ACTUARY · 2010-05-18 · What’s New on the Web AA No 113, September 2006 contents ACTUARY...

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INSURANCE SECURITISATION

ACTUARIES AND COMMUNICATION SKILLS

CO-OPERACY – A NEW WAY OF BEING AT WORK

DIG IT – HOW ACTUARIAL RESEARCH RESEMBLES AN ARCHAEOLOGICAL DIG

report

PUBLISHED BY: Institute of Actuaries of Australia Level 7, Challis House, 4 Martin Place Sydney NSW 2000 Australia Tel 02 9233 3466 Fax 02 9233 3446 Email [email protected] Web www.actuaries.asn.au © INSTITUTE OF ACTUARIES OF AUSTRALIA, 2003 ISSN 1035-6673 The Institute Council wishes it to be understood that opinions put forward in this publication are not necessarily those of the Institute and the Council is not responsible for those opinions nor is it liable for any action taken as a result of articles or advertisements appearing in this magazine.

editorial

Actuary Australia makes the Fin Review!!!

How exciting! Excerpts from my editorial on superannuation capital adequacy were referred to in an article by Barrie Dunstan in the Financial Review in late July. There is a growing interest in the prudential requirements for superannuation funds. David Knox wrote a paper published in the August edition of the magazine and a Government inquiry has been launched to investigate this amongst other issues.

The Government inquiry is being accused of being anti-industry fund. This may be right but the issue is that most superannuation funds, industry and corporate, have no capital backing them and hence no protection against operational risk. The thing that surprises me is that this should be an issue for the regulator, i.e. APRA rather than a special inquiry. I thought APRA were supposed to take the lead on this rather than hiding behind a Government-initiated inquiry.

There is certainly an anti-industry fund movement. This isn’t surprising since Industry fund fees can be up to a quarter of those offered by for profit businesses. All my family’s superannuation assets are spread between a couple of Industry funds. They have demonstrably out performed the offerings of financial services firms on just about every dimension.

I do think however, that the superannuation industry should be proactive in driving the need for normalised capital requirements. This should be done through APRA. Yes this will lead to some increased costs to members but this just recognises that mistakes happen and that capital is required to ensure that confidence is maintained in superannuation.

The large Industry funds can efficiently build capital reserves and can retain the high moral ground.

Stop it; I can’t take any more sex

I give up, I have had enough sex to last me a lifetime. I can understand why advertisers use sex to sell but what annoys me is that it is being promoted as an intellectual pursuit.

My, almost-12-year-old son has been learning about sex. He has an hour a week for 4 weeks on Friday afternoon. The kids are encouraged to discuss what they learn with their parents. I used to enjoy getting home from work on Friday night looking forward to a weekend. Now I dread it. I get hit with colour pictures and detailed explanations of the mechanics of it all and I am supposed to encourage him. They even use mathematics to make it sound legitimate. Do you know that if you string 200 sperm together head to tail it is still smaller than the head of a pin!

The Financial Review is no better, they had a full-page article on non-erectile sex what ever that is and supplied reams of statistics on how common it is.

The actuarial profession used to be the master of sex education. We explained that women do live longer than men; it didn’t just seem longer, that women were safer drivers than men but that women took more sickies. I can remember the famous Perth Biennial Convention in October 1987. The main topic was AIDS and all these cardigan-wearing moth-ball-smelling actuaries came out of the cupboard with analysis on the probability of catching AIDS from undertaking various activities. Incidentally, this was also the convention where the legendary Michael Barker presented a ground-breaking paper on portfolio insurance the day after the great stock market crash. The mathematics were great but he admitted that it wouldn’t have worked because of lack of liquidity.

Anyway, back to sex. I am putting the challenge out to actuaries to win back the high ground on sex education. We need more papers on sex. I am tempted to offer the Barry Rafe prize on best actuarial sex paper of the year.

Any ideas?? ▲

Barry [email protected]

ACTUARY AUSTRALIA SEPTEMBER 2006 �

What’s New on the Webwww.actuaries.asn.au

AA No 113, September 2006

contents


4 Insurance Securitisation – an addition to the capital armoury

ReportPatricia Berry

7 Actuary Unearthed Ian Robinson

8 The Actuarial Pulse Member surveyBarry Rafe

10 Actuaries and Communication SkillsSurvey of Recent GraduatesSulyn Teh

12 Co-operacy – a new way of being at work Comment Jen Hall

14 Dig It: How actuarial research resembles an archaeological dig – intriguing opportunities for actuariesReviewSimon Solomon / Will Matthews

17 Ask Gae Answers to life’s serious and not-so-serious questions

Gae Robinson

18 Corporate Governance – and the regulatory environment for the actuarial professionReportVicki Mullen

20 Tax Overhaul – take a step back for a full overhaul of tax on insurance in super ReportPauline Durant

22 Two Ducks SwimmingStephen Woods

24 Report from the CEO John Maroney

27 Notes from the PresidentMartin Stevenson

28 Education Update Actuarial Research StudentsPhilip Latham

29 Student Column University Culture – Melbourne UniversityWilliam Yap

30 Letter to the EditorFrank Ward

31 CalendarUpcoming events

Details of members movements are now available via the Institute website – www.actuaries.asn.au

Note: Members may now change their contact details in the Members area of the Institute website. Members using this facility will need to advise [email protected] if they would like to be included in Actuaries on the Move.

Actuaries on the MoveChange of Business Details from �0 August �006

FELLOWSTracy Polldore

ACCREDITEDNil

ASSOCIATESNil

AFFILIATESNil

NAME CHANGESNil

CORPORATE CHANGESRice Walker Actuaries (Melbourne) has changed to Butler Walker Actuaries & Consultants

Rice Walker Actuaries (Sydney) has changed to Rice Warner Actuaries

Superannation Tax Reforms

The Institute has released a paper ‘Tax Free Superannuation Benefits: A Future Revenue Problem?’ in response to concerns about the revenue consequences of the Treasurer’s proposed superannuation tax reform package

Education

11 – 16 September, Commercial Actuarial Practice Course, Macquarie Graduate School of Management

Events

11 / 14 September, Senior Actuaries’ Forum – Working with the Code of Professional Conduct, Melbourne / Sydney

12 September INSIGHTS: Asset Liability Management for Australian Life Insurers, Melbourne

18 / 20 September HORIZONS: External Peer Review – A Value-Added Approach, Melbourne / Sydney

CALL FOR PAPERS – XIth Accident Compensation Seminar, Grand Hyatt Melbourne 1 – 4 April 2007

Publications

Actuary Australia, Issue 113 September 2006

Notices

Professional Standard 300, Valuations of General Insurance

Liabilities – Exposure Draft

Actuary of the Year 2006

Notice of Council Elections


The First Australian CAT Bond

In January this year, the first Australian catastrophe bond, Australis, was successfully completed with a note issue of USD 100 million to the capital markets. The notes cover severe Australian earthquake and Queensland tropical cyclone events for a period of three years. The geography of the coverage is rather unusual considering that the typical CAT bond coverage is for US/Europe windstorms or Japan/California earthquakes. The loss trigger of the bond is based on earthquake and tropical cyclone indices exceeding certain levels (and no, cyclone Larry didn’t trigger any bond losses). The notes were over-subscribed by institutional investors through private placement. The bond represents solid evidence that insurance securitisation is possible for Australia.

What is Insurance Securitisation?

Insurance-linked securities are financial instruments that transfer insurance risk from the insurer to the capital markets. A special purpose vehicle (SPV), sponsored by the insurer, issues notes to investors by packaging insurance risks. If an insurance trigger event does not occur during the term of the notes, the investors will receive the regular interest (at a margin above the bank bill rate) and the principal back at the note expiry. However, if a trigger event does occur, the interest and even the principal repayment will be at risk.

Many enhancing features can be built upon the basic concept. One such feature is to ‘credit wrap’ the underlying risks in a life transaction. In order to reassure the investors that the risk of loss is sufficiently low (and thereby achieving higher credit rating of the notes and consequently cheaper cost of funds), it may be more economical to involve a third party such as a reinsurer or a ‘monoline’, at a cost, to effectively guarantee the timeliness of the interest payment and the ultimate repayment of the loan. The credit rating of the notes would then be enhanced up to that of the guarantor.

The construction of the insurance event trigger is of interest. On one hand, the insurer ideally would like the bond coverage to mirror their potential portfolio losses (indemnity based). To the extent that the coverage may be different from the actual portfolio loss, there is residual basis risk. On the other hand, investors prefer triggers to be objective, clearly defined and easy to calculate (index-based). The trade-off between basis risk and transparency has led to a spectrum of trigger types, as illustrated by the diagram on the opposite page.

As more and more insurance-linked securities

appear in the global market, interest in

Australia is fast increasing. Is securitisation

relevant for Australian insurers? This article

outlines the reasons for the recommended

changes put forward by the Institute.

Insurance Securitisation

– an addition to the capital armoury

report


What risks can be securitised?

In principle the ideal risk candidate for securitisation is one that: ● has adequate data or information e.g. claims history,

market loss indices ● is easy to measure or model and ● is relatively easy for investors to understand.

The risks to be securitised need to be packaged and presented such that the investors are able to appreciate the key drivers behind the insurance outcome, the probabilities of loss and the potential impact on the cashflow of various scenarios.

The following table summarises the types of risk that have been securitised to date globally. No doubt the market will see more innovations as it matures.

Risks Securitised To Date

Property / Casualty

• Windstorms

• Earthquakes

• Industrial accident

• Credit reinsurance

• Auto

• Event cancellation

Life

• Regulation XXX in US (regulatory capital relief)

• Embedded value

• New business financing

• Extreme mortality

The Good and the Bad

From the insurer’s point of view, the securities form an alternative capital source when capital from the shareholders or the reinsurer may be scarce. In the case of extreme risk coverage, it can be a great risk management tool because securitisation widens the source of capital and there is no counter-party credit risk, given that the coverage is fully collateralised.

