ACTUARIAL POST FOR THE MODERN ACTUARY APRIL 2019
GI FIRMS PREPARE FOR BREXIT AUGMENTED UNDERWRITING RISK MANAGEMENT ARE YOU GETTING VALUE? PITFALLS OF GMP EQUALISATION
TAIT’S MODERN PENSIONS
RETIREMENT PUZZLE page 1
PENSION PILLAR
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Actuarial Post Team EDITOR Jennifer Redwood jennifer@actuarialpost.co.uk SUB EDITOR Jennifer Stone article@actuarialpost.co.uk ADVERTISING MANAGER Alan Burns alan@actuarialpost.co.uk
www.actuarialpost.co.uk @actuarialpost @APjobs Head Office 13 Vale Rise Tonbridge Kent, TN9 1TB 01732 359488
EDITOR’S NOTE As Easter approaches we still wait to see what, if anything, will happen with Brexit. However, our lead story is, therefore, extremely topical as Nausicaa Delfas, Executive Director of International at the FCA asks How can general insurance firms prepare for Brexit? Elsewhere we also have Mark Williams, Principal & London Retirement Practice Leader, from Buck who examines Avoiding the Pitfalls of GMP Equalisation and Graham Elliott the CEO from Azur who looks at Augmented Underwriting: The future of Insurance is coming. In a very busy issue we have all of our regular authors casting their well trained eyes over current events in our market including Dale Critchely topically addressing The Rise of the Master Trust. And following on a theme from recent issues, Tom Murray asks Actuaries are they back in Vogue? Kareline Daguer looks ahead in her article The New Risk on the Block We trust that you will all enjoy the Easter break and I look forward to welcoming you all back next month, when perhaps Brexit will be a little clearer, or then again perhaps not.
Jennifer Redwood Legal Notice All rights reserved. No part of this publication may be reproduced or transmitted without the prior permission of the publisher in writing. Whilst every care has been taken to ensure the accuracy, Actuarial Post cannot accept responsibility for loss of business to those referred to in thie magazine as a result of errors.
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CONTENTS Regulars
10
06
News
6
Movers & Shakers
8
City Dealings
9
Features GI Firms Prep for Brexit
10
Augmented Underwriting
14
Risk Management - Value
18
Pitfalls of GMP Equalisation
22
18 Columns
22
Tait’s Modern Pensions
12
Retirement Puzzle
16
Inner Workings
20
Solvency II & Beyond
24
Pension Pillar
25
Lights, Camera, Actuary
26
Information Exchange
28
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NEWS APRIL New snapshot of what you have done with pension freedom To mark the upcoming anniversary of pension freedoms, Canada Life has commissioned research looking at the behaviours of people who have flexibly accessed their pension savings over the past four years under the new rules. The research highlights: • Two in five (40%) consumers accessing
their pension for cash for the first time were still working • Nearly one in four (24%) continue to pay into a pension having flexibly accessed at least one pension while leaving the rest invested. • 60% of cash withdrawals have subsequently been invested in bank/savings
Research reveals pension tax relief timebomb set to hit New analysis published by mutual insurer Royal London has shown, for the first time, how many of today’s workers are at risk of breaching the £1.03m lifetime limit for pension tax relief over the course of their working life, as well as the numbers who are already over the limit but may not realise. The Lifetime Allowance (LTA) has been cut three times since 2010, and this report estimates that around 290,000 workers already have pension rights... READ MORE
accounts • Holidays (21%), home improvements (21%) and new cars (14%) are also popular uses for the cash • One in five (21%) say they will ‘pension double dip’ with just 5% saying they will withdraw a larger amount the next time around...
The pensions quiz reveals if you are prepared for retirement Back in 2016, pensions advice specialist, Portafina, set out to find what the nation knew about their pensions. Now, three years on, Portafina asked again to see whether in light of major pension reforms, “are Brits any more clued up?” The new findings highlight that more than four in five (81%) don’t understand exactly what a pension is, with only 19% correctly identifying a pension as ‘an investment vehicle with special rules and tax benefits’.
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What’s more, almost a third (31%) said they had no idea when their pension would be taxed and 72% couldn’t identify when they would be able to take money from a private pension. Looking back to the 2016 survey, there is very little change in pension knowledge. Although there is a slight increase in those able to identify exactly what a... READ MORE
NEWS Car thieves having a field day with keyless access
A Brexit no deal insurance check list Insurance Europe has published a check list regarding the insurance implications of a no-deal Brexit.
