International Relations Relations internationales by MikeJenny

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									International Relations (PD #4)                                                                                                    1



Panel Discussion #4: International Relations
Table ronde no 4 : Relations internationales
                                                                October 30 Octobre 2003
Moderator/Modérateur:                                            Stuart F. Wason
Speakers/Conférenciers:                                          Gail M. Ross
                                                                 Thomas M. Ross


Moderator Stuart F. Wason: Good morning, ladies and gentlemen. Welcome to Panel Discussion number 4, on the topic of
International Relations, but it is really more accurately sub-titled: Did You Know That Actuaries Did This? I am the Moderator
and one of the speakers. For our panel today, we have two excellent speakers – I will let you reserve judgment on myself – here
with us today. We would like to share some thoughts with you about what is happening really with non-traditional markets for
the work of actuaries.
You should know some things about the panelists up here. We share a number of things in common with each other, which, I
am sure, you have noticed already. First of all, all three of us are actuaries. That is a slam-dunk, that is easy. Of course, we have
abundant good looks amongst us. That is another trait, of course, which we share. I hope that you agree. But there is another
one as well that we kind of share as well and that is the two parties to my left have the last name of “Ross” and I am related to
a “Ross”, so there we go. You might not have recognized that. My great uncle was a “Ross”.
So our speakers today, let me just give you brief introductions to the threespeakers and then we will just roll on. Gail Ross will
be first up today. Gail is a manager and senior consultant with Milliman USA. Her practice focuses on mergers and acquisitions
and operational effectiveness studies for non-life insurers and reinsurers. Prior to joining Milliman, Gail was the Vice-President
of AmRe Consultants, a subsidiary of American Reinsurance Company, where she headed up the firm’s mergers and acquisi-
tions practice area. Gail is, of course, a Fellow of the Casualty Actuarial Society and a member of the American Academy of
Actuaries, and she is currently President of the Casualty Actuarial Society and a member of its Board of Directors and Executive
Council.
Up third on our speaking list today, in the final slot, is Tom Ross, who is a Fellow of the Faculty of Actuaries. Tom is currently
President of the Faculty. Tom has been with Clay and Partners, now part of AON since 1976. He has exercised leadership within
the United Kingdom, as Chair of the National Association of Pension Funds in the mid-1990s. He has been a member of the
Campeau Committee on Corporate Governance, he has been the non-Executive Director of Royal London Insurance, Chair of
Pinta Capital, a private equity manager, and he has founded and is currently Chair of the Pensions Policy Institute, an independ-
ent think-tank. Tom is also an FCIA – you will have noticed him voting this morning – having spent several years in Canadian
practice in Vancouver. So those are two of our panelists.
I am Past President of the Canadian Institute of Actuaries, active currently with the Society of Actuaries on its Board of Directors
and active with the International Actuarial Association, on a couple of committees there. So, with those introductions, let us
start off with our panelists, and Gail is first up. Just let me take one moment here to pull up the presentation.
Speaker Gail M. Ross: Thank you for that kind introduction, Stuart, especially the good-looking part, I appreciate that. Thank
you for having me here today. I am pleased to be here. I am going to talk about non-traditional roles or the casualty actuary and
our other speakers, Stuart and Tom, will address the non-traditional roles for other types of actuaries.



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What I would like to talk about, first, is to give you a sense of what we mean when we talk about traditional. I would then like
to highlight a couple of reports that the CAS conducted on non-traditional roles for the actuary. I will give you a few case studies
of non-traditional activities that casualty actuaries have been involved in. I also went and did a quick scan of our membership
to get a sense of the non-traditional employers that some of our casualty members are currently working with. I would like to
then highlight our centennial goal because there is an element of, what I will call, non-traditional in what we have come up
with for our goal, our vision as the CAS approaches its 100th birthday in 2014.
So let us start with what is traditional. You can talk about the traditional role for the actuary from a number of different perspec-
tives. First of all, when you think about the traditional employer, you are generally thinking about insurance companies and
reinsurance companies. You are also thinking about actuarial or insurance consulting firms. Regulators typically hire actuaries,
brokers and organizations serving the insurance industry, rating organizations in the US. We have the Insurance Services Office
and we have the National Council on Compensation Insurance. Also, university professors, those are traditional employers of
casualty actuaries and probably non-life actuaries as well.
You could also think about the traditional role of the actuary from a functional perspective. We are traditionally involved in
rate-making or pricing of the insurance products, we are involved in setting adequate reserves associated with those products,
certainly, we get involved in modelling and in programming, and in teaching. I think that, right now, those would be, what we
would deem to be, traditional roles for actuaries. In addition, you could look at the traditional lines of business, at least in the
case of the casualty actuary that we have been involved in. So you would deal with automobile insurance, Workers’ Compensa-
tion, general liability, property insurance, marine, those are the typical, traditional lines of business that the casualty actuary
will get involved in.
The CAS commissioned two reports on non-traditional roles for our casualty actuaries. The first one was done in 1997, where
we conducted a survey on actuaries in non-traditional roles; and the second one was done in 1999, where the Board appointed
a Task Force on Non-Traditional Practice Areas. The 1997 study, the survey on actuaries in non-traditional roles, was conducted
by our external Communications Committee, and the purpose or use of this study was to try to identify actuaries who were
actually working in non-traditional roles, and to develop case studies describing how the traditional actuarial skills that we train
our members with, can be applied in non-traditional ways. The purpose of this Task Force was externally focused so that we
would distribute this report to the business media, in the non-traditional examples of how corporations and financial institu-
tions could utilize casualty actuaries and to bring out some of the unique skills that we possess, and kind of thinking beyond
just the borders of the typical roles that the actuary plays.
In the survey that we conducted, 91% of the members responded that they perform at least one traditional actuarial duty as
part of their job; 64% performed rate-making; 48% performed reserving; which were the typical, traditional duties that actuar-
ies were generally involved in. At the time, in 1997, 9% said that they performed only non-traditional duties as part of their
job. This would include things like marketing and underwriting, where actuaries are actually either heading up Underwriting
Departments or actually acting in a role as an underwriting or marketing specialist. In the claims operation, we were seeing a
number of actuaries that were switching over and actually working in the Claims Department of an insurance company, not just
working with the Claims Department. Financial planning and investments, at the time in 1997, it was unique to be thinking
about the actuary as a risk manager and also, at the time, where our specialty was developed, valuation was deemed to be more
non-traditional, as was dynamic financial analysis.
The other task force – the Task Force on Non-Traditional Practice Areas, from 1999, their report was in 1999 – was appointed
by the Board of Directors and the purpose of this task force was to formulate recommendations on how the Casualty Actuarial
Society (CAS) could better support our members, currently working or who wish to work, in the future, in non-traditional
practice areas. So this had a little bit more of an internal focus, in terms of trying to find out where the information gaps were in
providing information and education for our members in newly emerging areas. This task force identified four priority practice
areas, in which, they felt, the CAS should increase its education and research activities. The first was in asset/liability manage-
ment and investment, valuation of property casualty insurance companies, risk management and securitization or risk financing.
Out of this Task Force, we formed four Advisory Committees, one in each of these areas, to address the needs of the CAS, and

