prone areas should understand the
has a flood compartment of 1.20 MML. When full it is 2.35 MML                    risks they were taking. It seems to me that none of this happened.

Conceptually the idea is that once the storage compartment is full,              The Future
any further inflow should be released as it arrives but with a daily ‘cap’       I proposed that, by taking the following steps, the Queensland
(being the maximum amount which the Brisbane River can pass out to               Government can progressively reduce the consequence of weather
sea without causing floods in Brisbane City) until overflow prevention           disasters and especially the financial pain when they occur:
becomes necessary. There is no official statement of what this cap is
but a number of newspaper articles have said it is 0.30 MML.                     1. Make home insurance compulsory at location specific
                                                                                    premiums
From records available on their own website it is clear that SEQ water              This is the single most important step to transform the psychology
did not do this. Early on Friday 7 January 2011, the dam level was                  around weather disasters and risk taking. Homeowners should
1.22 MML and there was a near certain forecast of very heavy rain                   be required to insure their home against fire, storm, and all types
for the next several days in the catchment area. Early on Monday 10                 of flood.
January the dam level was 1.71 MML. Over the weekend there had
been significant inflow which had only been partially released. That                 This will have the following effects:
meant there was only 0.64 MML still available for flood mitigation. On               ● It will make the risk levels transparent;
Monday and Tuesday there were massive inflows and, on Tuesday                        ● It will mean that people who choose to live in premium, or
11 January, SEQ Water had no option but to release 0.645 MML to                          other, locations which are high risk know what the costs are
prevent the dam overflowing (which would have been catastrophic).                        and incur those costs themselves;
This caused the massive flood downstream in Brisbane City, two                       ● It will not reduce the repair costs from disasters but it will
days later.                                                                              spread them evenly over time thus eliminating financial
                                                                                         suffering to individuals;
I did calculations (included in my submission) to see what would have                ● It will eliminate claims of misunderstanding;
been the position if 0.30 MML had been released each day from                        ● It will eliminate the problem of which type of flood caused
Friday 7 January onwards. There would have been no need for a                            the damage;
massive release on Tuesday 11 January and there would have been                      ● It will eliminate moral risk;
no flood in Brisbane City.                                                           ● It will give people a strong incentive to use building methods
                                                                                         to minimise the likely effects and costs of a disaster to obtain
I repeated the calculations with a daily                                                 reduced premiums.
release of 0.25 MML. The conclusion is
the same, although the dam level would
have reached 2.18 MML which is not
particularly comfortable. Nevertheless it
would have done its job.

The buildings in the flooded areas
The question has to be asked -- how
were they allowed to be built? All
building has to be approved by the
council. Brisbane City Council knew full
well which suburbs had been flooded
during the famous 1974 flood. They also
knew that such events had occurred
from time to time over history and were
certain to recur in future. They did not
know when or how often. Even though
Wivenhoe Dam had been constructed
since then, any competent risk manager
should have known that the dam might
mean less frequent floods but there is         Wivenhoe Dam spilling with all five floodgates open Source: Wikimedia Commons, photo taken by Ezykron


                                                                                                               A C T U A RY A U S T R A L I A ■ April 2011
16       report
     ▲




     Evacuating from Rosalie in the Brisbane suburb of Paddington Source: Wikimedia Commons, photo taken by Rae Allen

         Also, determine a process for dealing with the transitional                         will simply cost them. That is ‘freedom with disclosure’ working.
         problems. This will include the need for land resumption in cases
         where the total maintenance costs become uneconomic.                                If, on the other hand the government does not have the courage
                                                                                             to make home insurance compulsory, it will be essential to
     2. Urgently complete and publish ‘flood mapping’of all flood                            strengthen the regulations so that people are forced to use lower
        prone areas                                                                          risk building methods. For example:
        This will be needed to facilitate item 1.
                                                                                             ● Require living areas to be raised to a level above likely
     3. Provide a priority budget allocation for flood mitigation                                maximum flood level;
        After a disaster the Government has to repair infrastructure at                      ● Require the use of materials which will not deteriorate if
        massive cost. The severity of this, as well as the damage caused                         immersed in water for several days but can simply be hosed
        to individuals, could be reduced significantly by taking physical                        off afterwards.
        flood mitigation steps progressively. I suggested an allocation,
        across Queensland, of between $1 billion and $2 billion                         6. Accept the moral liability for the damage caused in the
        each year.                                                                         recent Brisbane flood
                                                                                           Make a decision to reimburse all damage repair and replacement
     4. Insist that Wivenhoe Dam is managed properly                                       costs (including to insurance companies) without the need for
        Once the storage compartment is full, any further inflow should                    massive legal battles as these costs were the direct result of
        be released as it arrives but with a daily cap (being the maximum                  mismanagement by Government entities. ▲
        amount which the Brisbane River can pass out to sea without
        causing floods in Brisbane City) until overflow prevention                      Peter Vinson
        becomes necessary, when flood becomes inevitable. This will                     pvinson88@gmail.com
        optimise the use of the flood compartment.

     5. Review building regulations in flood prone areas
        If the Government has the courage to make home insurance
        compulsory then this may not be necessary. People will have a                   The opinions expressed in this article are those of the author. They
        strong incentive to use building methods which will reduce their                do not represent those of The Institute of Actuaries of Australia, its
        insurance premiums. If they want to use higher risk methods it                  officers, employees or agents.


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                      review          17

                                                                          not updated in real time, they are typically taken to be a reliable
                                                                          indicator of the probability of default. This assumption appears to
                                                                          be reasonable based on analyses of so-called Gini coefficients, as
                                                                          reported in a paper by Standard & Poor’s (S&P)1. If this assumption
                                                                          holds, one merely needs to find a mapping from credit ratings to
                                                                          default probabilities in order to pin down or parameterise models for
                                                                          the frequency of default.

                                                                          One problem with this approach is that credit ratings are not stable;

     A General                                                            they evolve over time. The next section will look at global rates and
                                                                          their properties in more detail.



     Insurance                                                            Stability in Credit Rating Transitions
                                                                          Ample data are available on credit rating transition rates. Our first
                                                                          question relates to the stability of these rates over time. If they

     Approach                                                             are not reasonably stable, then modelling default frequencies for
                                                                          a portfolio on an ex-ante basis may prove problematic. S&P has


     to Credit
                                                                          calculated average credit transition rates for the period from 1981
                                                                          to 2009. Their stability can be investigated in different ways. These
                                                                          include measuring the variation in these rates over time and verifying


     Rating
                                                                          that single-year rates are consistent with longer term rates.

                                                                          The following table extracted from the S&P paper gives global,


     Transitions
                                                                          average transition rates for corporate credit over the period
                                                                          mentioned. The numbers in parentheses give the standard deviation
                                                                          of the rates, as calculated by S&P.2

                                                                          One observation that can be made immediately is that the credit
                                                                          ratings appear to be very ‘sticky’, as the one year invariance rates
                                                                          along the lead diagonal are all quite close to one. Further, the better
Introduction                                                              the credit rating is, the stickier the invariance rates are, as the rates
Corporate bonds, corporate credit, or just ‘credit’ for short, is         gently reduce down the diagonal. The chances that a rate will
attracting increasing attention as an asset class in its own right.       change by one full notch or more over a single year (off-diagonal
This article aims to take an incisive look at the nature of the default   entries) are correspondingly very small, although they increase as
risk associated with a portfolio of corporate bonds, with a focus         the initial rating worsens.
on credit rating evolution. Given that many investors seek global
exposure to this sort of investment, our analysis will be global in       The standard deviations of the invariance transition rates do not
perspective. However, the underlying principles can be generalised        appear to be grossly disproportionate. However, we note that the
to more focused portfolios (and arguably should be) or investment         coefficients of variation are not small in general, particularly for
in other forms of debt.                                                   smaller cross-rating transition rates e.g. AA to AAA (coefficient of
                                                                          variation greater than 0.5).
A portfolio of corporate debt issues
is not unlike a portfolio of non-life
insurance policies. Claims may or
may not happen, according to some
statistical frequency process. This
is analogous to the frequency of
default occurring. Once a claim on
an insurance policy is made, we are
interested in the size of the claim,
in some cases relative to a sum
insured. This can be likened to the
conditional size of the credit default
compared to the nominal value of
the bond, be it total or partial.