Map of the UK’s life expectancy is redrawn by new data
The checklist includes: Motor insurance Currently, motorists insured in any EU member state can drive their vehicle in any other EU member state. However, as no agreement has been reached to continue this in the case of a no-deal Brexit, both UK and EU motorists should check with their insurance provider to see whether they need a Green Card. Health insurance Currently, EU residents travelling within the EU can request a European Health Insurance Card (EHIC) that provides access to healthcare in other EU countries. However, in the case of a no-deal Brexit, EHIC cards will not be READ MORE
New insight by data expert CACI reveals vast differences in life expectancy for over-65s across many neighbouring UK postcodes. The new CACI ‘Longevity Acorn’ dataset shows that some people might only expect to live to 80, while people in close-by postcodes are predicted to lead lives that are around 20% longer (living up to the age of 95). CACI’s data reports life expectancy in 16 different categories for British men and women, using new location insight at postcode level for a more precise prediction. It finds that the average life expectancy for a person
at 65 in the UK is 85 years and 7 months (85.6 years), with women expected to live for 86 years and 10 months (86.9 years) and men for 84 years and 3 months (84.3 years). While typical statistical sources on mortality, such as the ONS, only analyse variations in life expectancy at national, country or local authority level in the UK, CACI’s analysis is based on over 1 million records and 3 years’ worth of data, highlighting the value of analysing life expectancy on a more granular level. Longevity Acorn’s categories range from ‘16’ (89.9 years on average) to ‘1’ (average of 81.2 years). READ MORE
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Insurance industry research body Thatcham Research has today published new security ratings taking into account the vulnerability of vehicles to keyless relay attack. That’s when thieves target fobs which open cars without the need for a button to be pressed, amplifying the signal to steal the vehicle. In 2018 insurers paid out a record £376m for car theft, up 27% on the year before. Home Office stats show more than 110,000 vehicle thefts in 2017/18 – up 10% on the year before and the highest level for a decade. Laurenz Gerger, Policy Adviser for Motor Insurance at the Association of British Insurers (ABI), said: “Car thieves have been having a field day lately. Crime stats show vehicle thefts are to take swift READ MORE
MOVERS & SHAKERS The latest moves and appointments from the actuarial marketplace Willis Re appoint Head of London Market Reinsurance Claims
Marsh appoint new CEO and Chairman for Ireland
Claims veteran Steve Robson has joined Willis Re as head of London Market Reinsurance Claims. He brings extensive client-side experience and perspectives, and supports the closer alignment of the servicing and placement teams of Willis Re. During his 36 years in the sector, Robson has held appointments including head of Claims at BRIT, managing director of Syndicate 1884, president of the International Association of Claims Professionals (IACP), and chairmanships at the London market CAT Coordination Group and its Reinsurance Claims Practitioner Group. Robson will lead Willis Re’s Claims Broking team in London, and report to Chris Brook, Willis Re’s global chief operating officer. Brook said: “We are thrilled that Steve will lead Willis Re’s ongoing effort to redefine our claims offering READ MORE
Experienced Actuary joins Barnett Waddingham
Marsh, a global leader in insurance broking and innovative risk management solutions, today announced that it had appointed Joe Grogan as Executive Chairman of Marsh Ireland. It also announced that Patrick Howett, currently Managing Director of JLT Ireland, will become CEO of Marsh Ireland upon closing of the transaction between Marsh’s parent company, Marsh & McLennan Companies and JLT, which remains subject to the receipt of certain antitrust and regulatory approvals.
Cardano appoint Darren Redmayne to the Board The Cardano Group has announced the appointment of Darren Redmayne to the Group’s Management Board. Darren continues as CEO of Lincoln Pensions, the covenant specialist that he founded in early 2008 and that was subsequently acquired by Cardano in 2016. Prior to founding Lincoln Pensions, Darren spent 10 years at Close Brothers including leading its UK private equity M&A advisory business. After a secondment to help establish the Pensions Regulator, he went on to build Close Brothers’ pensions advisory business. In 2008, he left Close Brothers to found the London operations of the US investment bank, Lincoln International (including its UK private READ MORE
Both Mr. Grogan and Mr. Howett will be based in Dublin and report to Chris Lay, CEO of Marsh UK & Ireland. A Marsh veteran of 28 years, Mr. READ MORE
Rosie Marsh has been appointed to Barnett Waddingham’s Actuarial Consulting team to advise trustees on their Defined Benefits and Defined Contributions arrangements.
Rosie Marsh, Associate and Scheme Actuary, was previously at JLT, where she had been a Scheme Actuary and Client Relationship Manager for 13 years. She has over 17 years’ experience in
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advising trustees and sponsoring employers on all aspects of their pension scheme arrangements, including scheme funding negotiations and assisting relevant schemes in the journey towards buy-out. READ MORE
CITY DEALINGS Keeping up to date on acquisitions, mergers and the dealings of companies in the city
Legal and General complete buy in for Howden Group Pension Legal & General Assurance Society Limited (“Legal & General”) today announces that it has completed a £230 million buy-in for all the pensioner and deferred members of the Howden Group Pension Plan, covering nearly 2,000 members in total - with around 2/3 being current pensioners. This transaction for the Howden Plan follows on from a previous £250m transaction completed by Legal & General at the end of 2017 for another UK based pension scheme in the Colfax Corporation group.
Chris DeMarco, Managing Director, UK Pensions Risk Transfer, Legal & General Retirement Institutional, said:
“The Howden Plan is a long-standing client of Legal & General Investment Management and we are delighted to have been able to help the Trustees take the next step in their de-risking journey by completing this transaction.”
READ MORE
FCA to improve competition in investment platforms market
IT’S NOT ALL AVOCADO ON TOAST FOR MILLENNIALS READ MORE
The Financial Conduct Authority (FCA) has today set out a package of measures to help consumers who invest through investment platforms more easily find and switch to the right one for them. The package - set out in the final report of its Investment Platforms Market study - includes proposed FCA rules and actions industry is taking forward. Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: ‘While the market is working well for most of its consumers, the package we’ve announced today should make it less.. READ MORE
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Invesco publish their Global Fixed Income Study Invesco has released its second annual Global Fixed Income Study, an in-depth report on the investment behaviour of fixed income investors. The study reveals that despite the expectation of a relatively near-term end of the economic cycle, investors are not foreseeing a significant correction in fixed income and rather expect the rare event of a soft landing with a continued flat yield curve. In this, investors plan to maintain fixed income holdings in the search for yield, taking a more active approach to creating diversified scenarios of return through alternatives, emerging market allocations and investing in China. READ MORE
HOW CAN GENERAL INSURANC by Nausicaa Delfas, Executive Director of International, FCA
All general insurance firms should by now have prepared for the UK exiting the EU. The Financial Conduct Authority (FCA) has recently published updated information to encourage and support insurers with finalising their preparations. At the FCA, we are continuing to plan for a range of scenarios, including the potential outcome of the UK leaving the EU without a deal. A significant portion of this work is to ensure regulated firms are as ready as possible for exit day. UK-based general insurers do a significant volume of business with customers in the European Economic Area (EEA). If the UK leaves the EU without a withdrawal agreement (a “no-deal Brexit”), a major priority for the sector is to minimise the disruption for EEA-based customers (including expats), Firms should also ensure their UK customers understand if their insurance policies are affected and that they are treated fairly. There are a number of specific areas insurers have needed to take into account when it comes to preparing for all eventualities. For instance, UK insurers and insurance intermediaries should ensure plans are in place for their EEA customers to continue to be covered in a no-deal scenario (which will result in the loss of the passporting regime). Many firms are moving EEA customers’ policies to an EEA entity, for example by means of a Part 7 transfer. If you have customers based in the EEA, you will need to decide on your approach to servicing your existing contracts with them.You should take the steps available to you to continue to service customers in accordance with local law and national regulators’ expectations.