Normally a securitisation is primarily for efficient capital management purposes. Traditionally the business model of insurance companies is based on the capital concept of ‘buy-and-hold’, putting up their own capital to back the risks for the duration of the business. There are arguments for insurance companies to consider the alternative model of ‘buy-and-transform’ which is essentially the banking model of laying off part of the risks to the capital markets, such as the case with mortgage securitisation. The benefit of the latter model is its ability to recycle shareholder capital faster so to earn more margins along the way, essentially a form of gearing.

From the investor’s point of view, insurance risk coverage can provide diversification benefits to their portfolio because insurance risks may not be correlated to the financial market cycles. Typical investors are hedge funds, large institutional money managers and insurers.

One looming drawback of securitisation is the minimum size required for a transaction to be economical. The rigour required in legal documentation, structuring, statistical modelling and credit rating means sizable fixed dollar costs. In fact, the insurer should plan for repeat transactions in order to maximise the value of the initial expenses.

Source: Swiss Re Capital Markets Corporation

The risks to be securitised need to be packaged and

presented such that the investors are able to appreciate the

key drivers behind the insurance outcome

ACTUARY AUSTRALIA SEPTEMBER 2006 6

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In the case of an indemnity based trigger, such as life embedded value (EV), the importance of ongoing data quality and reliability for reporting purposes cannot be underestimated.

Growth of the Market

The growth of insurance securitisation has been accelerating in the last five to seven years, as illustrated by the graph above. Not only has there been growth in volume, the variety of risks securitised and feature innovations have also been impressive.

Specific Life Insurance Cases

A USD 245 million embedded value transaction, using a SPV called Queensgate, was completed by a reinsurer in January 2005 in the US with some notable features. Unlike the previous life EV transactions, Queensgate was without any credit wrapping. The loan-to-value ratio was particularly high at 87% i.e. only the first 13% of the EV risk was retained by the issuer. This compares favourably with the more typical required cushion of say 50%.

A similar EV transaction, ALPS, of USD 370 million followed in December 2005. Again, it achieved a high loan-to-value

ratio and it was partially unwrapped. This is a sign of the capital market’s increasing confidence and comfort in insurance bonds.

Another type of life bond is for the coverage of extreme mortality risk. This is rather topical given the recent publicity of pandemic risk. Vita, USD 400 million, was completed in December 2003 followed by Vita II, USD 362 million, in April 2005. The claim trigger of Vita II is based on a weighted average mortality index, constructed with reference to the population mortality in US, UK, Germany, Japan and Canada. The mortality CAT bonds provide a new risk mitigation tool for life companies.

Looking Ahead

Insurance securitisation has proved to be a highly innovative and fast developing area. Hopefully we will see more transactions based on Australian business, including life securitisation. Actuaries have much to contribute in this space making full use of our insurance expertise, analytical skills and communication skills. ▲

Patricia Berry

[email protected]

Total Insurance Linked Securities Outstanding, by Year, USDm As of 4 August 2006 Source: Swiss Re Capital Markets Corporation

report


actuary unearthed

Ian Robinson

Pat

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Title:Head of Profitability and Pricing

Organisation:MLC (NAB Group)

My favourite energetic pursuit:On a Friday evening, walking rapidly from the train station up the hill to my parked car that is waiting to take me home to a weekend of odd jobs my wife has planned for me

My favourite meal:I have four, all made by my wife – Burgundian beef pie, grilled flathead, Wiener schnitzel and lamb roast

Sport I most like to watch:Downhill skiing events and car rallying (up close), although both of these receive little attention from Australian media

The last book I read and when:Velocity by Dean Koontz

My favourite CD:My favourite CD changes often but tends these days to gravitate around something to do with guitars (blues or jazz), most recently Stevie Ray Vaughan Live at the El Macambo

My favourite film:Again I have a number of favourites but one that particularly had me spellbound was the many-layered Pleasantville. Also Bird Cage must rate a mention simply because I love seeing my kids rolling on the floor in hysterics!

Interesting/quirky hobbies:I’ve always enjoyed playing guitar (I don’t think that’s quirky but I’ve never seen it on anyone else’s CV). I have a classical, an acoustic steel string and, more recently, I acquired an electric that I’m finding difficult to get the time to become acquainted with

My ideal weekend day:Just relaxing around our home garden – preferably without the odd jobs!

What I would take with me if stranded on a desert island:My family, a comfy banana chair, a shady umbrella, chilled wine, hors d’oeuvres, my guitars and lots of good reading

The person I would most like to meet:The young Meg Ryan (and without Michael Parkinson around to upset her!)

What gets my goat:Impatient drivers, crowds, queues and noise

What I wanted to be when I grew up: Popular with girls. Unfortunately, I could never quite overcome my silly shyness enough for them to see what a great find I would have made!

Why I decided to become an actuary: To be honest, it was probably the combination of money and maths

Where I studied to become an actuary: I started at Macquarie (part-time) but eventually pursued it via correspondence with the Institute of Actuaries (London). Silly me, I thought it would be quicker! It was for a time until I struck the economics paper, which took 7 sittings!

Degree/qualifications obtained:Other than actuarial Fellowship, the Finsia Diploma

My work history:The major parts of my career included MLC (1970-76 and again 1981-85), Commonwealth Bank (1986-1997), Tillinghast (1997-1999), Tyndall (2000-2003) and finally back to MLC for a third stint!

My current role:I lead an actuarial team that is responsible for all pricing and profitability matters relating to MLC’s products

What I find most interesting about my role: The best thing about the role is the opportunity to think outside the square, challenge existing ideas and practices and encourage others to do likewise

My role’s greatest challenges:Changing long-held beliefs, especially those that may appear to be actuarial bread and butter

The person who has been most influential on my career (and why):Mmmm…I always stumble on this question but I would have to say that my time at Commonwealth Bank when David Service headed up and led the team that launched Commonwealth Life (now sadly gobbled up into Colonial First State) was the most influential. David’s trust in and encouragement of others around him and his own example embedded in his personal integrity and faith made a lasting impression on my own thinking and style

If I could sum myself up in � words, they would be:Honest, calm, trusting, exploring ▲

Ian [email protected]


members’ survey

The Actuarial Pulse

The Actuarial Pulse is an anonymous web-based survey of Institute members and is run on a monthly basis giving members the opportunity to express their opinions on a mixture of serious and not-so-serious issues.

Next SurveyA new set of questions will be available in the first 10 days of each month. Please login to the Members’ area of the Institute web site (www.actuaries.asn.au) and select ‘The Pulse’.

What would you like to know?If you have a question you would like to put to the membership, email it to [email protected]

Results● Analysing 121 responses.

Question 1. Has the actuarial qualification given you value for money and effort?

Choice Count %AnsweringYes 86 71.1%No 35 28.9%

Interesting that the response to this Pulse was about half of previous ones!! I would have thought that a lot more than 70% would be getting value out of the profession? I think the issue is the difference between the qualification and the membership of the profession. It seems to me that a lot of people are questioning the value they get from the ongoing $1100 per annum. As one said “I pay $1100pa for a magazine, the only reason not to quit membership is the pain of the exams in the past”. True the magazines are good but not that good.

On the pluses: ● Yes, I am overpaid● It helps if you defer your university fees through HECS and

then leave the country and stop repaying● Even though I no longer do actuarial work, the recognition

of the value of the qualification has helped me in my career (as has the knowledge and skills I have acquired from completing my studies)

● Yes, enjoy my job thoroughly but I don’t use it anymoreBut:● Fees are far too high● Not yet anyway. Probably will but the effort required for

Part III qualification is ridiculous

● The amount of risk, accountability and compliance increased tremendously

● The qualification discounts the benefits of experience

Question �. Do you think that passage of a multiplicity of part III subjects constitutes an unnecessary barrier to entry to the profession?

Choice Count %AnsweringYes. Comments 17 14.0%No. Comments 90 74.4%Don’t know 14 11.6%

A slightly better result for the Institute. There is a general view that the more actuaries there are the better but we need to maintain quality. Some people who thought that it was an unnecessary barrier had some good points however:● Employers deliberately keep capable people on lower

salaries because they didn’t pass Part III● The profession is losing many good people who would

provide prestige to the actuarial brand simply because they do not need the legal requirements provided by part III

● You need to specialise these days

Those who supported the idea said:● Content and scope is well within reach of competent

candidates – is the real issue that of how we want an ‘actuary’ to be perceived from outside the profession?

● A proper actuary needs to know all of super, life, general, investments in detail

● It enables the actuary to have a diversity of experience. It provides a necessary barrier

● Current Part III is not an unnecessary barrier to entry but it makes the process unnecessarily inflexible and complex to operate


Question �. Were you satisfied with the Institute’s system of grading and assessment?

Choice Count %AnsweringYes. Comments 69 57.5%No. Comments 31 25.8%Too long ago 20 16.7%

Mmmmm, an interesting response although it is best to ignore those who were ‘too long ago’ just for the minute. Just over a third of the remainder said that they weren’t satisfied with the Institute’s grading and assessment. It is difficult to determine if this is based on factual data although the fact that it is perceived this way has to be a concern. The ‘yes’ responses mainly appeared to come from people who passed first time. We could be cynical and explain the rest away as sour grapes but there is an issue I believe. In particular:● The whole education system is not well-executed● System? What system? Absolutely ZERO feedback for the

entire semester. Useless! ● The fact that you only get a grade if you fail is a running

joke among members● An entire year/semester’s work reduced to a handful of

letter grades with no feedback and little or no transparency from the student’s point of view? It’s a disgrace!

● It is crazy!● Assignment response time is bad● There was too little indication on where improvement

was needed● Amongst other things, I don’t understand why we aren’t

allowed to know our marks Question �. Does the actuarial qualification lead to senior management roles necessarily?

Choice Count %AnsweringMajor influence 21 18.1%Minor influence 72 62.1%No influence 19 16.4%Negative effect 4 3.4%

80% believed being an actuary improved their chances of becoming senior management. I would have thought this was a good result.

Question �. Are actuarial salaries consistent with MBAs, CPAs, Corporate treasurers etc?

