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					162 • AUGUST 2011




                                                            Australia




                    Long Term Care Insurance in Australia
                    The People’s Champion – John Walsh
                    Solvency II and ‘LAGIC’
                    Private Health Insurance
                    Good Public Policy
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diary dates 2011                                              contents
                                                         5    Long Term Care Insurance in Australia
                                                              – A Long Time Coming?
                                                              RepoRT – Bridget Browne

31 Aug        Ernst & Young,     Young Actuaries         8    The More the Better...
              Melbourne          Program – A Ramble           pResidenT’s ColUmn – Barry Rafe
                                 Through the Actuarial
                                 Countryside             9    Actuary Unearthed
                                                              exposé – Ming Tan

13 Sept       Dockside           Fellowship and          10   The Actuarial Pulse
              Sydney             Graduation Dinner            sURveY– Dave Millar

20 Sept       Swissôtel          Enterprise Risk         13   Enterprise Risk Management Seminar
              Sydney             Management Seminar           – 100 kph through the Minefield
                                                              evenT noTiCe
                                 – 100 kph through the
                                 Minefield
                                                         14   The People’s Champion
                                                              – John Walsh
29 Sept –     Zagreb             IAA meeting                  inTeRvieW – Yolanda Beattie
2 Oct         Croatia
                                                         16   Solvency II and ‘LAGIC’
                                                              RevieW – Trang Duncanson / Michael Stumbles
6 Oct         London             Presidential Dinner
                                 – David Goodsall        18   Private Health Insurance – Dealing with
                                                              Uncertainty and Instability
                                                              CommenT – Peter Carroll
10 - 13 Oct   Kuala Lumpur       East Asian Actuarial
                                 Congress (EAAC)         22   In the Margin
                                                              pUzzles – Genevieve Hayes

20 - 22 Nov   Sofitel Brisbane   13th Accident           23   Surviving Your Annual Performance Review
                                 Compensation Seminar         Meeting
                                 – Changing Times,            moRe ThAn mAThs – Martin Mulcare
                                 Continuing Needs
                                                         24   Good Public Policy – Institute Involvement in
                                                              Public Policy Debates: How it Benefits Actuaries
                                                              RevieW – Rick Shaw / Rebecca Johnstone

                                                         26   Young Acturaries Program
                                                              RepoRT – Keri Lee

                                                         28   Education Update
                                                              edUCATion – Philip Latham

                                                         29   Hunting for Treasures – ASOC Camp
                                                              sTUdenT ColUmn – Lucy Jing

                                                         30   Members Survey
                                                              RepoRT – Philip Latham

                                                         33   Letter to the Editor
                                                              leTTeR – Dave Millar

                                                         34   Welfare Working Group – New Zealand
                                                              RepoRT – Charles Hett

                                                         36   Accident Compensation Seminar
                                                              evenT noTiCe – Registration Now Open

                                                         37   On Failure...
                                                              Ceo’s ColUmn – Melinda Howes




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




        Actuaries Flying the plane


       N
               ow while actuaries are considered detail people,                         How enticing can it be to get caught up in an issue? And not step
               I saw a video recently which made me think have                          back and take a look at the big picture?
               we got the balance right? (http://www.youtube.com/
        watch?v=ICqPGkto3Yo)                                                            Or invest a lot of time and effort going down one track – where
                                                                                        another option might be available? Maybe not as theorectically
        It was about Eastern Air Lines Flight 401. The incident occurred                pure, but it will get us most of the way there. In the example
        in 1972, when a nose landing gear indicator light was not                       above the landing gear could have been manually locked down
        showing the landing gear as locked down.                                        – problem solved.

        Everyone got involved in trying to figure out the problem with                  As actuaries, are we guilty of the above traits in our work?
        the light. While this was all happening the autopilot disengaged.               Should we be stepping out more from the immediate details
        The plane slowly started to descend over a few minutes. You                     to fly the plane? What else can we all do on the bigger picture
        can guess the end.                                                              issues we face e.g. flood insurance, fire levies, underinsurance,
                                                                                        obesity, systemic market risks, short-term investing, adequate
        The point is that everyone was so focussed on this issue that                   retirement income levels, integrated retirement income systems,
        they did not notice the autopilot disengage. They did not hear                  superannuation fund governance. In this edition we have a
        the altitude warning sound and the engineer, whose seat the                     number of examples of people flying the plane: John Walsh,
        warning sound was below and therefore most likely to hear it,                   Melinda Howes and Bridget Browne. So I challenge you, are you
        was away from the cockpit trying to literally see if the landing                flying the plane or stuck looking at that damn light? ▲
        gear was down.
                                                                                        James Collier
        This incident changed the way that air crews operate. Now                       editor@actuaries.asn.au
        there must always be somone who is focused on flying the
        plane while problems are managed by other crew members.                         Catherine Robertson-Hodder
        Sounds like a business doesn’t it?                                              editor@actuaries.asn.au




     Actuary Australia
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      James Collier Editor: editor@actuaries.asn.au                                     www.actuaries.com.au or email: actuaries@actuaries.asn.au
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                                                                                        Disclaimer Opinions expressed in this publication do not necessarily represent
      Katrina McFadyen Communications & Member Experience Manager
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    AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                           report         5




long Term Care
insurance
in Australia
    – A long tiME CoMing?
This article is based on a presentation given at the Biennial
Convention in Sydney in April 2011.




i
      have recently returned to Australia after 12 years living in
      Canada, the UK, and for eight of those years, France. They say
      travel broadens the mind, and in my experience this is true. In
      particular, I have experienced the nasty shock of realising that if
you don’t see different ways of doing things, they are seriously difficult
to imagine ‘out of the blue’. I would like to illustrate this using the case
of Long Term Care insurance.

I first came across Long Term Care (LTC) insurance products while
working in France. The product there has been a major success story
– the game-changing product equivalent to the introduction of trauma
insurance in Australia. So, of course, my interest was piqued.                  My initial reaction, which I think would be totally representative of
                                                                                the ‘average’ Australian, was “Why would someone pay a level,
How does it work?                                                               lifetime premium for a product with no surrender value that may
Here’s a summary of the main characteristics of the product sold                or may not pay out a benefit shortly before I die in 30 or 40 years’
to individuals.                                                                 time? And if it doesn’t happen I get nothing back! Especially”,
                                                                                having put my actuarial hat on “when the premium’s not even
●   Lifetime level premium, depending on age at entry, but often                guaranteed.” Well, in France they have – in droves. Estimates vary,
    not gender differentiated (seems they were ahead of their time).            but according to the French insurers’ federation (FFSA), some five
    I have never seen it differentiated by smoker status.                       million people have some form of private LTC insurance – out of a
●   Fixed monthly benefit on meeting the definition of Dependency.              total population of over 63 million of which around 14 million are over
●   Wide variety of definitions, often combining French State                   60. So, I spent some time looking into the possible reasons for the
    assessment (AGGIR scale) with Activities of Daily Living (ADLs).            relative success of the product in France compared to the situation
    Some differences in practice regarding the requirement for                  in Australia and learned plenty along the way – especially about
    permanence.                                                                 ‘unknown unknowns’.
●   Partial and Total levels of dependency leading to a lower and
    full level of benefit (eg EUR 3,000 per month if cannot perform             To give a very brief global overview: reasonably developed private
    five or six out of six Activities of Daily Living, half of that if cannot   LTC insurance markets exist in several countries apart from
    perform three or four out of six ADLs).                                     France (the US, Israel, Germany and Japan are quite developed,
●   No surrender value.                                                         while Spain and Italy have just recently developed products). Two
●   Reduced ‘paid-up’ benefit available after payment of at least               countries where a private insurance market does not exist are
    eight years’ premiums.                                                      Australia and the UK, although there are many others.
●   Premiums and benefits escalate with profit participation results.
●   Premiums are non-guaranteed, ie fully reviewable at the                     Why does it work in France?
    discretion of the insurer.                                                  Here are some telling examples from a recent presentation by
●   Waiting period of usually one year for non-accidental dependency            Brom & Fischer at the Geneva Association’s 7th Health & Ageing
    and three years for neurologically caused dependency (e.g.                  Conference in November 2010. The image shows the outgo (in
    Alzheimer’s).                                                               terms of fees to a retirement or nursing home), the average state
●   Entry ages usually around 40 to 70 years of age.                            support coming from retirement income and the ‘top up’ allocation



                                                                                                        A C T U A RY A U S T R A L I A ■ August 2011
6       report
    ▲



    (APA) provided if you have reached a certain level of dependency,                                   France. France is a Civil Law country, as opposed to Australia, which
    and the remaining out-of-pocket expense per month. Just to clarify,                                 is a Common Law country. This is the source of many differences
    retirement income in France is almost entirely funded through State-                                in practice between the two counties – including actuarial practice
    sponsored, rather than employer-sponsored, programs.                                                (a whole other story) – but it means that inheritance law is effectively
                                                                                                        codified. You don’t decide who gets what – this is laid down by law.
    LTC Insurance in France                                                                             Your children inherit, your spouse only gets lifetime use of your legacy.
                                                                                                        Hence, parents and (adult) children have legal rights and obligations
                                                                                                        to each other, and the drive to protect the inheritance is high.

                                                                                                        The power of the bancassurance network
                                                                                                        Finally, something that France and Australia have in common! It
                                                                                                        was cited to support the development of LTC insurance because
                                                                                                        salaried bank sales forces were encouraged to promote and sell
                                                                                                        the product.

                                                                                                        The weakening of family ties
                                                                                                        France is still recovering from the shame of the 2003 heatwave, when
                                                                                                        14,000 elderly French people died. It happened during August – the
                                                                                                        traditional summer holiday period when many businesses, including
                                                                                                        medical facilities, shut down or operate on a skeleton staff. The
    When exploring some of the reasons for the success of the product,                                  people who died were mostly living alone without immediate family
    without explicitly identifying the issue above (because it was too                                  support and just didn’t know to keep themselves hydrated. Part of
    obvious to them to be worth stating, in my opinion), colleagues and                                 the backlash focussed on the loosening of traditionally fairly close
    other local experts came up with the following:                                                     ‘Latin’ family support networks. The connection with LTC comes
                                                                                                        from the desire not to be a burden and maintain independence.
    France: a financially prudent nation
    The French are astonishingly financially conservative when viewed                                   Activities of the State and regional bodies
    through Australian eyes. Their traditionally high household savings                                 Colleagues have told me that the creation of and publicity around
    ratio tells part of the story, but while living there I learned:                                    the state benefit have generated awareness of the risk of long
                                                                                                        term care and its financial impact. This is supported by the
    ●    Credit cards are not that common and tend to be offered only                                   experience in Spain, where the creation of a social security system
         as store cards.                                                                                for long term care led to the launch of a private LTC product by all
                                                                                                        major insurers.
    ●   Home mortgage durations have recently been extended from
        the standard maximum of 15 years to 20 and occasionally 25                                        Why doesn’t it exist in Australia?
                           Figure 1         Current modes of care in the aged care system
        years – and they are nearly universally at a fixed rate for the                                        “International comparisons are often difficult to make but
        duration of the mortgage.                                                                                  anecdotally at least, Australia is regarded as having one of the
                                                                                                                       best aged care systems in the world. This is, perhaps, best
    ● Home equity loans only became legal in 2006 when                                     Palliative and                   interpreted in an overall sense rather than a consideration
                                                                                           end of life care
        Jacques Chirac argued for “unlocking the sleeping                                                                       of any one aspect of aged care. … it is fair to say that
                                                                                             Acute, post,
        equity” in residential property. A colleague at the                                  sub-acute &                           in Australia, almost every form of care and service is
                                                                                Extended transition
        time commented to me about what a bad idea                             Aged Care at      care        High level
                                                                                                                                       available, or potentially available, to the entire older
                                                                             Home programs
        he thought this was: “People will only go and                       (EACH & EACH-D)              residential care                  population, with a markedly high level of quality
                                                                                                            Ageing in place
        spend the money on a car or a holiday”. I                                                                                              and affordability.” – Productivity Commission
                                                                       Community           National Respite
        thought “and your point is?”                                                              for                Low level                      2011, Caring for Older Australians, Draft
                                                                        Aged Care          Carers Program        residential care                      Inquiry Report, Canberra Joint submission
                                                                        Packages
    Protection of the legacy/inheritance                                                                                                                   from ECH, Eldercare and Resthaven
    This was cited very often as a reason                                                                                                                     (sub. 453, p. 4)
                                                                                  Service integrated housing
    for purchasing LTC insurance. It                                                      for older people
                                                                                  (Retirement villages incl. assisted
    was an expression I had honestly                                               living apartments, group housing,                                              The diagram (left) describes the
                                                        Services to                               etc)                       Services to substitute
    never really heard in Australia.           supplement carer support                                                             for carer                        structure of the delivery of aged
    Of course, the bequest                        (Home & Community Care,                                                  (domestic care, social support,              care services in Australia
                                                 Veterans’ Home Care, Carer                                                   Home & Community Care)
    motive (to use its official                   Allowance, Carer Payment)                                                                                               today. There are currently
    name) exists in Australia,                                                                                                                                              over one million people
    but it turns out there                                                                                                                                                    receiving some service,
                                                                                              Carer not
    is another reason                       With carer co-resident                                                               Living alone without carer
                                                                                                                                                                                at a public cost of
                                                                                            co-resident
    for the apparent                                                                                                                                                               $10 billion per
    strength of this                                          Living in the community with activity restriction but without formal services                                          annum. Of this,
    motivation in                                                                                                                                                                      160,000 are in


    AC TUARY A U S T R A L I A ■ August 2011
                                  Government-subsidised services are provided to over one million older people and
                                  their carers each year, with more than half receiving low intensity support through
                                  the home and community care program. The number of higher level community
                                                                                                                                             report        7




                                                                                                                                         ▲
residential care, at a public cost of $6.7 billion p.a. and a total cost        non-existent as that in Australia. Clearly language, culture and
of $10 billion p.a.                                                             history make for long-lasting differences.

If we now turn to the table below we see the proportion of the costs            Interestingly, when considering financing structures for the cost
of each option that is funded publicly or privately.                            of long term care, the Productivity Commission report came
                                                                                down firmly on the side of the “this risk is uninsurable” camp.
Table 6.6 Aged care services funding by funding source                          So, in the following table I take each of the reasons cited by the
                                                                                Productivity Commission and provide a possible riposte from the
                                      Ave public $     Ave. private     Ave.    French approach.
                                      per recipient    contribution     Gov.
                                        in 2010             %         share %    Reason given for               How does the French product
                                                                                 uninsurability                 address this?
Residential high care                   51,550             26       74
                                                                                 CfOA Draft report p215
Residential low care                    20,150             53       47
EACH packages                           39,250              4       96           Individuals have lack of       The French are inherently financially
EACH-Dementia packages                  43,450              4       96           knowledge about risk of        conservative, place a strong
CACPs                                   12,700             10       90           needing care, competing        emphasis on planning ahead and
HACC                                                        5       95           priorities and difficulty      know they face potentially high
Other Australian Government            Variable           No       100           predicting care needs.         out-of-pocket costs.
programs (for example, National                       compulsory
                                                                                 Affordability, especially      Insurers encourage take up at
Respite for Carers)                                   contribution
                                                                                 when delaying decision to      younger ages and the introduction
                                                                                 later life.                    into Group schemes during working
Tables sourced from Productivity Commission 2011, Caring for
                                                                                                                life is reducing average entry age.
Older Australians, Draft Inquiry Report, Canberra (EACH, CACP and
HACC are all types of care package provided to people in their own               Low incentives to insure       Is this the key difference?
homes. In particular, Home and Community Care represents Meals                   due to the existence of        Inheritance laws and means testing
on Wheels and other in-kind services that enable older people to                 safety nets.                   mean the incentives are sufficient.
maintain independence for as long as possible).
                                                                                 Long term incidence and        Participating products with
The private share of residential low care is 53%, comparable to the              duration uncertain.            reviewable premiums and benefits
EUR 400 out of EUR 1,800 or 22% paid out-of-pocket in France for                                                are the traditional actuarial
moderate dependency. For residential high care the figure is 26%,                                               mechanisms for addressing this and
which can be compared with 55% in France.                                                                       are used in the French product.