The European Insurance and Occupational Pensions Authority (EIOPA) has published recommendations for the insurance sector in light of the UK withdrawing from the EU. The recommendations are addressed to national regulators and aim to minimise detriment to policyholders and beneficiaries in a no-deal scenario. EIOPA recommends that for insurance firms with EEA consumers (including UK expats) who took out certain types of general insurance contracts while resident in the UK and have since moved to the EEA, those contracts should not be regarded as cross-border business. We welcome this recommendation. However, firms should recognise that whether they need regulatory permissions in a local EEA jurisdiction will ultimately depend on local law and the approach of the local authorities in that jurisdiction. We are clear that firms’ decisions need to be guided by what is the right outcome for their customers. In many cases, it would be a poor outcome for the consumer if firms simply stopped servicing them. We have given our public support to the statement by Lloyd’s of London that, in a no-deal scenario, Lloyd’s underwriters will continue to honour their contractual commitments including the payment of valid claims, while its Part 7 transfer is completed. It is important that UK insurance intermediaries and brokers intending to continue to service EEA policyholders and EEA risks, agree arrangements with local regulators and seek legal advice as appropriate. There are various models proposed for the continuation of this activity and it is a complex area. Making these arrangements is important both to ensure the continuity of service and to allow for sufficient time to take appropriate contingency steps.
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CE FIRMS PREPARE FOR BREXIT?
If you have decided to stop servicing customers in the EEA after Brexit, we expect you to ensure your customers are treated fairly when winding down business. Customers should be informed in a timely manner of any such decisions and given clear and useful ‘next steps’ information and advice. For example, this may involve supporting customers while they are in the process of finding alternative providers. In addition, we expect you to consider the potential impact of a no-deal Brexit on customers’ travel insurance contracts.You should proactively and clearly communicate to customers any Brexitrelated changes to their contracts; or if a travel policy contains a provision that would invalidate or limit a claim as a result of Brexit. Regarding claims for travel disruption, as with other types of cover, you must treat customers fairly and not unreasonably reject claims. This would include relying on provisions to reject or limit claims as a result of Brexit, where it would be unreasonable to do so in the circumstances, including where the relevant provision might be unclear to customers. You should be aware that consumer rights legislation makes clear that where there is ambiguity in a consumer contract, it will be given a meaning favourable to the consumer. Green cards should also be considered. If the UK ceases to be a part of the European free circulation zone after exit. UK motorists would need to carry a valid green card when driving their vehicles in participating countries. We do not regulate the provision of green cards, but we do have a role to ensure insurers are meeting their obligation to pay due regard to the information needs of their consumers.
We encourage you to take appropriate action. Motor insurers should inform consumers of the need for green cards in relevant countries: this includes motorists travelling with a caravan or trailer, who will need one for the towing vehicle and the caravan or trailer. More information is available on the gov.uk website. You should ensure you communicate in enough time, being clear about the process necessary to obtain a green card, for customers to be able to receive one before exit day if required. Green cards may be invalid if they are not in the correct colour and format.You should consider consumers’ ability to obtain a green card in the correct colour and format and, where appropriate, consider proactively providing them to your customers.You should assess, and if appropriate, take steps to ensure that any operational changes necessary for the production of green cards are in place. To reiterate, a key priority is communicating clearly with affected customers, and in good time, which is why we are urging insurers to make sure their Brexit contingency plans are well advanced by now. Firms regulated by us must pay attention to their customers’ information needs and communicate with them in a way which is clear, fair and not misleading. As well as direct communication, you should consider what information is made available more widely, such as on your website. This includes preparing for the possibility that you may start to receive a significant increase in queries. For further information, including the questions to help determine if and exactly how you are affected by Brexit, please visit: www.fca.org.uk/firms/ preparing-for-brexit.
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TAIT’S
MODERN
PENSIONS
Statutory right or member safety? The rise of pension scams is a key concern for anyone involved in retirement planning and we naturally want to do all we can to prevent it. On top of the recently introduced cold calling ban and the FCA’s ScamSmart campaign, there have been continued calls for the removal or modification of scheme members’ statutory right to a defined benefit (DB) pension transfer, which would create an extra layer of protection but would also take away a key member option. Which is better, to improve safety and restrict choice, or to allow flexibility and accept the risks? Why have a statutory right to transfer? Prior to 1975 employers were not obliged to preserve the pension benefits of early leavers from an occupational scheme in any way. Their funds often ended up as a windfall for the scheme and the member effectively lost some of the full remuneration package they were otherwise entitled to. The legal right to transfer these preserved benefits was not introduced until 10 years later via the Social Security Act 1985 (SSA85), under the aegis of a conservative government which advocated individual enterprise and who went on to invent the Self-Invested Personal Pension (SIPP) plan within the next 5 years. The intention was that transferring instead of leaving their frozen pension with the employer’s scheme would allow people more investment choice and the flexibility to decide when they wanted to retire. The question is, now that we have the ultimate freedom and choice for people to do what they like with their pensions once they reach the age of 55, does this justify revoking the transfer rights that were considered so positive thirty years ago?
