Newsletter June 2006

12 Pages·2006·0.3 MB·English

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TThhee SSoocciieettyy ooff AAccttuuaarriieess iinn IIrreellaanndd
Phelim Boyle: Financial Engineer or
Actuary of the Future?
Honorary Fellow Members of the Society of Actuaries in Ireland with the President on the occasion of the conferring of Honorary Fellow Membership on
Professor Phelim Boyle. Left to right: Chand Kohli, Professor Philip Boland, Professor Emmanuel Buffet, Colm Fagan, Professor Phelim Boyle, Professor
Brendan Walsh, Dr. Garret FitzGerald. (Professor Alastair Wood absent from photograph)
“Phelim Boyle” is perhaps the most actuarial profession - the Redington Contents:
concise answer to the question: what Award, the Centennial Gold Medal, Phelim Boyle: Financial Engineer or
has Ireland ever contributed to and the Dave Halmstad Prize. His Actuary of the Future?
actuarial science? Phelim introduced work, though, has had more influence International News
Monte Carlo methods to price options, outside the profession and this was Pages 1 - 3
co-created the Asian option, authored dramatically acknowledged in Trusteeship Debate
almost 100 papers and wrote or December 2005 when Phelim was Pages 4 - 6
contributed to several books. Aside named the “Financial Engineer of the European Insurance Forum
from his famous contributions to Year” – an award that may be Page 7
financial economics, his publications regarded as the Nobel Prize in Finance Modern Liability Management
range over the full gamut of actuarial (in fact, three out of the other dozen Techniques
science – from mortality to the winners also won a Nobel Prize). Pages 8 & 9
assessment of damages in court cases, Appointment
from tailoring investment strategies to Dr. Boyle qualifed as an actuary (FIA) Page 10
life assurance accounting. in 1972 and would have been the New Qualifiers Reception, Dinner for
18th actuary in Ireland had he stayed. Retired Members, Professionalism
Phelim’s research has been noted by But he left his job as an actuarial Course
Page 11
many awards, including some of the student in Irish Life the previous year,
most prestigious awards of the continued Backpage
Page 12
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June Newsletter2006 · · SAI
Phelim Boyle: Financial Engineer or Actuary of
having played a role in converting interest and mortality – to create Key Ideas in Finance:
the industrial branch premiums into desirable products. Like today, those the Magnificent Seven
the new decimal system, to move to products had embedded options and
1. The No-Arbitrage Principle: two
the comparatively exciting position as guarantees – the option of
identical cashflows must have the
pension consultant at the Liverpool continuation on set terms and a
same price.
office of the consulting actuaries, guarantee on benefits. However, the
2. Mean-Variance Portfolio
Duncan C. Fraser & Co. However, he limitations of the technology of the
Selection: if investment reward is
did not stay long in that position but time required the pooling of money
taken to be the expected return
moved again in 1973 to Canada, first so it loses its identification with an
and investment risk to be the
for an academic position with the individual, which, when coupled with
standard deviation of returns,
University of British Columbia and the commercial requirement to add
and we know these values, then
then, almost a decade later, to the margins, created surplus and the
portfolio selection is a relatively
University of Waterloo where he need to allocate it. The pooling
straightforward optimisation
remains as the J. Page R. Wadsworth system delivers collective security but
problem.
Professor of Finance. While his career at the cost of a rough justice – and,
change to academia was facilitated he emphasized, often we don’t know 3. Capital Structure Irrelevance: the
by the PhD in Relativity he gained just how rough that justice is. The ideal capital structure of a firm
from Trinity College Dublin in 1970, pooling system, with its associated (the optimum debt/equity mix)
his teaching and research was always lack of transparency and broad does not exist (under certain
to be in finance and actuarial science. attempt at individual equity, is now assumptions).
out of step with market demands. 4. The Capital Asset Pricing Model:
The Society of Actuaries in Ireland Crucially, though, the guarantees that a theory that accounts for an
celebrated Professor Boyle’s career on are now demanded by the market fit individual asset’s ex-ante excess
22nd March 2006 when Phelim was uneasily in the pooling system. return (over the risk-free rate) as
made the 7th Honorary Fellow of the Quoting Redington on the “thorny related linearly to the expected
Society. Inevitably, he drew a large area of guarantees” which “attempt excess returns from all risky
crowd, some of whom were his to borrow from the pooling system”, assets.