                                                                                 Adverse selection.             Medical and other underwriting
However, I would make two further observations here:
                                                                                                                is performed. Rating, declines,
                                                                                                                exclusions and waiting periods are
1. Selling the family home to finance the private share of care would
                                                                                                                used to manage the risk.
   seem to be much more culturally acceptable in Australia than it
   is in France, partly related to the inheritance laws mentioned
   above. Hence, the financing of this contribution may cause less              To conclude, I think the actuarial skillset is ideal for coming to grips
   cash flow strain in Australia than in France.                                with some of the challenges of long term care financing, whatever
                                                                                the framework may be. The issue is long term by its nature and
2. The proportion paid privately for the other types of care, for               fraught with uncertainty – areas where actuarial skills should be
   those who remain in their own home and who represent the                     at their best. While the Institute did not respond formally to the
   vast majority of recipients, is nominal in Australia (between 4%             recent call for submissions to the Productivity Commission inquiry
   and 10%). This is not the case in France. There is beneficial tax            Caring for Older Australians (although there was an offer of further
   treatment for home services but they are not financed by local               discussions regarding the Commission’s current work on Disability
   authorities to the extent they are in Australia.                             Care and Support), individual actuaries did provide submissions.
                                                                                I believe that actuaries must play a role in advising stakeholders on
My initial reaction was that the different attitudes to this product were       how best to manage this complex issue, irrespective of whether a
just ‘short term’ Australia versus ‘long term’ France; or ‘she’ll be            private insurance product is part of the future framework. The final
right’ Australia versus a more prudent France. However, it was only             report into Caring for Older Australians has been completed and
when I understood how the French Social Security and inheritance                was sent to the Australian Government for its consideration on
laws worked AND how the Australian system actually works that I                 28 June. It should be released towards the end of
started to grasp how different views and approaches were on these               July and I would recommend it as a rich source
issues, which led to these different outcomes. I was able to confront           of opportunity for further stimulating challenge
my ‘received wisdom’ with some quite different facts.                           for actuaries. ▲

Not surprisingly, these differences are not really a question of                Bridget Browne
distance: the private LTC insurance market in the UK is just as                 bridget.browne@anu.edu.au


                                                                                                        A C T U A RY A U S T R A L I A ■ August 2011
8   president’s column




       The more the better...



    i
         had an interesting discussion with a member the other day             over half of these will be new Fellows. Should we be managing
         where he expressed concern about the apparent number of               supply or should we have confidence that these new actuaries are
         new actuarial graduates who could not find a job. I had not really    all smart enough to find their own place in the sun?
         thought about this before.
                                                                               Not all new graduates will find a traditional actuarial role just like
    When I was a student I was convinced that Council actively managed         not all new law graduates will work in law, the issue I think is that
    actuarial supply and demand and that this was why the pass rate            the actuarial qualification is a good foundation for many roles. If
    was so low, and more particularly, why I was failing! There is a certain   we, as a profession, want to build critical mass outside of the
    logic to managing supply and demand. I understand that some of             traditional actuarial areas then we need to make sure that we keep
    the medical specialties do actively manage supply in cahoots with          supplying good quality actuarial graduates to the market.
    the Government. The logic is that too many specialists risks over-
    servicing and hence uncontrollable increases in costs of healthcare.       The point however, and this was the concern of the member who
                                                                               called me, is that we should not be attracting new students into
    The Institute does not have a policy of attempting to match supply with    the profession on a false promise. I agree that we need to make
    the demand for new actuaries. In practice, it could be argued that the     sure that we make it clear to prospective students that we cannot
    Institute has little control over the number of new actuaries because      guarantee that there will be a choice of traditional actuarial roles
    the vast majority of senior students pop out of the universities. I        for them. What we can guarantee is that they will be members of
    understand that there are around 400 actuarial students starting           a well-respected profession and have a set of unique skills that are
    university courses each year. Around half of these are international       in demand across a growing number of organisations. In fact, the
    students, i.e. full fee paying students. The universities are keen to      whole concept of ‘traditional actuarial work’ is one that is holding
    increase the number of students because it is very lucrative for them.     us back I think.

    Council does approve the accreditation of universities and we              From now on let’s agree that there is no such thing as traditional
    recently accredited Curtin University of Technology in WA mainly           actuarial work and that we are in the business of risk management.
    because of a potential shortage of new actuaries in WA. Interestingly,
    a number of students are now working in the mining industry.               One of the biggest strategic threats we face at the moment is
                                                                               that we require around 300 volunteers for each round of exams.
                                                                               This situation is unsustainable long term and Council will consider
                                                                               a paper at its September meeting to reduce the number of
                                                                               volunteers we use to run the Part III exams. We have had input
                                                                               from a number of educational professionals and have learned from
                                                                               other professional organisations. The trick is to reduce the number
                                                                               of volunteers whilst maintaining standards. Ideally we also would
                                                                               like to increase the pass rates without materially increasing costs
                                                                               to students and employers.

                                                                               By the way, I should kill a myth that has been doing the rounds for
                                                                               a while, namely that we make more money out of students than
                                                                               Actuaries and Fellows and this bias incentivises the Institute to
                                                                               keep pass marks low. Notwithstanding the fact that our accounts
                                                                               are a bit confusing on this matter I can categorically state that the
                                                                               education function is aimed at being break even. The financial
    The view that Council takes is that we shouldn’t manage the                incentive is to actually increase pass rates. ▲
    number of new actuaries, our main interest is promoting the
    profession and maintaining the quality. This year we will be running       Barry Rafe
    three professionalism courses with over 150 new actuaries. Well            barry.rafe@actuaries.asn.au


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




Ming Tan
Title…                                      was fairly prohibitive so Business/
Pricing Actuary, Group Risk                 Commerce was the more affordable
                                            option. I then chose Actuarial Studies,
Organisation…                               albeit having only some vague ideas
Munich Re                                   what it was back in high school, and
                                            also because it’s not accounting               My proudest career achievement to date
My favourite energetic pursuit…
                                            and ‘Actuary’ sounded better than              is…
Badminton, but nowadays, it is getting
                                            ‘Accountant’!                                  Getting my FIAA was great, but still
harder to find that energy and time with
                                                                                           couldn’t top the pride of having all eight
two kids!                                   Where I studied to become an actuary...        final-year secondary school students
The sport I most like to watch...           University of Melbourne                        under my tutorage significantly improved
Badminton if the media stations would                                                      their grades in the subjects I taught and
                                            Qualifications obtained...
ever broadcast it, but I would settle for                                                  graduated into top high schools
                                            BComm (Hons), FIAA
tennis
                                                                                           The most valuable characteristic an
                                            My work history...
The last book I read (and when)...                                                         actuary can possess is…
                                            Business Development at Hannover Life
Must not have read one for ages as                                                         Perception
                                            Re, Valuations at Commonwealth Bank
I can’t even remember that last one.        plus Pricing & Product Development at          If I was President of the Institute,
I am still going through the APRA capital   John Hancock Life (in Malaysia). An even       I would…
review proposal!                            longer history would also include cashier,     Not want to be handing out graduation
My favourite artist/album...                cook and cleaner at a fast-food outlet, a      certificates at the President’s Dinners.
Don’t have one. I like most instrumental,   retail fashion stockist, and a private tutor   Maybe the graduates’ employers should
classical, new age or acoustic music        for secondary school students                  have that honour?

My favourite film...                        What’s most interesting about my role...       My most important decision…
Don’t have one either. As long as it’s      Working closely with people across all         Making the decision to pursue a career
enjoyable                                   levels of management, dealing with             in Sydney
                                            clients, balancing actuarial results
My interesting/quirky hobbies...            with commercial reality and building           I’m most passionate about…
I like photography and art, but my kids     business relationships                         Finding that balance between working
dominate my camera nowadays                                                                hard and enjoying life (which will
                                            My role’s greatest challenges...               definitely include fine food and wine)
The person I’d most like to meet...         They are also what I found most
Jack Welch                                  interesting! Perhaps one other great           I’d like to be brave enough to…
                                            challenge is building mutual trust with        Go sky-diving
What gets my goat…
Incompetence                                your clients in a ‘cut-throat’ industry        In my life I’m planning to change…
                                            Who has been the biggest influence on          For the better
What I wanted to be when I grew up...
When I was in primary and secondary         my career (and why)...                         At least once in life, every actuary should ...
school, I considered a path in medicine.    Don’t think there has been any single          Work in a sales role
When I was in high school, I somehow        biggest influence so far, but there have
                                            been many positive ones... a nudge from        My best advice for my children...
developed an interest in neuroscience
                                            family to consider a career in business,       Listen carefully, watch closely, learn the
and decided I could see myself as a
                                            another nudge from friends in high-            techniques, understand the principles
neurosurgeon...
                                            school who knew better than me about           and apply
Why I decided to become an actuary...       what an actuary does and challenged me         Four words that sum me up...
I realised how long and expensive           to become one, the tremendous support          Motivated, down-to-earth, perceptive,
it would be to become a doctor/             from my wife to persevere through              organised ▲
neurosurgeon. At that time, I was an        the exams, and the opportunities and
international student and the currency      recognition given by my employers ever         Ming Tan
exchange rate to study/live in Australia    since I started my actuarial experience        MTan@MunichRe.com




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

      The Actuarial



     Pulse
     Next Survey New questions will be available in Sepember 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.




                                                                                 and staff benefits and everyday perks rated very lowly (over 80%
                                                                                 indicated these as their lowest and second lowest preferences). It also
     What would you like to know? If you have a question you would               came as no surprise that positive teams and managers you respect
     like to put to the membership, email it to editor@actuaries.asn.au          rated highly. It is interesting, however, that the lack of these everyday
                                                                                 perks can often be a source of discontent for employees on a day-to-
     Results Report generated on 14 Junly 2011, 346 responses.                   day basis. The only notable difference between the genders was that
                                                                                 women valued the “provision of constructive feedback and chances
                                                                                 to learn” slightly higher than having a “greater variety of work”. I was
                                                                                 surprised that flexibility in work arrangements didn’t rate more highly,
     The Workplace                                                               especially for women, but in retrospect each of those attributes that



     T
             his month’s Actuarial Pulse monitored the perceptions and           scored more highly are important to creating a good workplace
             beliefs we held about our workplace and our colleagues,             environment.
             especially those working part-time.
                                                                                 Q2: Does your workplace have formal Flexible Workplace
     As can be seen by the charts below, there was a 2:1 split between               Arrangements (FWA)?
     males and females and nearly 90% of respondents were employed
     by an organisation (as distinct from contracting, doing casual work                                Yes: 76%                            No: 24%
     or owning a business). These respondent demographics were used
     to help shed light on the answers to the following questions.               The result of this question surprised me a little. By no means did
                                                                                 I believe that every workplace had FWAs, however I was under
                          Males: 76%                     Females: 24%            the misapprehension that nearly every workplace did. Perhaps the
                                                                                 people that answered no were able to utilise informal arrangements
                                                                                 when appropriate.
                           Employed: 86.5%
                                                                                 Q3: Select any formal FWAs that you currently utilise
     ● Contracting/Casual/Own-Business: 8%, ● Retired: 2.5% ● Other: 3%
                                                                                 FWA                                   Total       Male        Female
     SECTION 1                                                                   Part-time work                        19%         13%          30%
                                                                                 Compressed working weeks               3%         3%            1%
     Q1: What factors do you believe contribute to a good                        Rostered days off                      3%         3%            2%
         workplace?                                                              Alternative business hours            11%         10%          12%
                                                                                 Flexible working hours                29%         23%          37%
     Respondents were asked to rank the following factors from ‘most             Working from home                     37%         34%          40%
     important’ to ‘least important’ to indicate what they believe contributes   Other                                  4%         4%            1%
     to a good workplace. The following table shows the average ranking          None                                  42%         44%          40%
     indicated by the respondents. (Lower score = higher importance)
                                                                                 The main differences between genders were the amount of part-
     Attribute                                                       Score       time workers and females on flexible working hours, with over twice
     Feeling respected and contributions valued                        1.9       as many females taking up formal part-time work arrangements
     Positive team with which to work                                  3.5       and 50% more working flexible hours. I would have thought that
     Managers that you respect                                         3.6       this difference may have been greater, however I think it is very
     Variety of work                                                   3.8       encouraging that our profession (and our employers) allows so many
     Given constructive feedback and chances to learn                  4.4       of us to utilise these arrangements.
     Flexibility in work arrangements                                  4.6           Of those people that selected ‘Other’, the most common
     Access to staff benefits (phones, cars etc)                       6.8       responses were around additional annual leave ‘purchased’ and
     Everyday perks (lunches drinks, coffee etc)                       7.1       study leave allowances. One particular respondent indicated
                                                                                 that their workplace was managing their rehabilitation after a
     It came as no surprise that feeling respected rated very highly (over       medical incident and the hours they were working were currently
     60% of respondents indicated this as their most important attribute)        very flexible.


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




                                                                                                                                     ▲
Q4: Select any informal FWAs that you currently utilise                     SECTION 2
                                                                            For each of the following statements, respondents were asked whether
FWA                                     Total       Male       Female       they ‘strongly agreed’, ‘agreed’, ‘disagreed’ or ‘strongly disagreed’
Part-time work                           4%          2%          7%         with the sentiment expressed. ‘Unsure’ or an equivalent response was
Compressed working weeks                 2%          3%          1%         deliberately left out to make people decide what they best believed.
Rostered days off                        2%          3%          1%
Alternative business hours              25%         24%         28%         A) It is almost impossible for part-time workers to progress
Flexible working hours                  47%         50%         39%              to an executive level in the financial services industry.
Other                                    6%          7%          6%         77% of respondents believed this to be the case, with 30%
None                                    27%         27%         27%         strongly agreeing. Perhaps this is because of the time demands
                                                                            on executives, or possibly as they are simply overlooked for
In a complete oversight ‘working from home’ was left off this               consideration. Females were slightly more optimistic, with 73%
question, which accounted for many of those people that selected            replying in the affirmative.
‘Other’. Personally, I am very grateful of the ability to complete               One respondent summed it up nicely, saying “a major problem
my work remotely as there have been a few occasions when the                with part-time work in a professional environment is that it is hard to
notoriously unreliable tradesman/Foxtel installer/delivery man has          actually work only part-time hours. Individuals will work till the job is
provided a window of time (often most of the working week) in which         done in a professional manner. Therefore part-timers often work from
they claim they will arrive to complete their works.                        home etc and therefore put in more than their allocated hours.” Which
      There wasn’t a great deal of difference in the use of informal        this respondent echoes with their personal experiences: “I felt extra
FWAs by gender, except for flexible working hours. Perhaps the              pressure to complete the same amount of work in my few hours as
greater number of males was offset by the fewer number of males             my full time colleagues in their full time hours.”
utilising formal flexible working hours.
      Whilst flexibility in working arrangements only ranked sixth in the   B) Part-time workers are less interested in career
desirable workplace attributes, over 70% of people enjoyed informal             development than their full-time colleagues.
FWAs. Perhaps people value these arrangements more highly than              40% of respondents believed this to be the case, with 13% strongly
they initially thought.                                                     disagreeing with this sentiment. People will sometimes equate
                                                                            development with promotion, however I intended this statement
Q5. How many hours in addition to your contractual hours                    to be around the holistic term of career development. Nearly 50%
    do you work on an average week?                                         of males agreed or strongly agreed with this statement, showing a
                                                                            clear disparity to the less than 30% of females.
                                        Total       Male       Female
Ave. weekly ‘overtime’ hours              8          8.7         6.8        C) Part-time workers don’t work as hard as their full-time
% working no extra hours/week           10%         9%          12%              colleagues
                                                                            10% of females agreed with this statement which was almost exactly
Disappointingly, only 10% of respondents did not work any hours             the same as males. Whilst 10% is still higher than most people would
in addition to their contractual hours, with people working around          like to acknowledge, it is refreshing to see the very vast majority of
20% longer hours than are stipulated in their contracts. Whilst some        respondents believe part-time workers work just as hard as their full-
firms have ‘reasonable overtime loadings’ supposedly built in to their      time colleagues.
remuneration packages, I would challenge anyone to satisfactorily
justify an additional 20% each and every week as ‘reasonable’ and           D) Part-time workers are never asked to work overtime
being sufficiently remunerated.                                                 hours
     Interestingly, contract workers, casual workers and those that         Only 23% of respondents believe this statement, with 30% of females
owned their own businesses did not, on average, work any longer             and 18% of males strongly disagreeing. This appears to tie in relatively
than those employed on a constant basis by an organisation.                 strongly with the previous statement.
     In response to this, one member posed a question, perhaps
to be raised in a later edition of the Actuarial Pulse, as to whether       E) Some part-time workers are overlooked for promotions
the culture of working longer than the contractual hours breeds                because they are reluctant to put in long hours of work
inefficiency in employees and workflow management passivity                 65% of respondents believed this statement, with only minimal
in managers.                                                                numbers strongly disagreeing. This question doesn’t allow for