Choice Count %AnsweringHigher than 21 19.4%Consistent 64 59.3%Lower than 23 21.3%

Similarly nearly 80% belived that their salaries were at least consistent with other qualifiactions or professions. You see, it was worth it after all!!

Question 6. Would you have preferred to have done engineering?

Choice Count %AnsweringYes 9 7.5% No 89 74.2% Other. Please specify 22 18.3%

● Aviarist ● Actuarial studies is still the most prestigious finance

qualification and carries a ‘wow’ factor. It should be done in conjunction with something to maximise employment opportunities

● Should have studied finance● Not enough cute girls were doing engineering when I went

through uni but it might be better by now● Monkhood There is still time to do something else of course!! ▲

Barry Rafe

[email protected]


Introduction

T he Institute of Actuaries of Australia (‘the Institute’) Communications Taskforce surveyed recent graduates on communication and the actuarial education

program at university (‘the education program’).

The aim of the survey was to elicit feedback on the effectiveness of the education program in equipping students with the necessary level of communication skills for the workforce. A total of 105 out of approximately 700 recent graduates responded (15%).

This report summarises the results of the survey and draws out the key themes in the responses.

Summary of Key Themes

Most respondents placed a high value on having studied and practised communication prior to entering the workforce but stated that the education program provided minimal training or instruction in this area. They felt that focus on communication skills was almost completely lacking in Part I of the education program but that Part II (Actuarial Control Cycle) provided more exposure through group discussion, presentations and style of examination questions (answers required in report or letter format).

The respondents were generally supportive of an increase in focus on communication skills throughout the education program. Many felt that students need to be made aware of the importance of communication earlier and that the

more practice they can get, the better. Many also felt that the best way to engage students is to make communication assessable.

Those who had some form of actuarial work experience found it valuable and some felt that work experience should somehow be made compulsory!

Only one person said that the education program is not the right place to teach communication and only one person said that the current program is sufficient. Both of these respondents offered the opinion that communication skills would be best acquired in a broader context, rather than specifically within the actuarial education program.

Conclusion

Overall, the graduates who responded were in favour of a greater and earlier, emphasis on communication skills in the education program. The lack of focus on communication, particularly through the structure of the syllabus and the way it is assessed, sends a message that communication is of low importance.

The graphs on the opposite page provide a very telling story: graduates perceive that the ability to communicate is important and valued but that they are not provided with sufficient support to develop this key skill. ▲

Sulyn Teh

[email protected]

Actuaries and Communication SkillsSurvey of Recent Graduates

survey

Sul

yn T

eh


Based on your personal experience, how valuable is it for you to have studied and practised communication prior to entering the workforce?

To what extent do you believe that employers place much more value on technical skills in actuarial students than communications skills?

To what extent do you believe that employers who hire actuaries with weak communication skills will provide training to address this skill deficiency?

To what extent do you believe that the actuarial education program has helped you develop communication skills for the workplace?

Survey questions and results

ACTUARY AUSTRALIA SEPTEMBER 2006 1�

Growing the Spirit of Co-operacy

Co-operacy in action requires a commitment from all parties, to certain qualities:

From the heart: From the spirit:

• Stay connected • Be conscious

• Be your word • Use your senses

• Be proactive/stand out • Take time to build

• Say what you really culture/purpose really want • Pick up stitches

• Have backup support • Act or let go

Be Your WordBeing your word is about taking accountability. When you commit to doing something, then you will carry it through; and if you are not able (for whatever reason) then you let others know and/or ask for support. This is critical for co- operacy to survive. Individuals within a co-operative team can rely on others to do their part and time does not need to be spent on following up to see whether critical actions have been completed.

Be Proactive/Stand out● Be prepared to stay in your power, despite it looking

different from the norm or from what others might expect of you

● Say what you believe even if you expect others’ views might be different or their reaction might be opposing you

● Be prepared to make mistakes● Follow your intuition

Say What You Really Really Want● This is being honest● It is great modelling● It shows a real part of yourself● It contradicts the pattern of looking after others

Saying what you really really want is an essential element of a co-operative team.

Have Back Up Support Choose to check in with others by agreement. Let your support person (people) know how you are going as compared with your agreed plan. The responsibility of your support is to check in with you, especially if they have not heard from you. Do not isolate yourself – get help if you need.

The arrangement for support could be on a project basis or on-going life support.

Co-operacy A New Way of being at Work

comment

Jen Hall recently attended a four-day residential

course: Co-operacy – A New Way of Being at

Work. This course – Zenergy III – was designed

and facilitated by a cooperative, New Zealand

based organisation called Zenergy. Zenergy III is an

experiential workshop that builds on Zenergy I – The

Art of Facilitation and Zenergy II – The Essence of

Facilitation. The learning from each of these courses

comes through an embodiment of the principles rather

than an intellectual understanding. The following is a

summary of intellectual learning from this course.


Stay ConnectedWe cannot be connected with others unless we are connected to ourselves – so connection to self is critical and a first step towards connecting with others.

Staying connected with self really means being in your body (rather than your head!). If, like me, you have a tendency (and comfort) towards residing ‘in your head’, here are some suggestions that may help you to connect with your body:

● Really slow down – move like a sloth● Dance ● Become aware of your breath, moving into and out of your

abdomen, as you breath in and out. Draw your breath low into your belly (rather than breathing in your chest)

● Notice if you dash (this movement is almost certainly to be done without awareness) and make a conscious decision to stop. Be aware that you can move and do things quickly and stay connected – there is a difference between dashing without awareness and moving quickly with awareness

● Start meditating/meditate regularly Once we are connected to self, connecting to others is easy and will flow naturally.

Be Conscious● Stay aware● Make active choices (rather than drifting along)

Use Your SensesListen – Look – Smell – Speak – Touch - Intuition

● Use powerful listening – listen actively and with awareness to others. Do not interrupt. Think well about others as they think and speak – refrain from judgment.

● Use your eyes to see reactions and moods – pick up clues from others’ body language

● Become aware of your wonderful sense of smell. Notice how you respond to different smells – for example, cooking, scent of flowers, pollution.

● Speak powerfully from your heart (you need to connect with your body first)

● Simply notice what your body is making contact with – start with hands, feet and expand to encompass all parts of your body

● Trust your inner knowing. Your intuition may show itself as a spontaneous thought and/or a feeling in your gut

Take Time to Build Purpose and CultureAs a group, coming to collective agreement on your purpose will result in a flow of energy which has a force of its own. We can achieve with a group far more than is possible than the sum of what we can achieve individually. This is known as group synergy.

Setting a culture within a group creates an environment of safety. Working within the culture then becomes each individual’s responsibility, as is standing up to anyone who steps outside the culture.

Pick Up Stitches● Notice when something has been forgotten, when

something is missing – do what is needed to correct it. ● Notice if someone has been left out – invite them in.

Act or Let GoIn other words, do something about it or stop complaining/worrying and move on.

If you would like more information on courses and embodiment of these learnings, visit Zenergy’s website www.zenergyglobal.com. Zenergy will be running Zenergy I, The Art of Facilitation (the first course in the series) in Sydney in October 2006. Zenergy I is a non- residential, five day course. ▲

Jen Hall

[email protected] Jen

Hal

l


P lan For Life has over the last 10 years for various life companies, fund managers, firms of dealers and government departments pioneered, trudged, plodded,

sometimes a tad disorientated (luckily never completely lost) down some previously unbeaten and unmapped tracks in the greater wider field.

The ‘assignments improbable’ requiring the talents of actuaries, programmers and web developers included:● Obtain funds, insurance and population demographics

data not in any of the standard government reports or commercially available material requiring the cooperation of some 120 of the life companies and fund managers in its derivation

● Prepare databases and software enabling users to analyse areas like:a) The detailed flow of investment monies through the

retail to the wholesale funds marketsb) how industry superannuation funds have achieved

substantial growth and have invested their fundsc) The size and growth of distribution channels for

Australian retail managed funds and risk insurance

We discovered most other researchers found these seemingly easy to define tasks too difficult to do because either the data was not available or complex methodology using algorithms and ‘best-fit’ methods were required to estimate it. Possibly that’s why we got the gig in the first place.

Applied Actuarial Archaeology

Simon, who is also an amateur archaeologist, points out amazing similarities between our work and archaeology digs

(note Will admits to limited shovel time experiences of the once-in-a-blue-moon backyard nano-blitz variety):● In both cases, there are fragmentary pieces of material,

lying around, some recent, some historic● The investigator has to examine layers of data, sifting

through often confused and intermingled layers● The tools used by the actuary and archaeologist are

scientific. Subjective impressions and romantic theory are all very well but a cool, calculating mind using logic, mathematics, statistics plus applied actuarial discipline and ingenuity is the only consistent way to achieve meaningful results

Dig No 1 – the Australian Retail Funds Market

The problem of consistently and accurately measuring the magnitude and breadth of the Australian retail funds market was first raised around 10 years ago by a senior actuary of a major life companies. Plenty of widely/wildly differing estimates existed but none that was both credible and covered the whole market.

The retail market (at that time around $300 billion) comprised some 100 fund managers, master funds and life companies. Even the most basic data, such as accurate and consistent funds under management history seemed to be impossible to establish with figures often fluctuated significantly from quarter to quarter due to managers revising, misreporting and sometimes rediscovering ‘missing’ funds (including some major ones).

Obtaining reliable information on the underlying dynamic flows driving the growth or reduction of fund sizes seemed

Dig ItHow actuarial research resembles an archaeological dig – intriguing opportunities for actuaries

review


like a job for Tom Cruise in Mission Impossible or perhaps, given the archaeological flavour of this, the wisdom and obligatory sense of humour required of Indiana Jones’ father. So what were these ‘missing links’ so easily defined but impossible to delineate?● Inflows (roughly equivalent to new business)● Outflows (roughly terminations, maturities, tax and

expenses)● Transfers within funds● Investment earnings

Next could we create reliable and up to date spreadsheets/database putting everything into some sort of meaningful and usable context with:-● Accurate funds under management (FUM) detailed by

manager, product and investment type● Provided all of the ‘missing

links’; inflow, outflow, transfers and investment earnings

● Applied a strict actuarial audit process to all the data (i.e. every Investment option now more than 20,000) to make sure it all added up, i.e.