primary intention of investing in a likely scam. However, the case of Hughes v Royal London (2016) subsequently showed that where it is possible to demonstrate “earnings” the condition has been met and trustees cannot block a transfer in these circumstances, even when the due diligence turns up concerns about the nature of the receiving scheme. Consultation In 2017 the Treasury (HMT) issued a consultation into pension scams in 2017 covering proposals for a coldcalling ban and limiting the statutory right to a transfer. The proposals received overwhelming support and HMT announced that it would proceed with proposals to limit the statutory right to a transfer to arrangements where: • The personal pension scheme is operated by a firm authorised by the Financial Conduct Authority (FCA) • It is an authorised Master Trust scheme • A genuine employment link to the receiving occupational pension scheme could be evidenced by the member, for example via regular wage-slips or dividend statements. Despite this, only the cold-calling ban has subsequently reached the stage of legislation, and some commentators do not think it has gone far enough. Calls for an approved list of receiving schemes have been made, as have suggestions of banning transfers into all Small SelfAdministered Schemes (SSAS) and/or reviving the role of the pensioneer trustee. What’s changed
Existing protections There are protections built in. Not every member has the right to transfer and the scheme trustees have to ensure that certain conditions are met regarding the receiving arrangement, leaving them in the position where they are expected to carry out due diligence on the receiving scheme, while at the same time meeting the statutory requirement to transfer within the six-month deadline. To meet the requirements for a statutory right for a transfer, the benefits must be used to provide “transfer credits” within a registered personal pension or occupational scheme and it is the latter which has been most often challenged. In order to qualify, an occupational scheme must be one which was established “for the purpose of providing benefits to a person to whom section 1(2) of the Pension Schemes Act 1993 applied when the scheme was established”, i.e. someone who is an employee of the sponsoring company.
The approved implementation of the pension dashboard has sparked concerns that it might make it easier for scammers to access people’s pension details and target them as a result. At the same time complaints against SIPPs continue, with scams leading to risky and unsuitable investments showing that the problem is certainly not confined to occupational schemes. Conclusion Clearly we are in legislative shut down at the moment and I am not convinced in any case that legislation is the answer. Transfers can still result in greater choice and flexibility for scheme leavers, providing they are conducted properly. People should have the right, in the majority of circumstances, to control the pension savings which they have accrued. I would however, be in favour of a much stricter set of rules for receiving schemes which trustees could use, if not an actual approved list. The Pensions Regulator has recently rolled out the authorisation process for Master Trusts, proving both that it can be done and that it would be a very big exercise.
This condition was intended to stop transfers into occupational schemes which were established with the
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by Fiona Tait Technical Director Intelligent Pensions
AUGMENTED U THE FUTURE OF INS by Graham Elliott CEO, Azur Underwriting Ltd Niche underwriters have always comforted themselves with the thought that disruption from Big Data, AI and machine learning (buzzwords misused almost as much as blockchain) is only for giant classes of business. The theory is they will be able to hide in their niches, protected from the mayhem and ensuing jobs carnage by the lack of Big Data. They cling to the hope that these classes just aren’t big enough to justify the expense of all that data science. Inevitable change However, with the advent of increasingly sophisticated SaaS applications, the growing commoditisation of data and new, API-rich, configurable platforms, there is an increasing feeling that this hope may be misguided. But all is not lost; we have a long way to go before robots are so sophisticated that they displace the underwriter at the box in Lloyd’s. People are fond of quoting Bill Gates, who said “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” What is often missed off this aperçu is the final sentence: “Don’t let yourself be lulled into
inaction.” This begs the question of what action should we take now to prepare us for the 10-year change? And the answer is learn how to use Augmented Underwriting. Avoid the misconceptions Think of the parallels with virtual and augmented reality. In the early days, the wow factor was the virtual world - sophisticated software with headsets that could convince you that you’re hurtling down a black run on a snowboard, when in fact you were standing on a piece of wood at an exhibition centre, flailing around to the huge amusement of your colleagues. These are stunning ideas and point to a future world where the virtual and real worlds will become increasingly hard to tell apart. The most energy in the sector, and the most commercialisation of the technology, has taken place in the world of augmented reality. The systems don’t replace the physical and the human, they merely enhance human ability. A computer to help you play golf better doesn’t hit the ball for you, it just gives you tips on how to hit it better yourself.
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This is already happening in the asset management world, where many businesses have a quantitative underlay, with computers enhancing and improving humans’ ability to absorb and analyse tons of data to help make better investment decisions. This has just not happened yet in insurance, and certainly not in the sub-scale niche classes that employ so many people handling underwriting in an almost totally manual way. But it is about to, and there is a stark choice for these companies. If they decide to play, the investment is long and hard and the payback uncertain; if they decide they just don’t believe it, the end result will almost certainly be a 20th century business that quickly loses its ability to compete against more agile real time systems. The future So what is Augmented Underwriting? There are three steps to heaven if you want to deploy it. First off, you have to have a fit-for-purpose core operating system with all your data in one place before you can really implement it. It’s amazing how many highly trained and expensive data scientists and actuaries still
UNDERWRTING SURANCE IS COMING
spend 80% of their time acquiring, combining and cleansing the data before they can get around to harvesting any insights from it. If you have a legacy stack with a poor data model and data all over the place, this explains why you haven’t yet got any real value out of all those clever people.
The problem the technology has to solve is that there’s a need for asymmetrical UX: the end insured wants minimal hassle, but the capital wants maximum information to price the risk accurately and make an underwriting profit.
One of the key benefits of augmented underwriting is the ability to respond quickly to changes in behaviour, competition, demand and appetite. How can you operate in a real time environment if your stack is dependent on batch processing or delegated authority business coming in on a bordereau 8 weeks after the risks have bound?
Data enrichment on a modern platform solves this issue. And finally, niche classes, by definition aren’t capable of delivering Big Datatype solutions horizontally. Data enrichment gives them more data points which they need to implement true augmented underwriting. It provides Big Data vertically, giving a treasure trove of data about each risk and making it feasible to deploy the machine learning techniques.