                                                                                                    A C T U A RY A U S T R A L I A ■ August 2011
12        survey
     ▲



     respondents to indicate whether or not they agree with these                not optional, it is a legal requirement. ● Everyone needs to establish
     colleagues being overlooked. Management may believe (correctly or           their priorities between work and non-work activities. Children tend
     otherwise) that the new roles and responsibilities are not satisfactorily   to help you do this better because the priority is clearer. ● It could
     manageable by a part-time worker.                                           be harder to find an alternative to caring for kids at short notice.
                                                                                     Moreover respondents indicated that ● There seems to be a
     F) Some part-time workers are overlooked for promotions                     perception that saying you have to pick up your kids acts as a ‘get
          because they are perceived to be working less hard than                out of work on time’ card, but there have been countless times
          their colleagues                                                       I have had to phone my parents, or my partner, or the school,
     I thought that this statement may have gained a stronger affirmative        because I am held up by people who don’t rate that as a valid
     response than the previous. However, only 50% agreed and 11%                reason to leave when you say you had to leave, or bring my kids
     strongly agreed. In aggregate, females believed this significantly more     into work after daycare ● Many part-timers I know have to go and
     than men (68% compared with 56%).                                           collect the kids – but then put the kids to bed and work for another
                                                                                 four to five hours (way beyond when the kid-less colleagues have
     G) Part-time workers are not being promoted as quickly as                   gone home for the night) ● Work tools such as remote access and
          others, even from the beginning of their careers                       the ability to dial in to meetings help to balance priorities.
     There was virtually no difference between men and women responding              This does raise another question around whether hours worked
     to this statement, with 63% agreeing, 12% strongly agreeing and 23%         outside of the office are recognised as much as those completed
     disagreeing. Compounding this, one respondent made an important             within eye-sight of the management.
     point that “part-time workers often get piecemeal, less interesting
     work, rather than being able to take real ownership of a role.”             M) Management / Direct Manager / Individual is responsible
                                                                                      for making part-time work successful
     H) Part-time work is not appropriate in a consulting firm in                Three separate statements were asked and the responses are found
          the financial services industry                                        in the table below. Happily, it appears that almost every respondent
     This statement was included to make particular reference to the             (and every female respondent) believed that the individual played
     ability of part-time workers to meet the demands of their clients,          a significant role in ensuring that part-time work is successful for
     whose expectations can often interfere with commitments outside of          themselves and the business.
     the workplace. It was pleasing to see that over 85% of respondents
     disagreed or strongly disagreed with the statement.                                            Strongly       Agree       Disagree     Strongly
                                                                                                     Agree                                  Disagree
     I)  It is not appropriate to contact people outside their                   Management           15%           68%           16%          1%
         normal working hours                                                    Direct Manager       18%           71%           10%          1%
     50% of women and only 35% of men agree that it is not appropriate           Individual           31%           67%            2%          0%
     to contact people outside of their normal working hours. Many
     people commented that “it depends” on the type of contact. For              ● Part time work is only successful if all parties compromise and
     example, one respondent indicated that “it depends on the level of          work together. It is no one individual’s responsibility to make it work.
     the employee, the reason for contact and if there has been agreement        ● If the employee is part-time and not flexible, it’s not convenient
     that this would/might happen due to the person being given flexible         and I won’t try this again unless the employee has unusual skills.
     working arrangements.”                                                      ● I respect the flexibility that I get from my employer and therefore
                                                                                 am comfortable to be flexible in return but the degree of mutual
     J) Children are used as a great excuse to get away from                     trust is very dependent on your immediate manager and team. ●
         work on time or early                                                   Many [staff] produced as much output as full timers… unfortunately
     Surprisingly, only 45% of respondents disagreed with this sentiment,        some sections of management did not recognise this. ● Is it any
     with 8% of those strongly disagreeing.                                      surprise women are under-represented in the upper echelons of
                                                                                 the finance industry? ‘Flexibility’ often works toward the advantage
     K) Going to dinner with friends” or “Going to sports                        of the employer where a person remunerated on a part-time basis
        training” carries the same weight as “Going home to                      is really doing a full-time job. ● Most, if not all, [actuaries] are
        take care of the kids                                                    employed on the basis of individual contracts. I am always of the
     Over 70% of people disagreed or strongly disagreed and only 3% of           view that working conditions and arrangements will never be on
     people strongly agreed with this sentiment.                                 par with the rest of the Australia unless people move onto collective
                                                                                 agreements… the things we take for granted, such as eight-
     L) “Going to dinner with friends” or “Going to sports                       hour days, five-day working weeks, are there because the union
         training” should carry the same weight as “Going home                   movement fought for them.
         to take care of the kids
     40% of respondents disagreed or strongly disagreed with this                Nevertheless, I think the most encouraging comment that was
     statement. Most interesting were some of the comments provided              received was that “getting away from work on time should not be
     by the respondents around children. These included: ● Children are          seen as a sin.” I agree. It most certainly should not! ▲
     a great excuse for colleagues not to waste my time. My change in
     priorities has made me more efficient in my day and my colleagues           Dave Millar
     more respectful of my time. ● Going home to take care of kids is            david.millar@au.ey.com


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                     event      13



REGiStER NOW




Enterprise Risk Management Seminar
                                                         – 100kph through the Minefield
                                                               Keynote Speaker – Professor Ross Garnaut




Tuesday, 20 September 2011                      • Swissôtel Sydney – Blaxland Ballroom, Level 8, 68 Market St, Sydney

O
         n September 20, the Institute will host ERM 2011, the        in Japan might cause a nuclear power plant to spread radiation
         third annual seminar on Enterprise Risk Management.          halfway around the world.
         The seminars provide a forum for risk management
professionals to network and share their knowledge and experience.    At ERM 2011, we will also be looking at technological change.
Based on feedback from participants, it’s obvious that last year’s    Recently we have all become much more aware of threats to data
seminar was a resounding success:                                     confidentiality – such as the Sony Playstation hacking attack – and
                                                                      the potential cost of weaknesses in our IT systems (e.g. CBA’s ATM
●   “Excellent presentation, especially from a business perspective   glitches). But the internet can provide opportunities as well as risks.
    rather than technical.”                                           For example, will social media change the way we do business?
●   “Concise and informative.”
●   “High level and non technical whilst being extremely practical    As actuaries, we may need to develop better analytical skills for
    and expanding how actuaries need to consider risk (i.e. people/   modelling risk. At ERM 2011, Neil Cantle from Milliman will present
    cultural issues).”                                                an introduction to a new approach to ERM, called Complexity
●   “Fabulous … more please!”                                         Science. One of the major ratings agencies will also provide its own
                                                                      perspective on ERM.
This year, our theme is 100 kph through the Minefield. Whether
we like it or not, we will all have to deal with a range of           Who Should Attend?
new challenges arising from a rapidly changing environment.           With speakers drawn from a variety of backgrounds and
ERM 2011 will give us a chance to take a look over the rough          industries, this seminar is shaping up to provide invaluable insight
terrain ahead, and develop survival strategies.                       into Enterprise Risk Management, provide valuable perspectives
                                                                      for professionals at all levels within the ERM framework of their
Professor Ross Garnaut, the government’s advisor on climate           organisation, including:
change, will present the keynote address, on managing uncertainty.
                                                                      ● Chief Risk Officers ● Chief Financial Officers
Hurricanes, floods, earthquakes, tsunamis – how can we prepare?       ● Chief Actuaries ● Risk Professionals ● Banking and
ERM 2011 will include a presentation from Erik Maranik, a disaster    Investment Professionals ● Regulators ● Consultants
planner for the NSW government, who specialises in emergency          ● Financial Services Executives ● Equity Analysts and other
risk management for extreme events. Each disaster has the             Investment Professionals ● Risk Modelling Experts
potential to create cascading crises – for example an earthquake      ● Superannuation, Asset Liability and Management Practitioners




Register NOW for this important industry event at www.actuaries.asn.au/ERM2011

                                                                                              A C T U A RY A U S T R A L I A ■ August 2011
14   interview




        The people’s
        Champion
        – John Walsh




        HOW ONe qUIeT
                                                W
                                                             hen I first met John Walsh, former Actuary of the Year, I wasn’t
                                                             expecting our conversation to focus so much on mentors and life
        ACTUARY IS CHANGING                                  lessons learned – I thought numbers would be a natural focus. But
                                                John’s experience and remarkable poignancy with words are just as inspiring as
        THe LIVeS AND FUTURe                    the highly and insightful numerical mind that saw John recently appointed as a
                                                member of the Order of Australia for his work in disability and health policy.
        OF AUSTRALIANS WITH
        DISABILITIeS, ONe                       Living and working with his own disability (quadriplegia) since his early 20s, John
                                                shares some of what inspires and motivates him, and some advice he would give
        NUMBeR AT A TIMe...                     to young actuaries and career-builders gleaned from a remarkable career.




     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                         interview            15




                                                                                                                                     ▲
John generously acknowledges several mentors who he says have
“influenced and inspired” him. In the public policy arena, John points
to Bill Shorten and John Della Bosca, who John says have a “vision,
an ability to conceptualise what the world might look like if things were
done differently.”

Among other career mentors and lessons they taught him, John
mentions PwC actuarial partner Chris Latham who had “great
empathy for clients” and Greg Taylor, who John says “has a keen
attention to detail and an excellent ability to reflect the truth in
evidence.” John doesn’t only draw energy from the cream of the
political and actuarial crop, but is also inspired by people at all levels of   Candice Sng, Yolanda Beattie and John Walsh
the actuarial practice at PwC, all of whom John says have something
to offer and insights he doesn’t see.                                           accident compensation schemes and care / support for those with a
                                                                                serious disability.
Family clearly comes first with John too, and much of his inspiration
comes from his three children, who range in age from 13 to 22, and              The vision John has held over the decades is of a national disability
John’s wife, who he says has taught him “what’s important in my life:           support scheme which will finally realise “the dream of an ordinary life”
trust and truth” – a sentiment we keep returning to as we reflect on            for people living with a disability. John describes the myriad barriers
his remarkable career. The importance of people in John’s career also           to participation for this group as currently ‘insurmountable’. John’s
resonates in his observations about the actuarial profession generally          own personal experience has given him a unique insight into his work
and his advice for young actuaries finding their feet. “Actuaries need          in the field of national disability support, and he acknowledges it has
to be flexible enough to sometimes look beyond the numbers. It’s a              affected the prism through which he views the issue.
common saying that actuaries tell the way forward by looking out the
back window, but says sometimes we’d benefit by looking out the                 Though John says he’s been more fortunate than most people with
front!” he jokes.                                                               a disability, citing supportive friends and family, and financial security,
                                                                                he experiences every day the frustrations of living with a disability. It’s
John also advises young actuaries that “it’s great to be the smartest           a mark of a man to turn limitations into strengths and John’s disability
kid, but that’s not enough – you have to be able to get behind the              certainly seems to have reinforced his natural will to persevere.
numbers, to understand what they really mean. In health and social
policy, each number is a person with an injury or someone dying.”               “Everyone struggles – everyone has to overcome obstacles in their
With his extensive experience in health and disability policy, John             lives. But when you have a major disability, it’s every five minutes.”
has also learned actuaries must become part of the industry within              John says this has instilled in him a “sense of not being too fazed
which they work, working alongside its participants - nurses, doctors,          about most things.” This ability to let go of the small issues John also
physios - to really understand it.                                              attributes to perhaps his most influential mentor – his father, who John
                                                                                describes as “a working class man of fantastic simplicity” who always
As we talk it becomes clear it’s not only the people in John’s career           appreciated the everyday beauty in the world around him.
and life that have brought him as far as he’s come – but also his own
personal ethos of perseverance and determination. “When I start                 Returning to his work in disability policy, John says while the first step
something I try to finish it, and I always make sure what I do, I try to do     is more funding, capacity building is essential to properly manage that
well,” explains John. This is his answer for how, as a junior computer          money. This applies to people with a disability so they can manage
programmer at PTOW (later Towers Perrin), John was motivated                    the support funds they’re given and make decisions on how to
to finish an actuarial qualification by correspondence through the              purchase support services, and also for service providers.
Institute of Actuaries in London school over 10 gruelling years.
                                                                                Although John says his vision for disability support may take a
John’s actuarial career spans decades of consulting at PTOW and                 hundred years to achieve, he’s hopeful that soon we’ll have a system
then PricewaterhouseCoopers, where he has worked for 18 years                   where people with a disability have the funds to purchase their own
and is now a partner, as well as many years in research and policy              support services. “Across this scheme will lie a governance model to
development for government including the NSW Motor Accident                     which actuaries can contribute to ensure it’s sustainable.”
Authority, NSW Home Care Service and as the statutory actuary
to workers compensation authorities in NSW and South Australia.                 About whether he thinks the Productivity Commission
Currently, John is an Associate Commissioner working on the                     recommendations will be implemented, John remains optimistic.
Productivity Commission’s inquiry into disability care and support,             “I think something big will happen. Stakeholder
which provided its final report to the government on 31 July 2011.              pressure, political pressure, and the pure logic
                                                                                behind this issue will make it happen.” ▲
John’s doggedness towards everything he puts his mind to is
strongly reflected in his work in public policy, particularly national          Yolanda Beattie
disability support, which he notes has been on the government                   Honner Media
radar since the 1970s. John has worked extensively in the field of              Yolanda@honnermedia.com.au


                                                                                                         A C T U A RY A U S T R A L I A ■ August 2011
16   review
                                                                                             industry submissions to APRA after QIS2 (submissions to APRA due
                                                                                             31 July 2011).
                                                                                                 In short it is clear APRA has heard the industry’s concerns on a


        solvency ii                                                                          number of significant issues. Its new proposals aim to reduce aggregate
                                                                                             industry capital requirements (relative to QIS1), complexity and pro-
                                                                                             cyclicality in a number of areas. However, on other topics, APRA


        and ‘lAGiC’
                                                                                             continues to hold its cards close to its chest. For example, the industry
                                                                                             continues to press for more information on supervisory adjustments,
                                                                                             the ICAAP process, and allowances for liquidity premiums. Each of
                                                                                             these is covered in more detail below.