FUM1 = FUM0 + Inflows1 – Outflows1 + Transfers In1 – Transfers Out1 + Investment Earnings1

● Provided minimum 7 years’ history

● Updated each quarter allowing for any subsequent amendments/additions to historic data which inter alia included missing funds becoming ‘discovered’ (even ‘rediscovered’) or correcting double-counting caused by over-enthusiastic data providers with the amounts involved sometimes in the billions!

● Updating to happen seamlessly meaning we had to build systems to automatically deal with what may be termed the ‘historic rippling effect’ of each amendment across the whole database.

All of this was a tad challenging, especially as most managers were used to providing at best nothing more than● Fund/Product size,● Unit prices and occasionally/unreliably● Net fund flow

Initially no one was enthusiastic about providing more detail e.g. inflows were regarded as “sacrosanct and of strategic interest”. Even ASIO had no idea (perhaps a bad example but you get the idea). However through a process of getting the companies interested in receiving back the results in exchange for information, the data collection process gradually began to yield results.

Where minimal data was provided (i.e. fund sizes and unit prices) statistical estimates for inflow and outflow were produced. this estimation task was a bit like finishing off a half-completed, semi-free-form, multi-level jigsaw puzzle. each additional piece of known information was fed back into the system as more managers cooperated enabling best-estimates to be replaced with actual data and the remaining best-estimates reworked if necessary until gradually a clearer and clearer picture emerged.

The major advantages of this approach have been:• A very good idea of total market size, inflow and outflow• No ‘sky-scraper’ effects caused by managers omitting large funds only to re-discover them. By blending resurrected history, when ‘new’ data is introduced, a true view of how funds have moved is obtained• Peer pressure on managers to improve data quantity and quality. Most now realise it is far better to provide as much accurate data as possible so minimising ‘gap-filling’ estimates (especially if they have a

positive story to tell)• Education of managers that their data is precious requiring

great care in its provision, rather than the old “just send whatever was enough to get the researchers off their backs”!

One fascinating actuarial spin-off is the creation of more and better ways of trapping errors as with a database of this size and diversity there are constant problems with the provided fund sizes, inflow/outflow data, rates of return and unit prices etc. A normal quarter uncovers at least 1,000 errors that have to be assessed, followed up and corrected and while there are some ‘old favourites’ in the end just like “the grains of sand in the desert” (archaeological digging again!) the possible causes and remedies are endless. Now before we publish in addition to extensive two-way error checking/querying as the data is

The problem of consistently and accurately measuring the magnitude and breadth of the Australian retail funds market

was first raised around 10 years ago ... estimates existed but none that was both credible and covered the whole market


received there is a two-stage ‘last chance’ sign-off process that includes provisional pre-release data for review.

Dig No 2

Solvingthe‘Double-Counting’problembetweentheRetailandWholesaleMarkets

One major conundrum that besets the combined Australian retail and wholesale markets is double-counting, where funds counted in the retail market then pop-up again in wholesale, e.g.● Investor places $50,000 in a retail unit trust operated by

ABC Fund Managers ● ABC then invests $50,000 in the XYZ Wholesale Fund via

a pre-existing arrangement● Thus the same $50,000 appears in both retail and wholesale

funds, so if one tries to produce the combined retail/wholesale market by adding the two sets of data, the $50,000 will be counted twice

All of these double-counted ‘intra-investments’ need to be traced and deducted from the grand total. This sounds very simple but in practice is extremely difficult to accomplish. For example over the past 10 years, the ABS reported a double-count estimate of around $135 billion however it was recently (December 2005) revised to $250 billion, within a grand total of $1.3 trillion! Hmm, makes you think doesn’t it, an adjustment of $100 billion (almost two Enrons)!

Jokes aside there are actually some good reasons why this is a very complex problem:● Managers who offer retail products investing some or all

of the funds in companies in the group which is quite common with managers reporting this data for years, without realising that they are doubling-up

● Wholesale investment managers having received retail funds then place some of this with 2 or 3 other investment managers under instructions from the originating retail manager (almost like investment reinsurance) resulting in a bit of ‘triple-counting’!!!!!!!!!!!!!!

● Funds exiting the retail/wholesale market: while this does not cause an immediate double-count as such, it does create problems in reconciling totals

So what’s the solution? The answer, although apparently simple, required a combination of actuarial logic, statistical theory and sheer determination in applying a heuristic repetitive approach to track as closely as possible the components of the entire $750 billion of retail/wholesale funds market as follows.

1. Within the $475 billion retail market, identify in detail the destination of every fund investment by tagging and counting where it ended up by manager and investment option, within wholesale or direct

2. Within the $275 billion wholesale market, identify in detail all of the funds received from retail and also other sources (i.e. directly by investors or via industry, DIY and other super funds)

3. (1) and (2) should reconcile for funds flowing through retail to wholesale; the balance in retail should be funds staying with the original manager (not counted as wholesale) and direct investments. So we have a theoretical solution at least as far as the retail/wholesale market is concerned

As simple as this looked theoretically, its practical application has proved to be quite the opposite because:● Some very large master funds, wraps and platforms ($4

billion to $8 billion fund size) either couldn’t or wouldn’t split their data down into investment options

● Similarly some wholesale managers who could only provide totals but no details on their sources

Overcoming these problems is a good example of using actuarial principles to produce significant, usable results:1. Analyse the approximately 75% data available at a

detailed level in retail and wholesale

2. Within retail, a set of 6 central models were chosen from the master fund and platform category after examining the investment menus in their prospectuses, e.g.

InvestmentManager/Option %FUM

ABC Manager – Australian Equity 2.2%

ABC Manager – International Equity 0.5%

DEF Manager – Absolutely (No?) Performance 25.0%

…… %

XYZ Manager – Fixed Interest 1.1%

Total 100.0%

4. Each particular master fund or platform with no detailed data was then ‘best matched’ to one of these models that was then modified to allow for any extra or less investment options

review (continued)

Continued on p26


with Gae Robinson

G a e . R o b i n s o n @ f i n i t y. c o m . a u

Qualification pay increase?

I’ve just qualified – should I ask my boss for a pay rise?

A lot of us aren’t good at being assertive about our own remuneration – unlike some other professions. The other day on the bus I watched over a young woman’s shoulder as she reviewed the Powerpoint presentation she had prepared for her performance review and pay discussion(!). She appeared to be in a fairly junior marketing role for a well-known drinking venue. My favourite part was a graph that showed marketing income over time; the latter section of the graph, with better results, had a label attached: ‘Me’. If only it were that simple in the actuarial world…

To state the obvious, your remuneration at any point in your career should reflect your qualifications, the length and quality of your experience and your skills and strengths.

Why are you worth more to your employer after you qualify? No study days means you’re doing more work. As a qualified actuary, you’ll be able to take on increased responsibility. You’ll also be able to focus more on your job and development of other skills.

At qualification, there’s a fairly well-defined ‘market rate’ of remuneration, which is seen in salary surveys. At that stage of your career you will be in demand and you may appear on the radar of actuarial employers other than your own for the first time.

All of this means that it is not uncommon to get a significant step up in salary at qualification.

So – yes, you should have the discussion about remuneration with your boss. Will you get a pay rise? Well, that depends on the circumstances; naturally, the market rate is based on a ‘typical’ qualifier – 2-4 years of solid actuarial experience after leaving uni.

You will want to know how your remuneration has been set and in particular to understand why your remuneration is in line or not in line with the going rate. Even without a pay increase, it will be a useful discussion – things have changed for you and you can talk about starting to take on broader and more senior responsibilities. ■

Dress to impress?

There seems to be a lot of flexibility about what people wear in the office these days. Do I really need to dress up (tie etc) to impress or can I dress for comfort

I’m a big believer in casualness myself – if it were up to me, we’d all be in jeans and Snoopy T-shirts. Apart from the comfort considerations, there are other sound arguments for going casual. For example, did you know that business clothes are an environmental disaster? Yes it’s true: ● ironing uses lots of electricity● the chemicals used in dry cleaning are Very Bad for the

environment.But the reality is that clients, colleagues and others all have expectations about what a seriously impressive actuary should be wearing. So if you don’t want to make a negative impression, it’s safer to err on the side of overdressing – at least until you’ve established your credentials.

Make your own call based on what you see around you at your office – you don’t want to be grottier than everyone else and you don’t want to be the only one in a suit. Is there a written dress policy to guide you about what’s considered acceptable? Or could you develop one?

Whether you’re going casual or formal – stylish is good. A bit of snappy dressing won’t do our profession’s reputation any harm.

On the subject of men and ties: why are men of the twenty-first century not considered dressed for business unless they’re half-choked by a remnant of European gentlemen’s attire of three hundred years ago? For years I’ve been recommending this simple two-step tie eradication strategy to the menfolk:1. All the men of the world agree on a future date to be

known as “International No More Ties Day”2. From that date, no man is expected or even allowed to

wear a tie. It’s that simple. Come on guys, you know it can work… ■

Gae answers your serious and not-so-serious questions about life in the office, career, study and coping as an actuary in the real world


T here has been an enormous amount of regulatory activity in the past few years in the financial services sector and more broadly in the corporate sector in Australia. Certain

statutory obligations specifically apply to actuaries. Other obligations apply to members of the Institute by virtue of their position within a financial institution or corporation regardless of the fact that a member is an actuary (eg, a senior manager). As such, members are reminded of the following important Commonwealth statutory provisions or regulatory standards that may apply or be relevant to their work.

The following information is not exhaustive and it is not to be relied upon as legal advice.

It is incumbent on individual members of the Institute to be conversant with particular laws or regulatory standards (Commonwealth, State and Territory) that apply to them or their work. If a member has any doubt about whether statutory provisions or regulatory standards apply, he or she should seek legal advice.

New APRA ‘Fit and Proper’ standardsOn 2 March 2006, APRA released its new ‘fit and proper’ prudential standards and prudential practice guides for authorised deposit-taking institutions (ADIs), life insurance and general insurance companies. Full copies of these standards and practice guides are available on the APRA website. These standards come into effect from 1October2006.