Our analysis below will focus on
the frequency or probability of
default. Although credit ratings are


                                                                                                     A C T U A RY A U S T R A L I A ■ April 2011
18       review
     ▲



     At a cursory glance, all of this might tend to suggest that the                       We can apply the classic no claims discount (NCD) problem from
     significant transition rates and ratings themselves should remain                     general insurance here, where we wish to solve for the equilibrium
     fairly stable over time.                                                              proportions in each NCD state. Here, we wish to solve for the
                                                                                           vector Πof equilibrium proportions of credit issues in the portfolio in
     Markov Analysis                                                                       each rating state. Recall that this is done by solving the system of
     The actuarial eye will immediately see this matrix as a representation                equations T.Π =  and imposing the condition that the sum of the
     of a Markov chain. The states of the Markov chain are simply the                      elements of  must equal one.
     S&P credit ratings. If we invert the matrix, so that the columns,
     rather than the rows, sum to one, then standard Markov analysis                       This problem can be solved by finding the inverse of the matrix T ',
     can be carried out. We shall do this, rounding all of the historical                  which is identical to T except that one is deducted from each of the
     average rates to the nearest 0.01 to avoid spurious accuracy, and                     entries along the lead diagonal and one of the rows is replaced by a
     where the columns do not sum to 1, we adjust the transition rates                     row of ones, as shown in the table (bottom left).
     to NR (not rated) to ensure they do. The S&P study does not give
     rates for transitions away from the states D (default) or NR, so we                   The vector  will appear in the last column of the inverse of T ',
     shall assume for now that all rates away from these are zero and the                  which, in this case, turns out to be a column of zeroes with a final
     invariance rate is one in both cases (i.e. an issue that has defaulted                entry of 1. This implies, of course, that all issues will end up being
     remains in default indefinitely and non-rated issues remain non-                      non-rated in the long run – arguably a foregone conclusion.
     rated). The following transition matrix results:
                                                                                        This was, of course, an exercise in futility: transition rates of 1
     Transition matrix, T                                                                                          appearing in the matrix where they
                                                                                                                   do act as ‘traps’ for migrating issues.
                 FROM                                                                                              Setting these to 1 in the first place
                                                                                                                   is highly questionable. For example,
      TO           AAA            AA             A       BBB         BB          B     CCC/C      D      NR        an issuer might default on a single
      AAA          0.88           0.01           0          0        0           0       0        0       0        coupon once and then never default
                                                                                                                   again and a given issue may remain
      AA           0.08           0.87          0.02        0        0           0       0        0       0        temporarily non-rated for any number
                                                                                                                   of reasons.
      A            0.01           0.08          0.87     0.04        0           0       0        0       0

      BBB           0             0.01          0.05     0.84     0.05           0          0          0         0         Be that as it may, longer term
                                                                                                                           empirical statistics produced by
      BB            0              0             0       0.04     0.76         0.05      0.01          0         0         S&P do suggest a very strong ‘pull’
      B             0              0             0       0.01     0.07         0.73      0.11          0         0         toward default and non-rated status.
                                                                                                                           Average 20-year global corporate
      CCC/C         0              0             0          0     0.01         0.05      0.45          0         0         transition rates from 1981 to 2009
                                                                                                                           show significant proportions in default
      D             0              0             0          0     0.01         0.05      0.28          1         0
                                                                                                                           and very large proportions settling in
      NR           0.03           0.03          0.06     0.07     0.10         0.12      0.15          0         1         non-rated territory – above 0.5 for
                                                                                                                           all initial states other than AAA and
                                                                                                                           CCC/C. So, while the analysis above
                                                                                                                           may seem spurious, there is some
     Modified Matrix representing Markov equilibrium equations, T '                                                        empirical confirmation that its results
                                                                                                                           make some sense.

           -0.12          0.01            0             0        0         0           0           0         0
                                                                                                                           We can simplify our problem by
            0.08          -0.13          0.02           0        0         0           0           0         0             focusing on the preoccupations of
                                                                                                                           most institutional investors: ensuring
            0.01          0.08           -0.13         0.04      0         0           0           0         0             that their portfolio, or at least the bulk
                                                                                                                           of it, remains rated investment grade
             0            0.01           0.05          -0.16    0.05       0           0           0         0
                                                                                                                           i.e. BBB – or better. We, therefore,
             0             0              0            0.04     -0.24     0.05        0.01         0         0             need to truncate the matrix T and in
                                                                                                                           doing so make another assumption,
             0             0              0            0.01     0.07      -0.27       0.11         0         0
                                                                                                                           i.e. that all of the transition rates
             0             0              0             0       0.01      0.05        -0.55        0         0             below BBB can be aggregated into
                                                                                                                           one ‘super state’ – sub-investment
             0             0              0             0       0.01      0.05        0.28         0         0             grade – of BB+ or worse. For
                                                                                                                           simplicity, this super state includes
             1             1              1             1        1         1           1           1         1
                                                                                                                           the ratings NR and D in the following
                                                                                                                           simplified transition matrix:


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                          review         19




                                                                                                                                      ▲
Truncated matrix, U                                                         Conclusion
                                                                            Our observations of credit investment, partly from an actuarial
                                                                            perspective, have uncovered the following insights:
              FROM

                AAA          AA         A        BBB         Sub-IG         ● Credit ratings themselves appear to be fairly stable in the short
                                                                                run, with invariance transition rates having high probabilities in
  AAA           0.88        0.01        0          0            0               general. The chances of ratings moving by a full notch or more
                                                                                over a single year are generally low.
  AA            0.08        0.87       0.02        0            0

  A             0.01        0.08      0.87       0.04           0           ● The error in average, ex-post transition rates appears to be
                                                                                reasonably low for invariance rates but it is comparatively high
  BBB            0          0.01      0.05       0.84         0.05              for the others. This is of lower significance in Markov analysis,
  Sub-IG        0.03        0.03      0.06       0.12         0.95              where the larger transition rates will dominate equilibrium
                                                                                calculations.

Solving for the Markov equilibrium state probabilities, as described        ● A simple Markov chain analysis indicates that a significant slide
above, renders the vector:                                                      to poor credit quality on a laissez-faire basis can be expected
                                                                                to occur in long-run equilibrium. This appears to be confirmed
    [0, 0.01, 0.08, 0.24, 0.67] t                                               by longer term transition statistics. This validates claims that
                                                                                active management of credit portfolios is essential to ensure that
In other words, a portfolio left to run its own course is expected              quality criteria are met and default risk is adequately controlled.
to experience a marked degradation in credit quality in the long
run, based on ex-post transition statistics. About two-thirds of the        ● As in general insurance, risk management could be further
portfolio can be expected to end up in junk bond or non-rated                   enhanced by the use of ‘reinsurance’ e.g. by means of credit
territory on this basis.                                                        default swaps or other derivatives, where viable.