                                                                                             Nature and reasons for supervisory



     I
          n last month’s edition of Actuary Australia, Rebecca Johnstone,                    adjustments to Pillar 1 capital
          Policy Consultant for the Institute, provided an overview of the                   Whilst the possibility of supervisory capital adjustments is not new to
          discussions held at the Insurance Capital Review Seminar on                        ADIs, it is causing concern amongst insurers. Concern is due to the
          9 June 2011. In this article we will discuss the impact of the                     perceived lack of transparency as to how it will be set by APRA and
     capital review changes for businesses.                                                  for what reasons. This makes it hard for insurers to advise their Boards
                                                                                             on how to avoid any adjustment. In APRA’s Q&A session on 9 June
     Solvency II and ‘LAGIC’ – what it means                                                 2011, APRA reiterated that there would be significant dialogue with
     locally                                                                                 the insurer on this topic, that there will be transparency to the insurer
     Solvency II, the new risk-based capital regime development continues                    as to the reasons for any adjustment so that appropriate action could
     to gain momentum for European insurers, as it heads towards its                         be taken. APRA highlighted that there would be opportunity for such
     planned implementation date of 1 January 2013. The annual Deloitte                      insurers to improve their operations and processes to avoid any
     UK Solvency II survey shows that in the next six months, European                       proposed supervisory adjustment to Pillar 1 capital.
     insurers will have as their priorities:                                                      As any supervisory adjustments are not to be disclosed publicly,
     ● implementation planning,                                                              they will be reviewed on a case by case basis. The rule of thumb
     ● embedding the changes into culture via personal incentivisation                       is that Pillar 1 assumes an entity is well managed, has sound
          and rewards,                                                                       governance, has effective risk management, and has an adequate
     ● risk management and setting risk appetites, and                                       ICAAP. In such a situation it is unlikely that a supervisory adjustment
     ● data handling and infrastructure.                                                     would apply. Examples where one might be applied include where
     Additionally we are starting to see the capital changes having real                     the insurer’s risks are very specific and not adequately allowed for in
     implications for businesses tactically and strategically – there has                    Pillar 1, the insurer has high growth plans, a changed strategy, and/
     been restructuring of businesses (to maximise capital efficiency),                      or an unusual risky business model.
     and potential M&A activity to inorganically
     support changes in product mix strategy
     (redesigning, repricing or in particular we           Life & General Insurance Capital (LAGIC)
     see a number of insurers looking to move       Exploring the implications                                               Source: Deloitte Actuaries and Consultants 2011
     away from long term guaranteed products,
                                                    APRA’s ‘LAGIC’ is Australia’s Life and General Insurance equivalent for regulatory capital requirements.
     which attract heavy capital requirements).     It is a three pillar approach mirroring APRA’s requirements for ADIs and international capital requirements
          In Australia, APRA’s Life and General     under Solvency II.
     Insurance Capital (LAGIC) standards also
     continue to gain momentum, with strong                                                                  APRA s LAGIC
                                                                                          Pillar 1                  Pillar 2                    Pillar 3
     parallels to Solvency II through the 3                                            Quantitative               Qualitative                 Supervisory
                                                            Market Risk               Requirements         Requirements & Rules         Reporting and Public
     pillar regulatory approach, as well as local                                                               on Supervision                 Disclosure
     parallels to APRA’s requirements for ADIs.             Credit Risk
          The planned implementation date for                                         Required Capital        Risk Management &               Transparency
                                                                                                              Capital Management
     LAGIC is also 1 January 2013.                          Operational Risk                                   practices (ICAAP)
                                                                                       Eligible Capital
          APRA has been active within the
     industry – it released its 31 March 2011               Insurance Risk
                                                                                     Quality of Capital     Supervisory adjustment     Disclosure requirements
     Response to Submissions following the
                                                            Liquidity Risk
     industry’s Quantitative Impact Study 1
     (QIS1) and followed this up with a number
     of industry Q&A sessions; the most recent              Focus for            •  Benchmarking           •  ICAAP design &      •   •  Design risk metrics to
                                                                                    modelling                 implementation              report externally vs.
     on 9 June 2011. Whilst APRA did not                    organisations           environment to                                        internally
                                                            within Pillars:                                •  Risk appetite
                                                                                    industry best practice
     divulge much new information about the                                                                •  Stress & scenario
                                                                                                                                      •  Implement/enhance
                                                                                 •  Adapting and                                          existing reporting
     shape of future requirements at the 9 June                                     enhancing models to
                                                                                                              testing
                                                                                                                                          requirements
                                                                                    be flexible            •  Business monitoring
     2011 session, it was a good opportunity                                                                  tools
                                                                                 •  ROC assessments
     for APRA to get a sense of the ongoing
     concerns from the industry ahead of the


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




                                                                                                                                                    ▲
   The window for change              APRA’s tight timeline for implementation of the standards means
                                                                                                                Pillar 1 quantitative proposal
                                      businesses need to ready themselves in and around “business               on liquidity premiums
                                      as usual” activities .not just for Pillar 1 but now also Pillar 2.             APRA is still considering whether to allow
                         Jan 2011                  Jan 2012                  Jan 2013                                a liquidity premium margin to the capital
                                                                                                                     requirement risk free rate for certain products.
                                        today
                                                                                                                     Without this, capital requirements for annuities
                                              Response &       Draft                                                 in particular will become significantly more
               Discuss        APRA                Draft      Reporting                                               onerous than before. APRA appears to be
                Paper        Response          Standards     Standard
              Jun 2010       Mar 2011           Oct 2011     May 2012                 1st Reporting                  more visibly working with the Institute in this
                                                                                      Period from                    area, and in addition has stated that it is
                                                                                      1 Jan -31 Mar
                                                           Final          Final
                       QIS1         QIS2
                                                         Standards
                                                                                      2013                           monitoring global developments. However
                    Oct 2010    1 May- 31 Jul                          Reporting
                                                         Apr 2012      Standards                                     liquidity premiums will only be allowed if APRA
                                            today                       Oct 2012
                                                                                                                     can find some objective and reasonably robust
                                        Submission Submission
                                        due 31 Jul due 31 Jan        © 2011 Deloitte Actuaries & Consultants Limited way to measure this (particularly in times of
                                                                                                                     stress) and if it does find a basis to use, it is
Internal      Capital Adequacy Assessment                                              likely that such basis will be prescribed to ensure consistency.
Process (ICAAP)
The ICAAP is the process an insurer will now need to go through to                  Our view of the challenges ahead…
internally assess the adequacy of their capital. APRA has stated that it            ●   There’s much to do in a short period of time: Insurers have
is not just the process it is interested in, but also the outcomes from it.             finalised QIS2, with submissions to APRA handed in by the end
     The process needs to be owned directly by the Board with a                         of July 2011. ICAAP design and planning needs to start in earnest
report of the ICAAP being submitted to APRA annually. The process                       now. Insurers need to be ready for the October 2011 changes
covers both risk management and capital management aspects and                          to Pillar 1, and implementation of models following that. Pillar 3
it should particularly include:                                                         requirements will be coming out in late calendar 2012, leaving little
 ● Risk appetite setting and review process, with supporting risk                       time to implement reporting and disclosure requirements before
     metrics/buffers and planned actions should those buffers be                        1 January 2013. All this needs to be planned and done around
     breached i.e. it needs to be embedded into the day to day                          ‘business as usual’.
     operations of the business.                                                    ● Complex interactions to manage within the insurance
● Target surplus policy and details with regards to how the                             functions and with the ADI where relevant: The multi-
     business will be managed when capital falls below target surplus                   disciplinary requirements of the Pillar 1 changes (actuarial,
     levels. To understand where to set its target surplus levels, the                  technology and systems) and Pillar 2 changes (board ownership
     insurer needs an assessment of the capital which it believes it                    of risk and capital management, risk functions, actuarial
     should hold for the risks it bears (i.e. the ‘economic’ capital,                   functions, processes and operations, remuneration) requires
     which will usually be different to the regulatory capital). On this                strong communication and program management.
     APRA has indicated that the level of sophistication in modelling               ● Real business implications from these changes are firstly
     would be expected to vary depending on size and complexity of                      tactical, but the insurers who will get the most out of
     the insurer.                                                                       these regulatory changes will be the ones who prepare
● Capital projections for at least three years, which should be                         themselves strategically: there are strategic challenges in
     based on scenario testing. APRA raised the concept of ‘reverse’                    terms of product (relative capital requirements changing) and
     stress testing; where the insurer should consider the situation(s)                 cultural change including ownership of ICAAP and involvement of
     where it may be vulnerable to a breach of its target surplus                       Board in scenario setting.
     and then stress test the process, and assess outcomes of that                  The next sixteen months will hold a number of significant challenges,
     stress test.                                                                   however there is also an opportunity for insurers to manage a
Insurers who are part of a conglomerate group are sensibly looking                  tight program of change and to gain deeper insights into the risks
to leverage off the ICAAP processes that already exist from its                     they face moving forward. Most importantly, the most successful
related ADI entity. In doing this, insurers need to bear in mind not                programs will go beyond compliance and will
only that insurance risk and interest rate risk are more important                  maximise the possible strategic and competitive
to it than the ADI, but that the ICAAP must be owned by the                         benefits from the work completed. ▲
insurer’s Board and managed to the operations of the insurance
entity. This is clearly a complex set of interactions to get right                  Trang Duncanson
by the business as it requires stakeholder communications and                       tduncanson@deloitte.com.au
collaboration across a number of different business functions
within the insurance arm (actuarial, finance, risk management, IT)                  Michael Stumbles
as well as the relevant ADI.                                                        mstumbles@deloitte.com.au
     More will be said by APRA in October 2011 in its response to the                   Sources:
industry after QIS2. However we believe that an insurance working                       1. Solvency II Survey 2011 Insurers’ Responses to Evolving Rules, Deloitte
                                                                                            UK (4th annual survey)
group (and stakeholders from the related ADI where relevant) needs                      2. APRA’s Response to Industry Submissions on Life & General Insurance
to perform a gap analysis, and start designing and planning for                             Capital (LAGIC): Commentary and Implications, 7 April 2011
                                                                                        3. APRA Insurance Capital Seminar, 9 June 2011
implementation of Pillar 2 now.


                                                                                                                A C T U A RY A U S T R A L I A ■ August 2011
18   comment




            private
            health
            insurance
            – DEALING WITH UNCERTAINTy AND INSTAbILITy

     This article is based on two Institute Biennial Convention                ●    Community rating with self-selection is a recipe for disaster.
     papers, Actuarial Management of Health Funds in Australia
     (2007) and When too much is not enough: capital in a mutual               As an economist, I do not believe that distorting prices is an
     health fund (2011), where the ideas are more fully discussed              ‘optimal’ way of redistributing income. Nevertheless, there are trade-
     and referenced.                                                           offs. In Australia, in 2009-10, the average claims ratio was 101% for
                                                                               CTP and 86% for PHI, two products with a substantial element of
                                                                               community rating, and a mere 35% for individual risk products in life
     A dysfunctional form?                                                     insurance (see Figure 1 below).

         “The trouble with the world is that fools and fanatics are            The paraphernalia of actuarial assessment and intermediated
         always so certain of themselves and wiser people so full              distribution is costly to consumers. Healthy young people may be
         of doubts.” – George Bernard Shaw                                     slightly better off with risk rated products, even after two thirds of




     A
                                                                               the premiums are taken in administration and sales costs, but sicker
                 ctuaries often express the view there is something            and older people are not. Equity itself has a cost, and simplicity is
                 rather wrong with private health insurance (PHI) in           often more efficient and better serves the broader social interest,
                 Australia. Comments below, reported in the April 2011         even in private insurance markets.
                 edition of Actuary Australia in response
     to survey questions about community rated flood       Figure 1
     insurance, are common:

     ●     With community rating, the government (i.e.
           taxpayers) ends up picking up pieces when the
           pricing is deficient.

     ●     Look where community rating has got us with
           health insurance – inefficient funding of health
           services via piecemeal, notionally private sector
                                                                         CTP


                                                                                   PHI


                                                                                           Motor


                                                                                                   Household


                                                                                                               Group life


                                                                                                                            Travel


                                                                                                                                     Individual life


                                                                                                                                                       Credit


                                                                                                                                                                Mortgage




           insurers supported by the threat of punitive taxes
           in order to compel purchase of their product by
           those whose interests would clearly be better
                                                                Source: APRA & PHIAC
           served by not buying health insurance.


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                 comment            19




                                                                                                                             ▲
How PHI evolved
                                                                               Actuaries have made
 “The single most important thing about a free market is
 that no exchange takes place unless both parties benefit.”                    influential contributions to the
 – Milton Friedman
                                                                               development of the industry
Private health insurance has a long history in Australia. From early           addressing matters such as
European settlement and gold rush days, there has been a strong
private health care market in Victoria courtesy of the friendly society
                                                                               pricing, reserving, experience,
movement. After Federation, attempts to introduce welfare systems              risk equalisation and capital
similar to those in Europe and America were frustrated by ideological
and constitutional issues, and private health insurance continued              management.
spreading across Australia in this vacuum. Hospitals and doctors set
up organisations similar to the large Blue Cross Funds of the USA
to complement their private health services. The National Health Act      ways health insurers can fail. Subsequently, the
1953 consolidated the basic principles of the Australian system,          role was broadened until, in the Private Health
with mandated benefits, community rating, voluntary participation         Insurance Act 2007, a statutory requirement
and competition among insurers, and these have remained largely           was imposed on every health insurer to have an
intact ever since.                                                        Appointed Actuary.

Participation peaked at more than 80% of the population during            Actuaries have made influential contributions to the development
the 1960s and 1970s. The industry had to weather the shock of             of the industry during this period, through submissions, committee
Medibank in 1975 and its reincarnated clone Medicare in 1984,             work and research. In my 2007 paper, I cited 27 publications during
which destabilised the demographics, setting off the familiar spiral      the period from 1959 to 2005, by 19 different actuaries, addressing
of rising claims and premiums. Coverage fell to 30%, its lowest           matters such as pricing, reserving, experience, risk equalisation and
point, in 2000 and one reform after another was made to stop              capital management.
the decline. Reforms included prudential regulation with minimum
reserves to stabilise the finances; risk equalisation to spread bad       Three practical matters I have found important in PHI are the
risks; tax rebates to help competition against the “free and universal”   competitive positioning of products, managing profitability without
Medicare; and lifetime health cover to encourage early joining.           control over claims, and building buffers for when it all goes awry,
Ultimately, participation was lifted again, to around 50%, where it       and I address these below.
has largely stabilised during the past ten years.
                                                                          Product positioning
The Australian markets in health services are generally large, complex
and highly regulated. Many are characterised by monopolies and             “What we obtain too cheap, we esteem too lightly.” –
mismatches of supply and demand, and there is a bewildering                Thomas Paine
patchwork of subsidies and tax shelters, with highly distorted prices.
Arguably, PHI adds some competition and price signalling, and             How an insurer orients products to those of its competitors sets the
some elements of economic rationality, to this system.                    foundation for its actuarial management, and determines the risk
                                                                          pool attracted and its ultimate financial outcomes. Obstetricians,
What about actuaries in PHI?                                              surgeons, orthodontists, opticians and hospital administrators
                                                                          tend to recommend insurers with generous benefits. Politicians
 “The only sustainable advantage is the ability to learn                  denounce gaps and deductibles. Customers view PHI as a
 faster than the competition.” – Arie de Geus                             smorgasbord where they can add and subtract covers, and move
                                                                          from single to couple to family status as it suits their circumstances.
Actuaries have long been involved. Friendly Societies have been           There is fluidity over products, and across insurers too, encouraged
subject to actuarial regulation for many years under State laws and,      by the portability rules of community rating.
although the National Health Act 1953 imposed no formal actuarial
requirements, some of the major insurers also used actuaries. For         Ultimately, insurers themselves must provide financial value.
example, during the 1950s, Alf Pollard was Chairman of MBF,               Offering the best covers at the cheapest prices, in a competitive
then the largest health insurer, and Tig Melville was a consultant        market, soon results in a weak balance sheet and continual crises.
to its major competitor in NSW, HCF. By the 1970s, a number               It is good, therefore, as a basic actuarial strategy, to set benefits
of actuaries, including David Watson and Brent Walker in Sydney           a little below the highest levels on offer, and to avoid floodgate
and Allen Truslove and Carl Stevenson in Melbourne, worked in             or tipping points where the risk pool becomes unbalanced and
the industry. The 1989 reforms gave the profession a statutory            claims escalate rapidly. The actuary needs to employ a range of
role, as trouble-shooters for failing insurers, thereby opening up a      devices at the benefit design level to limit cherry picking and to
continuous and productive relationship with the newly established         array around each price point a broad and stable pool of risks. It is
financial regulator, the Private Health Insurance Administration          important also to avoid disturbing established risk pools in pursuit
Council (PHIAC). It also helped educate a cohort of actuaries in the      of new business.