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actually all four of those Advisory Committees have now completed their work and we identified the information gap, if you
will, that the CAS was feeling, in terms of each of these areas, so that we could then introduce this information through our
education: Our syllabus, our examination and our research.
In addition, this particular task force considered four other important practice areas, but decided that they would not place them
as a priority since education and research was already underway with the CAS, and that includes the pricing of non-traditional
exposures, reserving of non-traditional exposures, catastrophe analysis and dynamic financial analysis. Pretty much, by 1999,
we were heavily involved in getting these practice areas up and running.
That task force also identified non-traditional skill sets that the CAS should address through our Continuing Education Program.
When you think about the traditional skill sets of the actuary, of course, it was generally going to point to the technical skills
sets, but, certainly, very high on the list of importance for the actuary is to have general business skills in their bag of tricks.
Accounting, we need to be familiar with generally accepted accounting standards, statutory accounting and foreign accounting.
For a moment there, I could not remember the one that, typically, the actuary gets involved in, which is statutory accounting
in the US. In addition, we feel that the casualty actuary and all of the actuaries, in general, should get a better understanding of
the nature and structure of financial instruments, and we are doing this also through continuing education means, through the
CAS. It is not going to be part of our core syllabus that we are going to test the actuaries on, but it is certainly something that
we offer to our membership through continuing education. Computer programming is also… modelling as well.
The task force also recommended a Evaluating and Advertising Program, which would be designed to describe the actuary as
creative and able to solve business problems. I believe that that actually is kind of an activity that is in the works with both the
SOA and the Canadian Institute of Actuaries, but we have to tell the world about what we can do and how well we can do it.
I mentioned that we came up with some case studies in these Task Forces that, I thought, I would highlight a little bit about.
We came up with a case study, talking about weather risk management, and weather risks for the casualty actuary. Here, we
are trying to deal with protecting revenue or profits for an organization that are sensitive to weather conditions. So what this
product would do is that it allows companies to hedge their weather-related exposures, and the customers that would typically
make user of weather-related, risk-management products would include utilities or municipalities or ski resorts or beach resorts,
golf course managers. The risks that they are generally trying to protect against include temperature variation or abnormal
temperatures or wind or snow or rain, river flow.
For example, let me give you an example of how this works. Suppose that there was a municipality that had budgeted $3 mil-
lion for all of their snow removal for the winter, and $3 million was budgeted to provide for equipment and labour costs, and
that would generally be used… typically, the $3 million would be used to remove 12 inches of snow. The municipality also
might know that every half inch of snow that falls in that winter is going to cost them an additional $250,000. So the solution
that they might look for and the insurance product that could be designed around that, is to buy a snowfall coverage, like a
cap option, that would pay $250,000 for every half inch above 12 inches, and it would be subject to some aggregate amount
of snowfall, say, 20 inches in the given season.
So the actuary is perfectly positioned to come up with a pricing for this type of a risk. It involves doing simulation, it involves
looking back historically and seeing how often we have had a snowfall above 12 inches, how often below, coming up with a
simulated probability distribution of that snowfall, and then pricing the product accordingly. So that is a typical case study that
deals with a very nice… it is not motor insurance, not automobile liability insurance, and it is quite different, but still using
the same skill sets.
Another case study that was developed where casualty actuaries had become involved is dealing with multiple triggers for an
electric utility. So this is where there is a loss if the power plants fail to produce power or are forced out of service and the cost
of purchasing replacement power on the open market is generally associated with this cover. Now, we have probably used this
cover on the East Coast this past summer. I do not know if the utilities throughout New York and Toronto and Cleveland had
this cover, but, here again, it involves an actuary’s skills set of doing simulation, coming up with frequency and severity, the
severity being the demand for electric power.

