July - Issue 191 - Institute of Actuaries of Australia

56 Pages·2014·5.38 MB·English

Actuaries
The magazine of The acTuaries insTiTuTe JuLY 2014 ISSuE 191
Focus on Asia:
6 Review
Standing at the
C-ROSS of China’s
Insurance History
10 Comment
Micro-insurance in the Philippines
14 Review
Actuarial Careers in Asia –
An Update
20 Comment
Asian Insurance
26 Leading Actuary Profile
A Social Actuary – Interview with
Sarah Johnson
32 Event Report
Catastrophe Risk Seminar
18th East Asian
The 18th East Asian
Actuarial Conference (18th
Actuarial Conference
EAAC) is organised by
the Actuarial Institute of
Chinese Taipei (AICT) and
W
ith the theme of Risk﹐ Challenges and Opportunities,
will take place in Taipei
the 18th EAAC provides a forum for speakers to
from 12 –15 October 2014.
share their views on risks and challenges across
Life Insurance, General Insurance, Health Insurance,
Risk Management, Pension and Social Security and also explore
opportunities, especially in Asian markets.
An excellent program has been developed with an estimated 36
parallel sessions being run for delegates to choose topics they are
interested in. Networking opportunities are numerous including the
Welcome Reception and Farewell Dinner with excellent food and
entertainment.
There is also a great social program with six city tours to explore
Taipei’s beauty, learn how to make Xiao Long Bao (dumplings) or
experience the Tai Chi in Taipei!
Find out more and register now www.actuariesasia.org
Contents
EvEnTS
4 Coming Up
EdITOrIAl
5 Myopia ❙ Sharanjit Paddam
rEvIEw July 2014 • ISSUE 191
6 Standing at the C-ROSS of China’s Insurance History
– An Outline of China’s Risc Oriented Solvency System
❙ Dr Zhao Yulong
COmmEnT
10 Micro-insurance in the Philippines ❙ Sachi Purcal /
Peter Carroll
rEvIEw
14 Actuarial Careers in Asia – An Update
❙ Jas Singh / John Killick
rEpOrT
16 No Fork Required – An Australian Traveller in Asia’s
Insurance World ❙ Alissa Holz
rEpOrT
18 An Equatorial Perspective – Experiences in Malaysia
❙ Tim Howell
COmmEnT
20 Asian Insurance – Still a profitable high growth market 6
for the next decade? ❙ Arjan van Veen
COmmEnT
22 An Analytics Minded Actuary’s Guide to MOOCs
❙ Dimitri Semenovich
lEAdIng ACTUAry prOfIlE
26 A Social Actuary: Putting Passion into Practice
– An interview with Sarah Johnson ❙ Alice Crowley
COmmEnT
28 Actuarial Transformation – The Future Actuary
❙ Kaise Stephan / Caroline Bennet / Mathew Ayoub / Senthooran Nagarajan
COmmEnT
30 The Winner’s Curse ❙ Colin Yellowlees
EvEnT rEpOrT
32 Catastrophe Risk Seminar ❙ Ashish Ahluwalia
UndEr ThE SpOTlIghT
35 Brnic Van Wyk
ThE ACTUArIAl pUlSE
36 Working in Asia ❙ Solai Valliappan
In ThE mArgIn
38 You are Here ❙ Genevieve Hayes 10
ASk gAE!