Fanciful number-crunching of this kind has its weaknesses, but it           We would suggest that further research on the extent of capital
does provide some support for claims often made by professional             losses given default would be useful in this context, provided that
fund managers. For example, they insist on active management                good data to support the analysis of them can be obtained. This
and specialist analysis for credit portfolios, emphasising that the first   could facilitate aggregate loss modelling, especially if it turns out that
priority of good credit management lies not so much in chasing the          severity distributions can be modelled reasonably well using simple
upside but rather in avoiding downside events. If there is something        probability density functions. ▲
in the naïve numerical analyses above, these claims would seem to
be justified.                                                               Daniel Mussett
                                                                            dmussett@russell.com
In practice, it is unusual for a portfolio to be constructed and then
managed on a buy-and-hold basis. As issues mature or fall out of            Daniel is Russell’s Head of Consulting
favour they would need to be replaced by other issues in a much             in New Zealand. A specialist investment
more dynamic way. However, the use of focused, skilful active               actuary, Daniel is particularly well-versed
management of such portfolios, especially where based on clear              in the theory and practice of asset-liability
and enforced construction rules, may justify the use of equilibrium         management and governance solutions
credit rating exposure assumptions. If so, mapping from credit              for institutional investors.
rates to default probabilities is a simple task, as corresponding
default probabilities are well documented and seem to exhibit               1 See pp. 6, 61-66 and Appendix III, Vazza, D. et al 2009 Annual
fairly consistent patterns over time e.g. very low rates of default           Global Corporate Default Study and Rating Transitions, Standard
for investment grade ratings, which become material and increase              & Poor’s, March 2010.
significantly as the rate sinks to BB and lower.3                           2 Ibid, p. 53
                                                                            3 See for example Ibid, p. 9.

On another note, risk management techniques for credit portfolios
might also take some inspiration from those used in non-life
insurance. When risks become ‘bad risks’; that is, where the
probability of claim becomes large, an insurer is likely to avoid them,
decline to renew coverage of them or reinsure them. The lesson
for portfolio management is that default probabilities, both now
and in future should be modelled and monitored. Risk avoidance
would take the form of deciding not to buy the issue, declining
renewal would correspond to selling the offending issue; and using
reinsurance might be mirrored by the purchase of loss mitigating
derivatives, such as credit default swaps, where the price is right.


                                                                                                       A C T U A RY A U S T R A L I A ■ April 2011
20   report




       Finding and Working with

                                                                mentors

     T
                  he Leadership Committee of the Institute of Actuaries         your IQ. The mentoring could especially benefit your self-awareness
                  of Australia is a subcommittee of the Education Council       (through exposing you to a more external view of yourself) and
                  Committee. It is focussed on initiatives to help build the    your empathy (through seeing your mentor’s frame of reference for
                  leadership capabilities of the profession and its members.    viewing events). You may also benefit from an outsider’s view of
     The purpose of this article is to inspire interest by members in the       your recent performance review or other feedback you’ve received
     potential of being mentored and of mentoring.                              – perhaps about a challenging blind spot.

     What is a mentor?                                                          Are mentors only of value for young
     A wise and trusted advisor or teacher who brings experiences which         actuaries?
     may be of value to another person (their mentee). The capacity of          Actuaries of all ages are exposed regularly to challenges of which
     the mentor and mentee to build mutual trust is fundamental and the         they have no prior experience. No matter what your position or
     key dimension of the wisdom is more in the nature of worldliness           professional role, you can benefit from having a mentor. Most chief
     and experience than technical or intellectual knowledge.                   executives in Australia would have mentors or coaches who help
                                                                                them to reflect on recent decisions or events and the upcoming big
     How might an actuary benefit from having                                   points in their professional or personal lives. Even if you have been in
     a mentor?                                                                  the same position for a period of time and are very comfortable with
     The formal education and qualification process for actuaries               it, there are big benefits from someone challenging your comfort
     emphasises technical skills, professional and ethical judgement            zone and its implications, including for your professional satisfaction.
     applying those skills and the ability to communicate recommendations
     in writing. In an actuary’s professional life they are required to apply   Does your mentor have to be much older
     these learnings in commercial and industry environments and in             and much more experienced than you?
     management frameworks in which they may have limited experience.           Not necessarily. In fact there can be benefits in finding someone of
     They may also, because of their strong and relevant technical skills,      your own age with whom you can regularly exchange experiences
     be promoted to a management position at an early age and face              and learnings – effectively mutual learning. They will regularly bring a
     challenges and opportunities for which they are not well prepared.         different experience curve and perspective to you.

     Whether it is because of promotion beyond your years, the                  Does your mentor need to be an actuary?
     complexities of the modern business environment or the rate of             Not necessarily. Recognising that your challenges and therefore
     change, you will always be facing challenges you have not faced            your opportunities through mentoring are most likely to be about
     before. Hopefully your career path will be one where you are always        less technical issues such as communications, interpersonal skills,
     finding yourself in the biggest job of your career, where the challenge    management and leadership skills, your mentor need not be an
     for you and your boss is to set you up for success. One element of         actuary. For example, if you are working in an actuarial services
     this, and a very valuable one, is for you to have someone you can          firm, you may benefit from dialogue with a mentor who has deep
     talk to in complete confidence of confidentiality, non-judgemental         experience in some other type of professional services firm.
     responses and relevant advice or challenges.
                                                                                How might an actuary benefit from being
     No matter who you are, having a mentor can accelerate                      a mentor?
     development of your emotional intelligence, which can be a far             The most obvious benefit of being a mentor is the satisfaction of
     greater determinant of your professional or business success than          playing a valuable role in the personal and professional development


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                          report        21




                                                                                                                                      ▲
of another person. But the rewards run much deeper. A mentor               How do I find a mentor?
inevitably learns a great deal from the experiences, work environment      A good start is to spend some time reflecting on your current
and perspective of the mentee and finds themselves thinking                ambitions, priorities and challenges. Ask yourself: “What will be the
through challenges which may be quite remote from their own                things I will most need someone experienced but non-judgemental
environment. The perspective of a Gen Y mentee can be highly               to talk to about?” Talking to peers in the profession may help you
enlightening, healthily challenging and consequently valuable to a         clarify this. The next step is to search for someone who roughly
baby-boomer. Mentoring is not generally a one-way street.                  fills the brief. Don’t expect or waste time searching for a perfect fit.
                                                                           Your employer may be able to help through an existing mentoring
Should I have just one mentor at a time?                                   program. Alternatively you may spot an appropriate target from
It is potentially valuable and logical to have more than one mentor        reading an article they have written in Actuary Australia or from a
because one mentor may not bring all the range of experiences              paper they have presented to the Institute. Or one of your peers may
you would like to capitalise on. For example it could be logical to        suggest someone from their firm who they respect.
have one mentor who is an actuary and one who is not; or one
who works with your employer and one who does not; or one who              The more you attend professional or industry functions or serve
is a leader in their business or their field and one who is of your        on Institute committees or industry forums, the more likely you are
own age. There is no “one size fits all” approach to mentoring. The        to meet a potential mentor. In the end a key factor will be having
benefits actuaries can derive from mentoring are very individual and       the courage to ask and you will do that more effectively the better
will change over time.                                                     you have been able to think through your objectives. You may find
                                                                           that the person is unable to be your mentor but is happy to have
How long would a mentor relationship                                       a cuppa to discuss where you’re headed. If you get your thoughts
typically last?                                                            and questions clear and engage professionally, you never know
Some mentor relationships last years. Some of these develop                what serendipity might arise – ideas, opportunities, visions, even an
into mutual mentor/confidant relationships and may last decades.           introduction to someone else.
Others might last six months to a year while the mentee is going
through a particularly challenging period (e.g. after promotion to         Don’t fear lots of angry knockbacks – perhaps the most exciting
a new role). While it may not constitute a mentoring relationship,         aspect of the Pulse Survey was that 80% of respondents
just a one hour cuppa with someone who has previously been                 would consider becoming a mentor if asked.
where you are aspiring to go, can be a valuable part of your
mentor framework.                                                          Most people get meaning from helping others and especially
                                                                           professional colleagues. It is one of the very foundations of
Will the Institute be setting up a mentor                                  a profession.
matching program?
The Leadership Committee is focussed on initiatives to help build          How do I know if the mentoring is
the leadership capabilities of the profession and its members –            working for me?
leadership in its many dimensions – from self-leadership to people         Trust your own judgement. Is it offering what you hoped to take out
leadership and from thought leadership to strategic leadership. In         of it? Above all, do you feel the trust is growing soundly? Do you feel
assessing any initiative we believe that we have three alternatives:       your mentor is engaged when you are together? Are you comfortable
to do nothing; to establish an Institute-led project; or to focus on       discussing tough issues? Do you look forward to the time with the
building the awareness of actuaries to the importance of the issue         mentor? Does it enhance your perspective of your own potential and
or opportunity and then leave it to the initiative of individual members   your buy-in to investing time and energy in your personal growth? Is
to take their own direction.                                               it helping you grow and to become more curious? Does the mentor
                                                                           offer a healthy balance of challenging questions, alternative solutions
In the case of mentoring we are convinced of the importance of it          and practical advice or is the conversation dominated by immodest
to the future of our members and our profession but believe it is          stories of the mentor’s own experiences?
something best driven or initiated by the individual member to fit
their own objectives and context.                                          It’s also important to ask yourself what you can offer to the mentor
                                                                           – even if you can’t think of anything tangible, it’s a great start just to
Our purpose then is to inspire interest by members in the potential        be prepared, on time, fully engaged, open-minded and respectful
of being mentored and of mentoring so that they can determine the          of their time. ▲
best options to suit their own needs, which will inevitably change
over time.                                                                  Institute Leadership Committee:
                                                                            Peter Hodgett        (Convenor) hodgett@hotmail.com
In this context we were heartened by the results of the recent              Andrew Brown         andrew.brown@axa.com.au
Pulse Survey which showed that 68% of the respondents                       Tony Cook            tony.cook@au.pwc.com
had experience as a mentor and 66% of the respondents had                   Anthony Ford         Anthony.Ford@macquarie.com
experience of being mentored. Furthermore, the majority of                  Dick Morath          dick_morath@mlc.com.au
those experiences were positive (rated 4 or 5 out of 5) for 61%             Martin Mulcare       martin@etiam.com.au
of mentors and 59% of mentees. The survey also revealed that                Ian Pollard          (overseas from April 2011 to March 2012)
22% of respondents are currently looking for a mentor.