Essentially, the prudential standards set out minimum requirements in determining the fitness and propriety of individuals to hold positions of responsibility. A ‘responsible person’ includes a director or senior manager of a regulated institution and for an insurer, the approved auditor and the approved or appointed actuary.

A person need not be an employee of the regulated

institution to be a responsible person if they are otherwise within the definition of ‘responsible person’ contained in the relevant prudential standard. In some circumstances a consultant, contractor or employee of a subsidiary or related company may be a responsible person.

Further, APRA may also determine that a person is a ‘responsible person’ if satisfied that the person plays a significant role in the management or control of the regulated institution or that the person’s activities may materially impact on prudential matters.

The standards for life and general insurance companies also set out additional requirements for certain auditors and actuaries.

For example, section 21 of Prudential Standard GPS 520 (for general insurance) sets out the additional criteria that must be met for a person to be fit and proper to act as an approved actuary or reviewing actuary; namely that the person:(a) has appropriate formal qualifications;(b) is not the chief executive nor a director of the insurer or of

a related body corporate (except where that related body corporate is a subsidiary of the insurer);

(c) is not: (i) the approved auditor; (ii) for an approved actuary, an employee or director of an entity of which the approved auditor is an employee or director; or (iii) for an approved actuary, a partner of the approved auditor;

(d) has a minimum of 5 years relevant experience in the provision of actuarial services to entities carrying on insurance business and it would be prudent to conclude that the person is familiar with current issues in the provision of actuarial services to insurers;

(e) is a member of a recognised professional body; and(f) is ordinarily resident in Australia.

Note re privacy: Members should be aware that ADIs and insurers are required to provide reports to APRA about ‘responsible persons’ and those reports may contain personal and sensitive information. ADIs and insurers collecting personal information to be used in such reports are generally required to comply with the National Privacy Principles contained in the Privacy Act 1988 (Cth). However, the Act contains exemptions to such compliance for conduct required by law, such as complying with prudential standards. Consequently, ADIs and insurers will still be required to advise persons that personal information will be collected about them and how that information will be used and disclosed. However, they will also be able to use any other personal or sensitive information they have about that person in their reports to APRA, including such information collected for other purposes.

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and the regulatory environment for the actuarial profession

Corporate Governance


New APRA Governance standardsOn 5 May 2006, APRA released its new prudential standards and prudential practice guides on governance for authorised deposit-taking institutions (ADIs), life insurance and general insurance companies. Full copies of these standards and practice guides are available on the APRA website.

These new standards come into effect from 1October2006.These new standards unify APRA’s governance requirements across the industries it supervises and build on existing requirements in two main ways:● they seek to promote greater independence on the part of

the board, its chair and the board audit committee; and● they require boards to have a formal policy on board renewal

and procedures for assessing their own performance. Members working for or providing professional services to regulated financial institutions are encouraged to read these new prudential standards and they may wish to note the following particular provisions:● Prudential standard GPS 510, Governance (for general

insurers) – sections 6, 7, 8, 9, 10, 41, 42, 44, 56, 59 and 60;● Prudential standard LPS 510, Governance (for life compa-

nies) – sections 6, 7, 8, 9, 10, 40, 41, 43, 55, 58 and 59; and● Prudential standard APS 510, Governance (for authorised

deposit-taking institutions) – sections 6, 7, 8, 9, 41, 42, 58 and 59.

Duties of company directors, officers and employeesA member of the Institute working for a corporation should consider whether he or she is a ‘director’, ‘officer’ or ‘employee’ of the corporation and be aware of the provisions of the Corporations Act 2001 (Cth) that apply to a particular position.

For example, Part 2D.1 of the Corporations Act 2001 provides for the duties and powers of ‘directors’ and ‘officers’ of a corporation. Section 9 of the Corporations Act 2001 provides that:

‘officer’ of a corporation includes: (a) a director or secretary of the corporation; or (b) a person:

(i) who makes or participates in making, decisionsthat affect the whole or a substantial part, of the business of the corporation; or

(ii) who has the capacity to affect significantly the corporation’s financial standing; or

(iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to theperson’s professional capacity or their business relationship with the directors or the corporation).

Persons falling within the Corporations Act definition of ‘officer’ have the following duties under that legislation (as well as equivalent common law duties):● to exercise care and diligence, with a business judgment

rule defence (section 180 – this is a civil liability only);● to act in good faith in the best interests of the corporation

(section 181(1)(a) – civil liability and section 184(1) – criminal liability); and

● to act for a proper purpose (section 181(1)(b) – civil liability and section 184(1) – criminal liability).

Other fiduciary duties, which apply to employees as well as officers, are:● not to misuse their position to gain an advantage for

themselves or someone else or to cause detriment to the corporation (section 182 – civil liability and section 184(2) – criminal liability); and

● not to misuse corporate information to gain an advantage for themselves or someone else or to cause detriment to the corporation (section 183 – civil liability and section 184(2) – criminal liability).

Legislative ‘whistleblowing’ or reporting duties and protections Members are reminded of the following statutory provisions.● Insurance Act 1973 (Cth): sections 49-49D● Life Insurance Act 1995 (Cth): sections 98-99● Superannuation Industry (Supervision) Act 1993 (Cth):

sections 129-130C● Corporations Act 2001 (Cth): sections 1317AA-AE ▲

Vicki Mullen

Director, Governance and Regulation

* For example, the two titled APRA sections of this article deal with

new and very similar APRA prudential standards for ADIs, life and

general insurance companies. Members working in a particular

industry must ensure they are fully aware of any industry specific

provisions or standards (eg, APRA GPS 220, 230 and 310 for general

insurance).

APRA Media Release, ‘APRA releases new prudential standards on

governance’, 5 May 2006.

Upon commencement of Prudential standard GPS 510, the

governance requirements contained in Prudential standard GPS 220

Risk Management will cease to have effect.

Upon commencement of Prudential standard LPS 510, existing

requirements applying to Friendly Societies under Prudential standard

PS 6.3C Audit will be varied to remove matters from that Prudential

standard that are covered by this Prudential standard.

Upon commencement of Prudential standard APS 510, various

requirements and provisions will cease to have effect. Please refer to

section 61 of APS 510.

ACTUARY AUSTRALIA SEPTEMBER 2006 �0

T he Institute has made a submission to Treasury covering the tax position of death and total and permanent disablement (TPD) benefits from super. The

recommendation is for tax-free benefits on death and TPD. This matches the new tax-free status of retirement benefits that will soon be available after age 60.

The Treasurer’s recent proposals were silent in relation to insurances. However, because the environment in which the rules will operate has changed, there are knock-on effects that warrant attention. The new proposals come on top of the impacts of Choice of Fund and some longstanding inconsistencies in the system.

For most people, insurance is a secondary issue when they assess their super funds. Members choose to join or leave a superannuation fund primarily based on their fund’s investment performance. A trustee’s number one priority is therefore to achieve good investment returns. In this environment, time spent on managing insurance issues has become disproportionate.

Inconsistencies between the Tax Act and SIS and the need to interpret imprecise definitions are problematic for trustees. These need to be fixed.

For example, adult children are considered dependants under SIS but not under the Tax Act. Conversely, an ex-spouse is not generally considered a dependant under SIS but is automatically considered a dependant under the Tax Act. Moreover, although the inter-dependency concept was added to establish dependency in both acts, the drafting of the Tax Act excludes this group from benefiting from the anti-detriment provisions. This leads to the inexplicable position where an adult child beneficiary must pay tax on a death benefit but can claim an anti-detriment payment, whereas, a dependant who qualifies under the interdependency

provisions, may receive a tax-free benefit but is not entitled to claim anti-detriment.

It does not take long to demonstrate that there are some unexpected outcomes that can confuse even those that deal with superannuation every day.

What should tax policy aim to achieve?

Those in similar circumstances should be taxed in a similar way.

This is currently not the case. Many trustees work hard to ensure that those who are clearly very sick receive their TPD benefits as quickly as possible. They can then have the opportunity to put their financial affairs in order. Insurers have recognised this need and have introduced terminal illness riders to their policies so that payments can be advanced. But is this, in fact, doing any favours for the disabled and their dependants?

I would argue – often not.

If a member has a reduced life expectancy as a result of TPD then it may be better that any claim payment be deferred until death. Tax must be paid on TPD benefits. In contrast, dependants receive death benefits tax-free and, in addition, an anti-detriment payment can be claimed.

It does not appear reasonable that members and their dependants in such similar circumstances should be treated so differently by the tax system.

The invalidity component has been retained under the Treasurer’s proposals but is anomalous in the new system. Its effect is to give a tax-free benefit to a person disabled at the start of his or her career, dovetailing into a fully-taxed retirement benefit. Now the retirement benefit is tax-free, it would seem more logical to allow the TPD benefit to be tax-free at all ages.

Tax should reflect capacity to pay

Again, this is currently not the case. Around two-thirds of those claiming TPD would have no significant reduction in life expectancy. With no possibility of future employment, these members need to support themselves for a longer retirement period. They may incur additional living expenses as a result of their incapacity and may also have dependants for whom they are responsible.

Tax Overhaul

Take a step back for a full overhaul of tax on insurances in super

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Again, it does not appear reasonable for these members, and hence their dependants, to have to pay tax when those who claim death benefits, and even those that simply retire at age 60, are to pay none.

Tax should be assessed on firm and indisputable criteria

The current system involves some imprecise definitions and trustees need to exercise judgement to interpret them. There are aspects of interdependency and financial dependency that are very personal. Trustees, at times, need to ask questions that can appear invasive and insensitive to establish who dependants are, for the purpose of payment of benefits and to establish how to tax the payments.

Superannuation in today’s world is a financial product. Members generally view their superannuation as their own savings. In this new environment it appears an anachronism that trustees retain the right to direct payments of death benefits and often need to establish financial dependency to establish how benefits should be taxed.