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We also talked, in these studies, about the role of the actuaries in public policy development. In the US, at least, the life and
health and pension issues had greater federal oversight than they had for the property and casualty issues because, typically,
property and casualty regulatory issues are dealt with at the state level. But we certainly can involve actuaries both at the state
level and at the federal government level anywhere, not just the US, but in Canada, to deal with issues like predicting what the
impact of tort reform would have on the cost of insurance, dealing with any of the catastrophe funds that the governments have
set up to cover medical malpractice or other windstorm-related events.
Also, recently, through the American Academy of Actuaries, we have started to get involved with trying to get some media
training and regulatory training of people so that they understand what the risks are, how the probability and severity of risk
would affect the ultimate outcome of loss.
Another fourth case study that we have gotten a write-up on is an issue of quantifying e-commerce risk. E-commerce is more
prevalent and e-commerce is a new coverage that some companies are purchasing to cover the failure of their websites, i.e., the
hardware, the software, hackers and the business interruption that results from any of those events.
So, as you can see, all of these various case studies do have a role for the actuary. They are non-traditional, but they deal with
modelling, stochastic testing and scenario testing. If you are interested in actually reading more about these case studies, you
can go to our website, which is www.casact.org; click on about casualties and go to the case studies.
I went to our website and did a quick survey of the employers of current CAS members, and tried to find employers that were
not on that traditional list. I saw a number of actuaries that are now employed by the investment banks or private equity firms,
involved on a lot of merger and acquisition work. I found two actuaries actually employed by law firms, and aerospace com-
pany, two actuaries were employed by claims, third-party administrators, an asset manager, rating agencies and also there were
management consulting firms, which is not the typical, technical role of the actuary. This is more of a general management skills
set. I actually know the actuary who is involved, and employed by this particular management-consulting firm.
I also mentioned that I would talk a bit about our centennial goal. The CAS will be turning 100 in 2014 and our Long-Range
Planning Committee has been focusing on what the CAS should look like for our members as we approach our centennial. In
all of the next eleven years, we are going to focus all of our committees on the steps that we need to take to achieve the long-
range goal that we have set for ourselves. The goal is this: The CAS will be globally recognized as the pre-eminent resource in
educating casualty actuaries and conducting research in casualty actuarial science. I think that we are the only actuarial organiza-
tion in the world that focuses solely on the casualty actuarial science. Also, the CAS members will be recognized as the leading
experts in the evaluation of hazard risk, the risks that I have been describing right now, and the integration of the hazard risk
with strategic, financial and operational risk.
So, when you look at the centennial goal, you will see that we talk about evaluation of hazard risk. That is really our traditional
practice so our centennial goal encompasses, traditionally, what the casualty actuary has been involved in. But then you will
notice that we talk about ourselves as being integrators, not the leading experts, but integrators, understanding how to take
those hazard risks and factoring in strategic risk, financial risk and operational risk, or what we would term, the enterprise
risk management functions. We see this now as being non-traditional practice areas currently for the CAS members and for
actuaries, in general.
So, in closing, I think that our centennial goal really takes the traditional roles of today’s casualty actuary and states that the
non-traditional roles for the casualty actuaries will be tomorrow’s traditional roles for us. So, in 2014, enterprise risk manage-
ment or the integration of hazard risk, strategic risk and financial risk will become traditional. As you can see, from prior, non-
traditional functions, we have just done that.
So thank you.
...(applause)...
Moderator Wason: Thanks, Gail. Just a moment here.

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Speaker Gail Ross: ...(off mike...inaudible)...
Mr. Neil A. Parmenter: ...(off mike...inaudible)... questions?
Moderator Wason: Perhaps we could just hold them to the end, Neil, if that is okay, but do not lose the train of thought.
So some Canadian reflections on the same topic that we started off with and, in the time-honoured manner of actuarial speak, let
is start with a bit of data, I guess, just to remind ourselves a little bit about the Canadian population, who we are as a Canadian
Institute of Actuaries. Currently, we have 2,605 Fellows, up 15% in four years. I actually did this analysis about four years ago,
on my presidential term, as I got started; 15% in four years is not a rapid growth rate, but it is edging up there.
Then, you have in front of you, I guess, the split of our active Fellows. You could obviously look at students as well for addi-
tional trends, but just to keep the data short, I have just focused on the Fellows. Of the total of the 2,605, 13% are inactive at
this time. They have been retired and whatever.
Then, the split of the active Fellows is shown below and, of course, for the purpose of this discussion, I think that we want to
focus on perhaps talking about the non-traditional and the non-actuarial roles that are played, 5% and 4%. You may be interested
to know that, when I put this data, these percentages, together, four years ago, the percentages have moved only very slightly
in that period of time, which is a statement kind of by itself.
It is just an additional piece of information. I know that we have folks here from far afield in the audience, and it is just interest-
ing to remind ourselves about where we are, geographically; 83% of Fellows have a Canadian residence on our database; 11%
in the US; and 1% from Hong Kong – hi, Cynthia; and 1%, bodily in the UK, yes; and 4% in all other territories, and I have
listed some of the more leading ones in the other territories category.
I guess that what I did, just similar to what Gail just mentioned, is that I did scan through each and everyone of the Fellows listed
in our Directory, in the non-traditional and the non-actuarial categories, which we can select for our ourselves on the database,
there are about 184 actuaries in that category. Just to try to get a sense – and this is not fully scientific, I did some skimming
here, I must admit – of what categories of work are those individuals in? Now, 35% I would classify as being in consulting and,
in a heavy-duty element of that 35%, I must admit, they appear to me as if they might be in the investment consulting arena.
That is not totally true, but a heavy dose of the 35% would be involved on some form of investment practice.
There were 25% who had insurers as their employers, despite the fact that they listed themselves as non-traditional or non-
actuarial. Now, here, that 25% would either be in the category of senior management. Don Stewart, for example, of Sun Life,
is shown as a non-actuarial Fellow at this time, although, a couple of years ago, when he was the appointed actuary, he might
have shown himself in a different category. The other major component, that I can identify, would be actuaries in insurers who
are active in the investment function in various ways, and they have shown themselves as non-traditional.
In this overall category, 12% worked for non-financial employers. By that, I mean that they are as diverse as Alcan, Bombardier
and L’Oréal in Paris, France – there is an actuary there. So that is interesting. Now, I did not quiz each of those actuaries as to
what they were doing in their livelihood with those employers, but I would presume that it was probably a healthy dose of being
involved in pensions and employee benefits, with those firms.
Then, 10% list themselves as actively being involved in funds management and some of them are quite senior leaders in various
investment funds management firms. The remainder – 3% each of these categories, are working in universities as our teachers
and active in the banks directly. Now, I put down this category. What I meant here was that they are working in banks, not in
the insurance sector of banks. I was able to discern who was in each of those categories: Investment banking and, of course,
software because there are a number of us who are involved with software firms.
So that is kind of a breakdown of whom we have in our database in non-traditional roles and non-actuarial roles at the present
time. I thought that you might find that of interest. It is always good to have facts or impressions or demonstrations or appear-
ances. The Society of Actuaries is (inaudible).