39 Cheerio ❙ Gae Robinson
ACTUArIES TAkIng ThE lEAd
40 The Importance of Reflection ❙ Martin Mulcare
EvEnT nOTICE
42 Actuaries Summit 2015 – Take the Lead
ACTUArIES AT plAy
44 Cissy Zhang
yOUng ACTUArIES prOgrAm
47 Developing Stronger Client Relationships ❙ James Morris
rEpOrT
48 See What We See ❙ Katrina McFadyen
nOTICE
51 Welcome to New Members – May 2014
m
O nOTICE
C
k. 51 New Zealand CPD Tour – Maximise Your Contribution
C
O
Rst prESIdEnT’S COlUmn
E
utt 52 Perception ❙ Daniel Smith
h
– s CEO’S COlUmn 26
kyu 52 Let’s Go Digital ❙ David Bell
R
ha nOTICE
as 54 General Insurance Seminar and Enterprise Risk
R:
VE Management Seminar, Early Bird Registration Opens –
O
© C 1 September 2014
July 2014 Actuaries 3
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Coming up
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4 Actuaries July 2014
Editorial Sharanjit paddam
[email protected]
@sharanjit
myopia
N
ow that the dust is settling from the initial flurry of
immediate responses to the first budget of the new
Australian government, some of the long-term implications
are becoming clearer.
From an actuarial point of view, the big win was the increase in
the retirement age for the Aged Pension to 70 by 2035, thereby
ensuring our pension system remains sustainable. Of course, more
reform is required to the post-retirement system, especially as the
number of over 65s is set to double over the next 30 years to 22%
of the population.
The Treasurer clearly understands the power of compound
interest, and has adjusted indexing in many areas: aged pension, fuel
excise, overseas aid, tax brackets, university funding, and student
fees, to name a few. It is a way of back loading the cuts, and hoping
the public will not feel the pain until after the election.
Sadly, this long-term view seems to be lacking in other areas,
and very little thought seems to have gone into the long-term
consequences and risks of tackling the deficit so aggressively.
The Asbestos Safety and Eradication Agency has received a 10 per
cent cut in funding. Considering the potential health and social costs
of a third wave of asbestos related diseases, this seems to be pointless penny Myopia, commonly known as
pinching at best, and ideologically driven at worst. short-sightedness, translates
Geoscience Australia, responsible for research into earthquakes – the most literally from the Ancient Greek
devastating natural disaster we are exposed to and know least about – is as ‘shut eye’. As Jonathan
losing 96 jobs. The Bureau of Meteorology is facing 58 job losses, potentially Palmer, the Australian Statistician
reducing our ability to measure, research, and record weather patterns in says, “The quality, integrity and
general, and cyclones in particular. There is not much prospect for increasing relevance of our statistics are
Australia’s resilience to natural disasters and the impacts of climate change. critical to informing effective
On the back of cuts made by the previous government, the Australian decision making and we must not
Bureau of Statistics must now reduce expenditure by $50m over three years. lose sight of that as we plan for
This has resulted in reduced research and development and discontinued the future”.
series, the most ironic of which is ‘Measures of Australia’s Progress’.
The deregulation of university fees, together with the increased interest
rate on student loans can only lead to a reduction in the number of students
who go on to do a PhD. Without young people committing to scientific
research, our ability to innovate and improve productivity will inevitably
degrade over the long term. The big vision seems to be an economy driven by
goodbye to Ask gae!
ever-bigger holes in the ground, and rickety houses on the ever-encroaching
It is with tremendous sadness that
beach.
we say goodbye to Gae Robinson
Even where the government has decided to invest in the future, there are
this issue. Gae has been writing
significant downsides. We are funding the infrastructure of the past like roads,
her column for nine years, and
but scalping the infrastructure of the future like broadband to the premises.
this last will be her 50th. Over that
COm Even the Medical Research Future Fund is being funded by the Medicare co- time, her column has provided
OCk. payment, which seems very likely to reduce early and preventative healthcare genuine, heartfelt and wise advice
ERst by poorer Australians, and risk much higher health costs in the long-run. To to all our readers. It’s regularly
utt add to future health costs, Health Workforce Australia forecasts a shortage of been our most read section and
h
–s 109,000 nurses by 2025, even before we consider whether young people will has almost become synonymous
dRay continue to train as nurses if they must pay more to study and the expected with the magazine itself. We wish
E
kEl salary remains so low. The government has dealt with this by shooting the Gae all the best and thank her for
a+mi messenger – the HWA is no more, and with it goes any coordinated response all her time and hard work.
