The General Insurance Industry and the Actuarial Profession in 2020

56 Pages·2013·6.55 MB·English

Actuaries
The magazine of The acTuaries insTiTuTe JULY 2013 ISSUE 181
11 Comment
The General
Insurance
Industry and
the Actuarial
Profession in
2020
4 Interview
Zac Roberts
20 Opinion
Keeping Private Health
Insurance Affordable – Is it
Time for the Least Bad Option?
29 Opinion
Life Insurance Failures –
What Can We Learn About
Leadership?
36 Actuaries Taking the Lead
What Lies Beneath the Data?
38 Event Report
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Contents
July 2013 ISSUE 181
EvEntS
2 Coming Up
EdItorIal
3 Dear Reader ❙ Keri Lee
IntErvIEw
4 What's the Worst that Could Happen? – An interview with
Zac Roberts ❙ Alice Crowley
CommEnt
7 Investing in a Low-Return, High-Risk World ❙ Zac Roberts /
Mattias Soderberg
CommEnt
11 The General Insurance Industry and the Actuarial
Profession in 2020 ❙ Tony Beirne / Garth Brooker / Mudit Gupta /
Suruchi Singh / Sylvia Wong
tHE aCtUarIal pUlSE
16 Our Actuarial Careers – Past, Present and Future
❙ Chris Larkin
UndEr tHE SpotlIgHt 4
19 Peter Eben
opInIon
20 Keeping Private Health Insurance Affordable – Is it Time
for the Least Bad Option? ❙ Ashish Ahluwalia / Sonia Tripolitano /
Jamie Reid
opInIon
23 Market Consistency – A Flawed Paradigm ❙ Phil Stott
opInIon
26 Market Consistency – The Optimal Valuation Framework
❙ Anton Kapel / and response by Phil Stott
opInIon
29 Life Insurance Failures – What Can We Learn About
Leadership? ❙ Bimal Balasingham / Andrew Brown
EvEnt notICE
33 Risk and Regulation Seminar – Regulation Update and
ERM2013
notICE
35 The Value of Mentoring and the Launch of the Institute’s
Mentoring Program ❙ Martin Mulcare 11
aCtUarIES takIng tHE lEad
36 What Lies Beneath the Data? ❙ Andrew Brown
EvEnt rEport
38 Actuaries Summit – get involved, get ahead
UpComIng EvEnt
42 Injury Schemes Seminar – Balancing Outcomes
aCtUarIES at play
44 Su Hu – Nerd by Day, Diva by Night ❙ Su Hu
In tHE margIn
46 Back to School Again ❙ Genevieve Hayes
aSk gaE!
47 Feel the Fear and Say it Anyway ❙ Gae Robinson
StayIng aHEad
48 Happy Birthday Actuarial Capabilities Framework and
Capability Assessment Tool! ❙ Sue Wetherbee
m
CO StUdEnt ColUmn
OCk. 50 Time of my Life ❙ Shan Lui
ERSt lEttErS
utt 50 Letters to the Editor ❙ Alan Doble / Ramani Venkatramani
h
–S CEo’S ColUmn 20
Ey_l 52 The Balance Between Leadership and Consensus
R
nd ❙ Melinda Howes
A
© notICE
R
V:E COV Upcoming Events – Stay Ahead This Year
O
C
July 2013 Actuaries 1
Actuaries Coming Up
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2 Actuaries July 2013
Editor keri lee
[email protected]
dear reader
I
t’s well and truly winter now, which is great because it means we are on the home stretch to
Christmas and can spend weekends bagging bargains in the end of financial year sales. The not
so great things are that weekends are cold and rainy, mangoes in the supermarket are now
non-existent and we have to start thinking about tax returns.
On the topic of tax returns, the lure of tax deductions apparently means last month is supposed
to be the month people go all out with donations to charity. I don’t know about you, but I never keep
my donation receipts for tax time, so my donation ‘spend’ isn’t subject to a June seasonal effect.
In fact, I (and most people I know) never really give much thought to how generous or stingy I am
to charities, homeless people or fundraisers each year – so I am totally unaware of how much I’ve
actually given.
Recently one of my colleagues buzzed past my desk waving a flashing Starlight Foundation
wand. I think his other hand was also full with Starlight goodies and Part III notes. “Strange choice
of charity merchandise for a 20-something year old male”, I said, only to be drawn into a 15 minute
D&M (i.e. deep and meaningful conversation) about those less fortunate than us and how we can
save the world. Apparently this charming colleague
of mine also used to be oblivious of his altruistic
spend – until he sat down at tax time one July and
realised it had been less than 1% of his salary that
year. At which point he was shocked to discover he
had been such a “stingy b#$!@^d” (his words, and I
don’t think I’ll ever hear that again!), and from then
on thought about it consciously.
So – if you were waiting for the moral/punchline,
allow me to suggest that if helping those less
fortunate is important to you, it’s probably worth
taking a few minutes at the start of each financial
year thinking about what percentage of your salary
you’d like to give. Throughout the year it’s then easier