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Other interesting employers of Fellows – just a few that I picked out and they are just the ones that caught my eye – they have
a particular flavour to them, I recognized, as I wrote them down. In the Canada Mortgage and Housing Corporation, there is an
actuary there. Embrace Pet Insurance – that must be fascinating. I would love to have that individual be with us. Is she present?
No, okay. Just checking. There is an actuary, an FCIA, Anne Drouin, who works for the International Labour Organization,
based in Geneva, but actually, she travels around the world. She tends to focus on developing nations, where they are trying to
develop pension systems, social security networks in developing nations.
There is an actuary who works for the Asian Development Bank and a couple of us from the IAA were there a couple of weeks
ago just to talk about the actuarial professional and the ADB and the good work that they do in the Asia region. They were
actually quite keen to put forward money to help with the education of actuaries in the Asia region, especially markets where
actuaries are not active right now: Perhaps Vietnam and Thailand, I think, was another suggestion, but, anyway, do not hold
me to that.
We have one actuary, in particular, Don McIsaac, who works at the World Bank in a very senior role there and then a developing
topic, which I will get to further in a minute, we actually have an actuary who is active now in the Capital Markets Division of
OSFI, our federal regulator, which, I think, is interesting as we talk about convergence. But I digress because I will get to that
in a second.
So, just a bit of a recap, I have mentioned some of these comments already. My observations or reflections to you on the data
are that I have not seen a dramatic shift in employment practice areas for FCIAs, over the last four years. That does not mean
that we are not primed to make changes or to have changes happen to us. It is that that is just the status of the last four years.
It seems like there is a heavy involvement in the non-traditional/non-actuarial roles and investment-type functions. It appears,
from the data, at this point, that banks are not hiring actuaries, full Fellows, beyond their insurance operations. At the present
time, there is just a handful, maybe four or five, at this point, who are full Fellows on the banking side of things, but that could
be changing; however, that is just where we are at right now.
One thing that I have not studied in any of this, and it is important, I think, to reflect on it, and that is that I have been looking
at those actuaries in our database who would categorize themselves primarily as being in the non-traditional or non-actuarial
roles. How about all of the traditional actuaries, who maybe perform one element of non-traditional practice? This may come
up more frequently in the consulting area than if you work for a life insurance entity or a pension consulting firm. I do not
know, I have not explored this aspect. The reason why I bring it up is because, for myself, in particular, I work for a consulting
firm and, while my primary area of practice is life insurance, that is evolving into more and more risk management work, and
an interesting assignment, a year or so ago, was actually doing risk management with the world’s largest commercial printer. It
was a very interesting assignment and, indeed, thinking outside the box.
One particular anecdote out of that is amusing to reflect on. At the start of the assignment, the client came to us and said: Well,
this is what we would like you to do for us. This is the nature of the risks that we see in front of us and, by the way, you do not
have to worry about hedging or worry about the risk of natural gas price inflation because – in this, actually, you have to know
the printing, but, in the gravure printing process, you need natural gas to fire the drums that dry the ink – anyway, they said:
Do not worry about that price of natural gas because we have it hedged with Enron.
...(laughter)...
Their conclusions may have changed a little bit during the course of the assignment.
Just some reflections going forward, I guess. I have talked about the way that the data is right now. We, as actuaries, always
know: Okay, that is some indication of what might happen in the future, but let us just reflect for a minute. We have had very
rapid consolidation in Canada in the life insurance sector. I guess that, as I make these remarks, you are going to notice that my
background is financial services, and I apologize for not giving reflections on what might be happening in the pension sector,
but it is not my field so I think that I should leave that to others to give those reflections.


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Anyway, we have had rapid consolidation in the life sector. If you think mentally back to the slide where I showed 44% of Fel-
lows are in that sector, what implications might that consolidation have on that 44% number, over time? Well, I guess that, on
the face of it, it sounds not good; however, I would put forward to you that there are a couple of developments coming along
that might send the trend in the other direction and we may be able to continue to hold the line and have very exciting jobs for
actuaries, perhaps more than we have today, in the sector.
Development of risk management: I think that there is an interesting focus here. You have heard from Gail, from SOA. As well,
worldwide, there is more of a focus. It is a logical one for actuaries to play, but we need to move into that field and we cannot
just assume that it is there for us for the taking.
Evolving insurance IASB standards are going to be a challenge. Even though the Canadian, that we have right now, we hope,
will be close to the IASB standards, I am sure that there will be changes. I know that, already, there is significant, new thinking
about credit risk and fair value processes, themselves, and that is going to require some education, some research, some devel-
opment work within life insurance entities.
Financial sector convergence, I believe, is something that is a worldwide phenomenon. I did ask the question of Mr. Simpson,
this morning, as to what, he thought, might be happening in that area when Mr. Martin takes the reins, but it is a worldwide
phenomenon. I believe that what it will lead to is a more common approach as to assessing risk than we have had in the past,
for market, credit and operational risk. It does not necessarily have to be a global change. It is just a global influence. I think
that OSFI, of course, as a united regulator, and integrated, financial-services regulator, handling both the banks and insurers,
so it is at their discretion, actually. They could just come along and say: I do not like it when insurance and banking measure
risks in a different way. I would like them to be done the same way.
There are a lot of insurance and banking supervisors around the world, who are integrated and will be thinking along the same
line. I think that this is an opportunity for the profession to learn more and contribute more on some of these topics that I have
listed there. Bank insurance is a worldwide phenomenon, of course, very popular in Europe as well as Asia. It is not here in
North America to a significant degree. We have found other ways of going about it. Will that trend spread? If it does spread to
North America, then I think that that will lead to additional opportunities for actuaries.
Thinking about expansion of actuarial roles into the broader, financial-services field, I guess that the Society of Actuaries has just
completed a very significant effort about member and employer attitudes towards our possible expansion that bother financial
services. I was looking at the words that I actually chose to put up on the bullet point. They could be read a couple of different
ways. What I meant to say, in the second point, is that one of the results of the survey results – perhaps not surprisingly – but,
in the broader, financial-services sector, the survey said that employers did not have an inaccurate perception of the skills of
the actuary. That was encouraging. They know our strengths, but, nevertheless, they believe that there are additional skills that
we need. They know that we are strong in our quant skills, in our ethics – they rate them highly – but things that we need to
improve upon are business leadership and communication skills. One suggestion coming out of that work, which I am not
sure will be pursued, is perhaps that, should there be a consideration of an educational track that kind of combines MBA and
traditional Fellowship-type skills.
Other possible challenges, just in closing, I am going to rattle them off so I do not crimp our third speaker. Genomics in health
care, perhaps there was enough said from our speaker today, and you know the initiatives of the Canadian Institute of Actuaries
in the health care, that we need to be active in that field.
Risk management, a thrust for both the CAS, the SOA, is becoming more prevalent within our financial institutions here in
Canada. I encourage you to get active in learning about risk management. It is to begin sharing non-traditional work experi-
ences. You have the benefit of a number of other Associations here and in other countries in their work experiences. I think that
we need to sell the success stories of non-traditional work experiences and, more than anything, I would encourage you, if you
are able and willing, to take a chance, explore a new area, expand the profession.
Thank you very much.