Anti-Detriment Provisions

In the Treasurer’s new super era of tax-free retirement benefits from age 60, a number of anomalies need to be fixed – and this also gives a great opportunity to look at a number of other issues that have been sitting in the system, such as the anti-detriment arrangements.

These arrangements aim to compensate beneficiaries for contributions tax paid since its introduction in 1988. A compensatory payment can now be claimed by dependants who receive death benefits. Anti-detriment measures were introduced because contributions tax was described as a bringing forward of benefits tax. As these death benefits were never taxed, contributions tax needed to be returned if these beneficiaries were to be no worse off under the new system. The anti-detriment payment does this.

The problem is that these are calculated on an individual basis and are complicated, especially for defined benefit funds. If paid to members then they need to be reclaimed by the fund. This is a complex process.

Members are generally unaware of anti-detriment provisions although the amounts involved can now be quite large and there are no transitional sunset provisions.As the provisions were introduced in 1988, most members

under age 40 joined the superannuation system after the introduction of contributions tax. Arguably they should never have been included in the anti-detriment arrangements. Given these people generally have no knowledge of the superannuation system prior to contributions tax, anti-detriment must be mystifying. Indeed anti-detriment payments may even be considered inequitable in the current context because they can only be claimed on death benefits. They are not available on TPD benefits.

Further complexity results from the different definitions in the relevant legislation. This means that a dependant who is interdependent may receive a tax-free death benefit but cannot claim anti-detriment, whereas an adult child who pays tax on the benefit can claim anti-detriment. Arguably, anti-detriment should never have applied in these cases where tax was previously paid on death benefits.

So how could we amend the new system to be fairer and so trustees have clear rules to follow?● Scrap the invalidity component and allow tax-free TPD

benefits at all ages● Scrap the differentiations for dependants and non-

dependants and allow all death benefits on a tax-free basis. This need not change the priority dependants currently have to receive death benefits from funds.

It is interesting to note that under the Treasurer’s proposals, if you keep your super in the system after retirement, then on your death, your adult children will pay tax on the remaining benefit. This means that rather than the retirement benefits tax being lifted, it has only been deferred until the death of the last spouse.

If we are to have retirement benefits tax-free after age 60, then we need to have all benefits after age 60 tax-free. If this is done, then we should not discriminate against those who need to take earlier TPD benefits or those who die earlier. They too should receive tax-free benefits.

Accepting that the recommended changes would result in a more generous tax treatment overall, now would be a good time, in the context of all the other wide-ranging changes in superannuation, to scrap the anti-detriment provisions once and for all. ▲

Pauline Durant

[email protected] Pau

line

Dur

ant

ACTUARY AUSTRALIA SEPTEMBER 2006 ��

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Ebony and ivory

My boss is an actuary who gives me Actuary Australia to read each month because he wants me to learn about actuarial practice. I am a lawyer and, whilst I have come to respect and appreciate actuaries, I am not in the least bit interested in becoming one. How do I break it to him?

Dear Perry,I love lawyers. They taste like chicken, only much chewier. But why is everything always about you?

My boss gives me the Investment & Technology magazine to read but that doesn’t mean he expects me to become a techo. I read the TV Guide – doesn’t mean I aspire to be a TV. And don’t even try to analyse reading Playboy. It’s generally not about wanting to become a playboy or a centrefold for that matter. Mind you, it’s generally not about reading either. But I digress.

Read the magazine. Learn from the magazine. And reflect on your good fortune that you have a boss who is thoughtful enough to share with you these pearls of wisdom….

Party on

Sometimes when I meet someone at a party and tell them I’m an actuary, they respond with “Actuaries – aren’t they really boring?” (or even worse, “aren’t they just like accountants?”). How do I deal with this?

Dear Padawan,An effective communicator will always tailor the response to the audience.

If the person is some random trying to make party small talk, I find that a swift open-palm jab to the base of the nose overcomes most knowledge gaps or awkward silences.

If the person is the cute blonde you are trying to impress, unfortunately you have already made 2 rookie mistakes:1. You should have come up with a better line than actuary

– I find that doctor#, secret agent or heir to some enormous fortune work best; and

2. You have moved in way too early if she is still sober enough to understand ‘actuary’.

Nevertheless if you do find yourself in this embarrassing situation, no problem – just walk away. By the time rookie mistake #2 is rectified, she won’t remember your previous conversation anyway. In the words of renowned philosopher Neil Diamond, “Red, red wine, helps me forget…”

Market value

I’ve just qualified – should I ask my boss for a pay rise?

Dear Ken,Your oath.

Easy

I am feeling depressed after failing my part III exam. Do you have any advice on study and exam technique?

Dear Bambi,I’m not sure I am the best person to answer this one, given that the evaluation procedures I implemented at Goulburn Police Academy recently came under some scrutiny.

Nevertheless my advice is to set the mood. Create a relaxed atmosphere, conducive to learning. Be focussed but open-minded. Try different techniques. And always listen to your mentor during one-on-one or even two-on-one tuition.

Know your limits. Some students need to pace themselves over the semester to earn enough credit while for others one hard-core all-nighter at exam time is enough. Just remember that doing the hard work will pay for itself in the end.

Studying is an alternative though less dependable option.

Dress me up, dress me down

There seems to be a lot of flexibility about what people wear in the office these days. Do I really need to dress up (tie etc) to impress or can I dress for comfort?

Dear Alexander,They say that a picture is worth a thousand words. Well frankly, that was two thousand words I didn’t need. High heels and suspenders have their place but I dare say that place is not on you during parliamentary question time. And I am not even sure that a fish suit with ball gag has a place.

On occasion there may be a need to dress up – interviews, client meetings, presentations, ‘studying’ to pass an exam. At other times, office dress codes generally allow flexibility so that you can be comfortable. But there are limits. For example, I have been told several times that pants should be worn all day.

Smells like team spirit

I manage an actuarial team of 10 people at a large insurer. Staff turnover has been high over the past couple of years. What can I do to keep people?

Dear David Brent,Communication is the key!

Talk to your team members. I find that salacious personal details can generally be used as strong motivators.

Engage your people. Give them opportunities to learn and grow if that is what they need. Delegate new responsibilities, starting with those annoying jobs you don’t like doing yourself. Encourage them to go to the ‘next step’ and extend themselves, ie work longer hours.

Most importantly, appear to be interested in what they have to say. Once you can fake sincerity, you’ve got it made.

Dr# Swoodsy answers not so seriously questions about life

in the office, career, study and coping as an actuary in the

real world

#


More than a feeling

In a job situation, how do you know when it’s time to move on?

Dear Gough,Telltale signs include:• your PC is removed• someone else is sitting at your desk each morning• you can’t unlock your office door• when your company relocates… and you aren’t notified• anytime your boss takes out an AVO against you• being frog-marched from the premises

Social lubrication

At the pub last Friday night with my colleagues, I drank way too much. I did some really stupid stuff and there are bits I can’t even remember. Some senior people were there and I’m embarrassed to talk to them now. What can I do?

Dear Paris,No, no, no! You are taking the totally wrong approach with this! Don’t apologise. Most actuaries are heavy drinkers from necessity. It sounds like you are just not yet conditioned to handling it. More practice is obviously required.

As for those gaps in your memory, don’t worry – it’s all there at www.christmas_in_july.com/skanky_hohoho. And just be grateful that you are so photogenic. And flexible.

Office shenanigans

Is it appropriate to go out with/marry an actuary you work with? Is there a professional issue?

Dear Hef,Before embarking on an office relationship, you should carefully consider your ‘personal space’. It is so much more difficult (though not impossible) to use voice mail to avoid her clinginess/possessiveness/nagging if she only sits on the other side of the partition. Furthermore it may impede your pulling power at the office Christmas party.

But is it appropriate? Sure, if she’s hot. If she’s not, there may be a professional issue because your decision-making ability could be called into question. After that, others may perceive your advice as tainted or below standard.

The other professional issue is sexual harassment policy. It is a fine line between stalking and enthusiastic attention. Apparently.

Dr# Stephen Woods * Thanks to Gae Robinson for being a good sport when I ran this idea past

her! And for the record, I read Ask Gae every month without fail.# Actual medical qualification not included.

Dirty money spinner (AA111) – Solution

Pixie is laundering her dirty money at the casino, using a game that is a variant of roulette. If the probability of spinning red is p and the probability of spinning black is q (and these are the only possibilities, ie p + q = 1), what is the probability given an infinite number of spins that the number of red spins ever equals the number of black spins?

The puzzle can be considered as a random walk on the number line and the probability of returning to the origin. Each red spin is equivalent to moving one position to the right.

Defining X as the probability of revisiting any position from the left and Y as the probability of ever moving one to the right of that position, we derive: Y = p + Xp + X2p + X3p + … = p/(1-X) Also X = (1-p)Y Therefore p/(1-X) = X/(1-p) and hence X = p or (1-p)

It stands to reason that X must be the minimum of p and (1-p).But wait, there’s more. The words ‘left’ and ‘right’ in the

definitions above are interchangeable and since the random walk can return to the origin from either the left or the right, the total probability is therefore 2 x minimum (p, 1-p).

Now there is an interesting epilogue to this month’s solution when we consider the case in which the game is fair – that is, the probability of spinning red is equal to the probability of spinning black (p=q=1/2). From the result above it is certain that the number of red spins at some point will match the number of black spins.

However the expected number of spins for this to occur is infinity! In combination, these two outcomes lead to a seemingly paradoxical conclusion.

Dirty money tosser

Pixie is struggling to choose whether to bet red or black while laundering her dirty money at the roulette table. She decides that she will leave everything to chance by tossing a coin. Unfortunately the only coin in her possession was given to her by her dodgy husband Christopher and she suspects that it is biased (that is, the probability of tossing heads is not equal to the probability of tossing tails). Is there a strategy available to Pixie using the coin to facilitate a random 50-50 decision?

For your chance to win a sensational prize, send your solution by email to <[email protected]> or by regular mail to Two Ducks, care of the Institute. ▲

Stephen [email protected]

22Two Ducks Swimming


My first weeks as CEO

Two of the questions I’ve been asked most frequently are:• Why did you want to be CEO for the Institute? And• What do you actually do as CEO?