Once you have this stable platform in place, the second key component of augmented underwriting is data enrichment. This is, first and foremost, to ensure that the user experience (UX) for the brokers and/ or the end user is as slick as possible. Without this, brokers will quickly find that they are not seeing the risks on which they’d like to quote. It should not be necessary to ask some poor client upwards of 55 questions in order to give them a quote for their insurance cover.
And, lastly, brokers and insurers can now begin to use data science to help assess, grade and price risks. However, this doesn’t mean the machine makes all the decisions on underwriting. There is the need for human contact, especially in the intermediated broker channel, to handle things like negotiation and offer deeper understanding of clients and their needs. But without the help of machines to learn from patterns in the data, cognitive bias can creep in. The computer is there
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to guide and help, suggesting when a risk is less likely to convert and when the underwriter might want to increase the discount. Alternatively, it can suggest where there’s a strong likelihood of a claim, allowing the underwriter to increase rates to cater for the increased risk. This powerful combination, enabled by modern technology, will give early adopters a substantial market edge. Portfolios will be underwritten more efficiently, with fewer questions to bother the client or the broker. There’ll be more data to help understand and mitigate the risk, and configurable systems where rates can be adjusted on a live basis to allow underwriters to manage exposure. All of this comes as standard with real time management information, and at a cost that makes it possible to cater for niche lines that have hitherto been too small to warrant the investment. Just imagine if you are the only airline at Gatwick that can set seat prices on a daily basis, while your rivals have to decide their pricing at the beginning of the year. Augmented underwriting will become a serious competitive advantage, and well before the robots have taken all the jobs.
RETIREMENT PUZZLE PREDICTING EQUITY RETURNS USING CAPE
by Alex White Head of ALM Research Redington
CAPE differs from the normal P/E ratio in that it uses the average (inflation-adjusted) earnings over the last ten years. This ratio is often used to time equity investments, and it’s easy to see why; over the long-term, the negative correlation between CAPE and subsequent 10 year returns has been 45%. We show a graph of the results below, colour-coding each decade to make it more readable.
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This is certainly not just luck; something else must explain it. The obvious conclusion is that CAPE can predict equity returns.
enough to suggest that the ratio has predictive power. What’s going on?
But is that the right conclusion? The results pass a simple significance test. But we have to consider what results we would expect under different assumptions.
It is perhaps counter-intuitive that something built to have no predictive power should show a meaningful correlation with “future” returns. The explanation is that it is not predicting the future, it is predicting the past.
What if there were no links? To make sense of any results, it’s worth asking what the results would look like if there were no link. If the ratio had no predictive power, we might expect zero correlation with successive returns. But we shouldn’t. To explore this, I ran some simulations. I assumed equity prices and real earnings were independently (and log-normally) distributed each month. This ensured that any technical analysis, including CAPE, would have no predictive power. I then ran 1,000 simulated periods of 150 years. I kept the mean growth the same for equities and real earnings. I did this because, without a broadly equal assumption, there can be no sense of when the ratio is high or low. If equities and real earnings do not grow vaguely in sync over the long-term, then the P/E ratio cannot work through time. To be clear, this is separate from value investing. I am not considering 2 stocks with different P/E ratios at the same time- rather I am considering an index with different P/E ratios at different times, and the question is whether the P/E ratio can help time equity beta.
The average of the last 10 years’ earnings does not change much over a short horizon, while the price can change dramatically, so most of the change is coming from the price. This means any justification of the P/E ratio comes down to a justification of some sort of active mean reversion (see my piece from the December 2018 issue), or some sort of fundamental value. For the ratio to work, there must be some “pull to par”, whereby prices bounce around but return to a fundamental, “true” level, which is a function of earnings. This is the ideological backbone of the P/E argument. One problem with using correlation to measure this is that any historical time series either stops or mean reverts. Whether there’s anything fundamental going on or not, once the returns are realised (and only then) there will be peaks and troughs. Once the data has crystallized, it will go up from its lowest point, and down from its highest. Realised returns have to do this, by definition. Future returns do not. This means correlation is an inadequate tool for measuring this type of subtle effect.
Results
Takeaways
With no predictive power, the average correlation was -34%, with a standard deviation of 20%. This means that the seemingly high historical correlation is about 1/2 of one standard deviation away from what you would expect if it had no predictive power, giving a p-value of around 30%. Even though the historical correlation is high, it is not high
CAPE may still work, and it makes economic sense (in particular, this test simplifies dividend behaviour). But the seemingly convincing historical correlation with future returns is not evidence of its predictive power. More broadly, data often includes subtle effects like mean reversion and survivorship bias, and this can make interpretation less intuitive.
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RISK MANAGEMENT ARE YOU GETTING VALUE OR JUST TICKING BOXES?
by Rob Wallace, Principal and Head of IRM, XPS Pension Group page 18
The Pensions Regulator (TPR) makes it very clear that the understanding and management of risks is a key feature of a successful funding strategy. Integrated risk management (IRM) can, however, be a difficult topic to engage with and IRM plans are often put in place as a tick in the regulatory box rather than looking to capture the true value of risk management. IRM was first introduced as a concept by TPR in its 2013 funding statement and was later incorporated as a key building block of the revised funding Code of Practice published in 2014. The overarching approach relates to the joined-up consideration of funding, investment and covenant risks and how they could independently and jointly affect the chances a scheme has of meeting long-term objectives. This is more pertinent now than ever in the current volatile political and economic environment. Successful IRM starts from scheme trustees and sponsors asking themselves the following questions in order to build up a consideration of risk: • What is the ultimate objective for my scheme? • Where is my scheme currently relative to that objective and how am I going to get there? • How can I give my scheme the best possible chance of achieving its objectives without taking unacceptable risk? • What could go wrong along the way and what am I going to do about it if things do go wrong? • How am I going to monitor progress? TPR is expected to consult on a revised defined benefit (DB) funding framework later this year, which will include an increased focus on a scheme’s long-term objective. Indeed, in its latest funding statement, TPR sets out that it expects schemes to set a long-term funding target relating to their ultimate objective, and evidence how their shortterm decisions are aligned with this. Some schemes already have a clear long-term objective that they are working towards, perhaps securing a buy-out or getting the scheme fully funded on some form of low dependency basis. This is when schemes fund on a basis intended to minimise key risks and hence reduce the likelihood of having to depend on the sponsor in the future. For other schemes the technical provisions deficit might be the main focus.