                                                                                                 A C T U A RY A U S T R A L I A ■ August 2011
20       comment
     ▲



     Profits                                                                      Capital in an unfunded industry

         “Annual income twenty pounds, annual expenditure                          “Sometimes one pays most for the things one gets for
         nineteen and six, result happiness. Annual income twenty                  nothing.” – Albert Einstein
         pounds, annual expenditure twenty pounds ought and six,
         result misery.” – Charles Dickens                                        For many years, PHI was regulated without prudential requirements
                                                                                  and insurers were actively discouraged from accumulating capital.
     Historically, profitability was rarely an explicit goal in the mutual and    It was only in 1989, in the wake of the Medicare trauma to the
     benefit-focussed culture of the PHI. In my observation, aiming for and       industry, that minimum reserves were mandated. This evolved into
     maintaining profits are the most effective measures for stabilising an       the present ‘green-amber-red’ system of capital adequacy and
     insurer. Prices as a whole must be adequate to cover costs, but it           solvency requirements.
     is a sound principle also that relative prices reflect costs across the
     various components of the business.                                          In the early 1990s, two of the largest insurers, HBA in Victoria
                                                                                  and Mutual Community in SA, were rescued from insolvency with
     Failure to tune prices to underlying cost patterns leaves an insurer         an injection of external capital. Under the new ownership, first of
     vulnerable to rapid growth of its unprofitable business and a loss of        National Mutual/AXA and then BUPA, the demutualised entities
     stability. Many in the PHI market have failed from loss leading, whether     experienced dramatic increases in profitability and value. This
     deliberate or not.                                                           had a demonstration effect across the PHI industry and there
                                                                                  was a change in the attitude to capital, coinciding with similar
     Cross-subsidies are entrenched in the rules of the business, but can         developments in banking and insurance elsewhere. In the period
     be eliminated across community rated price points even if those              from 1997 to 2009, nine further insurers were demutualised or
     within each price point must remain.                                         established on a for-profit basis, including Medibank Private itself,
                                                                                  which is owned by the Commonwealth Government.
     Adequate pricing is ultimately about understanding costs, and in
     a risky or uncertain business, actuarial management is rather like           There is now a mix of capital structures in the PHI market, with
     travelling backwards into Redington’s famous expanding funnel of             some insurers using a for profit (FP) and others a not-for profit (NFP)
     doubt. In PHI, the political processes for adjusting prices require          model, and there are also hybrids where the insurer operates as a
     forecasting for at least sixteen months ahead, and with large and            FP while the group to which it belongs is a NFP. Market shares and
     volatile cash flows and narrow margins, misjudgements can be                 solvency capital ratios of the three groups, as at June 2010, are
     serious. I have found it helpful to disaggregate costs and track             shown in Figures 2 and 3 below.
     them in groups reflecting the nature of the cost driver
     involved, as follows.                                        Figure 2                                                                Source: PHIAC


     ●     Hospital costs borne directly by insurers, driven by
           demographics over which insurers have influence
           only in the long term, and by clinical decisions
           outside the insurers’ control.

     ●     Hospital costs borne by the risk equalisation system,
           a share of the total claims from all insurers in the
           various State pools, over which individual insurers
           have little control.

     ●     General treatment costs, comprising reimbursements
           for non-hospital care, such as dental, optical and
           physiotherapy services and similar, and controllable
           through the design and benefit limits of the insurers’      Figure 3                                                           Source: PHIAC
           own products.

     ●     Administration costs, typically not large but which
           often receive disproportionate attention because
           they are most obviously within the control of
           individual insurers.

     Across the PHI as a whole, these costs typically split
     about 30:30:30:10 respectively, but the mix varies
     considerably from product to product. Allocating and
     projecting them accurately for each price point are the
     keys to managing relative prices and profitability.


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                 comment             21




                                                                                                                             ▲
The role of capital within the PHI has been discussed by actuaries
from time to time over many years, and it has become particularly            For PHI, the environment is
topical since 2010 when PHIAC required all insurers to develop and
file capital management plans. Notwithstanding their pay-as-you-             uncertain and highly politicised,
go nature, health insurers require capital for a number of reasons,
including the following:
                                                                             and the focus is on managing
                                                                             huge, finely balanced cash flows.
Economic

– Like any business, a health insurer requires working capital for
its business operations and obligations for employees, premises,          Ground hugging
equipment, ultilities, marketing, sales and compliance. A health
insurer is also exposed to other risks, such as fraud, theft, sabotage,   – The insurer operates with little capital and
loss or damage to key resources, sovereign risks such as changes          returns all profits to policyholders. Flying low
to tax or regulation, and changes in the conduct of complementary         means tracking each valley and hill, reading situations with little
businesses such as doctors and hospitals. Further, insurers are           room for error, and manoevring fast. The journey is bumpy, and of
exposed to the risks associated with dealing in financial instruments     course, accidents are disastrous.
and obligations, including overestimating assets, undervaluing
liabilities and misjudging prices.                                        Safe and sound

Prudential                                                                – There is a cushion to cope with the unexpected, but not enough
                                                                          for major capital outlays. The flight avoids sudden changes of height
– There are prescribed accounting rules, such as those relating to        and direction with the terrain, but bad weather and other traffic may
premiums paid in advance and unpaid claims, and there are also            interfere. Flying higher is more relaxed, and there is opportunity to
prescribed solvency and capital adequacy rules. Most insurers hold        read the landscape and avoid obstacles early.
additional capital to avoid the consequences of any temporary or
accidental breach of the prudential benchmarks.                           High flying

Market                                                                    – The insurer has more than adequate capital and can be an active
                                                                          player in strategic changes. The flight not only avoids changes in
– Insurers may also be exposed to capital markets to access finance,      terrain, but is above most of the weather and other traffic, too. Flying
and consequently, to market assessments of their governance,              can be done on cruise control, exploiting opportunistic tail winds,
management, labour relations, profitability and risk mitigation. They     and avoiding competitors and turbulence at the lower altitudes.
may be subjected routinely to ratings, requests for explanations and
to public comment, scrutiny and speculation.                              An accumulated estate provides investment revenues that can give
                                                                          a financial advantage to a NFP insurer. Not being required to match
All insurers must satisfy both the economic and prudential                specific liabilities, the estate can be invested for high long term
requirements, and those with external financing must heed the             returns, and so long as enough is retained for the estate to grow
judgements of the capital markets, too.                                   in line with premium revenues, subsidies can improve consumer
                                                                          value without weakening the balance sheet. Insurance markets,
Where profit is a motive, increases in capital above the minimum are      in my opinion, are well served by competition between FP and
usually driven by marginal profit, expressed, for example, in hurdle      NPF insurers.
rates. Capital tends to move to its most remunerative use.
                                                                          Where to?
Mutuals often serve community needs which are not met by profit-
motivated firms, and they may have social and philanthropic aims,          “The difficulty lies not so much in developing new ideas
too. Their financing is not so constrained by profitability. Capital is    but in escaping from old ones.” – John Maynard Keynes
accumulated gradually by conservative financial management and
is relatively immoble. It is not readily supplemented and reserves        In practice, actuaries exposed on a practical basis to this industry
are often held to meet unforeseen situations and to mitigate              have to unlearn some old and conventional attitudes. For most
uncertainties inherent in the business.                                   forms of insurance, the environment is stochastic and the focus
                                                                          is on assessing liabilities and assets. For
Long term strategic management of a mutual has been likened to            PHI, the environment is uncertain and highly
a parental role in a family dynasty, where wealth is nurtured and         politicised, and the focus is on managing
sustained, and passed on to each generation of stakeholders in a          huge, finely balanced cash flows. I have found
process sometimes called steering the estate. In my recent papers,        it a fascinating challenge. ▲
I have described three broad approaches to running a mutual, using
the somewhat colourful analogy of flying a plane over rough terrain       Peter Carroll
in changeable weather:                                                    peter@petercarroll.com.au


                                                                                                  A C T U A RY A U S T R A L I A ■ August 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


      Crossing the River           (AA160 Solution)                           Boulderdash
      AA160 featured a cryptic crossword. The solution to the                 Having made their way through the Maze of Doom, Allan
      crossword is given below:                                               Quatermain and Katherine Gainsborough found themselves
                                                                              standing at the base of a cliff. The path ahead of them seemed
                                                                              clear, but the eerie silence made them draw closer together.

                                                                              “Up there!” said Katherine, pointing at something above their heads.
                                                                              Allan looked upwards, and saw a horizontal wooden beam jutting
                                                                              out from the cliff-face. 17 vertical columns of rocks were standing on
                                                                              the beam, which seemed likely to collapse at any moment.
                                                                              “Is it some sort of a trap?” asked Katherine.
                                                                              “I don’t think so,” said Allan.
                                                                              “Then what is it?”
                                                                              “I think it’s some sort of a puzzle.”
                                                                              “What are we meant to do with it?”
                                                                              “Solve it, I guess.”

                                                                              This month’s puzzle is a letter drop puzzle. The solution to the puzzle
                                                                              is a phrase that will fit in the white squares of the grid provided,
                                                                              reading horizontally from left to right, with the black squares
                                                                              indicating spaces between words. The letters that make up the
                                                                              phrase have been scrambled in the space above the grid and must
                                                                              be unscrambled and placed in the grid. Each letter appears above
                                                                              the column in which it belongs. All you need to do is determine the
                                                                              correct row to place each letter in.
     19 correct answers were submitted. The winner of this month’s
     In the Margin prize, selected randomly from among the correct            Additional examples of this type of puzzle, and a video on solving
     entries, was Adrian Wong, who will receive a $50 book voucher.           them, can be found at www.dropquotes.com. ▲




     For your chance to win a $50 book voucher, email your solution to: inthemargin@actuaries.asn.au .




     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                  more than maths                     23




    surviving Your Annual performance Review meeting



i
    was excited to read Gae’s helpful hints about preparation              that you would like to achieve. This might be the right time to
    for the annual performance review meeting in the May                   express your interest in a promotion or at least a change in your
    Actuary Australia (‘Ask Gae’). I thought it may be interesting         role and responsibilities. It may also be an appropriate time to seek
    to expand upon Gae’s advice and consider some additional               approval for a particular development program.
communication tips that may be valuable for such meetings…
                                                                           In all of this planning about your outcomes, what you are going to
When preparing for the meeting there is an obvious focus on you:           say and how you are going to present it, you could easily forget
your role, KPIs, achievements, talents and disappointments – not           that the other fundamental skill you will need is listening. When
necessarily in that order. However, it is critical to remember to          your reviewer is providing their perspective it is really important that
spend some time thinking about the other person in the meeting.            your active listening skills are fully operational:
We all know that communication is a two-way activity. So, what
do you know about your reviewer and how might that help you in             ●   When they are commenting favourably about your performance,
the meeting?                                                                   be open to the praise and perhaps explore what they really
                                                                               liked. E.g. If you hear “your reports are very clear” you might
●   Think about your reviewer’s communication style. If they like              pursue it further. E.g. “What is it about my reports that make
    written evidence of your achievements then prepare a handout.              them clear to you?”
    Make it detailed if they like detail or use graphs if they like
    pictures. Don’t bother if they just want to talk. And if you are not   ●   When they are commenting unfavourably about your
    sure about any of their preferences, it won’t hurt to ask what             performance, be curious and not defensive. There is an obvious
    they would like you to bring along.                                        human temptation to be defensive, however a more effective
                                                                               response is to enquire further, seek specific examples and ask
●   Consider their thinking patterns when ordering your part of the            what they can suggest would help.
    conversation. They may like a chronological account of your
    year. Alternatively they may prefer it sorted into segments. They      ●   In listening to your reviewer’s assessment, remember that
    may appreciate a top down account (ie overall summary against              they are merely communicating their perception. Hence, your
    your main objectives, then working down to specifics). Others              mindset should be conditioned to exploring their impressions,
    like it built from the bottom up.                                          rather than responding via your version of reality. People often
                                                                               take time to shift their impressions so don’t be too disappointed
●   You might like to think about their conversation style. Do                 if your reviewer is not enthusiastic about the improvements you
    they employ formal or informal language in these meetings?                 think you have made since last year.
    How colloquial should you be? Do they welcome first person
    descriptions or put more weight on third person references?            Finally, to ensure that the communication is successful, a summary
                                                                           of the outcomes would be beneficial for both parties. If your
●   Finally, you might dare to speculate on what mood your reviewer        reviewer doesn’t wrap up the meeting , then you should attempt a
    will be in. Is this a pleasant task for them? Do they seem to be       short review of the main points. And please, don’t forget to thank
    more relaxed and positive in the morning or afternoon? When            your reviewer for their open and honest assessment!
    is your meeting scheduled? Who are they meeting before you
    and what impact will that have on their mood? If the mood is           It takes more than maths to plan and execute
    likely to be unfavourable, see if you can reschedule. If that’s not    a successful performance review meeting –
    practical, think about how to start the conversation with the aim      by employing great communication skills. ▲
    of improving it.

Another critical principle that applies to any communication is            Martin Mulcare
being clear on your message and your outcomes. By the end                  martin@etiam.com.au
of the meeting, what is the most important thing that you want
your reviewer to be thinking about you? How will you ensure that
message is received? You might like to think of specific outcomes


                                                                                                   A C T U A RY A U S T R A L I A ■ August 2011
24   review


     Institute involvement in public policy debates: How it benefits actuaries




         Good public
         policy

     T
                he Institute seeks to participate in public policy development   One of the few areas where the Institute does have specific policy is
                and debate where there may be strategic opportunities for        our support for raising the Superannuation Guarantee (SG) from 9%
                actuaries, or where actuarial involvement may have public        to 12%. There has been member feedback that this policy may not
                benefits. But does public policy really benefit members?         be in everyone’s best interests, particularly those on lower incomes.
                                                                                 Such feedback is valuable, and informs the way the Institute explains
     The Institute participates because it believes appropriate participation    this policy in its discussions with policymakers.
     in the public policy sphere can benefit members in three ways:
                                                                                 There has been significant work done in the last year constructing
     1. It enhances the reputation and profile of the actuarial profession       four key policy positions, policy principles and a policy development
        as a whole. It consolidates the role of actuaries in existing            and approval process. The four key policy areas are Energy and the
        areas of practice and targeted policy participation can assist           Environment; Health; Retirement and Enterprise Risk Management.
        the profession to expand into new practice areas, such as                They can all be viewed on the members’ section of the website, under
        enterprise risk management and health financing, with flow-on            ‘Public Policy and Media’.
        benefits to individual members, including wider employment
        opportunities.                                                           The Institute develops policy in close consultation with members, the
                                                                                 Public Policy Council Committee, Practice Committees, taskforces
     2. It presents opportunities to individual members. For example,            and working groups, contributing to public policy by providing
        the Institute is at times approached to recommend an actuary             actuarial perspective to policy-makers and making submissions to
        with particular expertise to sit on a committee or provide input         reviews and inquiries.
        in other ways. The Institute also encourages individual actuaries
        to develop direct relationships with policymakers.                       As the Institute has no full-time policy staff, it’s particularly grateful
                                                                                 to members who volunteer their time to contribute to enhancing
     3. It improves the overall standard of policy decision-making               the reputation and profile of the actuarial profession through
        in Australia, thereby benefits actuaries together with other             participation in public policy. Consultants provide support at the
        members of the public.                                                   direction of the CEO Melinda Howes, work with committees and
                                                                                 prepare submissions.
     How the Institute approaches
     participating in policy
     The Institute aims to play the part of non-partisan thought leaders
     and trusted advisors. Sometimes there is pressure from policymakers
     and other groups for the Institute to take a particular (or any) stance.
     However, the Institute’s position is that its members benefit most
     when it provides an actuarial perspective to critique options rather
     than take sides in what may be ideological debates.