The first is easier to answer. I expect being the Institute’s CEO will be both challenging and a lot of fun. I get to work with lots of smart people and help steer the profession along future exciting paths.

The second question will take a while to unfold…but here’s a taste of my first few weeks…

Week 1

I started full-time today after a few weeks part-time while I completed my consulting activities downstairs. Yes, it was very convenient to move from level 6 to level 7 of Challis House. I’ve had lots of new roles but none so convenient. I’ve already met the new team so we can get straight down to business. First up, a planning meeting with the President and our media consultants for a media lunch on super tax reform. John Trowbridge and the Super Tax Reform Taskforce have done a great job in responding to the proposed changes. That taskforce worked very diligently and privately for the last 12 months. Now we need to shine some light onto our key proposals.

My afternoon visitor is Herbert Chan, an insurance regulator from Hong Kong who worked for me in Canberra in 1990. Herbert shared his thoughts on opportunities for actuaries in Hong Kong and confirmed the trend of students to taking US exams rather than Australian exams. The US exams are apparently easier to pass than ours. We need to be careful not to be squeezed out of one of our key growth markets.

My first day is going smoothly until Vicki Mullen asks to see me for two minutes… it doesn’t take long to resign! Vicki has done a great job as Director, Corporate Governance and Regulation during a demanding period when stronger professional standards are a high priority. Vicki will be sorely missed after making a major contribution during her three years with us. It will be great if we can find someone with similar experience, from the little I’ve seen of the disciplinary scheme, it can be tricky to manage.

Tonight I’m officially farewelled by my PFS colleagues at the University and Schools Club. The club was PFS’s initial CBD

meeting place before we found office space. We’ve come a long way in five years but it’s hard to beat three full-size snooker tables for some social activity during the quieter times. Not that I can recall too much quiet time after the first six months passed anyway.

Day two brings my first meeting with all 16 staff. There is a lot to talk about as the last staff meeting was some time ago. Naturally we go well over time and only the more senior people have the opportunity to talk – we’ll change that next time.

The 2007 Convention Committee meets after lunch. Christchurch has been selected as the venue so the planning can now accelerate, despite some distractions about how NZ and Australian GST laws interact. We’ll flick those questions to our tax advisers. ‘Adventures in Risk’ should aptly describe both the core program theme and some of the local activities.

Shifting from planning our major event to discussing a member’s complaint about why we charge both a reinstatement fee and a rejoining fee reminds me of the range of my responsibilities. Once explained to me, I can see the policy is logical but it could be communicated and implemented more clearly. Yes, I think a discussion on ‘customer service’ would be useful at some stage.

Engaging with employers and clients of actuaries is one of my KPIs. The IFSA conference offered a great opportunity to ‘connect’ with many of these, plus many members, journalists, politicians, officials and others in our target audiences. IFSA’s chairman, Craig Dunn, shared the podium with ASIC’s chairman, Jeff Lucy, and managed to keep smiling despite the focus on the enforceable undertaking that AMP Financial Planning had just given to ASIC. Several former council members took the opportunity to share their views on Institute activities and priorities. As usual, informal discussions can be very informative. We may be able to utilise some of the speakers and/or other successful innovations at future Institute events. Richard Gilbert and I put IFSA together in 1998 so it’s great to see that organisation prospering so well.

Week 2

I meet with the President, Martin Stevenson, each fortnight to plan, report and discuss key activities. Today, we also met with the rest of the Executive to review the first draft of the 2006/07 budget. As with most organisations, the cost of desired

report from the CEO


activities exceeds expected revenue so some carving takes place. The revised budget will be considered by Council at the end of August. It’s a bit tricky juggling the priorities after a week on the job but the process is sound and the support from the team and the Executive is extensive.

The senior team reviews the Executive Committee decisions and begins to refine their plans and budgets for the year ahead. I also met with some HR consultants to review the staff remuneration structure and to plan for Vicki’s replacement.

I can’t make it to Canberra this week for the Insurance Council’s conference because we’re moving house, so Philip French, Director Public Affairs goes to help build our links with general insurers. The Insurance Council has just gone through a major restructure and it will be interesting to see how the focus of that organisation has changed.

Two Institute taskforces have meetings this week – the 2020 Vision Taskforce is exploring options for the profession over the longer term while the Internal Governance Taskforce is reviewing the structure and operation of Council. Balancing the short and long term priorities is a constant juggle.

ASIC has just banned one of our former members for three years. Our disciplinary scheme has no jurisdiction over former members so we don’t need to consider taking any further action.

Week 3

My third week starts in Melbourne, travelling with the President which helps us prepare for the media lunch discussing our submissions on the Budget super tax changes. I have some spare time at Mercers before lunch and discover that my laptop can easily plug into the internet via their broadband phone network. It is getting easier to stay in touch while travelling and keep ahead of the incessant stream of emails.

The lunch goes smoothly but the coverage isn’t as extensive as that from the reverse mortgages session in Sydney. Perhaps with 1500 submissions doing the rounds and many of the journalists contacted being distracted by company reports, that wasn’t surprising.

After lunch, we have afternoon tea with a group of general insurance members. These gatherings give the President and Vice President effective informal opportunities to provide updates to members and obtain feedback. Some of the

attendees have been involved in preparing or peer reviewing the first round of financial condition reports. Their feedback on the process to date was positive.

We then joined the Horizons audience mainly comprised of Melbourne University staff and students to hear four interesting presentations on their research interests, which covered forecasting firm failures, capital requirements, reinsurance requirements and modelling of income contingent loans (eg HECS) for childcare expenses. All students were well-prepared and articulate – this augurs well for their future contributions to the profession. After the session, we had dinner with Professor David Dickson and some of his staff and students. Enrolments at Melbourne University are now dominated by overseas students who represent two thirds of the total.

Apart from a second trip to Melbourne on Wednesday, the rest of the week is spent at various meetings (Professional Standards Committee, Internal Governance Taskforce) and preparing for the forthcoming Executive Committee and Council meetings. I manage to squeeze in lunches with all staff and Professor Mike Sherris at UNSW.

When the weekend arrives I feel I need to have a rest and catch my breath. However, we have more furniture being delivered to our new house and lots of boxes to unpack. Maybe next weekend!

I’m getting my combination of challenges and fun so far. Hopefully, the balance will continue and I won’t always have so many balls to juggle! ▲

John Maroney Chief [email protected]

Several former council members took the opportunity to

share their views on Institute activities and priorities.

As usual, informal discussions can be very informative.


5. Thus the retail market could be split into all of its underlying investment components using the model percentages; investment earnings were generated using the actual returns of the particular options

6. The missing wholesale data was then generated incorporating the new estimated ‘missing’ master funds data. There followed a ‘best-fit’ iterative process of applying, comparing and modifying the results until sets of corresponding sensible data for both retail and wholesale were achieved

7. Finally the results were released to all retailers and wholesalers asking they provide any corrections, which produced a good response, providing more ‘actuals’ to replace estimates

Again this process follows the practical approach of:● Gradually improve data

by pro-active helpful two-way communication with managers

● Provide realistic estimates for any ‘missing links’ to give the whole picture context and relevance (without which there would be no interest or cooperation)

● Basically lead the market to the possibilities and “they will come” (or some of them will some of the time). The quest for knowledge and understanding is a long trudge of keeping the flock motivated

Further Excavations

Another dig that was covered in the paper was ‘benchmarking’ in which a series of standards based on factual data is set against which managers and their products can be fairly compared against competitors and the industry. These objective ‘scientific’ benchmarks are then weighted by rating agencies such as Standard and Poors, Morningstar etc based on more subjective personal opinion, gut-feel or future outlook considerations to establish ratings, e.g. A, A-, B, C.

In our example it was firms of dealers using the benchmarks in the preparation of their recommended product lists.

Now you might conclude that all of the available territory has been investigated but nothing could be further from the truth! For example in the financial sector alone the intrepid actuarial investigator could investigate:● General insurance detailed analysis of inflows/outflows

for the 20 or more different types of insurance? ● Banking & mortgage market ebbs and flows; currently

lots of broad numbers but not much detail

Actuaries have a significant advan-tage over most other research-ers due to their strict disciplined demographical/statistical/insur-ance training and practical experi-ence. Combined with some later-al, flexible but all-round thinking and a multitude of possibilities emerge. Suddenly where there was darkness, dimness and despair, all is now lightness and hope; the 50% ‘spin-doctored financially-engineered’ guess becomes the almost 95% actuarial certainty. Hallelujah brothers and sisters, yet another brave new world of actuarial endeavour is being opened up.

Finally on a more serious note we have recently learnt that believe it or not much of this has a sound theoretical base in Markov chains and our adventures in reducing the ever increasing ‘funnel of doubt’ owe a debt to a bit of the old applied binomial lattice theory, so reading this little article is definitely worth a few CPD points!! Many thanks to Alan Brown ‘statistics guru par excellence’ for proving we are still fair dinkum actuaries. ▲

Simon Solomon

[email protected] Matthews

[email protected] Will

Mat

thew

sS

imon

Sol

omon

Actuaries have a significant advantage over most other

researchers due to their strict disciplined demographical/

statistical/insurance training and practical experience ...

yet another brave new world of actuarial endeavour is

being opened up.

Continued from p16

review (continued)


M y report this month is part travelogue and part speculation about the future.