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...(applause)...
Moderator Wason: Tom, over to you.
Speaker Thomas M. Ross: Thank you. I am only here for two days so I have kept my watch on UK time, which means that I have
really behaved myself. It is very nice to be here. It is always good to come to the Canadian Institute of Actuaries Meetings.
What I will do – because I know that there are some questions and I am sure that Neil has not forgotten his question – I will go
over two things quite quickly. I have one or two little anecdotes and examples, but, more than that, I want to sort of encourage
you to raise your eyes a little bit and maybe look a bit at history as to why we are where we are, and, if there are lessons that we
can learn, that may change things in the future. All that, I hope, and something to finish off in ten minutes or maybe a wee bit
more, but certainly time for some questions, without intruding into lunch.
But, anyway, right, two quick questions, first of all. First of all what do you lot do? Hands up, those of you who are in, as Gail
and Stuart basically described, as traditional areas. I will come back to whether I think that it is a good name or not.
Pensions, insurance, life and casualty into investment and that, and I suppose that being a President or a President-elect of the
Society is a non-traditional area so that is why you two are keeping your hands down.
Unidentified Speaker-M: ...(off mike...inaudible)... I am retired.
Speaker Thomas Ross: You are retired? Well, what did you do before? Oh, golly, if you call Presidents a retirement… hmm…
I see.
...(laughter)...
Speaker Thomas Ross: Right, so you are.
The second thing is: Were any of you at the last Meeting in Victoria, British Columbia? (hands up) You see, well done, Neil.
Did any of you go to the session that Chris Lewis, the President of the Institute, gave? Oh, good! Forgive me, but with Chris’
permission, I pinched a few things from him actually, as we go. Right.
Not too many statistics. We will bash on, but I will take you to see other countries than those that you have heard from, the
UK, South Africa and Australia. Very simply, currently, basically, this is the active practising Fellows, what are they up to? The
numbers that you are seeing are not hugely different from what you heard from statistics strictly from Canada. You know, they
are the same pattern. It is in Australia, there are interesting laws and they are the ones that seem to have gone further into other
areas. Why is that? Well, what happened in Australia, in spades, is the type of thing that, as Stuart was alluding to, might hap-
pen in Canada, in life insurance, particularly, consolidation and defined benefit pensions will almost disappear, not totally, but
through a compulsory defined contribution plan, which was introduced, I believe, in the 1990s sometime, and there has been
a rapid shift, as needs must.
I think that the other thing about Australia, that is quite important, is that they are a very young profession. Clearly, the CIA is
too; I mean, looking around this room at all of you Fellows, makes me distinctively elderly, but then that is because I am. My
grandson is actually eight years old today. I started fairly early, but there you go.
They are young and I think that they are quite an entrepreneurial block. There was an element of “needs must”, but I think that
their education system helped as well. An Australian living anywhere else in the world, the actuarial qualification, it is not en-
tirely, but it is very, very substantially a university education. I think that that is quite important as we go forward to adapt. Just
think back to your own days as a university undergraduate and graduate coming out of that at a time when the world is at your
feet and you are willing to try things and you do not have the constraints. My generation, like a lot of you, went to work for an
insurance company, probably life maybe general, all of the consultancies dealing with pensions and you get shoe-horned into a
side very quickly in the whole process of becoming an actuary. You have to stop and ask yourself: If you would have your time
over again, is that the best way to become an actuary, given the range of skills that you have, and now they can be applied?

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I would leave you with this question, and it is a question that all of you, who have youngsters in the profession, as you get more
involved in the profession yourselves, maybe you will be asking, and maybe we will be having to tackle when we get into office,
as you will, I hope, someday, in the profession.
What about the other? Very quickly, let us gallop through this. Well, generally speaking, of the other in the previous slide, health
care is the largest component and it varies by country, but actuaries are getting, even in the UK, with its National Health Serv-
ice, are beginning to get involved in health care. Australia has the greatest variety, for the reasons that I have given. Academic
actuaries are scarce wherever you look. I think that is probably true in Canada as well. I will come back to that. Looking ahead,
we should really be thinking about whether that is a good thing for the profession and its health going forward. So are bankers
and financiers pretty scarce in the field.
There is an equivalent to Don Stewart in the UK Don Stewart is somebody that I knew in my time in Canada, which was before
most of you were born, in the early 1970s. In fact, for a very short time, I think that he was a colleague, but it was very short.
He saw the light quite quickly, I think. Anyway, here is where he is now. This is the equivalent. Don Stewart is, obviously, pretty
old because he is about the same age as I am, but there is one in the UK, a fair bit younger – in fact, I marked his exams – a
chap called James Crosby. He is English, but he is a Fellow of the Faculty and he is the Chief Executive of one of the biggest
banks in the UK. He got up there through the insurance route so he is not really a banker, but he is the Chief Executive. I have
the odd session with James and we know each other quite well. Anyway, if I am going to feel in need of a lunch, he can well
afford to give me one.
...(laughter)...
But I want to learn as much as I can about why it is that the Halifax Bank of Scotland and other similar banks, which is a retail
bank, a commercial bank, Halifax was a very big mortgage business. I do not know what the equivalent would be in North
America, but they lend money to people to be able to buy houses – they were called building societies in the UK – and a whole
range of financial-services business, and it is a very successful bank. In fact, the two best banks in the UK – and some say in the
world – are both based in Scotland, you know, in a country with a population of five million: The Royal Bank of Scotland and
the Bank of Scotland, that are astonishingly successful banks. Great Export is a talent of the Scots. There is a saying about what
happens when a Scotsman immigrates to England is that it increases the average intelligence in both countries.
...(laughter)...
You are a lot quicker than most audiences in thinking of that one.
Anyway, I was saying to James Crosby: You know, what we need to do with the syllabus, with the skills sets of actuaries, given
that we know that we are good at cash flows and risk and all of the modelling – I totally agree with Stuart and Gail – are going to
be issues for the future, but to get people who have the right mix of skills to be attractive to you, as a bank. We had a discussion
on that and he said: Well, you do realize that – I mean, they are not really… he said: Look at me, I have climbed up to this. I
have not done an actuarial job for years. I said: Hang on a minute, James. You are the Chief Executive of this fine company and
you have huge decisions to take every day and, really, you are on your own when you take them. Now, tell me this, when you
think about the decision that you are going to come to, when you analyze it and all of the rest of it, does your training, as an
actuary, come into it at all? Do you think that it affects how you think about things and how you analyze it? Does it affect your
decision? He said: Of course, it does. I said: Well, you are doing an actuarial job when you stop and think about it.
We are far too chary and too limited in what we think about as actuarial. We do have a particular approach to issues, which
is transportable to other disciplines and my colleagues here have touched on some of them. So I think that we should be very
proud of that range of skills. But, once we think that the way that we approach problems is unique because of the training that
we have, we analyze the data, we model cash flows – these things – we do not speculate when things are based on rigour, then
you can see that what we do can be applied very widely under our examples. So, now, Mr. Crosby is going around the country,
again, saying that he is an actuary, which, I think, is a bit of a feat.