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                       review         25




                                                                                                                                   ▲
Case study:
the Flood Debate
                                                                            The actuarial profession does
                                                                            not have a high profile with some
The flood debate is a good example of how the Institute
                                                                            policymakers – so we aim to have
can appropriately and effectively contribute to public policy               our skills recognised and increase
development. The Institute set up a Flood Working Group a few
years ago. The recent Queensland floods prompted government                 our sphere of influence.
to seriously consider the availability and affordability of flood
insurance. The Institute has been able to provide past papers
to policy makers for background on the issues, plus relevant
overseas research. There was concern that the public debate              Policy-makers and the
on flood policy was lacking, so the Institute organised a seminar        Institute
which brought together engineers, hydrologists, government and           The Institute has three target audiences when participating in
others, which was very well received. We also draft submissions          policy: policy-makers, members and the public.
to government inquiries.
                                                                         The actuarial profession does not have a high profile with some
                                                                         policymakers, so getting our skills recognised and expanding our
                                                                         spheres of influence will hopefully result in better policy with long-term
                                                                         benefits for the profession.

Case study:                                                              Most of the Institute’s policy interactions are with the federal
Actuaries in the Energy sector                                           government and with financial regulators. The Institute works
                                                                         closely with APRA facilitating discussion and feedback on policy
                                                                         developments, for example, on capital standards. Actuarial reporting
The Institute is soon to commence discussions with the Australian        is mandatory for companies regulated by APRA, and the Institute
Energy Regulator and the Australian Competition and Consumer             must ensure financial condition and other actuarial reports are seen
Commission (ACCC) about actuarial certification of the notional          by companies as providing insights, and are not just compliance
costs of self-insurance for energy companies and others. There is        documents.
much uncertainty around potential cash flows and environmental
consequences related to various energy options, and the actuarial        The Institute is currently in discussions with Treasury and the
skill set appears suited to the consideration of conflicting financial   Australian Tax Office to secure an exemption for actuaries from having
and social interests. The challenge is to develop a role for the         to register as tax agents.
profession in an industry where actuaries are not recognised as
having relevant expertise.                                               How to get involved
                                                                         One of the initiatives the Institute is looking to develop is to work with
                                                                         individual actuaries to get relevant and interesting actuarial research
                                                                         out to a broader audience. Actuaries’ numerical analyses often reflect
                                                                         important underlying societal trends which can be communicated
                                                                         to a lay audience through presentations at appropriate events and
                                                                         opinion-pieces in mainstream media.
Case study:
Retirement incomes                                                       Being around the Institute offices can also be rewarding, as you
                                                                         run into acquaintances and forge the fellowship aspect of being an
                                                                         actuary. We would like to see more young actuaries involved with the
The Institute has been very active over the past two years in the        Institute. It is a great learning opportunity to work with leaders of the
retirement incomes policy arena, making several submissions to           profession on issues of importance to our work
the Henry Tax Review and the Cooper Superannuation Review,               but also to our wider society.
together with pre-budget submissions. Although there is much
more work to be done to address the issue of longevity risk,             If you are interested in getting involved in any
the Institute was pleased the Federal Government followed its            of the Institute’s activities, please contact Julia
recommendation and allowed older Australians to boost their              Purves at julia.purves@actuaries.asn.au. ▲
standard of living in retirement by working part-time without
jeopardising their pension income in the May 2010 budget. The            Rick Shaw
Institute will continue to participate in retirement incomes policy,     rick.actuary@gmail.com
and plans to be involved in the October 2011 Tax Summit.
                                                                         Rebecca Johnstone
                                                                         rebecca.johnstone@actuaries.asn.au


                                                                                                  A C T U A RY A U S T R A L I A ■ August 2011
26   report




         Young Actuaries
                                                                                      PROGRAM



      – ACTUARIAL OPPORTUNITIES
                                                                                                                               Session in progress




     I
          t is 5:45pm on a cold Thursday evening in June. A young              salaries down. Job activity improved steadily each quarter in 2010,
          actuary arrives at the PwC concierge in Darling Park and is          however there was still a cautious approach to replacing and adding
          shown to Level 10, then another and another. The arrivals turn       staff, while the market size shrunk due to further consolidation of
          into a steady trickle, the trickle becomes a flood, and before       large employers.
     long the concierge is buzzing with actuaries queuing to sign into
     the building. Surprised passer-bys wonder aloud what all the fuss         And into 2011? There have been continual increases each quarter
     is about, while some mutter that all this commotion is getting in         in job activity however, this has not been across all sectors. John
     the way of dedicated PwC employees returning to the office after          pointed out the further consolidation of AMP and AXA putting
     a day at the client’s. I cheerfully reply, “So sorry, we will have this   two of the largest life employers on the recruitment sideline, and
     space cleared in just a moment. PwC is hosting the Young Actuaries        commented on features of the local market. For example, out
     Program tonight and the response has been overwhelming.”                  of the 100+ actuarial employers in Australia and New Zealand,

     It has taken a paragraph to set the scene for the second Young
     Actuaries Program event for the year. This event, after all, was
     about all things career. From the state of the current local actuarial
     job market to salary benchmarks, Acumen Resources generously
     shared their expertise from years of experience in the field of
     actuarial recruitment. The seminar commenced with John Killick
     covering the range of employer options available to actuaries. These
     include large and niche corporates, actuarial and management
     consultancies, reinsurers and brokers. He moved onto general
     trends in the job market for different fields such as Life, General,
     Super, before narrowing in on trends seen pre-GFC, across 2009,
     2010, and into 2011.

     While I did not know of the statistics or intricacies going on in
     the market previously, I had certainly gained a ‘feel’ for what was
     going on in the last couple of years and relished the opportunity to
     finally gain a clear picture of what had happened. In the pre-GFC
     years, the number of actuarial jobs was greater than the number of
     candidates, and due to recruitment and retention requirements there
     was upward pressure on salaries. Over 2009 the number of actuarial
     jobs fell to the lowest in nearly 10 years along with pressure to keep                          John Killick                    Fred Rowley


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




                                                                                                                                  ▲
                                                                                                      Jenny lyon, Martin Moss and John Killick


around 70 per cent have less than twenty staff. Many smaller               appeared on the screen. There were charts with numbers showing
niche sector employers are looking to take in their first in-house         salary ranges for graduates, for those newly qualified, and for those
actuarial staff. The lack of graduate numbers in the 2008 and              five and 10 years post qualification. The room began to buzz as
2009 intakes are also starting to impact on recruitment as it              people turned to whisper to their neighbours or borrow pens to take
is now extremely difficult to find staff with one to two years             notes. It would take up too much space to display the results here,
experience. Employers are having to broaden their experience               but should you be interested in obtaining a copy of the evening’s
requirements, or choose not to hire altogether. A wealth of                presentation, feel free to drop me an email.
information was dispatched. And with that, John was off to catch
a plane.                                                                   There was one more speaker for the evening – former President
                                                                           of the Institute, Fred Rowley made a surprise appearance. He
Martin Moss then took over to discuss markets in the UK, Ireland/          had come to whet our appetite about the possibility of holding
Europe, Asia and the US in detail. He covered the areas of demand          the International Congress of Actuaries 2022 in Sydney, and that
in each region, how easy (or not) it is to obtain certain visas, and       we, the young actuaries today would benefit the most from the
of course remuneration. While overseas packages may have been              conference. Personally I believe winning the bid and hosting the
attractive in the past, the strong AUD in recent times is now making       conference would be a very worthwhile endeavour, and that we can
them less lucrative. And another spanner to throw in the works             certainly put together a bid video that rivals Germany’s 2018 bid
- actuaries overseas generally qualify with more experience than           submission. I’m sure those of you who stayed to watch Germany’s
Australian actuaries due to the structure of education pathways - so       submission would agree.
this also has an effect on remuneration.
                                                                           If you happened to miss out on attending the June YAP seminar,
Sitting in the audience, I began to feel a stir around me.                 please join us for the next event, to be held sometime in September.
I believe people were starting to wonder whether the topic of              Did I mention the lovely venue, fabulous food and drinks (courtesy
remuneration in the local market was going to be discussed as              of PwC) and like-minded crowd which made for a very relaxed
promised. Then lo and behold, Jenny Lyon took to the lectern               networking environment? So come along, even if it is simply to meet
and clicked to the next slide: ‘Salaries’. I kid you not, everyone sat     new people and catch up with friends in the industry. ▲
up straight.
                                                                           Keri Lee
Jenny first discussed the components of packages, such as base             keri.lee@au.pwc.com
salary, super, bonus (typically discretionary in Australia) and ‘other’,
including discounted insurance, disability cover, reduced mortgage         The YAP committee would like to extend their
rates etc. We were warned that it is a common mistake to forget            appreciation to Acumen Resources, PwC and
about less obvious components of your overall salary package when          the Institute of Actuaries of Australia for their
negotiating with prospective employers. Then charts and tables             support in making this event a success.


                                                                                                   A C T U A RY A U S T R A L I A ■ August 2011
28   education




       education
       UpdAtE

     Part III Results Semester 1 2011                                                      Pass rates and exam centres


     I
         n Semester 1 2011 the Part III pass rate, including non-Fellows                   The pass rates by exam centre categories for Semester 1 2011
         in the Course 7A ERM course was 36%. This represents a                            (including only non-Fellows in C7A ERM) were Sydney (35%),
         drop of 4% on the previous semester’s pass rate of 40%. The                       Melbourne (40%), Other Australian (52%) and Overseas (33%).
     Part III pass rate excluding the C7A ERM course was 39% for
     Semester 1 2011. This compares with 41% in Semester 2 2010 and                        This compares with pass rates by exam centre for these categories
     42% in Semester 1 2010. The pass rates since 2006 (including C7A                      for Semester 2 2010 of Sydney (42%),
     for non-Fellows in 2011) are as follows:                                              Melbourne (45%), Other Australian (26%) and
                                                                                           Overseas (31%). ▲
      2011 2010    2010   2009 2009     2008   2008 2007         2007     2006 2006
       (1)   (2)    (1)     (2)   (1)    (2)   (1)   (2)          (1)         (2)    (1)   Philip Latham
                                                                                           Head of Education
     36%* 40%* 40%*       40%     44%   49%    44%   41%         38%      38%       37%
                                                                                           philip.latham@actuaries.asn.au
     * The pass rates above for Semester 1 2011, Semester 2 2010
     and Semester 1 2010 includes non-Fellows only in the Course 7A
     Enterprise Risk Management Course. This course is both a Part III                                                      invitation
     course and leads to the Chartered Enterprise Risk Actuary (CERA)
     designation, so it is also attempted by Fellows.

     Below are the pass rates for each course in Semester 2 2010
     compared with the previous two semesters:


     Course and Semester                              2011
                                                       (1)
                                                                        2010
                                                                         (2)
                                                                                    2010
                                                                                     (1)
                                                                                              Sydney Presidential
     Course 1 Investments                              33%              31%         35%
                                                                                              & Fellowship Dinner
     Course 2A Life Insurance                          30%              31%         28%       Barry Rafe, President
     Course 2B Life Insurance                          39%              41%         44%       is delighted to invite Members and Guests to the
     Course 3A General Insurance                       33%              36%         37%       PReSIDeNTIAL & FeLLOWSHIP DINNeR
     Course 3B General Insurance                       34%              40%         35%
                                                                                              on Tuesday 13 September 2011
     Course 5A Investment Management and Finance           n/a          53%         n/a
     Course 5B Investment Management and Finance       38%              n/a         56%
                                                                                              7.00pm till 11.30pm.
     Course 6A Global Retirement Income Systems        50%              n/a         25%       Venue
     Course 6B Global Retirement Income Systems            n/a          54%         n/a       Darling Rooms I & II / Dockside, The Balcony Level
     Course 7A Enterprise Risk Management **           21%              34%         19%       Cockle Bay Wharf, Darling Park, Sydney NSW 2000
     Course 10 Commercial Actuarial Practice           59%              55%         59%
                                                                                              Cost
     ** pass rates for C7A ERM above are for non-Fellows only.                                $130.00 per person / $1300.00 for a table of 10 (GST inc.)

                                                                                              Dress Code
     In Semester 1 2011, 3 Fellows sat and none passed. 82 non-
                                                                                              Business Attire
     Fellows sat and 17 passed (overall pass rate 20%). The low pass
     rate for Fellows is very unusual compared to previous semesters,                         For further information visit:
     where the pass rate for Fellows was significantly higher than non-                       http://www.actuaries.asn.au/eventsandNetworking/
     Fellows. In Semester 2 2010 10 Fellows sat and 8 passed (overall                         Upcomingevents.aspx
     pass rate 40%). In Semester 1 2010 10 Fellows sat and 6 passed
     (overall pass rate 25%).


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                     student column                   29




   hunting for
   Treasures
   –   ASOC CAMP


O
            n a balmy Friday‘s midday, one week into the university        Breakfast was at 8am, the air was cool and fresh, and we were
            mid-year break, a coach full of budding actuaries              delightfully surprised by the sight of a kangaroo! The friendly animal
            made the three-hour drive down to Warrumbui near               allowed a number of the students to pet it before hopping away.
            Canberra for a weekend promising of adventure –                It left us all in high spirits just before we were meant to start the
Tomb Raider themed.                                                        mentally and physically challenging Amazing Race that would keep
                                                                                                    us busy until lunch.
UNSW Actuarial Society Camp is aimed
at furthering the bond between students                                                             The race tied in seamlessly with the
across all years. It is an event that allows                                                        Tomb Raider theme of the camp, and
everybody to get away, unwind and let                                                                the ultimate goal was to find the treasure
loose far away from university, parents                                                              first. Checkpoint activities involved cracking
and city life.                                                                                        codes, raiding cabins for objects to
                                                                                                       pack for the journey, adding numbers,
At 4pm, we arrived at the Warrumbui camp                                                               physical challenges, problem solving, lots
site, our cosy retreat for the weekend.                                                                of running, and food challenges. One
Inside, the dining area opened out into a                                                               notable checkpoint was called ‘the last
circular amphitheatre, with the doors to our                                                            supper before the journey’, and teams
cabins hugging its edges. It was suitably                                                                were given the choice of a protein snack
named ‘The Dome’ and its warmth and                                                                      – cicada shells, or a health snack, milk
ambience were both comforting and inviting,                                              and lime juice. A surprising number of teams chose to
and in no time, the air was filled with a cheery hum of chattering         take a risk and try the cicada shells!
voices settling into the new environment. Of upmost importance
for the time being was raiding the place for the best cabin and the        Saturday proved to be
best bed.                                                                  a very physical day, with
                                                                           some competitive games
When that had been settled, we all gathered in the amphitheatre            after lunch that included
and were split into teams that we would do activities with for the         volleyball and Bin Ball.
rest of the camp. For an added twist, there was a Mole team, with          The students were quite
a concept similar to that of ‘The Mole’ TV show. A few icebreakers         exhausted by dinner
then followed, and before long, the first whiff of dinner drifted across   time, but the feast of
from the kitchen.                                                          roast pork – a high class
                                                                           meal by camp standards
If you know university students, they are extremely big on food, and       – renewed their energies
it was no surprise that we could not keep them in the amphitheatre         for the short trek to the campfire. The night flew by as we told
for much longer. For dinner, some chose to bond with their new             stories, sang songs, danced, and toasted marshmallows by the fire.
team-mates, whilst others caught up with their friends.
                                                                           On Sunday morning, we tidied up the place and packed our
After dinner, the first round of team activities began in the form         belongings, ready for the journey home. As we entered Sydney,
of a Trivia Gameshow. Students were challenged with questions              I reflected on the weekend gone by, and realised that ASOC is
requiring knowledge of the movie Tomb Raider, patterns and other           not only a group of actuarial students, it is a community that is
IQ questions.                                                              close-knit, fun-loving, and supportive. That in
                                                                           itself is the treasure that we weren’t looking for,
Later into the night, when all activities had finished, students were      but found. ▲
encouraged to rest early in preparation for the Tomb Raider Amazing
Race, but most, if not all, stayed up to bond over conversation, or        Lucy Jing
play a gripping adapted version of Bridge, or immerse themselves           Vice President External
into the intensely vocal Mafia game.                                       vp.external@asoc.unsw.edu.au


                                                                                                   A C T U A RY A U S T R A L I A ■ August 2011
30   report




          members SURvEy
     A
                 n online survey was made available to members on             Q4. Year of most recent study in the Institute Education Program
                 19 April 2011 on proposed changes to the Part                                                                    Count            %
                 III education pathways from 2012. The proposed               2011-2007                                              203       55.9%
                 changes were recommended by the Education Council            2006-2002                                               40       11.0%
     Committee (ECC) for consideration by Council.                            2001-1997                                               25        6.9%
                                                                              1996-1992                                               28        7.7%
     ECC had recommended consultation with members and Practice               1991-1987                                               18        5.0%
     Committees as a way of indentifying any possible issues that had         1986-1982                                                8        2.2%
     not been considered, as well as gauging member support.                  Before 1982                                              5        1.4%
                                                                              N/A                                                     36        9.9%
     The survey was completed by 369 members, though not all
     members answered all questions. Results are detailed below.              Q5. Primary Practice Area
                                                                                                                                   Count            %
     The purpose of these first five questions was to understand the          Banking & Finance                                       23         6.3%
     different backgrounds of the respondents to determine whether or         General Insurance                                      120        32.8%
     not there were any differences in the level of support for each of the   Health Insurance                                        10         2.7%
     options based on member type, gender, age, most recent study in          Life Insurance                                          97        26.5%
     the education program, and practice area.                                Superannuation                                          28         7.7%
                                                                              Investment and Fund Management                          20         5.5%
                                                                              Other                                                   68          18.6
     Q1. Membership Class
                                                        Count.         %      Here are the results for each of the proposed options for Part III
     Fellow                                               219      59.0%      in 2012 with a breakdown on some of the significant factors from
     Actuary                                               43      11.7%      the first five questions above. As the results based on gender
     Associate                                             49      13.4%      showed little variation, these have been removed. In addition, the
     Student                                               52      14.2%      classification of ‘60+’ has been removed from the responses by age
     Other                                                  6       1.7%      due to the small numbers of responses.