On behalf of the Institute I travelled to Hong Kong and Singapore last month. It is twelve years since I had been to Hong Kong and it is astonishing the number of buildings that have been constructed in that period. The city has a massive skyline of tall buildings and is bursting with enthusiasm and energy that in my experience is only rivalled by New York. The purposes of my trip were to address the Actuarial Society of Hong Kong in respect of the global actuarial profession and then host a dinner for Australian actuaries where I spoke on the Australian actuarial profession. There are approximately 60 Australian Fellows working in Hong Kong and 150 members of our Institute. There are 277 members of the Actuarial Society of Hong Kong. In a number of domestic and international forums I have spoken about the enormous amount of work that has gone into reforming the professional governance of the Australian profession. In all other locations there has been approval for the direction that we have taken. However, the view in Hong Kong was more along the lines that professional standards inhibit the normal working relationship between an actuary and his principal. This is not a position I agree with but I did regret that I did not have enough time to enter into a vigorous debate with some of the actuaries there who held that view. Whilst in Hong Kong I was informed that there has been a very definite shift by students to sit the exams of the [American] Society of Actuaries rather than exams set by our own Institute. The main reason seems to be that the Society’s exams are more technically-oriented than our own exams where a greater emphasis is placed on judgment and on the actuary clearly communicating his or her knowledge. This feedback will be included in the body of knowledge that underpins the never ending task of developing our own education system.

On to Singapore where the city exudes a spirit of quiet confidence. I addressed a meeting of the Singapore Actuarial Society and hosted a dinner for Australian actuaries in Singapore. There are about 30 Australian actuaries working in Singapore and we have approximately 60 members there. The number of members of the Singapore Actuarial Society is 90. The Singapore Actuarial Society is clearly going through a revival and it was pleasing to see the renewed energy and enthusiasm of the actuarial community. One of the outworkings of this increased activity level is a conference hosted by the Singapore Actuarial Society on retirement

issues in Asia. The actuaries I spoke to in Singapore were very supportive of any general assistance that Australia could provide. Through the joint efforts of Andrew Linfoot, President of the Singapore Actuarial Society and Ken Guthrie, plans are being developed to run a Commercial Actuarial Practice residential course in Singapore in the not too distant future. The course would be run partly as CPD and partly for students sitting for Part III.

Compared to our Institute (with about 1400 Fellows) most of the regional actuarial societies are quite small. Indonesia has 125 actuaries, New Zealand has 148 (50 of whom are members of our own Institute) and India has 194 – although this number will probably rapidly increase in the near future. Other societies in the region include the Philippines (62), Taipei (153) and Malaysia (34). The countries in this list are full members of the International Actuarial Association. Other countries in the region with actuarial associations include South Korea, Thailand and China – which is in a special category of its own. Finally, there is Japan which is well resourced in its own right.

Potentially there are two ways that Australia could become more involved in the region. The first way, although quite expensive, would be video conferencing CPD events. Consider for example a Horizons event being held in Sydney or Melbourne. There is no reason why this should not be videoed live to a number of the capital cities in our region (nor for that matter to Adelaide, Brisbane or Perth). This would be a relatively straight-forward way to involve a greater audience in our professional meetings and at the same time obtain a wider and richer input to our intellectual capital.

The other area is Part III on-line education. In my opinion, there is little doubt that the future of actuarial education will be on-line developments. This can bestow enormous advantages: students can work at their own pace without being constrained by a set semester/examination timetable; the level of volunteer resources can be considerably reduced; and relevantly for the region, education can be carried out at a distance. It is very early days but the signs are growing daily that on-line education will eventually be a key method of delivery of Part III of the Institute. ▲

Martin Stevenson

[email protected]

from the Presidentnotes


education update

Emerging Ideas – presentations by actuarial research students

The high calibre future of the actuarial profession was showcased at the Emerging Ideas, Horizons events held in Melbourne and Sydney in August.

The Melbourne event was held at the Royal Automobile Club of Victoria (RACV) on Monday 14 August with presentations on:● Using a Multiplicative Intensity Process to Forecast Bankruptcy

– AshEvans, PhD candidate, The University of Melbourne● Analysis of Premium Liabilities for Australian Lines of

Business – Emily Tao, Honours Student, The University of Melbourne

● De Vylder Approximations to Optimal Reinsurance Retention Levels – Nora Lam, B. Com (Hons), The University of Melbourne

● Applying an Income-contingent Loan to Childcare in Australia – ElizabethMartin, Honours Student, Australian National University

The Sydney event was held at the Institute office on Wednesday 16 August with presentations on:

● Development of a Standardised Measure of Return-to-work in Workers’ Compensation – BrianChu, Associate Lecturer, Macquarie University

● Modelling Breast Cancer Mortality Risks – HanChinChan, Masters Student, Macquarie University

● Finding Optimal Workers’ Compensation Scheme: A Case Study of Australia – Arlene Wong, Honours Student, University of New South Wales

● Insurance Pricing and Capitalisation in Imperfect Markets – Shaun Yow, Honours Student, University of New South Wales

Institute President, Martin Stevenson, commented on the high standard of the presentations and added that the future of the actuarial professional looks very promising.

Proposal for one assignment per semester for Part III courses

The Education Council Committee (ECC) has approved a proposal for one assignment per semester for module 2 and 3 courses in the Part III education program to be implemented in 2007.

The proposal was initially put forward by the General Insurance Faculty as a way of relieving resource pressure on assignment writers, markers and course leaders and to ensure that students received feedback on assignments well before the exam.

The ECC first reviewed this proposal at their meeting on 11 May and recommended that a meeting of all course leaders be convened to discuss the issue. The course leaders, at a meeting held on 16 May, supported the proposal, making the following recommendations:● Course 1 Investments to continue with two assignments

per semester● All module 2 and 3 courses to have one assignment worth

15% of the course total● Assignment due dates to be staggered between Part A and

Part B courses

This proposal will need to be considered by Council at their next meeting. ▲

Philip Latham

[email protected] Phi

lip L

atha

tm

Sydney Horizons presenters (left to right): Arlene Wong (Uni. of NSW), Brian Chu – Associate Lecturer, (Macquarie University), Martin Stevenson; Shaun Yow (Uni. of NSW), Han Chin Chan (Macquarie University).

Melbourne Horizons presenters clockwise from back left: Martin Stevenson (Institute President), Ash Evans (Uni of Melb.), Nora Lam (Uni of Melb.), Emily Tao (Uni of Melb.), Elizabeth Martin (ANU).


report from Melbourne Universitystudent column

Melbourne University Actuarial Students’ Society Bowling Night 2006

On 16 May, the Melbourne University Actuarial Student’s Society held it’s first ever bowling night. Over a hundred future actuaries trooped down to the Strike City Bowling Bar at Queen Victoria Square to have a fun night out together.

With eight lanes all to themselves, students quickly got into groups, grabbed their bowling shoes and started throwing heavy urethane balls at pins – some skillfully, some not so. There were also pool tables available and were

constantly occupied for those who preferred more one on one competition. There were also some who sat around the bar,catching up with friends in the relaxed atmosphere.

The night’s champion was Dean Hammond, an honours year student who bowled an astonishing score of 307 from two games! Overall it was a hugely enjoyable night, one not to be forgotten anytime soon. ▲

William Yap

President of Melbourne University Actuarial Students’ Society [email protected] W

illiam

Yap


letter

DearEditor

So you think it couldn’t happen to you. Well try searching Google with ‘Angela Gay’ & actuary & Mansfield. It isn’t only blonde surfing chicks and Seventh Day Adventists who get caught up in the unscientific web called the justice system. It happens to normal two-headed actuaries too.

It has been a retirement interest of mine since the Equitable affair to look out for apparently unreasonable court cases. The actuarial interest I suppose is that the theory of probability is very central in assessing court evidence, especially where so-called circumstantial evidence is involved. Despite this I didn’t manage to come across this case engulfing a fellow actuary until it reached the appeal stage and she had spent 15 months in prison.

Scientists are doing battle with creationists at the moment in defence of the proper evaluation of evidence but it does seem that jurists also need to be taken to account. They are just as guilty of confusing hypotheses with measurable fact and our colleague’s spell in prison can be pinpointed home to a mere surmise put to the jurors that the defendants maliciously fed

the child salt. That the judge at sentencing then recounts the prosecutor’s conjecture as a fact emphasises just how little training they have in scientific reasoning.

The advent of DNA indicated that something like 7% of convicted people were innocent – even higher if you adjust the exposed to risk to include only cases of circumstantial evidence. I have just returned from a trip overseas, ending with a 14-hour flight. A Boeing 747 flew all that time without a hitch with hundreds of people on board. What is more they do it many times a day, day after day with an incredibly small chance of something going wrong. That is science. Now if the methods of the legal profession were employed in running such an enterprise, how many pilots and flight attendants do you think would end up in happy retirement? Since the court’s purpose is to ensure people meet required standards of behaviour, it is more than incongruous that they are so reckless in their own standards. ▲

Frank Ward

[email protected]

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• Fully accredited by the Institute of Actuaries of Australia for Part 1 and Part 2

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calendar

Actuary Australia

September

Insights: ASSET LIABILITY MANAGEMENT FOR AUSTRALIAN LIFE Tuesday 12September MelbourneINSURERS Presenters: Anton Kapel & Zac Roberts Thursday 28September Sydney

Horizons: EXTERNAL PEER REVIEW: A VALUE-ADDED APPROACH Monday 18September MelbournePresenter: Phil Stott Wednesday 20September Sydney

RESERVING FOR GENERAL INSURERS – ONE DAY SEMINAR Friday 22September Shangri-La Hotel, Sydney

Insights: WEATHER DERIVATIVES:PRICING AND RISK MANAGEMENT Monday 25September MelbourneAPPLICATIONS Presenter: Jon Tindall

October

Insights: UNITISATION, GOVERNANCE & CONTROL CYCLES Wednesday 4October SydneyPresenter: Jules Gribble

Horizons: TOPIC – TBC Monday 16October MelbournePresented by �0�0 VISION TASKFORCE Wednesday 18October Sydney

Mark these dates in your diary!

NEW ZEALAND SOCIETY OF ACTUARIES Sun – Wed 26-29November Queenstown, New Zealand

BIENNIAL CONFERENCE

MELBOURNE CHRISTMAS PARTY Monday 18December RACV, Melbourne

SYDNEY CHRISTMAS PARTY Wednesday 20December Prime Restaurant, Sydney

XIth ACCIDENT COMPENSATION SEMINAR �00� Sun – Wed 1-4April 2007 Grand Hyatt, Melbourne

BIENNIAL CONVENTION �00� Sun – Wed 23-26Sept 2007 Christchurch, New Zealand

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