former work colleagues from his he concluded with Redington that
5. Equilibrium: the notion that the
student days with Irish Life. Prior to such developments are “naturally
expected return and therefore
receiving his fellowship, Phelim set troublesome” in the with profits
the expected price evolution of a
out in his understated manner the model. Dr. Boyle argued that the
risky asset is a function of its
major threat to our profession with optimal modern contract design is
relationship with all other risky
his address, Financial Engineers are unit-linked with guarantees –
assets as captured by CAPM or
Here to Stay. combining the demands for
other market pricing models.
transparency and individual equity,
6. The Black-Scholes-Merton Option
Financial engineers use modern with security provided through the
Pricing Formula.
theories in finance, coupled with guarantees.
sophisticated mathematics and 7. Portfolio Selection in Continuous
numerical methods, to create and So what toolkit, aside from Time: a key result is that a risk
manage desirable financial products. mathematical aptitude, is necessary averse investor who wishes to
In a job brief that is uncomfortably to design and manage such products? maximise expected utility will,
similar to that of an actuary’s, he Phelim outlined the “magnificent under certain assumptions,
outlined how they design, construct seven” insights that financial maintain a constant fraction of
and price products in trading rooms, economics has given over the last their wealth in risky assets, the
model and construct hedges, develop half-century (see box). Perhaps the fixed proportion given by the
trading strategies to mitigate risk and surprise on the list is portfolio Merton ratio. i.e., [risk premium
build risk management systems. selection in continuous time, the field on risky assets]/[variance of risky
Quite simply, financial engineers created by Merton, but Phelim insists asset returns x individual’s
answer a demand for sophisticated that this was not there just to make relative risk aversion factor]
financial products, often with up the number but that “Merton’s
embedded guarantees and options. model is as beautiful as the Black-
Scholes-Merton formula” and
Actuarial science, of course, used necessary to cope with dynamic
cutting-edge mathematics at the time investment conditions.
of its genesis – probability, compound
2
SAI · · June Newsletter2006
the Future? International News
...continued
Phelim took us through an optimal
Group Consultatif eNewsletter International Presidents’ Meeting
contract design he was working on
with a collaborator, Weidong Tian. It This Newsletter is an excellent Every six months, a meeting or
was an unapologetic academic summary of current international "forum" of the presidents of
treatment that attempted to square- matters that are likely to affect actuarial associations worldwide
the-circle of a product that maximises actuaries over the next few years. takes place in conjunction with
the policyholder’s utility subject to a It has both technical and general other meetings of the IAA
content. It is available on the (International Actuarial Association).
maturity guarantee and, with a set
Groupe Consultatif's website
probability level, delivers the upside
www.gcactuaries.org/enews10.html The next Presidents' Forum takes
of an equity index. This is a
place in Paris on Sunday 28 May.
generalisation of the standard
It will be focusing on six topics
guaranteed equity tracker and he
identified at its last meeting as key
briefly explored under what priorities for the IAA and its
IAA Life Section
conditions the product exists. member associations:
If you wish to join the new IAA Life
He concluded his address by arguing Section, please contact the • Actuarial involvement in banking
that financial engineers and actuaries Society. and financial management
can learn a lot from one another.
• Risk management
While the examples he employed
• Education and CPD (including
were drawn from insurance, his
the proposed development of an
arguments carried through to
International Actuarial Education
pension schemes. Financial engineers
Programme)
are strong on technique but actuaries
– the oldest risk management • Branding and marketing the
profession in the world – have the actuarial profession
advantages of quality control in • Operations and governance
technical competencies, within the IAA (including the
professionalism and discipline. He relationship between the IAA
finished with a question: can we and its member associations
combine the best of both worlds? around the world)
• Value added by the IAA
It was clear by the end of his address
that the threat to our profession was The Forum will be attended by
not financial engineers but our own presidents of 48 actuarial
inertia. While a young pupil in associations from all over the world,
Dreenan School in County Derry, including Colm Fagan, representing
Phelim was nick-named the Bard of the Society of Actuaries in Ireland.