                                                                                                      A C T U A RY A U S T R A L I A ■ April 2011
22   puzzles

     “I have discovered a truly marvellous proof of this, which this margin is too narrow to contain” – Fermat
     In the Margin with Genevieve Hayes
     “I have discovered a truly marvelous proof of this, which this margin is too narrow to contain” – Fermat.




                                                                                 with Genevieve Hayes

                                                                                                   i n t h e m a rg i n @ a c t u a r i e s . a s n . a u



      My Word!        (AA156 Solution)                                         1.
      The answers to the five questions posed in AA156 are given
      below:                                                                                   x                        =
      1. ONE BILLION (1,000,000,000) contains ten letters and ten digits.      2.
      2. This question was first posed in Alice’s Adventures in Wonderland,
         in which no answer was given. However, in the preface to a                            +                   =?
         later edition of the book, author Lewis Carroll gave the solution
         ‘Because it can provide a few notes, tho they are very flat; and      3.
         it is nevar put with the wrong end in front!’ Sam Loyd’s famous
         solution, “Because Poe wrote on both”, was also accepted.                            +                 +                   =?
      3. Bookkeeper
                                                                               4.
      4. The vowels (this riddle was written by Jonathon Swift, author of
         Gulliver’s Travels).
      5. Strengths.
                                                                                              –
                                                                                              •
                                                                                              •                   +                      =?
                                                                               5.
     Five readers scored five out of five. The winner of this month’s
     In the Margin prize, selected randomly from among these entries,
     was Georgina Dircks, who will receive a $50 book voucher.
                                                                                              –
                                                                                              •
                                                                                              •                        =?
                                                                               6.
     Calling Card
     Allan closed his phone and looked at the village around him.                              –                  +                   =?
     Tonight’s going to be my last night in civilization for quite a while,
     he thought to himself, maybe forever. Better make the most of it.         7.
     That was why he had taken the time to make his final farewells
     to everyone he knew. The satellite phone was meant to work                               –
                                                                                              •
                                                                                              •                       –                      +
     anywhere on Earth, but experience had taught him that ‘anywhere’
     didn’t necessarily include the most remote areas of Africa.
                                                                                               =?
     In fact, it was sheer good fortune that calls could be made from
                                                                               8.
     the village at all, but there had been a multinational gathering there
     earlier that month and the delegates had insisted on it. The flags
     from the gathering were still up in the village square.
                                                                                             –                 x                  –              =?
                                                                               9.
     Having finished with his phone calls, Allan decided to take a
     better look at the flags. Watching them waving and flapping in the
     breeze, it seemed to Allan as if they were almost trying to send him
                                                                                                  –                =?
     a message.                                                                10.

     Ten equations are given opposite. In each case, the question
     mark can be replaced by a particular flag, different in each
                                                                                             +                 +                  +                  –
     case, to make the equation balance (the first answer has been
     given as a hint). For your chance to win a $50 book voucher,                             =?
     identify the nine missing flags and email your solution (with
     working) to: inthemargin@actuaries.asn.au ▲


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                communications                   23




W
                  hat happens when too many different                     won’t be able to resist the temptation of seeing what the message
                  communication messages are bombarding you?              is about.
                  Many people find that regular interruptions –
                  phone calls, emails, visitors – prevent them            An alternative is to impose some self-discipline and only check
making progress with their important tasks. This means that               your emails when you have completed your very important task.
they are less effective and it often leads to feelings of stress          This may require some management of other people’s expectations
and annoyance. This doesn’t apply to everyone and if you                  if you are used to replying to them within 10 minutes. I can assure
are comfortable with your multi-tasking skills and enjoy such             you that it is possible to maintain a healthy business relationship
interruptions then don’t bother with this month’s column. For             without responding immediately to someone’s emails.
everyone else, please read on…
                                                                          3. Manage Your Telephone
1. Practice Saying “No”                                                   The same principle applies here: if you are engaged in a very
Most actuaries are, in my experience,                                     important task then why would you risk being interrupted by a
friendly and helpful people. You can                                      telephone call? You have the option to turn off your mobile and
certainly have worse problems but                                         forward your landline. Most modern telephones have answering /
it usually results in an inability to                                     message capability and I suggest that you use it when you are
say “no”. Clients, colleagues, team                                       focused elsewhere.
members, friends and family are
after a chunk of your time because                                        If you are going to be more dependent on your answering service
they respect you and your talents.                                        then please check your recorded message to improve the
Your response is usually “sure, no                                        chances of a successful return call. Try something like: “Sorry I am
problem, happy to help”. But where does this leave your priorities?       unavailable. Please let me know what you are ringing about and
                                                                          a good time to call back.” This helps you assess their purpose
It is important to practice saying “no”, politely and respectfully. You   and perhaps prepare for the return call. It also reduces the risk of
have probably built up a store of goodwill from your history of being     telephone tag by finding a suitable time to call back rather than
friendly and helpful – so use it. When someone seeks your input,          experience the frustration of a series of unsuccessful attempts
and it is not directly aligned with your immediate objectives, here       when they are unavailable.
are some options:
                                                                          What are the benefits of making these controversial changes to your
●   Find someone else to help them.                                       working practices? Your time is used more effectively, with fewer
●   Challenge them to solve it themselves.                                interruptions. When you catch up with your manager / colleagues /
●   Find a later time that suits you both to address the issue.           clients / team members you can provide your full attention rather
                                                                          than be pre-occupied or, worse, annoyed with them.
I understand that this can be a challenge in this wonderful era of
open plan office design. So if you do have an office, it’s a good         It takes more than maths to manage your communication
idea to selectively close the door.                                       interruptions and to feel in control of your working life. ▲