Whilst short-term progress is important, it is key not to overlook how that progress fits into the bigger picture. A narrow focus on achieving and tracking short-term objectives may divert the scheme from reaching longer-term aspirations. In general, as a scheme matures, the expectation is that the gap to being funded on a low dependency or buy-out basis would reduce. TPR highlights in the 2019 funding statement that assessing the impact of scheme maturity is a key part of IRM. Whatever the long-term objective, it is important to understand what it means. Buy-out is often seen as the default long-term objective. However schemes should consider whether this is the right objective for their circumstances and needs. It should be noted that if, on the other hand, a scheme is funding towards a low-dependency or self-sufficiency type basis, there will still be some risk remaining even once the scheme objective has been reached. Trustees must consider whether this is the right level of residual risk to run for their scheme and its circumstances. • Should they seek to take risk up-front or spread it more evenly across their journey? • Have they considered what the investment strategy will look like once the objective is reached? • How will they deal with residual risks, such as longevity? There are still challenges in the process of achieving TPR’s ideal of IRM. Understanding the potential likelihood and impact of individual risks on a scheme funding strategy is one thing but factoring in what might be happening to the sponsor covenant in the same stressed circumstances is more difficult. Nevertheless, TPR is expecting trustees to look at contingency planning. Developments in technology as well as the range of investment products available means there is a toolkit available for schemes to put in place robust risk management frameworks. TPR notes that, if IRM is done well, then it leads to better decision-making, being better prepared if problems occur and a better use of time and resources. Ultimately, by tackling the question of risk by stepping back and looking at the bigger picture, it is more likely that all parties will engage in IRM discussions, giving schemes the best chance of getting to where they want to be.
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INNER WORKINGS ACTUARIES ARE BACK IN VOGUE
by Tom Murray Head of Product Strategy Exaxe Over the last decades, actuaries have been going out of fashion. In truth, not actuaries per se, but the need for them has been declining and their skillset has become undervalued as the financial sector focused much more on investment products than risk products. Investment managers ruled the sector, as the ongoing closure of defined benefit schemes and the collapse of the annuity market put the idea of pooled risk into cold storage. Government support has focused on supporting savings via ISAs, auto-enrolling large numbers into defined contribution pensions, and providing guidance for the many affected by the advice gap resulting from the implementation of the Retail Distribution Review (RDR). One could be forgiven for thinking that actuaries were being made the scapegoats for the financial events of the last decade; it was almost as if the staggering increase in longevity which undermined so many DB schemes and the low interest rates imposed by the global financial crisis were directly the result of the actions of the actuarial profession. But whatever the reason, the result has been a decade of increasing focus on personal savings that has resulted in individuals carrying much higher amounts of risk than heretofore.
All this is now changing. After a decade of personal savings, the auto-enrolment of large sections of the population into defined contribution plans, and the introduction of pension freedoms to allow individuals to manage their own retirement savings, the result has been a lack of the very financial security that drives people to buy financial products in the first place. As a result, there has been a shift back to appreciating the benefits of pooled plans and a reevaluation of the value of pooling risk rather than managing it on an individual basis. Across 2018, the ABI reported strong growth in the group and individual protection markets. For example, Iress reported sales of term life products growing by 33% in the first 9 months of the year with a 22% increase in the sales of income protection in the same period. This level of growth seems to indicate that rather than try to personally accumulate enough money to survive any adverse change in circumstances, people are starting to see the benefits again in pooling the risk with others by purchasing protection products rather than try carrying the risk themselves. Similarly, in the pensions world, there are signs of a big change in attitude. Whereas mid-decade, the
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focus was very much on people wanting to take control of their own retirement finances, there has been a switchback in sentiment. The tempting idea that one can manage to outperform the professional investment management groups in terms of returns was always going to be an idea that looked good on the rack but far less suitable when tried on. When introduced, the pension freedom legislation almost wiped out the annuity market as retirees felt they could manage their own future finances more efficiently for their retirement years. The collapse in the sale of annuities that resulted has now bottomed out. While sales are not back at the levels they were before the introduction of pension freedoms, they are growing significantly again, as people realise the key role annuities can play in providing financial security in retirement - financial security being a key driver for the elderly. And while defined benefit schemes are unlikely to make a come-back anytime soon, there is much interest in the new approach being taken by Royal Mail, the collective defined contribution plan or
CDC for short. The key here is that contributions are fixed so the employer cannot end up with the kind of liability that plagued the DB schemes. However, the employees get a targeted pension for the rest of their lives and therefore manage to pool the investment and longevity risks associated with pensions. This means that they are back thinking of pensions in terms that they were always used to – a wage in retirement for the rest of their lives, albeit as a target wage rather than at a guaranteed level This move to a more pooled approach shows that the original idea of insurance is making a comeback – spreading the risk in order to provide oneself with security. And with it, the role of the actuary re-emerges as a key player in making all these approaches work. For protection products, annuities and CDC pension schemes are all heavily reliant on the traditional actuarial skills in order to manage the risk on behalf of the customers. It just shows – wait long enough and even actuaries come back into fashion.
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AVOIDING THE PITFALLS OF GMP EQUALISATION
By Mark Williams, Principal & London Retirement PracticeLeader, Buck Five months after the High Court judgment on guaranteed minimum pensions (GMP), companies and trustees are starting to get to grips with the steps needed to meet their new legal obligations.
involved, but this is a project where clear, targeted legal advice is imperative to avoid nasty surprises further down the line.