Armagh but his message was first put
in verse by another Irish poet:
It seems again that it is time to learn,
In this untiring, crumbling place
of growth
To which, for the time being, I return.
Thomas Kinsella, Mirror in February.
Shane Whelan
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June Newsletter2006 · · SAI
Trusteeship Debate
On 2 March, the President Colm and that, in the current environment, recent changes, there needs to be
Fagan chaired a debate on Trusteeship trustees have a valuable role to play significant re-examination of the role
in Ireland. Jimmy Joyce and Patrick in managing the risks associated with of the trustees and also how they
Burke spoke on the proposition that pension schemes. interact with the employer.
“Trusteeship Contributes Positively to
Pension Scheme Governance” while He stated that, in the current climate, His contention was that rather than
David Kingston’s and Ciaran Long’s trustees should ensure that they do trying to act as the management of a
proposition was that “The Trusteeship not play a passive role and they pension scheme, the trustees would
Model Requires Fundamental Reform.” should become more engaged in be better acting in an oversight role
ensuring the good governance of i.e. effectively acting as a non-
Jimmy Joyce schemes. To do this effectively, executive director would do within a
trustees would need the assistance of normal company management
Jimmy outlined that, in his experience,
the various experts associated with structure. He felt that while the
the current trusteeship model had a
the running of pension schemes. trustees did not have the capacity to
positive effect and that the
make detailed financial decisions
involvement of trustees assisted in
Jimmy stated that there was also a themselves, they were strongly
good governance of schemes. He felt
conflict between the amount of positioned to question and query
that trustees should seek the advice
information that was provided to those decisions made by the
of experts, as necessary, and engage
members and the associated costs. In management of the company or, in
in robust dialogue with those experts
some cases, he felt that the regulator this case, the management of the
to ensure that trustees are provided
was putting too much emphasis on pension scheme and play a useful
with all relevant information required
providing information which was of role in this capacity.
to carry out their role.
limited use but which substantially
increased the costs associated with He suggested that while this role had
One of the trustees’ key roles is to
running the pension scheme. been well fulfilled in the case of some
provide security for members’ accrued
large pension schemes, as schemes
benefits and to ensure pension
Overall, Jimmy’s view was that the get smaller this process becomes far
schemes are managed separately
role of the trustee was now more less satisfactory. He also felt that in
from the business of the employer.
useful and relevant than ever before many such cases the trustees may not
In the absence of trustees, this
and that, while there were alternative fully understand the risks and as such
independent role would be removed
models, trusteeship still provided the the current role of the trustees acting
and any changes undermining
best option and that this was equally as the management of a pension
trusteeship may result in the removal
as applicable to defined contribution scheme is not suitable.
of independent intermediaries.
plans.
As a result, David believes a change
Jimmy felt that the greater questioning
David Kingston should be made to the role of trustees
of the role of the trustee was partially
to address the fact that the
as a result of a desire to look for a David spoke in favour of the reform
trusteeship model is not working for a
scapegoat for recent problems of the trusteeship model. He felt that,
vast majority of Irish pension schemes
experienced by Irish pension schemes prior to the last 5-10 years, there had
and requires significant reform.
and that this was unproductive. been a great amount of stability
Instead, he believes it is important to within the pensions industry. However,
Patrick Burke
accept that it was a combination of in recent years there had been
circumstances that had led to the significantchanges and in light of the Similar to Jimmy, Patrick spoke in
current problems rather than a failing new circumstances there was a need favour of the existing trusteeship
of any particular party. to review the existing trusteeship model.
model.