to make decisions of how much, why and when
you would like to give. From buying the Big Issue,
giving a few coins to the homeless, supporting fellow
colleagues in their fundraising pursuits or giving
generously to charity door-knockers and adorable
children selling raffle tickets, being conscious about
how little or how much you are actually giving helps to
put things in perspective. And there’s no better time to
do this than July.
That 3.00pm conversation has actually changed my life. Upon realising that I have also
inadvertently been a stingy B, I now stop to chat to buskers, buy the Big Issue when I am not in a
mad rush, and am again mindful of how fortunate I am. This morning, just as I opened the garage
door to drive up the coast, a lady and two gorgeous little girls happened to walk down the driveway
to knock on my door for the Salvation Army. Rather than think “oh bugger, this is the 11th time this
year and now I’m going to be three WHOLE minutes late” – I gladly stopped for a chat and made a
small difference to their plastic bucket.
Hoping this made a small difference to your monthly read. Happy EOFY and tax return time!
Yours truly
Keri Lee
July 2013 Actuaries 3
Interview
What’s W
hen Zac Roberts casually strolled into the meeting room
with not a care in the world, it was hard to believe this
was a father of two young girls who also runs his own
funds management business – SouthPeak Investment
Management. This Japanese speaking investment manager challenged
the conventional actuarial career path to show that anything is
the Worst
possible in the world of actuaries.
a dIvErSE bEgInnIng
In 1990, a young Zac Roberts was sitting in the audience of the NSW
Mathematics Competition prize ceremony waiting to receive his award
for excellence. It was at this moment that he first heard the word
that Could ‘actuary’. There were a number of speakers organised to talk to the
mathematically talented group and the only one that Zac remembered
was an actuary. This has stayed with him ever since.
“I grew up in Newcastle and had never heard of an actuary until
that day. I had always thought I would become a doctor – that was
until I did work experience with one and realised it wasn’t for me;
Happen? besides there would have been way too much blood,” Zac explained.
When Zac finished high school he received a scholarship to
study in Japan for five years. The first year was devoted to learning
the Japanese language and the next four years to an international
economics degree.
“I didn’t know a single bit of Japanese when I went. However, there
is nothing quite like jumping in the deep end. It was strange how
An interview with Zac Roberts the teachers went from trying to teach me how to write and speak
Japanese to teaching economics and other content in Japanese.”
4 Actuaries July 2013
alice Crowley
[email protected]
On top of all of this, Zac managed to be disciplined portfolio construction and
enough to complete all of the university actuarial diversification, and instead
subjects (Parts I and II) by correspondence. embrace an approach I
“By the time I finished my university studies in Japan, believe makes more sense.
I was at the same point in the actuary’s exams as I “I’m driven by the strong
would have been if I had done them here, plus I had belief that there is a lot to
another degree and a language on top of it. But trust gain from going beyond the
me; there was a lot of study. It was both manageable traditional approach of a largely
and challenging.” Zac began his career as a consulting static asset allocation across a
actuary at Tillinghast in Sydney in 1999. After three limited number of investments,
years, he decided to put his ability to speak Japanese to to a broader, more dynamic
use and transferred to the Tokyo office. approach. This includes embracing
“When I worked in Japan, I was a western educated a deeper understanding of the
actuary that could speak Japanese. As a result, relationship between return drivers,
compared to the work I was doing in Sydney, I tended market conditions and expected
to get more senior consulting roles, especially with the returns, and placing a greater focus
foreign insurers. This provided me with a great deal of on practical risk management, both at
exposure to senior levels of management and better the individual investment level and at
above: zac in
insight into what actually matters, such as thinking big the portfolio diversification level,” patagonia, argentina
and holidaying with his
picture,” he said. he said.
family in the daintree