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So, very quickly on few things, coming back to Stuart’s point on risk, this comes from Chris Lewis’ slide in Vancouver. You
probably saw it, but you may have forgotten it, Neil. I think that it is worth remembering. Where risk and uncertainty exist,
actuaries can add value. That is not a bad strap line to remember, particularly, for you lot in pensions – and I am a pensions
guy – and one of the reasons that pension funds are in a mess, all over the world, the defined benefit ones, is because pension
actuaries were not very good at risk. Stop and think about that.
One thing that you will find, though, that actuaries working in other areas will all tell you, is that you have to get used to
working in multidisciplinary teams. It is true in regulatory stuff, that Stuart mentioned, it is true in some of all of the other stuff
that I will come to in a minute, that the Aussies have been doing, and, in fact, it is one of the rewarding things, I think, about
some of those other areas that actuaries get involved in, which is that one does work closely with other professionals. That is
very good because, in our little side of lives that many of us lead, we think that we are the masters of our trade and that there is
nothing much outside. It is very healthy, I think, to be working in multidisciplinary teams and seeing some of these problems
through different eyes.
I will come to the Australian examples in a minute, but I will run through them very quickly, and a couple of UK examples with
a lesson, I think. Right. Climate change is an Aussie one. Gail, you have touched on it already and I will not run through it,
but it is the same sort of issue and the same sort of implications. You can tell how much checking we did before we came here.
But, clearly, climate itself and how it may change has kind of a tremendous effect, not just on insurance issues, which Gail has
talked about, but on many other areas of commercial life, and it does lend itself to the sort of modelling that actuaries do. Some
Australians have gotten quite involved in this. Power generation and gas export are two examples that Chris gave. It is interesting
that there has been a lateral way of thinking that has encouraged actuaries to get involved in those sorts of areas.
Electricity markets – back to Enron again – basically there is volatility. We heard about it yesterday. Were any of you here yes-
terday to hear the Enron lady about ethics and all of that? Well, anyway, she talked about this. Volatility, supply and demand,
competitive markets with risks from both buying and selling sides, you can see their ability to apply actuarial techniques and
analyses to modelling that market and also to encourage the development of weather derivatives, which is something else that
you might think of for the snow, Gail.
Infrastructure investment – this is, again, the Aussies – they have been involved in major projects, which, again, it is essentially
about the modelling of cash flows, where there are competing claims for bits of these cash flows. If you stop to think about it,
it is quite like what we do in insurance fields, but elsewhere. I think that the actuaries, in Australia, for example, they provided
a bit of advice on the pricing or the money that they could charge for the television rights to the Sydney Olympics and I think
that they had a bit to do with some of the infrastructure in Sydney, ahead of the Olympics as well, where they created a great
big tunnel from the airport right into the middle of Sydney, which used to be an awful place to get into – I do not know if you
have ever been there – a lovely place. But now it is a lot easier to get into the middle. So you can see where these do fit with the
sort of analysis that actuaries can do.
Okay, that is that lot. This is a UK thing, and it is an example maybe of how not to do it, unfortunately. Risk analysis and
management for projects is the creation of a framework, in collaboration with the UK profession, with the Institution of Civil
Engineering. In the UK, I should say, not just this government, but the previous Conservative one as well, have been very
keen to move what were previously purely public-sector projects towards the private sector or to get a share in public-private
partnerships, clearly, the negotiation of where the risks lie and where they are (inaudible) important than this and was not re-
ally considered very closely. The profession, I think, of engineering worked towards creating a framework for addressing those
things, rather than the technicalities of it. The professionals on both sides think that it is fantastic, but the practitioners seem
to be slow to exploit it. I think that there is a bit of a lesson here in developing wider fields, as they are sometimes called, for
actuaries to apply their skills in.
But the profession can only go so far, and the UK has put a lot of effort of this kind into developing new areas for actuaries, but,
until you engage employers of actuaries in seeing it as an area of commercial viability, then, to some extent, it is a waste of time,
and I do not think that, in the UK, we have been that successful so far at getting those people, who are employing actuaries,
brought into the net on this and getting them engaged. I think that maybe it is because, well, maybe things with a major…
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particularly consultancies – I see that this is a member one of them – and life is almost a bit too cozy in their traditional fields
and then they are not entrepreneurial enough or maybe seeing far enough ahead, some of the threats to the traditional business.
But, anyway, that is the way that it is.
So quite a few of us are in banking and finance. Here is a quotation by an extremely eminent actuary, an honorary Fellow of
the Faculty: Looking back, it is difficult to understand why the approaches and solutions developed for today’s financial sector,
which are clearly orientated towards mathematics – or to be more precise, towards probability theory – did not originate from
the breeding ground of actuarial thinking.
In other words, if you cast your mind back a hundred years, actually, actuaries were at the leading edge of financial, of capital
markets thinking and financial thinking, all sorts of areas. If you go forward from there, I think that a betting person might have
said that actuaries or actuarial thinking would be dominating the world, the whole spectrum of finance, and it has not happened.
In fact, now, from certain things that we have heard already, we are trying to claw our way back into it. Others have overtaken
us and it is worth maybe thinking for a minute about why that might be, and there could be lessons for the next century, which
could be important for you younger people.
Here is another one. You have probably heard of this chap, John Maynard Keynes. In 1925, in the study of the capital markets,
right, and this is what Keynes said, in 1925: It is a task well adapted to the training and mentality of actuaries, not the less
important, I fancy, for the future of the insurance industry than the further improvement in life terms.
That is what Keynes said in 1925. Some actuaries did respond to that with papers, but it never really got off the ground, which, I
think, is a great shame. So, you know, if you were an actuary in the 1920s and you looked ahead, I mean, the opportunity there
would seem to be fantastic, and it has not really happened, if we are brutally honest with ourselves. Why not? Well, I think that
there are a few reasons. I will put them all up at once. Here are some of them.
One is that we were the people who were first good at probability theory, but we failed to do was to generalize it outside of
insurance. A hundred years ago, the only applications of probability theory were probably insurance and – also quite close to
my heart because I was hoping to get to Santa Anita for the Breeders Cup before coming here, but other pressures meant that
I could not – but the other problem with that was the gambling. That has all changed now, but the way that the theory was
developed by actuaries was couched in insurance jargon and was totally impenetrable to outsiders. What happened was that
academics, therefore, tackled it from another route. Now, much of finance theory has been dominated by non-actuaries and I
think that the fact was that we were so concentrated in insurance, and it was a nice cozy life to do it.
Another one, the third thing, is the nature of insurance in defined benefit pensions, where there is an awful lot of discretion
around the operation of those institutions through the bonuses of insurance and defined benefit pensions; well, it is not all
guaranteed, really, and it is just the best endeavours, by far, of theories around the world. But what that encouraged was actuaries
to… their thinking was dominated by improving how we could do things fairly between participants, rather than the sharp edge
of the maths that would be necessary if, in fact, these were very solid contracts, which is why I am thinking about banking and
so on, others to be thinking forward. I think that the thinking was just a little bit too easy and cozy in insurance, life insurance,
particularly, not so easy in general insurance, Gail, as in pensions. I think that that had something to do with the way that the
thinking in the actuarial world developed and why it has been overtaken.
The final point, which, I think, is immensely important, is that there has not been enough support for research. I think that the
employers of actuaries probably have to take some responsibility for this and actuaries themselves, I think, have not pursued
sufficient research. To me, we do not seem to regard our actuarial academics highly enough until perhaps recently, and I think
that much more effort needs to be put into research. There are one or two notable exceptions to that. I think that part of the way
forward for the profession… well one of the good aspects of the profession going forward, if we are going to have the place in
the community that we would really like, and prime risk, I should say that, while some of the Australian initiatives that I have
touched on are highly commendable, they are really one-offs. You know, they are interesting and it is good that actuaries are
doing these things, but, without wanting to be disparaging at all about them, they are not the sorts of activities that, themselves,
are going to form the foundation for a broader, vibrant profession.