Please ensure that the majority of your time is devoted to what is        Martin Mulcare
important to you – not someone else.                                      martin@etiam.com.au

2. Manage Your Email
The fundamental principle here is that if you are engaged in a
very important task then don’t be interrupted by a machine. If
your email system signals you when an email arrives, by sound or
symbol, I suggest that you turn it off. The distraction of the email
notification can interrupt your thinking and, of course, you probably


                                                                                                   A C T U A RY A U S T R A L I A ■ April 2011
24   comment




          Risk Appetite
          and Reinsurance
          Efficiency

     A
                  ctuaries are becoming the first port of call to identify     One specific criticism that can be levelled at many players in the
                  and manage risk appetite. We look at the steps               re/insurance industry is that their risk taking is not always aligned
                  actuaries can take to evaluate capital considerations        with their risk appetite i.e. they need to reconcile their individual and
                  and achieve reinsurance optimisation.                        aggregate risk limits with their overall appetite for risk. If we take a
                                                                               step back, many re/insurers are not even able to fully quantify their
     The process of transferring risk has become both increasingly simple      risk appetites because they don’t possess the appropriate tools and
     and increasingly complex for corporations in recent years. This           methods to evaluate the capital considerations associated with risk
     apparent duplicity was brought into focus during the global financial     taking and risk transfer.
     crisis that began in 2007 and unravelled over the following two years.
     The crisis revealed how quickly and easily financial institutions had     It is notable that across the industry, those with strong Enterprise
     been able to allocate and reallocate capital many times over, creating    Risk Management frameworks tend to have a well-defined risk
     a highly complex web of transactions often involving esoteric financial   appetite framework, which in turn supports the active management
     instruments. These instruments were so abstruse that companies’           of the acquisition and cession of risks (and also appropriate
     exposures only came to light when the unravelling began.                  compensation structures). This includes qualitative and quantitative
                                                                               statements which relate the solvency, earnings, and/or dividend
     While blame for the financial crisis has been apportioned and             distribution ability of the re/insurer. It should be remembered that
     reapportioned ad nauseam, it is easy to relate to the human failings      certain key statements are probabilistic in nature, reflecting that
     that caused the troubles. When capital is allowed to flow this freely,    breaches of some risk tolerances cannot be prevented altogether.
     it makes sense that in a highly competitive capitalist environment,
     individuals and companies will continually seek ways to optimise          The first step towards capital optimisation therefore is to develop
     their own use of capital and earnings volatility, and that banks will     a clear risk appetite framework in consultation with the different
     always be trying to develop innovative financial products that can        stakeholders. Business units should then be engaged in translating
     help their clients achieve this aim.                                      the relevant aspects of the risk appetite framework into their daily
                                                                               activities, so as to embed the framework across the whole of
     The desire for capital optimisation is understandable, and while          the operation.
     there have been steps to regulate the financial environment (quite
     rightly) to avoid another global collapse, companies should continue      Optimisation Through Definition
     to try to make the very best use of the capital under their control.      Developing the idea further, reinsurance optimisation is a critical part
                                                                               of an insurer’s risk appetite framework. But it cannot be achieved
     This is especially true for insurers and reinsurers, whose very           in isolation – a clear link with the organisation’s objectives needs to
     product is the capacity, or capital, they provide to clients.             be defined.

     While re/insurers largely performed well during the financial crisis      The reinsurance optimisation framework will include qualitative
     – indeed, their capital levels quickly rebounded and eventually           and quantitative criteria. Quantitative criteria should capture the
     breached the record levels set in 2007 – many still fail to make the      risk and reward trade-offs of the firm and the goal is to find an
     grade when it comes to optimising their capital deployment. While         optimal balance between them. Once this has been achieved, the
     their more conservative risk strategies ensured that they remained        firm needs a professional with the appropriate tools to generate a
     more robust as the unravelling took place, prudence in the long term      capital model to effectively assess the risk and reward trade-offs
     does not always translate to superior capital performance.                of a variety of reinsurance alternatives.


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                                comment            25




                                                                                                                            ▲
The types of risk and reward depend on the nature and objectives          Besides risk reduction, value can be added by introducing an
of the business. Large listed companies generally focus on                optimisation framework and savings optimised by redesigning entire
improved return on equity, stability of earnings or dividends. On         reinsurance structures. In contrast, improper use of reinsurance can
the other hand, non-profit-organisations would express their risk         destroy value on the short and long term, even when risk seemed
appetite differently such as protecting policyholders’ capital or price   to reduce. Actuaries are ideally placed to quantify the risk reduction
of products.                                                              and importantly the value created.

                                                                                              Capital Optimisation
                                                                                              Strategies – Similar
                                                                                              Yet Distinct
                                                                                              While no two capital optimisation strategies are
                                                                                              the same, there are certain factors common to
                                                                                              all capital strategies:

                                                                                              ●   Understanding model risk and limitations in
                                                                                                  connection with the broader capital picture
                                                                                                  is key

                                                                                              ●   The modelling of extreme events needs
                                                                                                  special care and attention – in this regard,
                                                                                                  increasingly comprehensive catastrophe
                                                                                                  models are allowing for hugely improved
                                                                                                  risk quantification

                                                                                              ●   Actuaries need to actively engage
                                                                                                  with reinsurance managers and other
                                                                                                  reinsurance experts so as to consider the
                                                                                                  implications of non-quantitative factors

                                                                                              ●   Due to the scarcity of extreme events, re/
                                                                                                  insurers need broad access to market or
                                                                                                  third-party data

A firm’s capital structure is further influenced by the ever increasing   ●   To be successful, the framework needs support from
scrutiny of international regulators, whose focus on all sectors              management and the board, be aligned with the company’s
of the financial services industry has been sharpened since the               objectives and be embedded in the organisation’s culture
financial crisis took hold.
                                                                          The process helps to determine which reinsurance structure
Regulatory protocols such as Solvency II in the European Union            is beneficial to an insurer’s portfolio and helps to foster value
have increased the demand for actuaries, and the profession is            creation. It measures the risk and return in dollar amounts, using
well positioned to articulate a reinsurance optimisation framework        various reinsurance structures, and it is therefore concrete and
in line with a company’s risk appetite. In this way, actuaries have       financially valuable when properly executed.
been provided an opportunity to position themselves at the very
centre of a firm’s overall reinsurance strategy.                          In addition, it encourages communication between directors,
                                                                          investors and rating agencies – the latter party is less likely to
While reinsurers were long considered a source of capacity and            provide favourable opinions when a re/insurer cannot articulate
cost for their cedents, they are becoming increasingly viewed as a        its risk limits, given its risk appetite (e.g. the business units are
source of capital and earnings management, making them a vital            managed to a set of objectives determined remotely from the
link in the overall performance optimisation process. This critical       risk appetite).
transformation in perception will gain added momentum with the
advent of Solvency II and other solvency regulations worldwide            In conclusion, reinsurance optimisation
and, over time, this will lead to improved capital structures and         encourages companies to better articulate
resilience to risk.                                                       their business models and understand
                                                                          how apparently distinct decisions affect
Early optimisation frameworks have often concluded that less              the firm as a whole. ▲
reinsurance should be purchased, but modern optimisation
frameworks consider the entire risk appetite framework, key risk
drivers, correlations and the short term earnings implications. They      David Maneval
are becoming more robust and cross-discipline oriented.                   david.maneval@aonbenfield.com


                                                                                                    A C T U A RY A U S T R A L I A ■ April 2011
26   report
                                                                               Chief and Assistant Examiners
                                                                               Examiners are recruited for all subjects in each semester. The key



      Our
                                                                               responsibilities for the Chief Examiner are to attend BoE meetings,
                                                                               liaise with the Course Leader, Assistant Examiners and BoE Chairs
                                                                               on the exam development and review process and final sign-off on



      Volunteers
                                                                               the paper. In terms of exam marking, the Chief Examiner and his/
                                                                               her assistants are also required to customise marking templates,
                                                                               review borderline candidates, recommend passes to the BoE,
                                                                               complete the examination report template and conduct any exam
                                                                               performance interviews.