The ruling in the Lloyds Banking Group case means schemes must correct benefits built up in the 1990s to ensure equal treatment between men and women. The financial impact of equalisation is likely to be very small for many members, and the total impact on scheme liability values is likely to be within 1% in most cases, but the scale of the project nevertheless means it could end up being a complex and expensive exercise.
Obtaining legal advice will also help determine which methods of equalisation are best aligned with their scheme rules and address particularly thorny issues such as the period over which any back-payments are made or the handling of transfers. Communicate at the right time
Getting GMP equalisation right, and avoiding the potential pitfalls, is therefore crucial for both companies and trustees alike.
Member communication is one of the biggest challenges of GMP equalisation, and there may be a temptation to get in touch with members quickly. However, this is a topic where holding off on doing so may be the prudent approach.
GMP equalisation is an extremely difficult concept to explain to members – many pensions professionals struggle with it – so it’s Don’t shut out the lawyers not something that can easily be communicated succinctly in a short statement or newsletter. A key mistake trustees could make is to try Attempting to do so, risks mis-managing to go it alone on GMP equalisation without obtaining legal advice. Lawyers can be expensive, expectations – members may expect a windfall when the reality is likely to be a few extra and schemes may be reluctant to get them page 22
pounds per week (if that) – or causing undue concern. In general, people do not like it when their pension is messed around with, even when the change is a beneficial one. The best approach is likely to be to wait until the full picture is known, including the size and nature of any changes to benefits, before setting that out in a single clear and well thought-through message. Ensure efficiency Letting the project drag on for years is another potential pitfall that trustees (and companies) should try to avoid. GMP equalisation is a complex task which could easily end up sitting on meeting agendas for years, while the expenses rack up. Some consultancies have suggested the process could take three to four years, but with solid project management, good advice and quick decision making, a shorter timeframe is eminently achievable. Combine two GMP projects Work has been underway for some time to reconcile schemes’ GMP data with that held by HM Revenue & Customs. Careful planning is needed to ensure strong alignment of the outcome of this project, and GMP equalisation. It will cause inefficiency and exacerbate the member communication issue if members receive separate inconsistent messages about changes to their GMPs within a few months. In many cases it will be a sensible and efficient approach to combine implementation of the two projects. Don’t overstate the complexity of method C2
benefits or vice-versa. However, in some cases schemes are set up in a way that makes this switch highly unlikely or impossible. If this is the case, some of the key drawbacks of method C2 – in particular the future administration complexity – may fall away. It is very important for trustees and companies to analyse and recognise this within the C2 vs D2 debate. Recognise the opportunities of method D2 Another facet of that debate is the potential opportunities that exist through method D2 (GMP conversion). As well as the general simplification of benefits and, hence, administration, D2 offers some key opportunities for trustees and companies to reduce risk and costs. Simplifying the scheme’s benefits is likely to improve the pricing offered by insurers to take on the scheme’s liabilities. There are also opportunities to simplify benefits and reduce risk further through a member options exercise such as a ‘Pension Increase Exchange’. These opportunities provide potential financial benefits, which could offset the costs of GMP equalisation. Balance robustness and pragmatism Make no bones about it; GMP equalisation is going to be complicated. In particular, it will involve undertaking a significant amount of work to unpick and reconcile historical data – much of which may be held in paper files, if it exists at all. However, while preserving the robustness of this process, it is perfectly possible to take a pragmatic approach to addressing some of the issues, in order to put a limit on the size and cost of the project. Without this layer of pragmatism, there is a risk that the amount of work completed is hugely disproportionate to the financial impact of the exercise on members’ pensions, which in many cases is likely to be small.
Two main methods have emerged for implementing GMP equalisation: ‘C2’, which is based on a detailed comparison of pensions over time and ‘D2’, which involves a one-off actuarial calculation to convert GMP to other benefits. Market commentary on method C2 has focussed on the complexity of the ‘cross-over’ point, the moment when the member’s benefits may switch from the ‘male’ to the ‘female’
Furthermore, there is a risk that this project distracts trustees and companies from their long-term strategic planning, an area which does have huge benefit for the scheme and its members and in which many schemes have made great strides in recent years.
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SOLVENCY II & BEYOND THE NEW RISK ON THE BLOCK by Kareline Daguer, Director, PwC I recently met a group of insurance risk officers and regulatory experts that included many from the banking sector. I think for years many of us have been very mindful of the fact that insurers and banks are different in some profound ways - this is best displayed in the so called “inverted production cycle” of insurers where the business receives cash up front to be paid back at some uncertain point in the future as claims. But this time the conversation got quite animated about the things banks and insurers have in common. In looking at the similarities there is a lot that insurers can learn from the banking sector experience. This can range from experience on recovery and resolvability plans, conduct issues such as affordability, treatment of vulnerable customers and finally key prudential risks that have flown under insurers’ radars until now such as liquidity. Early in March the Prudential Regulatory Authority issued for the first time a specific consultation paper (CP4/19) outlining its expectations on liquidity risk management for insurers. The paper is quite a comprehensive walk through key issues for insurers to consider when managing their liquidity risk. The sources of liquidity risk will vary from firm to firm in significant ways, depending on business model, products sold, investment strategies, asset allocation and the type of insurance liabilities such as with-profits / unit-linked / annuities. As a result, liquidity risk means very different things to different insurers depending on a number of variables. In providing draft guidance the PRA focuses on six key areas: 1. Overall liquidity risk management framework 2. Sources of liquidity risk 3. Stress testing 4. Liquidity buffers 5. Risk monitoring and reporting, and 6. Liquidity contingency plan. Insurers are expected to develop a liquidity risk management framework, including liquidity risk appetite, strategy and documented liquidity risk policies. The
framework would bring together liquidity MI, stress testing results and early warning indicators measures with a view to managing both short and long term liquidity risks. Many insurers rely on their capital management frameworks to cover liquidity risks implicitly. However, the PRA notes that the focus on capital management can give insurers a false sense of security and therefore relying on their existing capital management frameworks is not sufficient nor appropriate to ensure liquidity risk is well managed. Stress testing is considered a vital tool in managing liquidity risk and the PRA suggests a number of time horizons for conducting the tests as well as carrying them out over the business excluding and including the MA portfolio, stressing market wide disruptions and also modelling counterparty actions. The outcome of the stress testing exercise can inform the approach to liquidity buffers and insurers might want to put in place graduated levels of buffers, composed of different assets, depending on the nature and duration of the stresses it may potentially be exposed to. The buffers need to be tailored to the insurer’s business and the sources of liquidity risk that apply to it. The PRA distinguishes between assets of primary liquidity (cash and gilts) versus secondary liquidity (corporate bonds). Short term liquidity needs / stresses up to 90 days are expected to be covered mainly by assets of primary liquidity. The PRA also introduces the concept of high quality liquid assets with a view to using the concept on monitoring and reporting of liquidity risk, for example in developing a liquidity coverage ratio and excess liquidity metrics. For large life insurers this focus on liquidity risk will not come as a surprise - over the past four years many life insurers have been challenged about their approach to liquidity risk by the PRA and as a result many have sophisticated tools to manage liquidity risk. For medium sized life and general insurers this consultation might bring the need to prepare into sharp focus. Although this is only a consultation, it is unlikely that the final supervisory statement expected in the Autumn will be significantly different to the consultation. What is clear is that over the next few months insurers will have to make some plans to welcome the new risk in the block.