ny to training doctors and nurses after 2016.
h
ys
V
Ras Sharanjit paddam
© ta
July 2014 Actuaries 5
review dr Zhao yulong
[email protected]
Standing at the
C-ROSS of China’s
Insurance History
– An Outline B
ACkgrOUnd
After enjoying a few decades of rapid growth, China’s insurance
industry had accumulated total assets of USD 1.34 trillion at the
of China’s Risk end of 2013. The annual premium, with an annual growth rate of
18% in the last ten years, reached USD 0.27 trillion in 2013.
The market may be booming but the insurance industry is also facing
several issues:
Oriented Solvency
• risk management capability is generally weak and not in line with
market growth;
• capital efficiency is low due to the volume-based solvency regime;
System (C-ROSS) • long-term investment is not performing well; and
• expenses are high.
As a result, a few cases of ‘not looking after the interest of customers’
were seen in recent years, including misleading sales and difficulties
making insurance claims.
The China’s Insurance Regulation Commission (CIRC) conducted an
analysis and concluded that the existing simple, but overly strict, regulation
environment had contributed significantly to these issues arising.
Currently, the CIRC operates a factor-based solvency system similar
to Europe’s Solvency I regime. It is volume driven and focuses on the
quantitative assessment with no risk management requirements. Due
m
to the lack of any links between risk management and the regulatory O
C
capital requirement, there is no incentive for insurance companies Ck.
O
to build comprehensive risk management frameworks. This system Rst
E
worked well in the early stages of market development and served utt
h
as the first step to the solvency management of insurance companies –s
x
a
in China. However, the market’s self-discipline mechanism is weak m
under this system, and the regulator has had to strictly regulate ulti
©
6 actuaries July 2014
review continued
The market’s self-discipline mechanism
is weak under the current system, and
the regulator has had to strictly regulate
insurers at the front line.
insurers at the front line, i.e. the premium rate, • Solvency Modernisation Initiative from the National
investment channels, product terms and conditions. Association of Insurance Commissioners in the US;
This approach is not in line with the overall • Risk-Based Capital 2 from the Monetary Authority of
objective of China’s market-oriented reform of the Singapore; and
financial industry and the CIRC’s strategic goal to • Life and General Insurance Capital from the Australian
“open up the front, regulate the back”. Recognising Prudential Regulation Authority.
these shortcomings, the CIRC decided to launch a A great deal was learnt from these recently developed
project to develop a new regulatory framework to principles and systems. In the interim we also realised
reduce front-line regulation and to strengthen the that China has its own characteristics as an emerging
insurance industry’s market economy. As a result, market and that no single regulation fits all markets.
the C-ROSS project was launched in April 2012. C-ROSS has been developed to meet local market needs
– but it may also be useful to other emerging markets.
C-rOSS
To develop the new system, the CIRC conducted a SkETCh Of C-rOSS
thorough study of regulation and supervision trends Similar to the Basel system, C-ROSS adopted a ‘three
across the globe for example: pillar’ solvency framework. However, by developing China-
• Insurance Core Principles from the International specific approaches and placing different emphasis in
Association of Insurance Supervisors; each pillar, China’s ‘three pillar’ framework is intended to
• Solvency II from Continental Europe; fully reflect its own evolution.
C-ROSS Framework
C-rOSS framework
Value
Company
Pillar III information
disclosure
Liquidity risk
management
Regulator
information
disclosure
Pillar II Integrated risk
rating(IRR)
Solvency aligned risk
Solvency Ratio management
requirements and Credit Rating
assessment
Stress Test (SARMRA)
Pillar I Regulatory Measure
Quantifiable Risks ESM(Enterprise Solvency
Supervise-able Risks Management )
Overall Risks

0
July 2014 Actuaries 7
review continued
pIllAr I – QUAnTITATIvE Stress testing is another important
ASSESSmEnT quantitative measure of solvency. If the
There are five key components under Pillar I, solvency ratio is an indicator of a company’s
including: current solvency, stress testing reveals the
1. own fund; sustainability of a company’s solvency. We
2. minimum capital; include mandatory, voluntary and reverse
3. solvency ratios; scenarios in stress testing .