                                                                               Chief Examiners can have up to two assistant examiners to help
                                                                               complete the above tasks. Payment for Examiner roles for courses
                                                                               delivered by the Institute are paid on a tiered basis according to
                                                                               enrolment numbers, which can range between $10,000 and $20,000
                                                                               per year.

                                                                               BoE Chair and Assistant Chairs
                                                                               One Chair and nine assistant chairs provide expertise across
                                                                               a range of practice areas in relation to the Part III Education
                                                                               Program. Once exams have been drafted by the Course Leader,
                                                                               reviewed by the scrutineer, reviewed and approved by the Chief
                                                                               Examiner, they are then ready for BoE review. Their role is to
                                                                               ensure there is consistency across the exams, whether they have
                                                                               been drafted in line with the criteria as highlighted in the BoE
                                                                               Handbook and signed off with the respective Chief Examiner. The
                                                                               Chair also writes an administration section of the BoE report each




     T
                                                                               semester, including recommendations, and then presents this in a
                 he Part III Education Program is very complex and             meeting to the Education Council Committee.
                 requires approximately 300 volunteers per year. The
                 Institute relies on the goodwill and support from the         Scrutineers
                 membership to help ensure there is a quality program          A recently qualified Fellow is recruited for each subject to
     with industry relevance for our up and coming Fellows. Here is an         scrutineer the exam. The role of the Scrutineer is to first sit the
     overview of some of the key roles, what the responsibilities are and      exam under exam conditions and complete the Scrutineer Review
     how they contribute to the Part III Education program.                    Form providing comments on clarity, coverage, difficulty and time.
                                                                               Following this, the scrutineer is sent the draft exam solutions and
     Faculty Members                                                           asked to also comment on these. Scrutineers receive a payment
     A Faculty is an education sub-committee that has been put in place        of $300 for their services. Recently qualified Fellows are also
     for each of the specialist area Practice Committees. Their primary        recruited for each topic in the Commercial Actuarial Practice
     responsibility is to ensure the course notes and assignments are          Course (CAP) however they are not expected to sit the exam under
     current and consistent with industry practice. They review and            exam conditions but rather attempt any analysis required by the
     approve course materials and textbooks along with assignments             case, check that it makes sense and identify the main points they
     before publishing to students.                                            would make in their report. CAP scrutineers receive a payment of
                                                                               $150 for their services.
     Course Leaders
     Course Leaders are recruited for all subjects in each semester. They      Assignment Markers
     are responsible for drafting assessments and solutions (assignments       Approximately four to eight markers are required per subject for
     and examinations), scaling and finalising results for assignments,        assignments. This is determined by the number of enrolments.
     delivering tutorials, monitoring online discussion forums and             Once assignment markers are confirmed they receive access to
     responding to posts. There is a lot to cover in this position however     the Learning Management System (LMS) where the students’
     there is scope for this role to be shared. As this is a paid contracted   assignments are uploaded. They receive notification from the
     role Course Leaders can earn approximately $20,000 per year.              Institute on their candidate allocation along with instruction
                                                                               documents, solutions and templates. Assignment markers also
     Board of Examiners (BoE)                                                  provide comments to each candidate via the LMS.
     The BoE Team is comprised of Chief and Assistant Examiners for
     each subject, Chair and Assistant Chairs and Institute staff. They        As a result of the assignment process being completely electronic,
     meet three times throughout the semester to discuss examination           markers can be located anywhere in the world to participate!
     processes such as the exam development and review, examination            Assignment markers receive approximately $50 per one assignment
     reports, borderline candidates and pass lists.                            marked.


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                            report       27




                                                                                                                        ▲
Exam Markers
Approximately ten to twelve markers are required per subject for       Anthony Brien
exams. This is determined by the number of questions in the exam.      Chair, Board of Examiners
The exam marking process is based on a partnership of two markers
who are responsible for marking one question for all students.         “By volunteering, I contribute to the
                                                                       quality and decision making within
We try and recruit marking partners who work in the same company,      the profession and help maintain its
so should they wish to meet and discuss marking it is easier for       standing in the community.”
them. We also try and match an experienced marker with someone
who is new to the process. All exams are scanned, password
protected and uploaded onto an internal website in batches.
This ensures markers have access to exam answers as soon as
                                                                        Matthew Wood
possible. For those who prefer a hardcopy, we will also split the       Assistant Chair,
exam papers in half and courier to you and your partner.
                                                                        Board of Examiners
                                                                       “I adore the role of Assistant Chair
Following the completion of the exam, markers receive an electronic    (though I have been petitioning for a
exam package containing customised marking templates, instruction      name change – how about Executive
documents, solutions and templates. Marking pairs must agree on        Education Adviser?). I get to mould the
results before submitting their completed combined template to the     structure of the exams, attend Board
Chief Examiner. Like the assignments, the exam process can be          of Examiners meetings, and influence the decision
completed entirely online and markers can be located anywhere          over borderline candidates – makes me feel very
in the world to participate! Approximately $50 is allocated for each   responsible for the next generation of actuaries. With
candidate and depending on the number of enrolments this is then       two young children and a full-time job you may wonder
divided among the markers accordingly.                                 how I fit this in. It’s not easy but I make time because I
                                                                       see it more as a hobby than work.”
How Important are our Volunteers?
Our members volunteer for many reasons as you can see from
some of the comments here. Giving back to the profession and
participating in the improvement of the delivery of the education
                                                                       Rick Shaw
process seem to be two of the most prominent factors.                  Course Leader

The Part III Education Program would not exist if it was not for
                                                                       “I like the interaction with students,
all of the hard work our volunteers put in. I would like to take
                                                                       and I’m getting a lot of support
this opportunity to acknowledge and thank all of you who have
                                                                       from colleagues and the Institute
contributed (and those who continue to do so).
                                                                       staff, which is a great opportunity to
                                                                       renew acquaintances. My aim is to
Your enthusiasm, energy and time means a great deal to us in
                                                                       get the pass rate up to 100%, and then aim a bit higher,
the secretariat and your support and expertise are crucial to our
                                                                       maybe re-assess a few past failures, including myself.”
success in every way. Grateful thanks are also extended to the
many volunteers outside of the Education Program who assist in
other areas from event-related projects to those who are connected      Julia Lessing
through committees.                                                     Scrutineer

We are always looking for ‘new recruits’, if you are interested in     “We all study so hard to get
volunteering and would like to get involved, please do not hesitate    through the Part III exams
to contact me, I would love to hear from you! ▲                        and we expect a level playing
                                                                       field when it comes to the
Rebecca Moore                                                          exam paper. I love being
Volunteer Manager                                                      a scrutineer because I can help to reduce the risk of
rebecca.moore@actuaries.asn.au                                         students failing due to ambiguity in a question or the
                                                                       paper being unfairly difficult. I also love talking to high
                                                                       school students in my role as Chair of the Talent Finders
                                                                       Committee. The Committee and its volunteers talk to
                                                                       high school students about what actuaries do and the
                                                                       pathways to become an actuary. This helps raise the
                                                                       profile of the profession and lets us dispel the myths
                                                                       and stereotypes about actuaries, to help encourage
                                                                       bright students into the profession.”


                                                                                           A C T U A RY A U S T R A L I A ■ April 2011
28   student column
                                                                               barely kicked off. It was much too late to cancel the event so we




      Beach Day
                                                                               decided to wait it out in hope that the weather could improve over
                                                                               the next few hours.