He felt the role of the trustee was to His view was that trustees, as an
act as sceptical questioner of the Within the trusteeship model David independent group, have a valuable
adviser and that the problems which saw a marked contrast between large role to play and that they are well
had arisen in the industry as of late schemes and small schemes and felt placed to manage the risks associated
were primarily due to the general that for small/medium schemes the with pension schemes. He stated that
structure of the Irish model rather trusteeship model was not working given the current focus on good
than necessarily trusteeship in itself very well. He felt that, in light of governance, the trustees had a far
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SAI · · June Newsletter2006
greater role to play in pension direct influence of the company schemes which are more typical in
schemes going forward than and/or the members. He said that Ireland. However, Ciaran did feel that
heretofore. He noted that in present while the trusteeship model was the the super trust concept recently
circumstances, where legislation and best available, it does need help. In advocatedby the National Association
regulations are becoming far more their role as protector of the of PensionFunds in the UK and in
complex, the trusteeship model members’ interests, the trusteesneed operation in Australia had some merit
offered the flexibility and the to get a greater degree of assistance and would benefit from some further
independent capacity to deal with from the advisers of their pension debate in the Irish context. He felt
these matters effectively. scheme. that the key issues that demonstrated
why fundamental reform was needed
He stated that this view was In the case of defined contribution were the issues of pensions coverage,
supported by a wide variety of schemes, Patrick felt that if the degree of regulation,
reports and investigations carried out trusteeship was removed then this simplification and also the current
around the world and in particular would lead to the over regulation of position of trusteeship.
the Myners review in the UK which small defined contribution schemes
found that the trust based model and that it would remove an He felt that it was very difficult under
provided the framework for good important resource for pension the existing regime for small
governance and protection of scheme members. businesses to deal with the
members’ rights. complexities of the current
His view was that there was not a trusteeship model. In many such
He felt that if we adopted a contract need for fundamental reform of the businesses, one employee effectively
based model to replace trusteeship existing trusteeship model but there combines the role of CEO, financial
there would be far more complications was a need to evolve the existing manager and HR manager and does
than under the trusteeship approach system of trusteeship. He felt, overall, not have the capacity to try and deal
and that the positive features of the that there was scope to improve the with the various complexities of
existing model would be lost. trusteeship model for defined benefit pension matters. For these businesses
schemes to make use of the degree of (which are very prevalent in Ireland),
In Patrick’s view, pension schemes flexibility and that, for defined the trusteeship model is not working.
(and especially defined benefit contributions schemes, the legislative
schemes) have changed very rapidly or contractual route was simply not Ciaran felt that, in reviewing pension
over recent years. As a result, some of adequate to properly safeguard coverage, the danger is that we end
the fundamentals that actuaries and members’ interests. up looking at larger companies rather
other third parties involved in than trying to understand the real
managing pension schemes had Ciaran Long world of surviving within a small
understood for years had changed business environment. Instead of
The last speaker was Ciaran Long,
quite quickly. Within this flux the focusing on the needs of smaller
who along with David, spoke in
trustees were not experts and had no employers we assume that all
favour of reform of the trusteeship
greater wisdom than the other parties employers have HR departments
model. Ciaran felt that trusteeship
involved in pension schemes and and/or pension managers who can
was a large barrier to expanding
Patrick acknowledged that the effect manage complicated pension
pension coverage in Ireland.
of these changes was to put greater schemes, operate trusts and still be
pressure on the trusteeship model. able to focus on their own business.
His view is that trusteeship is no
longer suitable to deal with the
However, he still felt that the Instead he advocated a simpler
current environment facing Irish
trusteeship model provided the best contractual model for these
pension schemes. He acknowledged
available approach. It provided a businesses broadly along the lines of
that while there is a role for
degree of flexibility and adaptability an SSIA type model with no trust, no
trusteeship in large defined benefit
by giving the trustees the discretion complex tax relief system - just simple
schemes, there is a need to review
to deal with issues as they arise. It personal contracts. He felt that there
the existing structure for those
also meant that they could be in a was an over fixation on costs and
schemes. Within defined contribution
position to make difficult decisions consumer protection by having
schemes he felt that there is no
and deal with the various pressures as excessive legislation for low cost
longer a role for trusteeship,
independent bodies outside the continued
particularly for the smaller sized
5
June Newsletter2006 · · SAI
Trusteeship Debate
...continued
products - no one actually wants to The Vote
SAI Report on Professionalism
sell or provide these products and as
In the end it was agreed that two Issues for the IAA Professionalism
a result there is no one buying them.