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Where the research comes in is that I think that it makes the science a living science, rather than simply – you see, I think
that too much of our exams just now, it certainly could in the UK, I certainly think that it is too North America – are to create
people who are immediately useful for employment. Now, employers pay the subs. Most of you, your employers probably pay
a subscription so someone has to recognize that, but, as a profession, it is a high-level thing and it is more addressed to the
senior people here, but you will be senior people one day and it is important that you think about these things going forward.
The employers of actuaries, their time horizon of what is useful and how profitable these employees can be is a very short term,
it is a relatively short-term one, whereas, from the profession’s point of view in developing actuaries for the future, we have to
think over that horizon a bit. Winning the support of employers of actuaries to do that, through support, if we stop fundamental
research in the universities, I think, is exceptionally important for the future of the profession. You can do your bit in getting
involved with the profession itself and doing your bit of research, but, even more important, I think, is having more Universities
of Waterloo, which I do think that your university in Canada – those of you who are from Canada, in Waterloo – I think, is a
good advertisement for what might happen – or what should happen – for the future if we are going to revive the profession.
And Macquarie, in Australia, is another one. Mr. Macquarie, from a (inaudible) was born in Scotland; did you know that? There
you go.
So I do think that to really broaden into wider fields and to apply the skills that we have and to develop the skills that we have,
and not follow others as everything develops to come around the outside and overtake us in our thinking, we have to devote
more to research because we are a learning profession, although we all need to make a living as well, and striking that balance
is quite difficult. So I would like to see, frankly, more Waterloo Universities, but with concentrated centres of excellence for
actuarial science in more parts of the world.
One or two professional issues to finish with as we broaden our horizons, where do standards, discipline and peer review work?
Quite a controversial issue for the profession, where some practitioners, in wider fields, say: Well, if we were to adhere to all of
the standards and all of the professional paraphernalia, then it makes it hard for us to compete with those who are not actuaries.
I just kind of choose to take the opposite view, that being a member of a professional body and an actuary with your skills gives
you an advantage over those people who are not actuaries. Some of them, I agree, it is going to be possible that maybe they should
be brought into the profession in some cooperative way. I do emphasize, again, that, in all of this, we have to engage actuarial
employers and that is going to be a constant task in getting the balance right between creating the actuaries for the future, for
the long-term, health of the profession, and meeting the needs of the employers, which, as I say, are more short term.
I do emphasize, again, that the future health of the profession, if it depends on one thing more than anything else, it is devoting
the sufficient time and energy to research. I think that that is the trick that we missed in the 20th century, and I think that we
have paid a bit of a price in lost opportunities, as a profession, for it. Let us not do the same thing in the 21st century.
...(applause)...
Moderator Wason: Well, I see that we have just snuck over time a little bit, but we did start a little bit later. I was just wondering
if there was a burning question or two that we really should address. Neil, did you have one?
Mr. Parmenter: If nobody else does.
Well, all of you mentioned embedding business skills kind of in a curriculum in one way or the other and, yet, our employer
customers, who pay our dues, as Tom, said, and our candidates want shorter travel time and business skills faster. So how do
you reconcile all of this?
Speaker Gail Ross: The CAS is not embedding the business skills within the testing aspect of the accreditation. We are introduc-
ing it at every one of our measure meetings and our Loss Reserve Seminar, Rate-Making Seminar. So it is a continuing education
approach and we also offer some online courses and, at our meeting coming up in November, we have a separate afternoon
that is dedicated to some business skills, and we sell that out every time. So it will not increase travel time. It will just enhance
value for the actuary.