                                                                               Lunch time was drawing near and there were many hungry actuarial
                                                                               students awaiting the sausage sizzle. We encountered a slight
                                                                               problem, the BBQ cooking area was unsheltered and it was still
                                                                               raining. This was not going to stop us from having our BBQ. Alex,
                                                                               our Social Director gathered a couple of us to form an umbrella
                                                                               shelter over the BBQ so that we could start cooking. The shelter
                                                                               held up quite well however the persistent rain managed to find its
                                                                               way onto the hot plate. “We might be having boiled sausages today”
                                                                               exclaimed Alex, whilst the rest of us laughed and huddled around
                                                                               the warm BBQ area. We must have looked quite ridiculous holding
                                                                               a BBQ in the rain, as people passing by stared at us in awe.

                                                                               The sausages ended up tasting like any ordinary sausage sizzle
                                                                               should taste. It was nothing like a boiled sausage (not that I have
                                                                               ever tasted a boiled sausage). There was plenty to go around and
                                                                               the seagulls even managed to get hold of some leftover sandwich
                                                                               bread. Everyone felt warm and happy, after satisfying their hunger.

                                                                               The turnout was better than expected, given the forecasted weather of
                                                                               scattered showers. The rain can be seen in a positive light. It brought
                                                                               us together as a small group under the only possible shelter. Time flew
       Going Against the odds                                                  by as stories were passed between students and we got to know one
                                                                               another better. It was still raining when we decided to go our separate




     I
           t was clear blue skies on the Saturday morning of 19th March
           2011. There was not a grey cloud in sight. The conditions
           were perfect to host the ASOC Beach Day. This event is the
           first of many events ASOC organises for its members over the
     course of the year. Beach Day was created as an opening event
     for members across all years to get to know one another in an
     environment outside of university study. More importantly it is a day
     to let loose, have some fun in the sand, surf and sun after a tiresome
     week at university.

     The week leading up to Beach Day was filled with lecture
     announcements informing the students of tthe fabulous day that
     ASOC had planned. On the agenda were icebreaker activities, logic
     puzzle games, beach sports and the highlight of any university
     student’s day, a free BBQ.

     Executives arrived at Coogee Beach sporting our bright blue ASOC
     shirts alongside the ASOC banner hung up high to lure in arriving
     members. A soccer ball was taken out to pass some time whilst             ways but everyone left knowing that we braved the relentless rain and
     members starting arriving in small groups. It was going to be a slow      succeeded in the main objective of today which was to have fun. The
     morning. 10am seemed to be too early for the average university           thought that remained in everyone’s mind was the one remark made
     student to be up and about on a Saturday morning.                         by a master’s student: “We’re actuarial students, you would think that
                                                                               we would be able to calculate the probability of rain”. The lesson that
     All of a sudden George, our Sports Director stopped in the middle of      I learnt from this experience is that sometimes
     kicking the ball. He held out his hand and said “hey guys it’s starting   you just have to go against the odds and make
     to sprinkle”. All of us looked in dread as we peered into the distance    the best of what you’ve got, regardless of what
     and saw ominous rain clouds heading towards us. Not long after            may happen. ▲
     everyone headed for shelter, it started to pour down on us. Students
     were still arriving by public transport and the rest of the day was not   Jenny Trinh
     looking too good at this point. The grey clouds were not going to         Publications Director
     leave us alone. The rain began to get heavier and Beach Day had           publications@asoc.unsw.edu.au


     AC TUARY A U S T R A L I A ■ April 2011
                                                                                                                      CEO’s Column                  29

                                                                          technical stuff in language our audience (other business people) can
                                                                          understand. However the picture that employers paint of actuaries
                                                                          in regard to our communication skills is sobering. There were some
                                                                          common themes from the interviewees: that actuaries are arrogant;
                                                                          do not respect the opinions of non-actuaries (because we think we
                                                                          are smarter) ; and can not explain things to people “the recipient’s
                                                                          way – can only explain things their way”.

                                                                          It was also pointed out by one interviewee that actuaries are not
                                     Melinda Howes                        good at stakeholder management i.e. consulting before meetings to
                                                                          increase chances of reaching consensus in meetings.




I
    n last month’s column I was talking about the results of a survey     b) People skills – Building emotional intelligence
    we commissioned on employers’ views of actuaries. This                   Comments included:
    survey was undertaken by Beaton Consulting, and amongst                  “Actuaries are typically very rational – right brain”, “Improve on
    other things we asked what competencies they require to                  people and communication skills – they need to learn how to
obtain senior management positions. Here is what they said.                  understand that people can be driven by emotions – sometimes
                                                                             to get people to react you need to appeal to their emotions”,
    1. Soft skill development                                                “People who are more social succeed more”, “Actuaries have
                                                                             the right technical skills. The issue is the ability to be really
This was seen as our number one development need. A number of                persuasive and understand the broader commercial issues and to
respondents pointed out that actuaries are rewarded for our technical        appreciate the perspectives that other people are coming from”,
skills and not our soft skills. It was suggested that managers should        “Emotional intelligence”.
set goals for actuaries and reward them on soft skills as well.
                                                                              Actuaries need to be empathetic towards others and understand
a) Communication is the top priority area for improvement. Key                where others are coming from. Even though some people
   skills we need are:                                                        associate actuaries with being extroverted, there is a perception
                                                                              that these actuaries also lack in people skills.
●   Interaction with others and listening.
    “Flexibility to listen to others opinions and take these on board”,       Although people skills can often be something that is hard to
    “Understand what other parties are wanting from the model”,               learn there are steps actuaries can take to improve relationships
    “Tailor their skills to the people”, “Sometimes they are great on         within business:
    the technical side but cannot communicate to their audience               ● Being aware that people skills can help with development
    so the information they are giving is of no value”, “Need to                  and success.
    understand their audience”.                                               ● Being conscious of where others are coming from.
                                                                              ● Understand that others think differently.
●   Verbal communication
    “Talk the way I would like you to explain things – I feel I have      c) Self promotion
    to milk answers out of them”, “They are not the best verbal              Comments included:
    communicators, the way they address people verbally needs                “Very few of the outstanding actuaries around that made the
    work, and their own marketing skills need work”, “Learn to               jump from head of actuary team to a line of business manager. It
    speak up for yourself, being able to influence with confidence           is like they are pigeon holed in this area”, “To transition to these
    (not arrogance).” “Picking up the phone and talking to people,           areas, actuaries need to play to their strengths – which come
    not sending email, answering the phone when it rings...”, “Key           from their skill set. Use their skill set as an advantage – knowing
    thing is to get out into the business more and understand how to         their strengths but also knowing that their strengths may limit
    communicate things that mean things to the business. The best            them”, “They need to better represent themselves and the value
    ones are the ones who can explain things to the person they are          they bring”, “Leadership is a weakness, even amongst some of
    explaining to rather in their own way”.                                  the leaders of actuaries – they do not promote their team well
                                                                             enough”, “To some extent they are not self aware and then have
●   Written communication                                                    to rely on feedback. It’s about encouraging managers to create
    “Need to be able to articulate things in a concise manner.               feedback programs and take it on board”.
    Understand things so well, but also be able to communicate this.
    Presentations skills are an area to focus on, and then everything         Employers have also noticed that actuaries are much less
    else comes with experience and confidence.”, “‘Making the                 likely than other employees to put themselves forward for
    technical understood’ Can’t rise up the ranks unless they                 management development or leadership programs. We have
    can communicate”, “Stakeholder management presentations”,                 found the same thing – the Institute is now running our one-year
    “Business writing courses”.                                               intensive management development program (Step Up) less
                                                                              frequently because we do not have enough people interested
Actuaries are supposed to be the translators who can explain the              in participating.