separate votes would be taken; the Committee Meeting
He felt that the second problem is
first was that the role of trusteeship in
that there is too much complexity Paris – 27 May 2006
defined benefit schemes needed
forced on these models by the
substantial review. This motion was The above report, which is available
regulator and then, effectively, no
strongly rejected. The second was on the members’ section of the
consumer can understand them.
that there was a need for reform of Society’s website, gives an update
the trusteeship role in defined on the following items:
Discussion
contribution schemes and this motion
• Standard-setting;
At this point the debate concluded was narrowly carried.
and the topic was opened to the floor. • Membership of the UK actuarial
profession;
Ollie Coakley and
Overall, there was a general view that
• CPD scheme;
Kieran Manning
trusteeship worked well for large
• Practising certificates;
defined benefit pension schemes.
However, there was a feeling that for • Disciplinary scheme;
small arrangements a PRSA or
• Professional conduct standards;
regulatory approach might be better
suited to meet the needs of these • Compliance monitoring for
scheme actuaries;
employers and employees. It was also
noted that the Australian model may • Conflicts of interest; and
combine many of the better features
• Guidance review.
of trusteeship combined with the
lower costs associated with a large
scale model.
There was further recognition that
amongst smaller employers the
current model did result in higher
administration costs. However, for the
larger schemes, trusteeship did
provide a greater degree of
governance and corporate control
and, in many cases, what we need to
be looking at is the balance of
powers so as to ensure that the
employer has sufficient power and
authority in the trust deed to facilitate
the running of their pension schemes,
rather than being excessively driven
at times by the trustees.
Before rounding off the debate with a
vote (or two!), Colm thanked each of
the speakers for a thought provoking
meeting. In particular, he thanked the
only non actuary, Patrick Burke
(a lawyer), for participating.
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SAI · · June Newsletter2006
European Insurance Forum:
March 15-16 2006
Left to right: Alex Tully (Irish Financial Regulator); Tom Doran (Chairman, DIMA); Sarah Goddard (CEO,DIMA); and Stephen Devine, Transamerica
Given Ireland’s increasing importance On perhaps a less insurance and/or
in the Global Insurance and actuarial related theme, former For further information on the
Reinsurance Market, it was perhaps commander of the British Army's topics covered, including the slides
timely that the European Insurance Special Air Services Tim Collins shared and presentations made at the
Forum returned to Dublin in mid some of his views on global terrorism. European Insurance Forum, please
March 2006. Hosted by industry In addition Mike Pickens, US insurance visit the website
group DIMA, this year's theme was adviser to the Iraqi Government, and
insurance markets in an uncertain Peter Dobbs, Kidnap and Terrorism www.europeaninsuranceforum.com
world. The two day event’s overriding Specialist from Aon, also spoke on the
As Patrick outlined in his article, the
theme was how the increase in less publicised areas of Kidnap and
topics are varied and make for
natural catastrophes has affected the Ransom Insurance.
interesting reading.
global insurance and reinsurance
market. Alex Tully spoke about the Financial
Regulator’s objectives with respect to
Topics discussed included how to the introduction of reinsurance
minimise both human suffering and regulation. He stressed that Ireland’s
insurance losses stemming from these early adoption of the Reinsurance
natural catastrophes. It considered directive would “constructively assist
threats made to global stability by reinsurance towards full compliance
terrorism. The forum also included and provide more certainty in the
sessions on life securitisations, market place”. A further key plank of
reinsurance regulations and corporate the implementation was the
governance. requirement for actuarial certification
of Reinsurance reserves for Life and
The Society of Actuaries had no non–Life business. Currently only
official involvement in the conference direct business requires actuarial
but Life actuaries Stephen Devine and certification. This is an area where the
Ciara Regan presented sessions on Irish Financial Regulator is working
Reinsurance Regulation and Critical closely with the Society of Actuaries.
Illness respectively.
Patrick Grealy
7
June Newsletter2006 · · SAI
Modern Liability Management Techniques
Introduction investment risk and consultants in return on the portfolio. There is a
An evening meeting to discuss their drive to aid clients eliminate limit to the amount of risk
“Modern Liability Management “unrewarded risk”. reduction that can be achieved
Techniques for Defined Benefit here.