After returning to Sydney, it was the opportunity to Zac believes in “thinking before you act” at the rainforest, Queensland
get into something different that led Zac to a role at same time as recognising the benefits of “acting while
Deutsche Bank where his career moved into the world of you think”.
banking and investments. “Generally, actuaries will analyse things to death and
“The role at Deutsche Bank was created because the not commit to a course of action until they are sure to
bank felt they were failing their insurance clients at the
last hurdle and believed this was because they didn’t
speak the right language,” Zac explained.
“My job was to take a client-driven approach and
use my actuarial background to get to know clients. By
talking with them, I was able to understand what clients
wanted. I would then take that information back to the
bank and work out potential solutions we could provide.”
CHallEngIng tHE ConvEntIonal
hy After a few years at Deutsche Bank, Zac took the
AP biggest leap of his career and started his own funds
R
g
OtO management business, SouthPeak Investment
Ph Management. Zac and his two colleagues had a firm
ht
g belief in a different approach to investing and ways to
RSt li address some of the limitations they had seen in general
E, Fi practice.
R
ClA “I started a funds management company
AVid whose core philosophy is to pay less attention to
d
© the generally accepted wisdom when it comes to
July 2013 Actuaries 5
Interview
continued
the second decimal place. Unfortunately, markets won’t always wait
for you to know what you want to do to the second decimal place.”
“During the GFC, I spoke to several institutional investors who
became nervous about their equity risk. Some began big projects
that took a long time to determine what they wanted to do, and an
even longer time to implement. Some took a long time debating
the best time/price to buy protection. In all these cases, the
outcome would have been better if they acted quicker,” said Zac.
It is clear that, to Zac, there is a strong ‘value-add’ in actuaries
who challenge the conventional ways of thinking. “There is a
tendency for actuaries (and people in general) to be afraid of
failure. If we don’t try, we can’t fail, but that’s not necessarily a
good thing,” said Zac.
“The advice I have for young actuaries is to make an effort
to understand the bigger picture. When doing actuarial work,
always ask how is it being used, is it needed and would something
different be better? There are a lot of numbers out there to crunch.
However, you should always make the time to think about what
these numbers mean and to understand how they fit into the big
picture. Whatever you do, if you do it well you are likely to succeed,
and it’s easier to do something well if you believe in it or are
passionate about it,” he said.
famIly and fItnESS
When it comes to passions outside of work, Zac identifies two
main ones: family and fitness. With two young children and a very
busy work schedule, he strives to do the former better than the
latter.
“Recently, I was the age manager for my daughter’s little
athletics team, so this gave me the chance to enjoy both family and
fitness. It was fun trying to teach 40 little girls how to do things like
shot-put and discus – especially when half the challenge is just
getting them to listen.
“When it comes to fitness, I tend to be a bit of a jack of all
trades. I am always willing to give anything a go, but am not
particularly good at anything. My most recent activity was doing
Tough Mudder. A few years back I ran the Sydney marathon and
managed to raise $5,000 (with the help of the Actuaries Institute)
for breast cancer,” he said.
Zac also loves to travel, and can’t wait for his girls to get a bit
older so they can tackle exciting adventures like the Inca Trail as
a family.
As a family man and an actuary who has had a very successful
career in consulting, banking, investment management and risk
management, Zac holds one piece of advice very close to his heart.
zac’s advice to young actuaries – “When deciding whether to stay at Tillinghast or take the new
role at Deutsche Bank, someone shared their perspective on the
”make an effort to understand
worst thing that could happen: you try it for a few years and it
the bigger picture. when doing doesn’t work – but in that time you would have learned a lot and
actuarial work, always ask how met a lot of new people,” said Zac. “I encourage other actuaries to
just go for it. Whatever they want, wherever they can, however the