     Q2. Gender                                                               Q6. Do you support Council’s (in principle) decision to recognise PhDs
                                                        Count          %      by thesis from recognised universities in relevant areas (e.g actuarial
     Male                                                 266      72.9%      studies, statistics, economics, finance or finance-related disciplines) for
     Female                                                99      27.1%      Part III Module 1?

     Q3. Age                                                                  Response by        Overall    Fellows Associates Actuary        Students
                                                        Count          %      member Type
     <25                                                   41      11.2%      Yes                 79%        76%         93%         76%        83%
     25-29                                                 93      25.4%      No                  21%        24%          7%         24%        17%
     30-39                                                126      34.4%
     40-49                                                 65      17.8%      Response by Age        <25       25-29     30-39      40-49        50-59
     50-59                                                 30       8.2%      Yes                    91%        72%       79%        81%          83%
     60+                                                   11         3%      No                      9%        28%       21%        19%          17%


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                           report       31




                                                                                                                                      ▲
Response by     Before 1982-        1987-   1992- 1997- 2002- 2007-          Comments from those who voted ‘yes’ included that the two
Last Yr studied 1982 1986           1991    1996 2001 2006 2011              professions have similarities, that this is only one module, and that
Yes              80% 100%            83%     69% 87.5% 74% 78%               the Institute should seek reciprocal recognition.
No               20%    0%           17%     31% 12.5% 26% 22%
                                                                             Comments from those who voted ‘no’ included that accountancy
Response by        GI      Life   Super Invest & Bank & Health Other         qualifications are not relevant, not as rigorous, or do not give people
Practice Area                           Fund Mgt Fin                         the same level of investments knowledge. The comments on the
Yes               79%      77%     93%    85%     52% 100% 84%               level of investments knowledge reflect some members’ views that
No                21%      23%     7%     15%     48%    0%    16%           Part III Module 1 should be on investments only, but may also
                                                                             indicate that there is some misunderstanding that investments
Overall a strong level of support was received for this option.              knowledge has been dropped from the education program.
Associates and members under 25 years of age and superannuation
and health actuaries had a significantly stronger level of support for       Q8. Do you support Council’s (in principle) decision to recognise the
this proposal. Those who last studied from 1992 to 1996 and                  Chartered Financial Analyst (CFA) Charter Holder qualification for Part
banking and finance actuaries had a significantly lower level of             III Module 1?
support for this option.
                                                                             Response by            Overall Fellows Associates Actuary      Students
Comments from those who voted ‘yes’ included that a PhD is                   member Type
much harder to achieve than the current Module 1 options, that this          Yes                     79%       80%       86%      76%         74%
will encourage research, and that the relevance of the PhD is key.           No                      21%       20%       14%       24%        26%
Comments from those who voted ‘no’ included that people with
PhDs have a narrow focus, are theoretical and not practical, that it will    A strong majority was received for this option, and majorities were
be too hard to determine relevance, and that this will lead to future        received in all categories of respondents.
Fellows not having investments knowledge. This last point perhaps
indicates a misunderstanding that investments will be removed from           Comments from those who voted ‘yes’ included that this would be
the education system. Two thirds of Part III Module 1 C1 Investments         a good way of encouraging actuarial graduates planning to work in
has now been moved to Part II and students who don’t take the new            the investments fields to go on to Fellowship, that it was worth more
Part II and don’t do an investments related course in Part III, will be      than just one module, and that reciprocal arrangements should
required to complete the Investments Bridging Course.                        be sought.

Q7. Do you support Council’s (in principle) decision to recognise            Comments from those who voted ‘no’ included that the CFA was
accountancy qualifications (CPA/ICA or other overseas qualifications that    not at the same level of difficulty as a Part III module, and that there
are deemed to be equivalents by these local bodies) for Part III Module 1?   was not full coverage of the Part III Investments courses in the CFA.

Response by             Overall Fellows Associates Actuary      Students     Q9. Do you support Council’s (in principle) decision to recognise the UK
Member Type                                                                  ST1 Health exam for Part III Module 1?
Yes                      55%      55%       65%        40%        55%
No                       45%      45%       35%        60%        45%        Response by         Overall      Fellows Associates Actuary    Students
                                                                             member Type
Response by Age          <25      25-29     30-39     40-49       50-59      Yes                     77%       77%       79%       79%        80%
Yes                      59%       50%       51%       61%         70%       No                      23%       23%       21%       21%        20%
No                       41%       50%       49%       39%         30%
                                                                             Response by Age         <25      25-29      30-39   40-49       50-59
Response by     Before 1982-        1987-   1992- 1997- 2002- 2007-          Yes                     84%       72%        75%     87%         71%
Last Yr studied 1982 1986           1991    1996 2001 2006 2011              No                      16%       28%        25%     13%         29%
Yes             100% 57%             67%     57% 54.2% 42% 53%
No               0%     43%          33%     43% 45.8% 58% 47%               Response by     Before 1982-        1987-   1992- 1997- 2002-    2007-
                                                                             Last Yr studied 1982 1986           1991    1996 2001 2006       2011
Response by        GI      Life   Super Invest & Bank & Health Other         Yes              80%    75%          83%     92% 75.0% 71%        76%
Practice Area                           Fund Mgt Fin                         No               20%    25%          17%      8% 25.0% 29%        24%
Yes               53%      53%     64%    55%     35% 100% 57%
No                47%      47%     36%    45%     65%    0%    43%           Response by       GI      Life    Super Invest & Bank & Health Other
                                                                             Practice Area                           Fund Mgt Fin
This option had the smallest majority of any proposed. Those with            Yes               75%     74%      89%    89%     67% 100% 78%
Member Type ‘actuary’ bucked the trend with a majority against               No                25%     26%      11%    11%     33%    0% 22%
the proposal, as did those who last studied between 2002 and
2006 and those who practice in Banking and Finance. Significantly            A strong majority was received for this option. Those who last studied
stronger support was received from those in the 50-59 age bracket            between 1992 and 1996 and those who practice in superannuation,
and those who practice in health insurance.                                  investments and fund management and health had significantly


                                                                                                      A C T U A RY A U S T R A L I A ■ August 2011
32       report
     ▲



     stronger support. There was a slightly lower level of support for this     Response by Age         <25      25-29     30-39     40-49      50-59
     option from those who practice in banking and finance.                     Yes                     94%       95%       89%       93%       100%
                                                                                No                      6%         5%       11%        7%        0%
     Comments from those who voted ‘yes’ included that the
     arrangements are consistent with using the UK ST9 exam for ERM,            Response by     Before 1982-       1987- 1992-      1997- 2002- 2007-
     and that this option should also include Australian content.               Last Yr studied 1982 1986          1991 1996        2001 2006 2011
                                                                                Yes             100% 100%           94% 96%          92% 83% 93%
     Comments from those who voted ‘no’ included that the Australian            No               0%     0%          6%    4%         8%    17%   7%
     and UK systems were too different, and that Health Insurance was
     not a good substitute for Investments. This could again be the result      Response by       GI     Life    Super Invest & Bank & Health Other
     a misunderstanding that investments knowledge has been removed             Practice Area                          Fund Mgt Fin
     from the education program.                                                Yes               90%    91%      96%    95%     95% 100% 95%
                                                                                No                10%     9%       4%     5%      5%    0%     5%
     Q10. Do you agree that the Institute should only recognise the UK ST1
     Health exam if candidates also complete the Institute of Actuaries of      An overwhelming majority supported this option overall and amongst
     Australia’s online Private Health Insurance Course?                        all categories. Some respondents questioned why discontinuing
                                                                                these subjects was even being considered.
     Response by            Overall    Fellows Associates Actuary   Students
     Member Type                                                                Comments from those who voted ‘yes’ included that the investments
     Yes                     69%        70%       71%      64%        70%       area is a key area for actuaries, that the investments area is closely
     No                      31%        30%       29%      36%        30%       linked with ERM, but also noted that demand was low and that the
                                                                                Institute should consider the resource implications.
     Response by Age         <25         25-29    30-39    40-49      50-59
     Yes                     78%          65%      74%      71%        56%      Comments from those who voted ‘no’ included that the CFA should
     No                      22%          35%      26%      29%        44%      be recognised to replace 5A and 5B, that employers in investments
                                                                                fields do not see any value in these courses or membership of the
     Response by       Before 1982-       1987-   1992- 1997- 2002-    2007-    Institute, and that these courses are not actuarial science.
     Last Yr studied    1982 1986         1991    1996 2001 2006       2011
     Yes                25%    75%         56%     78% 78.3% 80%        68%     Q12. Do you support Council’s (in principle) decision that students who
     No                 75%    25%         44%     22% 21.7% 20%        32%     have not completed Part II 2011 (comprised of Part IIA The Actuarial
                                                                                Control Cycle and Part IIB Investment and Asset Modelling) are also
     Response by       GI       Life    Super Invest & Bank & Health Other      required to take the Investments Bridging Course if they do not take any
     Practice Area                            Fund Mgt Fin                      investment related option in Part III (i.e. C1, 5A or CFA).
     Yes               73%      68%      68%    61%     70% 67% 67%
     No                27%      32%      32%    39%     30% 33% 33%             Response by            Overall Fellows Associates Actuary Students
                                                                                Member Type
     A significant majority support this option. Majorities were received in    Yes                     88%      92%        79%        85%       78%
     all categories, however, support was lowest amongst those above            No                      13%       8%        21%        15%       22%
     50 years of age. The responses to this question from those who last
     studied before 1982, bucks the trend with a large majority against the     Response by Age         <25       25-29     30-39      40-49    50-59
     proposal. However, there were only 5 responses in this category to         Yes                     85%        82%       90%        86%     100%
     this question.                                                             No                      15%        18%       10%        14%      0%

     Comments from those who voted ‘yes’ almost all focused on the              Response by     Before 1982-       1987-   1992- 1997- 2002- 2007-
     importance of providing an Australian context.                             Last Yr studied 1982 1986          1991    1996 2001 2006 2011
                                                                                Yes             100% 100%           89%     88% 91.7% 94% 85%
     Comments from those who voted ‘no’ included that this was making           No               0%     0%          11%     13% 8.3%    6% 15%
     things harder than they needed to be, that work experience in health
     would be more useful than an online course, and again, views were          Response by       GI         Super Invest & Bank & Health Other
                                                                                                          Life
     expressed that Part III Module 1 should only be about investments.         Practice Area                      Fund Mgt Fin
                                                                                Yes               88%    83% 97%     89%     91% 100% 84%
     Q11. Do you support Council’s (in principle) decision that the Institute   No                12%    17% 3%      11%      9%    0%    16%
     should continue to offer Course 5A and 5B Investment Management and
     Finance beyond 2012?                                                       A strong majority was received for this option.

     Response by            Overall    Fellows Associates Actuary Students      Associates and Students had the lowest level of support amongst
     Member Type                                                                the Member Type category. There was unanimous support from
     Yes                     93%        93%       93%       85%       95%       those who last studied before 1986, the 50-59 age bracket and
     No                       7%         7%       7%        15%        5%       those who practice in health insurance.


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                        report / letter              33




                                                                                                                    ▲
Comments from those who voted ‘yes’ included that knowledge              of the above mentioned investments related options. In due course,
of investments was critical for actuaries that perhaps we could          everyone will come through university doing Part II 2011 and will
do better than just requiring the Investments Bridging Course,           have the minimum investments knowledge to meet the International
and those who felt that we should not move away from having              Actuarial Association’s Fully Qualified Actuary (FQA) standard. The
compulsory investments at Part III level.                                Investments Bridging Course may need to continue for several years
                                                                         until this situation arises.
Comments from those who voted ‘no’ included that there were
already enough hoops to jump through and things were already             Conclusion
confusing enough, and that the Investment Bridging Course was not        Overall a majority of respondents supported each of the proposed
ideal as its assessment uses only multiple choice questions.             options. It was also good to see that in almost all cases, the
                                                                         responses to each option by member type, gender, age, most
Several commented that students should be required to complete           recent year of study, and practice area were similar to the overall
Part II before becoming Fellows. There seems to have been a              responses. ECC therefore recommended to
misunderstanding that “students who have not completed Part II           Council that there were no reasons to modify the
2011” means “students who have not completed Part II”. Students          original proposal. ▲
who complete Part II 2011 (Part IIA The Actuarial Control Cycle
and Part IIB Investment and Asset Modelling) will not be required        Philip Latham
to take further investments related options. It is only students who     Head of Education
completed Part II before 2011 who will be required to take any one       philip.latham@actuaries.asn.au



  Letter to the editor

Dear Editor                                                              My simple calculations say that if a student fails each Part III exam



I
   n the June edition of Actuary Australia, the President of the         once before passing it on the second attempt, then the Institute
   Institute, Barry Rafe, responded to my previous letter expressing     will gain four more exam’s worth of revenue and forego two years
   concerns about the cross-subsidisation of membership fees by          of a Fellow’s membership. Whilst there are assumptions about the
the education charges levied on the students.                            revenue and expenses related to each of these, it would appear
                                                                         that this would result in a net gain to the Institute.
As I acknowledged, the disparity between the education revenue
(nearly $4million) and the expenditure would need to be reduced          As for the disparity in membership fees between Fellows and
by the allocation of the education-related staff and the allocation of   Associates, it would seem to me that from a business perspective,
overheads. Once these, and the education grants both Barry and I         it is better to collect some membership revenue from these
mentioned, are taken into account, there was still a profit of around    members – whatever the amount – than none at all. If the fees were
$500,000 made from providing education services to the students          set too high for the Associates, for which Institute membership
in the 2010 financial year.                                              may not be a necessity for these members, I would imagine fewer
                                                                         of them would remain members and overall revenue levels would
I was disappointed to see that President didn’t explicitly               fall. So, whilst their fees are lower for access to similar services, it
acknowledge the level of profit generated from the education             appears to me that they are assisting in spreading the fixed costs
program in 2010. Moreover, in my previous letter I asked a series        of the Institute by at least contributing something.
of questions which were not addressed within the President’s
response. If there is a $500,000 profit made by the education            Let me make it clear that I am not critical of the way the education
program, shouldn’t some of this money be invested back into the          program of the Institute is administered. My letter was attempting
education program? I also asked whether or not the Institute held        to address the lack of clarity between the revenue and expenditure
any concern that by failing to invest this money into the future         of various Institute activities. If there is an operating profit from the
Fellows of our profession, we were laying the foundations for            education program, as it appears from the President’s response,
future problems to arise in the quality of advice we are giving our      then perhaps the Institute could consider some of the suggestions
respective businesses.                                                   I outlined in my original letter, including: separately funding
                                                                         members to allow them to do a comprehensive review of the
My original letter was not suggesting that the Institute maintains       Institute’s education material, providing increased tutorials and /
lower pass rates to maintain a revenue stream, but rather that the       or greater access to mentors, paying volunteers a greater sum of
lack of clarity in the Financial Statements could lead people to         money to mark each exam paper. ▲
draw that conclusion.