Pension Funds” was held on the 4th Before investigating the types of
April 2006 in the Burlington Hotel. investment instruments that are most 3. Change the type of bonds in the
The meeting was well attended and likely to be of use to Irish pension existing portfolio to be appropriate
the speakers, namely Eamonn Liddy, funds in managing their liabilities, to the scheme’s liabilities – this
Brian Griffin, Colm Fitzgerald and Pat one needs to understand the risks. approach reduces to some extent
Ryan generated an interesting meeting The sensitivity of pension scheme the risk relating to bond yields.
with the material they presented. liabilities to real interest rates and The move to a different type of
inflation needs to be measured. The bond portfolio could be achieved
The speakers discussed the recent sensitivity to interest rates can be by a physical movement of assets
emergence of new products and captured through the concepts of: or through the use of swaps.
techniques which could prove useful • “Duration” – the weighted average
in helping companies and trustees time to each of the cashflow points; 4. Remove the interest rate and
manage their defined benefit pension and inflation risk by hedging such risks
liabilities. The presentation focused • “Convexity” – the rate of change of across the entire liability base, i.e.,
on the various instruments which duration with interest rates. implement a swap overlay that
could enable pension schemes to In an ideal world, the asset portfolio “hedges the liabilities” without
reduce risk relative to liabilities of a pension scheme should exhibit affecting the asset portfolio.
without compromising the expected equal or greater convexity to that of
return on the asset portfolio. the liabilities. Steps 3 and 4 above are both steps
that do not compromise the
Presentation For most pension schemes a portfolio portfolio’s level of expected return
of assets designed to exactly match but would have a significant impact
Eamonn Liddy shed light on the two
the liabilities will comprise both on the level of risk relative to the
major drivers behind the recent
conventional and inflation linked liabilities. Both of these steps are
developments in the derivatives
instruments. For particularly longer aided significantly by the emergence
market:
term liabilities, this portfolio would of swaps and other solutions in
have to include synthetic assets common use.
• Growth in Supply
created through the use of
In recent years, there has been a derivatives. This, essentially, is where Brian Griffin, in his portion of the
significant growth in the fixed interest the need for sophisticated product presentation, defined a swap, how
and derivative markets both in the solutions comes into play. they work, how they can be used
Eurozone and around the world. within a pension fund and some of
Investors are no longer limited to When looking at a typical scheme’s the implementation issues with using
investing in conventional bonds “Risk Budget”, it can be seen that swaps.
issued by a small list of issuers. They approximately 50% of the overall
can now choose from a wide universe volatility of the funding level relates to A swap is an agreement between two
of fixed interest assets restricted by asset-related factors. The remainderof parties to exchange cashflows in the
their own requirements (e.g. currency, the uncertainty around the funding future. A typical agreement for an
duration, liquidity). Similarly, level arises from movements in the interest rate swap entails the
derivatives are now more accessible liabilities through movements in payment of a fixed rate of interest by
to investors. As a result, it is now bond yields (real yields or inflationary one party and a floating rate of
typically easier, cheaper, more efficient expectations). interest by the other party, calculated
and more flexible to obtain equity, on a defined amount of notional
bond, property and cash returns For pension fund trustees and/or principal and having a defined
using derivatives rather than investing sponsors, there are several ways of maturity. Swaps can be constructed
in the underlying assets themselves. reducing the exposure to risk: in different ways to yield different
This evolution has now reached the cashflow profiles, for example, it
pensions industry. 1. Move assets from equities to bonds could be customised to resemble a
– this would reduce the equity risk ten-year zero-coupon bond. In order
• Growth in Demand but also reduce the expected to reduce the counterparty risk it is
The growth in demand for various return on assets. important for each party to enter into
derivative related products and collateral agreements whereby any
techniques has been fuelled mainly 2. Diversify the equity risk – this mark-to-market value on the swap is
by sponsors and trustees in their would reduce the overall risk but posted to a collateral account.
quest to measure and manage not compromise the expected
8
SAI · · June Newsletter2006
for Defined Benefit Pension Funds
Activity in swaps has increased rapidly • Legal issues
in recent years and it is now possible - Pension fund constitutive
to create all types of customised swap documents – do they allow the
transactions at competitive rates. use of derivatives and swaps?