is it being used, is it needed and
opportunities arise. Just remember: what is the worst thing that
would something different be could happen?”
better?” Investing in a low return, high risk world is an article written
by Zac Roberts and Mattias Soderberg and highlights some of the
issues that need to be considered in the investment world and
presents a possible framework for considering them. An abridged
version of the article is printed on page 7 of this edition
of Actuaries.
6 Actuaries July 2013
Comment zac roberts
[email protected]
mattias Soderberg
[email protected]
Investing in a
Low-Return,
High-Risk World
tHE 20tH CEntUry – an ExtraordInary pErIod of
EConomIC growtH
T
he world has changed. The factors that The 20th century was extraordinary with its fast pace of industrialisation,
led to robust economic growth and strong urbanisation, improvements in health, positive demographics and
equity returns in the last century have economic growth. What next?
weakened. Productivity growth has collapsed, Professor Gordon of Northwestern University claims UK and US
populations are aging and the developed world productivity growth (and real economic growth per capita) was close to
needs to reverse a 60 year debt binge. zero for centuries. It started to rise around 1750 and accelerated sharply
We believe this will drive substantially lower in the early 20th century with the exploitation of vital “discoveries”
economic growth in the coming decades. In this new such as electricity, the combustion engine, domestic running water and
world, investors with a high exposure to equities sewerage, communications, chemicals and petroleum.
and bonds (most balanced funds) run the risk of not Productivity growth slowed substantially towards the end of the 20th
meeting their return targets. century as commercialisation plateaued. US productivity growth averaged
Investors should adapt and look beyond long- 2.3% p.a. for eight decades until 1970. Since then, it has averaged a full
term historical returns, instead emphasising percentage point lower other than 1996-2004, when the PC/internet
the relationship between return drivers, market boom pushed it to 2.5% p.a.
conditions and expected returns. They should That this boost was so short-lived, highlights the limited impact
invest more broadly and allocate more dynamically, of recent technology, when compared with last century’s industrial
benefiting from the time variability of risk premia. innovations.
m
CO We believe superior risk-adjusted returns and Economic growth per capita also slowed substantially after 1970.
k.
OC greater portfolio diversification are possible. Public debt levels rose steadily; a likely consequence of slowing growth
ERSt First, it is imperative to understand return drivers. and economic stimulus.
hutt Second, focus on expected returns per unit of risk. Across the G7 average gross debt/GDP tripled from around 40% in
R–S Finally, look for diversification when it matters – 1970 to above 120% in 2012. Private debt started to rise too, as did the
E
nt when markets crash. whole financial sector (see Figure 1). While the exact impact is unknown,
u
h
OtO both economic growth and asset returns would probably have been
© F significantly lower without this degree of stimulus.
July 2013 Actuaries 7
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 8si(2s2a00a0t1ti1o2i2o)n9).n.,0 ,d doomm0e0esstticic1 t 0teemmpp2ee0rraattuu3rre0e c coon4nt0trrool,l , tthha8at0t w wilil9l lm 0maakke0e 0t thhee 12 200000882 c 0crrisisisi3s l0 oloookk 4b 0beennigignn. .
‘t‘trreenndd g grroowwtthh’ ’d duurriningg t thhee 2 200tthh c ceennttuurryy rruunnnniningg w waatteer,r ,e eleleccttrricicitityy, ,a a c coolllalappssee i nin TThhee s saammee p paappeerr a alslsoo e essttimimaatteess t thhee l elevveel l
Japan Netherlands Portugal
aappppeeaarr t too h haavvee b beeeenn i ninfflalatteedd b byy t thhee cchhilidldhhoooodd m moo
 rrttaaliltityy a anndd d doouubblilningg o off l ilfifee ooff p prrimimaarryy b baalalannccee t thhaatt w woouuldld b bee r reeqquuirireedd
800
  400 300
pprroololonnggeedd ( (bbuutt f fininititee)) b beenneefficiciaial li mimppaacctt eexxppeeccttaannccyy b boooosstteedd p prroodduuccttivivitityy, ,a anndd ooff d dififffeerreenntt c coouunnttrrieiess t too b brriningg t thheeirir d deebbtt//
o
 off a a s seerrieiess o off r reevvooluluttioionnaarryy i ninnnoovvaattioionnss, ,a a pprroovvidideedd a a p poowweerrffuul,l ,o onnee--ooffff d deemmooggrraapphhicic GGDDPP r raattioioss b baacckk t too 2 2000077 l elevveelsls ( (pprree--ccrrisisisis)). .