In his response the President referred to flaws in what he called the
‘revenue grab’ argument due to the disparity of membership fees          Dave Millar
between Fellows and Associates and I’m not quite sure why this           tdmillar@gmail.com
is true.


                                                                                                 A C T U A RY A U S T R A L I A ■ August 2011
34   report




          Welfare
          Working
          Group
          – NEW ZEALAND

     T
                  he Welfare Working Group (WWG) is the last of three              coverage being based on any prior contributions. The primary factor
                  working groups setup over the last two years by the              for this was to ensure universal access to assistance irrespective
                  New Zealand Government to consider specific social and           of the past. Nevertheless, the group concluded that the NZ social
                  economic matters; Tax, Savings and Welfare. Completing           assistance system needs substantial reform if it is to be socially and
     their final report in February 2011, the NZ Government has now                economically sustainable and proposed two fundamental changes:
     responded to the report with their views.
                                                                                   ●   establishment of a new single work-focused welfare payment to
     Welfare is naturally an important subject in any society, raising social,         replace all existing categories of benefit, to be called Jobseeker
     economic and political issues; and the report was hard-hitting with               Support; and
     43 recommendations. This article summarises the findings and
     opens up some interesting actuarial aspects that emerged from                 ●   establishment of a delivery agency, Employment and Support
     their work.                                                                       New Zealand, which will implement the new approach.

     The WWG was established by the Ministry of Social Development                 The group proposed that all people seeking welfare support would
     (MSD) in April 2010 and chaired by Paula Rebstock, a former                   apply for Jobseeker Support. This common support would start
     chair of the Commerce Commission. Its brief was to undertake                  with an assumption that people can potentially all work in some way
     a fundamental review of the New Zealand welfare system and                    (even if not immediately) and would send strong signals to society
     consider ways to reduce welfare dependency for people of working              about the value of paid work.
     age, with a few out-of scope topics, for example NZ Superannuation
     and the ACC Stocktake.                                                        Everyone would transition through up to three streams; the first
                                                                                   is the Jobseeker stream expecting most people to take steps
     The working group followed an established pattern of three phases:            immediately to move into paid work, including applying for job
     by first identifying the issues, then raising options and finally reporting   vacancies. The second, a Transition to work stream for people with
     on conclusions. These working groups have provided a useful                   significant barriers to securing and maintaining paid work, would still
     background of facts, thinking and ideas relevant to their subject.            have a default expectation that they would be able to secure paid
                                                                                   work, but there would be a more flexible, tailored approach to take
     The WWG findings were centred on eight key themes to improve life-            account of their particular circumstances.
     time outcomes for people at risk of long-term welfare dependency:
                                                                                   In the final stream, the Long-term support stream for people with
     ●   A stronger work focus for more people;                                    permanent and severe impairment, the initial presumption would be
     ●   Reciprocal obligations;                                                   that they may have some ability, if appropriately supported and not
     ●   A long-term view;                                                         the assumption of no ability to work. If employment is found to be
     ●   Committing to targets;                                                    inappropriate, they would be provided with long-term support with
     ●   Improving outcomes for Māori;                                             an aim still to achieve social participation.
     ●   Improving outcomes for children;
     ●   A cross-Government approach; and                                          The WWG proposed consideration of a Crown entity model for the
     ●   More effective delivery.                                                  agency (as for NZ ACC), which unlike a Department, sits at arm’s
                                                                                   length from central Government and has external expertise through
     On balance, the group believed that New Zealand should continue               its Board. Performance management would be based on delivering
     with a social assistance approach to welfare provision rather than            contractual outcomes.


     AC TUARY A U S T R A L I A ■ August 2011
                                                                                                                                              report       35




                                                                                                                                          ▲
The various Welfare Working Group reports and some of the              future liability as at June 2009 of benefit expenditure for people on
issues and options documents can be found at: http://ips.ac.nz/        working age benefit (ie people currently on benefits) to be between
WelfareWorkingGroup/Index.html.                                        NZ$44 billion and NZ$57 billion (taken as NZ$47 billion in the
                                                                       report). This is represented by 355,000 people on benefit at an
Some interesting actuarial aspects                                     average of between $125,000 and $160,000 forward liability per
The WGG received a number of interesting papers and presentations      person. Invalid and Domestic Purposes benefits represented the
that compared social welfare provision with the insurance sector in    largest component of this liability. A target is proposed to reduce this
terms of approach, learning and opportunity. Whilst there are some     liability by 28% from $47 billion to $34 billion by 2021.
similarities between social welfare, private insurance arrangements
and statutory insurance schemes, it is more the differences that       The basis for this assessment is that experience over 1999 to
provide insight: the insurance approach provides a greater focus       2009 forms a reasonable base for the future with no significant
on risk, costs and the management of claims linked directly to the     change in social welfare policy and no increase to benefits payable.
funding approach and with greater transparency between funding,        The estimate range is the result of a high and low view of future
pricing and performance (Martin Jenkins).                              unemployment. The liability figures provided above were not
                                                                       discounted but using a discount rate of 6% would reduce the liability
Another feature raised by ACC in their Overview for the Welfare        range to between $29 billion and $34 billion.
Working Group paper relates to the concept and role that an
‘actuarial release’ can play linking the impact of management          In addition to the calculation and use of ‘forward liability’, the WWG
improvements to economic results.                                      recommended that the new work-focused welfare system should:

Actuarial release is defined by ACC as the difference between a        a) explore the setting up of a distinct welfare fund to cover the
current and previous estimate of the outstanding claims liability,        costs of the welfare system, with the ultimate possibility of
plus cost savings realised during the period, compared to original        partially funding the system;
expectations. The measure attempts to isolate the impact of internal
operational management on financial outcomes with adjustments          b) manage the Crown’s contribution to such a fund on a contractual
to the calculation that remove the impact of external factors such        basis that specifies the outcomes expected from any investment;
as changes in economic conditions, legislation, and other factors         and
beyond the control of management.
                                                                       c) use the forward liability approach to share the risks between
The diagram below presents the concept of actuarial release.              Government, employers and local organisations.

                                                                                                 Some of the recommendations may be
                                                                                                 politically unpalatable and the Government
                                                                                                 has responded by forming a group of
                                                                                                 eight Ministers to consider the report’s
                                                                                                 recommendations. In the meantime, MSD and
                                                                                                 Treasury are currently assessing the feasibility
                                                                                                 of the forward liability approach in more detail.

                                                                                              The roots of the actuarial profession were
                                                                                              strengthened in the 18th and 19th centuries
                                                                                              with the development of actuarial mathematics
                                                                                              to help measure and find sustainable solutions
                                                                                              to social welfare issues.
                                                                                              Perhaps in the 21st
The Welfare working Group proposed a long term view be taken           century there is a chance to extend these
with the welfare system recognising the value of investing early to    roots into yet further and wider fields. ▲
reduce the long-term social, economic and fiscal costs of welfare
dependency. One of the key themes from the WWG report of direct        Charles Hett
relevance to the actuarial profession alongside this long-term view    Head of Actuarial Services
is the concept of a ‘forward liability’.                               charleshett@deloitte.co.nz

The group recommended adopting an actuarial approach to                  The papers considered for the above article were:
                                                                         •	WWG	 Executive	 Summary	 –	 Final	 Recommendations,	 WWG,	 February	
measuring this forward liability which would be an important feature
                                                                             2011.
and measurement of any reform. The proposed new ‘Employment              •		 Overview	for	the	Welfare	Working	Group;	ACC,	September	2010.
and Support New Zealand’ entity would become directly responsible        •		 Lessons	 from	 Insurance	 for	 Welfare;	 Martin	 Jenkins	 &	 Associates,	
for reducing this calculated forward liability.                              September 2010.
                                                                         •		 Future	liability:	estimating	time	on	benefit	and	the	associated	cost;	CSRE	
                                                                             – MSD, October 2010.
Some preliminary investigation work by MSD staff assessed the


                                                                                                   A C T U A RY A U S T R A L I A ■ August 2011
                       20 – 22 November 2011 • Sofitel briSbaNe




Accident compensAtion seminAr
CHANGING TIMES – CONTINUING NEEDS
                                                     2011
registrAtion noW open




register noW for this important industry event at:
www.actuaries.asn.au/Acs2011
                                                                                                                     CEO’s Column                  37




  On Failure...

I
     blame it on Martin Mulcare                                            in feeling that way. I have lost count of the number of people who’ve
     On 1 July last year, Martin (who has been training the Institute      said to me “but of course I’m not a real actuary”.
     staff on customer service amongst other things) sent me an
     e-book as a happy new financial year present.                         I have also had many actuaries confess to me that they took a long
                                                                           time to pass their exams. I was in a meeting just last week with a
The book is called ‘180 Life-Changing Motivational Quotes,                 senior, respected actuary in an influential position who made this
Compiled by James Adonis’*. A fair slab of the book contains               confession to me. He said it with shame, and I could almost hear
quotes on failure. One quote particularly caught my attention:             the echo of “I’m not a real actuary”.

“Failure is an event, never a person; an attitude, not an                  I’m still waiting to find out who these mythical real actuaries are!
outcome.” – Zig Ziglar                                                     An actuary is no longer simply someone who works in insurance or
                                                                           defined benefit superannuation.
I knew immediately why this quote resonated with me. It’s because
for many years I considered myself to be a failure.                        When I look at my career, at this other person’s career who also
                                                                           took a long time to pass, at the careers of many of our Associate
After sailing through university without failing any exams, I ran          level actuaries (who perhaps decided life was too short to spend
up against the brick wall of the Professional (now called Part III)        nine years with no social life), you can hardly say we have not been
exams. Back in those days (1990’s) we had to sit four exams – Life         successful (modesty was never my strong point). And you can
Insurance, Superannuation, General Insurance and Investment.               hardly say we do not deserve to be actuaries.
We had to sit two at ‘ordinary’ level (a three hour exam) and the
other two at ‘specialist’ level (two three hour exams in one day).         Why we need to fail
No matter where you were working, you had to pass three difficult          Looking at some of the other quotes in the book it painted more of
exams in another field. It was a nightmare.                                the picture:

I sat those exams (with a year off in the middle) from 1989 until          “You may not realise it when it happens, but a kick in the
1997. I sat one of those exams four times – under two completely           teeth may be the best thing in the world for you” – Walt Disney
different syllabi. I passed one exam in my first four years working at
a life company with large amounts of study leave. For the last five        That was certainly the case for me. When I started those exams
years I was studying, I was working extremely long hours in wealth         I was an arrogant 20 year old who thought that I was way too
management without any study leave. That’s actually when I had             good to be doing the menial work I was given in my life company
my best successes passing the other three of the four exams.               job. In my opinion I was pretty much ready to take on a senior
                                                                           management position. Over the next nine years of pretty much
It has taken many years for me to get over my repeated failure.            constant failure, I developed patience, fortitude, resilience and
When I read that quote, it initially brought all these thoughts and        perseverance as well as some skill and knowledge. Most of all,
feelings back – thanks Martin! Then I really read the quote. It was        I developed humility (well, more than I’d had previously anyway!)
saying that a person is not a failure, just because they have failed
in something. Or put more eloquently:                                      My father has a term for times of adversity – he calls it ‘character-
                                                                           building’. (He usually pulled that term out when we were still 10km
“I have not failed. I’ve just found 10,000 ways that won’t                 from the car on some horrendous three-day bushwalk when I was
work.” – Thomas Edison                                                     a kid).

Am I a real actuary?                                                       Failure helped build my character. It made me a better human
Although a Fellow of the Institute of Actuaries I was working in a non-    being, and it certainly made me a better employee and business-
actuarial field and so for many years felt like an imposter... someone     person by my late 20’s. It’s around that time that my career really
who did not really deserve to be an actuary.                               took off. Looking back, I can see the connection.

It was only over the last year or so whilst working at the Institute and   What I have come to realise is that failure is necessary for success.
speaking to lots of other actuaries, that I realised that I’m not alone    Failure is the crucible. A crucible is used to “keep the ore in


                                                                                                  A C T U A RY A U S T R A L I A ■ August 2011
38       CEO’s Column
     ▲



     the area where the heat was concentrated to separate it from
     impurities before shaping”**. Perhaps failures, like mine in the
     actuarial exams, are the experiences by which we are melted down
     and all our impurities are removed. We come out stronger, purer,
     and shaped into something better.

     If you’re not falling over...
     When I was being trained to ski race when I was a teenager, I had
     good technique but liked to ski in control so I was quite slow. Our
     coach was trying to get us outside our comfort zone – to get us to
     ski faster. He told us that if we weren’t falling over, we weren’t skiing
     hard enough.

     Perhaps the people who don’t experience failure are those who
     are not trying hard enough. They are not pushing the limits of
     their abilities, being audacious, going outside their comfort zones.
     In short, they are not taking risks. (You may say “perhaps they
     are just really good”…but then those people should be pushing
     themselves further than everyone else so they are also outside their
     comfort zone.)

     As actuaries we are trained to minimise risk. It’s easy to see the risk
     in trying something new… perhaps a change of career to an area
     where we have little experience.

     But what if the biggest risk – the tiger in the room that will slowly
     tighten his jaws around our necks (as Simon Longstaff said at
     Convention) – is the risk that we get complacent and perform below
     our abilities? These ‘tiger-esque’ risks are hard to see. They creep
     up on you.

     Does our training in risk minimisation give actuaries the habit of
     avoiding risk in our personal life and careers? Do we prefer to ski
     safely and in control, looking great but ultimately losing the race?

     The challenge!
     I challenge you to find something to undertake that will push you
     out of your comfort zone. Perhaps it’s volunteering for a project
     or taking on a new role that will stretch you. Maybe it’s a sporting
     venture such as a half marathon or an ocean swim. You could learn
     a language; volunteer for a charity that will see you mixing with                  Business luncheon on 22 June with denis Wilkinson – ApRA’s View on the
     different people, or perhaps join toastmasters and overcome your                   diversified institutions Market; l to R: Christine Cameron, Sponsor – Russell
     fear of public speaking.                                                           investments, denis Wilkinson ApRA, institute Senior Vice president david
                                                                                        goodsall and CEo Melinda Howes

     Whatever it is, if you feel uncomfortable when you think about doing
     it, you’re on the right track.

     A final word for those studying the actuarial exams:

     “If you’re going through hell, keep going.” – Winston Churchill

     ▲
     Melinda Howes
     melinda.howes@actuaries.asn.au

     * www.jamesadonis.com
     ** Rehren Th., 2003, Crucibles as Reaction Vessels in Ancient Metallurgy, Ed in
         P. Craddock & J. Lang, Mining and Metal Production Through the Ages, British
         Museum Press, London p208.


     AC TUARY A U S T R A L I A ■ August 2011
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 • Necessary cultural sensitivity to work across            • Ability to manage a team especially under                experience within GI
    different regions                                         tight deadlines                                        • Experience in facultative reinsurance pricing is
 • Ability to work independently and be hands on            • Good interpersonal skills with local and                 preferred but not essential
   with actuarial work                                        regional colleagues                                    • Strong communication skills with Asian language
 • Asian language skills are preferable but                 • Hands on role requiring strong                           skills preferred
   not essential                                              technical competency                                   • Advanced Excel skills including VBA
 • Great step up for an experienced Actuary looking         • Great opportunity for a deputy AA to make              • Qualified Fellow preferred, although Associates
    to move into management                                   the step up                                              with strong relevant experience also considered
 Contact James Lecoutre for more information.              Contact James Lecoutre for more information.             Contact James Lecoutre 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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