4. stress testing; and Regulatory measures are instruments
5. regulatory measures. to enforce Pillar I regulation. Two solvency
ratios are monitored:the core solvency
Own fund is the difference between ratio (Tier 1 core capital/ minimum
admissible assets and admissible liabilities capital requirement) and the aggregated
and any such capital is classified into four solvency ratio (own fund/ minimum
categories under the technical standards: capital requirement). A company with an
CIrC focuses on four
Tier 1 core, Tier 2 core, Tier 1 ancillary and aggregated solvency ratio below 100%
risks, which are important
Tier 2 ancillary. Lower ranked own funds will have different regulatory measures
but difficult to quantify will be admissible with reference to Tier 1 applied to rectify the problem according to
currently given companies’ core own fund. its specific risk exposure. Whilst a company
Minimum capital is the total capital with a core solvency ratio below 50%
technical capabilities and
requirement, and consists of inherent risk, for a number of consecutive periods will
data availability.
control risk and system risk. Inherent risk have more serious measures applied, like
is the risk that objectively exists in the suspension of new business, takeover and
business activities of insurance companies, restructure by the regulator or moving to
and includes both quantifiable risk and bankruptcy / liquidation.
unquantifiable risk. Quantifiable risk consists
of insurance risk, market risk and credit pIllAr II – QUAlITATIvE SUpErvISOr
risk, whilst unquantifiable risk consists of rEQUIrEmEnTS
operation risk, strategy risk, reputation risk Under Pillar II, CIRC focuses on four risks,
and liquidity risk. which are important but difficult to quantify
The quantifiable risk is calibrated and currently given companies’ technical
assessed by a VaR approach under Pillar I. capabilities and data availability. These
The unquantifiable risk is qualitatively four risks are operational risk, strategy risk,
assessed under Pillar II. Control risk is the risk reputation risk and liquidity risk. As well
that the internal management and governance as the regular supervision measures like
of the insurance company is ineffective or analysis and examination, the CIRC intends
invalid, and as a result, the inherent risk is not to apply the following two supervisory
m
O
identified and controlled in time. The control assessments under this pillar: k.C
C
risk capital is calculated by a scoring system 1. Integrated risk rating (IRR): CIRC RstO
ubyn dtheer Peixlltaerr nII.a Sl yesntveimro nrimske inst t ahned r imska ccarou-sed cinosmurperre’hs eonvseirvaellly r iesvka rlautaintegs b aans ed on huttE
–s
economy and is a global risk in the insurance both quantitative results under Pillar G
n
u
system. It is normally un-hedgeable. There I and qualitative risk assessments ui l
are four types of system risk capital, i.e. the under Pillar II, which will classify E P
risk capital to adjust counter-cyclical effect, a company into four levels of risk, wis ts
capital requirement on Domestic Systemically with different regulatory measures + lE
Important Insurers (D-SII), capital requirement applied according to the risk level. ua
h
on Global Systemically Important Insurers 2. Solvency Aligned Risk Management nG
O
h
(G-SII) and other capital adjustment to defend Requirements and Assessment OZ
u
the system risk. (SARMRA): The companies’ own solvency ©G
8 Actuaries July 2014
review continued
we are standing at a major
crossroad in China’s insurance
history, heading towards an
era of a much more open and
competitive market.
management (COSM) plays an important
role in the C-ROSS regime. CIRC will Timeline of C-rOSS
set up minimum standards of risk
management for insurers and periodically
evaluate their implementation. These
standards will include governance
structure, internal controls, management
structure, processes, and assess
insurance companies’ risk management
capability and risk profile.