                                                                                                    A C T U A RY A U S T R A L I A ■ April 2011
30       CEO’s Column / notice
     ▲



          2. Commerciality                                                              have a strong market awareness and awareness of competitive
                                                                                        position to be successful”, “Business acumen, understanding the
     a) The internal environment                                                        end customer perspective”, “Understand what challenges we
        ● Getting to know other parts of the business.                                  face, what the competitors are doing, how they are pricing, what
        ● Be aware of business issues.                                                  profit issues we are under”, “Business acumen is not generic, it
        ● Understanding P&L.                                                            does vary by the commercial environment that people are in”.

          “Need commercial knowledge of the internal environment – e.g.                 It was pointed out by banking managers that to further improve
          spending more time with the product team to understand how                    business acumen and become more commercial, understanding
          things work”, “Do not tend to think about the business as a                   the banking industry in more detail would be of benefit
          whole”, “Thinking outside the box – being able to understand the              to actuaries.
          broader business context”, “Need to know about the business
          structure”, “Curiosity – need to want to learn, and understand            In the wake of this survey, we are analysing the implications for our
          things and learn more about the business”, “It is a commercial            educational and CPD systems. We are also going to be talking to
          side to interpretation that is often lacking – do not understand the      key personnel (such as HR managers) in banks and other “wider
          business issue”.                                                          field” employers, to make them aware of the complementary skills
                                                                                    actuaries can bring to cross-disciplinary teams.
     b) The external environment / the industry
        ● Knowing the competitive environment.                                      I would welcome any comments from you on this survey or our
        ● Understanding external market factors.                                    planned initiatives. ▲
        ● Understanding the customer.
                                                                                    Melinda Howes
          “Need good knowledge of commercial environment – need to                  melinda.howes@actuaries.asn.au




          Flood Resilience:
                                                       Risks, Mitigation and Funding Solutions


           ONE-DAy SEMINAR                                                                        Monday, 16 May 2011

         HERITAGE BALLROOM, WESTIN HOTEL, 1 MARTIN PLACE, SYDNEY 2000



         R
               ecent events have highlighted the need for a national discussion about            Who Should Attend
               floods, how we as a nation can prepare for them, mitigate their impact            This seminar will be valuable to local councils,
               and fund the repair bill that results from floods and other natural disasters.    state and federal governments, insurers, actuaries,
         The Institute will host a one-day seminar on Monday 16 May 2011 to                      engineers, hydrologists, financial services executives
         discuss the key issues relating to flood including Australian and international         and the general public. It will provide invaluable
         approaches to:                                                                          insights into flood mitigation and funding options for
                                                                                                 those interested in building Australia’s resilience to
            ● flood mitigation                                                                   floods and other natural disasters
            ● insurance
            ● flood mapping                                                                      Supporting Partners
            ● national funding solutions

         The seminar will feature The Hon Robert McClelland MP, Attorney-
         General, followed by expert speakers from the engineering, banking,
         consumer welfare, insurance and actuarial professions.



         REGISTER NOW!                                    For more information or to register go to www.actuaries.asn.au


     AC TUARY A U S T R A L I A ■ April 2011
                                                Strategically placing Actuaries
                                                      around the globe.
               Sydney –                                                   New Zealand –                                              Sydney –
               Senior Actuary,                                            Pricing Actuary,                                           Actuarial Analyst,
               Life Insurance                                             Life Insurance                                             Financial Reporting
 This major corporate life insurer has created a new         An experienced Pricing Actuary is required for this       A number of analyst positions are available within the
 leadership role to work closely with the AA to provide      dynamic insurer in New Zealand. The Actuarial             financial reporting area of this large Sydney based
 financial information to the business and assist with       function is very well respected and plays a very          insurer’s actuarial team. Primarily working on the
 executive decision making. Solid life insurance             significant part of the strategic and risk management     valuation of insurance or investment products the
 experience including capital management, valuations         decision making in this organization. Overseas            successful candidates will need between 2-5 years
 and reporting is required. The real key to this role is     candidates are particularly welcomed to apply for this    of actuarial experience within a similar function
 leadership, with a good quality team that is growing        role and every assistance will be given to ultimately     and be working towards or have already attained
 you should be able to coach, mentor and guide               achieve Permanent Residency. This is a new role           their Associateship. Other required experience is as
 up and coming talent as well. Your presentation             requiring the incumbent to interact with re-insurers,     follows:
 skills will be first class as regular Board reporting and   underwriting and sales to design new products and         • Ability to interact with peers, management and
 presenting to management will be required. With             re-price existing ones. You should have an interest          team members
 some key projects due for delivery over the next            in mentoring others and be focused on continuous
 12 months this is a key role for the organization.          improvement and seeking ways to drive the business        • Strong analytical skills with the ability to
                                                             forward.                                                     communicate results effectively
 • Life Actuary, 10 plus years
                                                             • 3-5 years post Fellowship experience                    • Commitment to work to deadlines and to deliver
 • Solid leadership experience                                                                                            high quality information
 • Reporting and capital experience                          • Life risk products preferred
                                                                                                                       • Working knowledge of Prophet
 • Strategic and commercial focus                            • Solid pricing background
 • Overseas experience welcomed                              • Adaptable and commercial
                                                             • Very competitive remuneration structure
 Contact Lesley Traverso for more information.               Contact Lesley Traverso for more information.             Contact Claire Street for more information.

               Hong Kong –                                                 Hong Kong –                                               Hong Kong –
               Director & Financial                                        Director,                                                 Actuaries & Associates,
               Actuary, Life Insurance                                     Life Consulting                                           Life Insurance
 Working with the Regional Chief Actuary in the              A global actuarial and insurance consulting practice      Due to the rapid expansion and future growth
 Regional Office of a large International Insurer, you       is searching for a senior actuary with ambitions to       prospects for this leading European based insurer,
 will be responsible for ensuring that local actuarial       become a partner in the near future. You will have        we are looking for both qualified and associate
 practices in assigned countries are in compliance           responsibility for the continued growth of the practice   actuaries to be based in Hong Kong. Working within
 with Company’s standards by providing peer review           as well as practice management.                           either the local or regional teams this is an ideal
 and training at the local level where required.             • Business Development – actively seek and                opportunity for someone looking to develop a long
 • Peer reviews on the actuarial processes –                    generate new opportunities                             term career in a cutting edge environment.
   valuation, analytics, experience studies and provide      • Manage and develop existing client relationships        • Knowledge of actuarial modelling processes
   insights on results for assigned business units                                                                        and financial reporting
                                                             • Qualified Actuary with demonstrable track
 • Provide support to start up operations in setting            record of success                                      • Solvency II and MCEV experience would
   up the infrastructure for the on going actuarial                                                                       be a bonus
   management of the practice                                • Senior role requiring excellent
                                                                management capabilities                                • Excellent English verbal and written skills
 • Ad hoc actuarial support to business units in the                                                                   • Project and people management skills for more
   region                                                    • Experience of some of the following actuarial
                                                                techniques: ALM, stochastic modelling, EV,                senior positions
 • Fellow of a recognised actuarial institute with              USGAAP, IFRS, realistic balance sheet, ICA, asset      • Great career development opportunities
   at least 5-7 years of actuarial Life Insurance               modelling, capital management, distribution,
   experience                                                   M&A / structuring
 • Strong technical actuarial and communication skills
 Contact James Lecoutre for more information.                Contact James Lecoutre for more information.              Contact Claire Street for more information.

 Lesley Traverso                                             James Lecoutre                                             Claire Street
 T: +61 (0)2 9226 7459                                       T: +61 (0)2 9226 7412                                      T: +61 (0)2 9226 7418
 M: +61 (0)433 129 390                                       M: +61 (0)404 397 503                                      M: +61 (0)401 606 171
 lesley.traverso@dwsimpson.com                               james.lecoutre@dwsimpson.com                               claire.street@dwsimpson.com


            1300 22 88 279 (1300 ACTUARY) www.dwsimpson.com
EUROPE | ASIA | AUSTRALIA & NEW ZEALAND | MIDDLE EAST | NORTH AMERICA | SOUTH AMERICA
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