  250
nnuummbbeerr o off i mimppoorrttaanntt ( (bbuutt o onnee--ooffff)) s sooccioio-- ddivividideenndd.. TThhee a auutthhoorrss c caalclcuulalattee t thhaatt t thhee U USS a anndd t thhee
This
 fact
 is
 displayed
 in
 Figure
 3,
 which6
 s0h0ows
 the
 following
 three
 variables,
 ba3n0k0

Tehecicoson
 nfoaomcmtic
 ici es e
 vvdeeinnstptss la aanynded ds sh
 hianam
 mFeeilgelesussrs eb b
 oo3rrr,r
 oowwwhiniingcgh
 showsN
 Ntoohwwe, ,
 w fwoeel’lr’roee wf faaicnceegdd
  tw hwirtitheh ea a
 nvn aa arggiianebginl gwe so,r
 kbfaonrcke
  UUKK w woouuldld h haavvee t too r ruunn a ann a avveerraaggee p prrimimaarryy
200
flfroroaomnm st
 thh(eea f gfuugttruuerrege.a.te
 to
 the
 nonfinancial
 sectoarwn)od,
 r blkofawonreckre
  b bairnatdlha lnroacwteee
 srs, bwhierhteihcth sr
 am(teaeslal, n
 wisnh fcieclwhu esriv e,
  bbuuddggeett s suurrppluluss o off 2 2.5.5%%--33.4.4%% p peerr y yeeaarr f foorr
loans
 (aggregate
 to
 the
 nonfinancial
 sector),
 bank
 balance
 sheets
 (all
 inclusive,

pmroedauncst ifveew wero rpkreordsu acntidv er iwsinorgk eernst iatlnedm reisnitn g tthhee n neexxtt 2 200 y yeeaarrss t too g geett b baacckk t too p prree--ccrrisisisis
including
 interbank
 lending),
 and
 broad4
 m00oney
 (typically
 M2),
 all
 relative
 to
 GD20P0.
  150
intTcHlhuEed i22n1g1Ss
 tiTn tCceErenbnatTnUukr
 rlyeyn –d–i n aAg n)n,
 Eaewnwd
 broad
 mosnepeneytni
 td(leitnmygpe. inMctae slalpyne
 wnMhd2iilne)g,,
 .p aMallye
 iarnenglw adhtoiiwvleen,
 p htaoiyg
 ihGn gD P.
  ddeebbtt//GGDDPP l elevveelsls, ,o orr 4 4--66%% p prrimimaarryy s suurrpplulusseess
rTrhEeeaA
 lslaIitmTypyle,
 again,
 is
 the
 14
 advanced
 counltedrvoieewlssn,
  oahfni gpdhu
  btlhelivece
 aglsnr doa fpp phriu
 vsbahltieoc wadnesdb
 y tp etrhaivrroa
 eutefg fhde ecbtst ,
  oovveerr a a 1 100--yyeeaarr p peerrioiodd. .T Thhisis c coommppaarreess t too
100
The
 sample,
 again,
 is
 the
 14
 advanced
 countries,
 and
 the
 graph
 shows
 year
 effects,