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Moderator Wason: Yes, please go ahead.
Unidentified Speaker-M: It is a question to the panel. I have always been interested in the research, but the thing is that you
start working and then you start studying for an exam and then you finish, on average, at 27 years-old. It is really hard to go
back to university, especially when universities do not even acknowledge that I am a Fellow. Do you know of any universities
that would give credits for that? Because we are saying that it is good to have research, but, on the other hand, if the university
is not able to come a bit forward and attract these Fellows who might be interested in going back, if you have to start from
scratch again, if you know what I mean, it is going to take another five or six years without a salary and without anything. I was
just wondering if universities are looking for Fellows to be future researchers.
Speaker Thomas Ross: Well, yes, I think that they are, universities like the Heriot-Watts, in Edinburgh; the City University, in
London; and the University of Waterloo are, although I think that many of the finest teachers and the finest minds in Waterloo,
with apologies to the likes of Harry Panjer and Rob Brown, are not qualified actuaries.
I think that it does come back to what we think the qualification itself stands for. I think that we do stuff too much stuff into
the syllabus, and this is the travel-time point, which, to me, is not really essential for being a good actuary who understands
the principles. What we are doing, in fact… I mean, I do not really have sort of a campaign here against employers, and I know
that we have to listen to what they say, but we do, as a profession, I think – I can talk mainly for the UK – we provide what
effectively is a lot of staff training, which employers, otherwise, would be providing themselves.
So any employer, who moans to me about the cost of the fees that they pay for their actuary members, I say: You look at the
power that you are getting. I think that the same point applies, incidentally, in the business skills. Yes, business skills are im-
portant, but they are not unique to actuaries and one should ask the question then: Should they be part of the travel time or
something additional to that, which those who are interested can do?
Now, getting the travel time down is partly the answer to your question, I think, that we do really expect people to have rather
too much specialist knowledge, which is really just assimilating – well, it is more than assimilating facts, I have been a bit unfair
– but it is not much more than that. You know, if you have demonstrated that you are bright enough to do it, then you go and
do it, once you have your qualification. If you do not need it, you do not do it.
I think that there needs to be a radical look at that. From my own part, a bit controversial, I would like to see the day when you
can graduate from university with a Masters degree and be regarded as a fully-fledged actuary, and then you go straight into
research, if you need to. That is the real answer and, when your time comes, that is what you should fight for and, if you find
it difficult, maybe the generation who comes after you will find it easier.
Moderator Wason: Yes.
Unidentified Speaker-M: My question has been out there throughout the whole course of this session, but Tom alluded to it in
his last slide here. As far as the emphasis on professionalism amongst the actuarial bodies, as we expand the scope of the defini-
tion of actuarial services, is there a game plan in place or at least a thought process beginning to develop as to how we develop
standards of practice and basically look at the professionalism? If the hallmark of a profession is self-governance, self-discipline,
how do we go about providing standards of practice, peer review, discipline, counselling for people practising in non-traditional
areas if those now fall within the realm of actuarial services?
Moderator Wason: It is an excellent question and an important one because there is a bit of the Enron story. One of the mes-
sages that I got out that whole session is that small blemishes that become very public can taint a profession fairly quickly, yet,
on the other hand, with all of that sort of caveat, we need to experiment, we need to research, we need to think of new fields.
Then your question becomes applicable as to how does one does that prudently, as a profession. Of course, we always have a
code of professional conduct, and different names and different jurisdictions, and that is the starting point.
I think that one of the ways that we can promote non-traditional practice is just awareness. It is a very basic one. It is aware-
ness, the sharing of information and experiences. Other actuaries do this work and then begin, at a very basic level, discussion

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groups to enable members to get in touch with other members, perhaps in different countries, who are practising in that type
of work. Then, as that practice expands, there will be the need for standards, yes.
Unidentified Speaker-M: I have a follow-up here. As both an actuary and a lawyer, in practising with the law firm, I have begun
to see the scope of professional liability expanded. I guess that my question is rooted partially in the concern that, as non-tradi-
tional areas of practice become actuarial services and, therefore, standards and the whole gamut of professional liability applies,
actuaries, in non-traditional areas could be very vulnerable to professional liability.
Speaker Thomas Ross: Yes, I understand your point, although, in this day and age, I suspect that you are vulnerable to profes-
sional liability whether you are a member of a professional body or not, which sounds like a bit of a trite response, but it is a
real point.
Going back, I wanted to just say a couple of things about your original point. It seems to me that, where professional conduct
standards are concerned, there is not really a problem, provided that your conduct standards are drafted in a way which sticks
to sensible principles without drilling down into behaviours that apply, in particular, to traditional fields.
When it comes to things like peer review and maintaining, not so much the conduct standards, but the standards of work that
are delivered, then I think that a challenge for the profession, in addressing this, given that we are all accepting that peer review
is important, is one maybe to go away and ponder over lunch: Should we, as professional bodies, be prepared to accept, as
part of our peer review system, an input from people who are not true members of our professional bodies? Because, as I say,
these often are multidisciplinary issues, a difficult one for professions to swallow, but what they also encourage, going forward,
I think, is greater collaboration and cooperation between our profession and other professions. We do not have a monopoly of
skills in a lot of those areas. We sometime pretend that we do, but we do not, and we are not going to get into those fields by
kicking existing people who are doing these jobs either because they probably do them better than we do.
What we should be thinking of doing is putting our arms around those people, having a relationship with GAAP and folks like
that, being prepared to accept some of their qualifications as credits for us, and having these sorts of relationships. I think that
that is the way that the professional standards side, peer review and all of the rest of it, will ultimately be accommodated. I am
very quick on this because the very question came up at a debate that there was within the UK profession, a couple of weeks
ago. It is a good question.
Moderator Wason: Thank you very much. You have been an attentive audience. Could you join with me in thanking the speak-
ers for their presentations today.
...(applause)...




Délibérations de l’Institut canadien des actuaires, Vol. XXXV, no 1, novembre 2003

								
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