One key feature of Pillar II is to motivate
companies to establish a comprehensive
enterprise-wide risk management
framework. This is achieved by introducing
control risk capital, which is determined by
the result from SARMRA assessment under
Pillar II and serves as an adjustment to the
minimum capital under Pillar I. The control
risk capital is a reduction to minimum capital
for companies with a well-implemented risk
management framework and an increase for
companies with poor risk management. The industry will see strengthened market
reform, particularly through market entry
pIllAr III – mArkET SElf-dISCIplInE and exit, investment channels and premium
mEChAnISm rates. Companies with superior risk and
Pillar III incorporates three aspects: the capital management strategies will enjoy
insurance company’s public information improved capital efficiency, higher returns
disclosure; the regulator’s public information on capital and more competitive advantages.
disclosure; and the insurance company’s Last but not least, customers and investors
credit rating. All these will require a more will be better protected by increased
transparent disclosure and enforced disclosure and transparency.
supervision on insurance companies from We are confident that C-ROSS will drive
media, investors, rating agencies, financial the market reform of China’s insurance
analysts and the general public, thereby industry, enhance capital efficiency, inject
maximising the market self-discipline vitality, exploit the market potential and
mechanism. Self-regulation complements strengthen risk management awareness and
m
O
C the C-ROSS system, and overcomes any techniques. Ultimately we envisage a more
k.
C
ERstO limitations in supervisory resources. mbuastiunrees sin dseuvraenlocpem inednut sotpryp owrittuhn iinticerse awsiethdi n
hutt BEyOnd C-rOSS ImplEmEnTATIOn China for international insurers.
–s
R We are standing at a major crossroad in
E
unt China’s insurance history, heading towards Zhao Yulong is the Deputy Director
h
Es an era of a much more open and competitive of Finance (and Solvency Regulation)
G
a
m market. The regulatory environment will Department of China Insurance Regulatory
+ i
OtO be risk-oriented with scientific quantitative Commission.
Ph assessment and comprehensive qualitative
RtistiC assessment. The market self-discipline
©a mechanism will play an important role.
July 2014 actuaries 9
Comment Sachi purcal
[email protected]
peter Carroll
[email protected]
Micro-insurance in
the Philippines
Is Australian style community rating a good model for
developing health micro-insurance in the Philippines?
I
t started at the regular seminars in applied finance and
actuarial studies at Macquarie University, where Sachi’s
interest in microfinance intersected with Peter’s experience
in the Australian health insurance system. It resulted in the
two of us heading to the Philippines in June 2013.
Geographically, the Philippines consists of more than 7,000
islands, clustered in the West Pacific, south of China, east of
Vietnam and north of Indonesia. The terrain is volcanic and the
climate tropical, with frequent earthquakes and cyclones.
Hopping on a plane in Sydney and emerging soon after in
Manila is not quite the culture shock you might expect. Sure,
the scenery is crossed by concrete highways large enough for
fighter jets to use, and there are roadside shanties and
guards with crisp uniforms and big guns. But the American-
Hispanic culture is familiar, English is widely understood and
spoken often.
The people of the Philippines trace their lineage to
prehistory. Magellan dropped by in 1521, just thirty years after
Columbus reached the Americas, and the Spanish colonised
the islands soon afterwards. They ruled for the next three
centuries, the predominant religion became Roman Catholic
and Manila became a centre of the trading between Asia and
South America.
The struggle for independence reached the point of
revolution during the late 19th century and, in 1898, the islands
were ceded to the USA by the Spanish for a price tag of $20
million. They were occupied by Japan in 1942 and re-occupied
by the USA in 1945, after Manila had been virtually flattened
by bombing. The country became a fully independent republic
soon afterwards, with an elected President and bicameral
legislative Congress. Although some legacy of Spanish
occupation remains, today the American influence is evident
everywhere, in the popular culture, clothing and fast food, local
television and film, and the popularity of sports like basketball,
boxing and ten pin bowling.
10 actuaries July 2014