WWee b beelileievvee t thhee s sttaarrttiningg p pooinintt n nooww i sis lothwreoru gcohn lsouwmepr tcioonns aunmdp htiiognh earn sda hviingghse rw ill aaccttuuaal lp prrimimaarryy d deefficicititss i nin t thhee r reeggioionn o off 7 7--99%%
that
 is
 to
 say
 averages
 for
 each
 period
 fo2r0
 t0he
 cross
 section,
 which
 serves
 to
 isol1a0te0

thddaifitfffe
 eirsre
 entnott
 ( s(aaatt yl el
 eaaavsstet f rfoaorgr dG edesevr
 vfeaoeloplrop
 hpeeea dd4c c h co
 oupunentrtririoeiesds)
 ). f. or
 thbese
 ac vari nodgsrass g
 ws eoilncl t bgieor onaw,
 dwtrhah. gWi coihtnh
  sogeurortv wseitgshn
 . tiWofic
 itiashnootlu att e
  inin 2 2001111 ( (sseeee F Figig. u3r –e 3p –ag pea 9g)e. 9). 50
the
  global
  trends
  in
  these
  variable,
  whilst
  also
  smoothing
  out
  cross
  country

the
  global
  trends
  in
  these
  variable,
  whilst
  also
  smoothing
  out
  cross
  country

Public debt/GDP projection0s 0 0
variation
 (Schularick
 and
 Taylor
 2012).

varfiFaigitguiuorrnee
 2 (2S:8 :cg 0Ghrrouosls9ass0 r dDiceekbb0
 ta0t//ngGddD
 1TpP0 a pPyrrlooo2jj0ree
 c2ctt0iio3o1n0n2ss).
 40 SSoo8uu0rcrcee: :B 9BiSI0S W Woor0rkk0iningg P P1aa0ppeerrss n2 N0oo 3 300030:0 :t Thhee f4 ufu0tuturere o of fp puubblilci8c d0 deebbt:t 9:p p0rorossppe0ec0ctsts a ann1dd0 i mimppl2ilci0caatitoionn3ss,0 ,m Maarrc4ch0h 2 2001100
Austria FSrpaanicne GUenritmeda nKyi ngdom United States
300 540000 460000 500
Baseline
250 scenario 500
400 400

  Small gradual 390
 0
  300

  adjustment 9

200 400
Small gradual 300 300
adjustment
150 200 230000
with age-related
spending held 200 200
100 constant 200
100 100
100 100
50 100
0 00 00 0
80 90 00 10 20 30 40 8800 9900 0000 1100 2200 3300 4400 8800 9900 0000 1100 2200 3300 4400 80 90 00 10 20 30 40
Greece IreSlaonudrc es: OECD; authorsʼ projectionsI.t a ly
500 400 300
88 AAcctutuaarrieiess J Juulyly 2 2001133
250
400
10 300
200
300
200 150
200
100
100
100
50
0 0 0
80 90 00 10 20 30 40 80 90 00 10 20 30 40 80 90 00 10 20 30 40
Japan Netherlands Portugal
800 400 300
250
600 300
200
400 200 150
100
200 100
50
0 0 0
80 90 00 10 20 30 40 80 90 00 10 20 30 40 80 90 00 10 20 30 40
Spain United Kingdom United States
400 600 500
500
400
300
400
300
200 300
200
200
100
100
100
0 0 0
80 90 00 10 20 30 40 80 90 00 10 20 30 40 80 90 00 10 20 30 40
Sources: OECD; authorsʼ projections.
10