However, it is important to have - What are the counterparty credit
expertise in pricing these instruments rules?
or at least the advice of someone - Is collateralisation allowed?
with such expertise. - Who will implement and
administer the strategy?
Modern derivative techniques enable - Mandating the investment
pension funds to match the interest manager to fill this role
rate risk inherent in liability profiles - Implementing an investment
significantly more precisely than the management agreement
“traditional approach”. The approach
referred to as “cashflow matching” • Operational issues with
provides a much closer and effective segregated approach
hedge than duration matching.
- Choosing single or multiple swap
counterparties
There are various products and
- Price verification requires
techniques available to pension funds
technical expertise
when entering into the swap market.
- Who will trade the swaps with
the investment bank?
Two of the main techniques are the:
- Swap documentation
- Swap valuation
• Pooled Fund Approach
- Collateral management
These products are provided by the - Ongoing adjustments to the
investment manager and offer overlay portfolio
pension funds the opportunity to
address interest rate and inflation Discussion
exposures through the use of pooled
The lively discussion centred around a
funds within the framework of a
desire for the audience to gain a
conventional investment
better understanding of what is a
management agreement. The two
very complex process. It is essential
different pooled fund approaches are
that the investor has the expertise to
known as:
use and/or understand derivatives
markets in order to ensure value for
1. Duration “Bucket” Bond Funds
money. Therefore, it is essential for
2. Leveraged “Bucket” Bond Funds
pension fund actuaries to climb the
learning curve as quickly as possible.
• Segregated Approach
The main difference between this
approach and the pooled fund Brian Connaughton
approach is that the pension fund
buys the assets in its own name and
contracts directly with the swap
counterparties. The segregated
approach allows the scheme scope to
retain its allocation to equity,
property and other asset classes.
While swaps appear to be a good
tool which sponsors/trustees can use
to reduce the exposure to interest
rate risk, there are, however, a
number of implementation issues that
would need to be addressed before
any contracts were signed. They are
summarised as follows:
9
June Newsletter2006 · · SAI
Appointment:
Chief Executive, HIA
3. How do you see your role
developing with the HIA?
The overall development of my role
will depend on many other external
factors that are currently facing the
HIA. Late last year the Tánaiste,
following a recommendation from
the HIA, decided to commence risk
equalisation payments in the health
insurance market. This decision, as
well as other matters relating to risk
equalisation, is now being challenged
in the courts. The outcome may
determine a considerable part of my
work in the foreseeable future. If the
risk equalisation regulations as well as
the actions of the State, the HIA and
the European Commission are
successfully upheld in court, then we
Liam Sloyan
will need to start administering
1. What is your role in the Health
payments under the regulations.
Insurance Authority (HIA)?
Regardless of the outcomes of these
I’m the Chief Executive – basically,
legal cases, my job is already
my role is to manage all the different
developing at a fast pace and there is
functions of the Authority and to
a lot to keep me busy. For example,
assist other staff so that we can
we are working with the Competition
provide a good service in relation to
Authority to conduct a joint study of
the regulation of the health insurance
competition in the health insurance
market.
market. All in all, it’s an interesting
time for us here.
2. Tell us about your career to date?
4. What constraints do you envisage
I joined New Ireland straight from
in the development of your role?
school in 1988 and worked there for
the first four years of my career. I had
On entering the public sector, one
always wanted to go to college – so
thing that might appear to be a
in 1992, I bit the bullet and went to
major constraint is the emphasis on
UCD to study mathematics and
process. It never seems sufficient just
physics.
to accomplish a task, the way in
which the task is accomplished is also
Once I graduated I worked as a
important. This is very much the case
consultant, mainly for Bank of Ireland
for the HIA, across a range of areas
Life and Life Strategies. Then in 2002,
from our core functions to matters
I joined the HIA as Head of
such as recruitment and purchasing.
Compliance Services and was
While this may appear to be a
appointed Chief Executive in March
constraint, I soon came to realise that
of this year.
if we are to serve the public, then it is
appropriate that transparency and
process exist so that the public can
have confidence in our work.
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SAI · · June Newsletter2006