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PENSION PILLAR THE RISE OF THE MASTER TRUST by Dale Critchley Policy Manager Aviva If you follow DC pensions you will have heard about ‘Master Trusts’. You might even be in one. They’re becoming increasingly popular. At the start of last year there were just short of 10 million people and £16bn of assets invested across around 80 Master Trusts. Back in 2010 there were just 200,000 members in Master Trusts. That’s some pretty substantial growth. There are a number of reasons for the growing popularity of Master Trusts – not least the fact that NEST (National Employment Savings Trust – the workplace pension provider set up by the government) is one. But we’re seeing more employers moving from their own trust defined contribution (DC) schemes to Master Trust. The strain on DC trustees and sponsoring employers in terms of complying with an increasing regulatory burden is a big driver toward Master Trust. And regulations are set to increase. For many trustees it will be the first year they’ve had to contend with transaction charge disclosure requirements. On top of this, many trustees will have to publish their investment policy on Environmental, Social Responsibility and Corporate Governance issues. All of this is taken care of by Master Trusts.
There’s no need to take advice on non-consent transfers to an authorised Master Trust, so it’s bound to be tempting for sponsoring employers, faced with increasing compliance costs, to look toward a Master Trust. But compliance costs shouldn’t be the reason to move members’ benefits. There’s no safe harbour for trustees who transfer to Master Trust, so a transfer has to deliver benefits for members. Nearly four years on from pension freedoms, few DC occupational pension schemes offer drawdown within the scheme - something that’s almost universal across major master trusts. This means all the trustee’s hard work, and the employer’s money, spent on driving down charges, can be undone when a member turns 55 and sees their only option is to transfer out to access drawdown (as is increasingly the norm) – especially if they transfer to a higher charging drawdown plan. The FCA found that charges in drawdown plans vary from 0.4% to 1.6% . Given that a member could be invested in their drawdown plan for as long as it took them to accumulate their pension fund, a member who chooses a drawdown product with a 1.6% charge quickly undoes the effort of trustees and employers who have minimised
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member charges in accumulation. For example, an unbundled scheme charge of 0.1% in accumulation could transform into an average charge of more than the 0.75% cap over the life of a member’s fund. While trustees are only asked to assess value for money while a member is in their scheme, those who ask employees to transfer elsewhere to access drawdown should perhaps adopt a more holistic view when comparing the value offered by Master Trusts. After several years of light regulation all Master Trusts now have to be authorised - a process designed to prove they have the finances, governance and skills necessary to provide good outcomes for members. A number of smaller Master Trusts have already thrown in the towel, and I expect more will follow. Those that are left will be the best in the market, making the choice for trustees thinking about a transfer to Master Trust easier. More importantly they should provide better outcomes for members, from the date they are auto enrolled, to the date their retirement comes to an end. • https://www.fca.org.uk/publication/marketstudies/ms16-1-3.pdf page 6
LIGHTS, CAMERA, ACTUARY... Bolton Associates focuses specifically in the non-life actuarial space; now a team of six, we are the largest dedicated GI actuarial specialist in the market, whilst not sitting within one of the larger more generic insurance recruitment firms. We work throughout the Lloyd’s market, often placing the Chief Actuary or CRO and building the teams underneath these individuals. During the relationship, we often assist the client with the structure of their teams, be it product focused or skillset focused. The key for all the consultants at Bolton Associates is to offer an exceptional service to every client, whilst managing the process with the utmost tact and respect for all parties. We are all passionate about our market, and take great interest in the insurance world as a whole, keeping up with trends and changes, and maintaining our ever-expanding network. Whilst it may sound trite, it is true that we are good at what we do, because we enjoy what we do.
Spotlight on the actuaries driving the general insurance market forward
As a new focus for the coming months in the Spotlight column, Zoe Bolton, founder of Bolton Associates will be speaking to the actuaries who have been appointed Partners at the actuarial and broader consulting firms; these senior actuaries are respected industry-wide, and are networked into the insurance market at the highest level. We hope to get a brief insight into their career paths and visions for the future. This month Zoe talks to Adrian Ericsson, CoFounder and Director, Dynamo Analytics.
What is your current role, and how did you end up in it?
How does your actuarial training and background assist in your day-to-day role now?
I run Dynamo Analytics, a consulting and technology business I co-founded 7 years ago with Hannes, another South African actuary. We’d both left gainful employment at roughly the same time, were each looking to set up something on our own, and through random circumstance found each other and decided to do it together. Now we’ve grown to be 26 people strong, and we help insurers and other businesses automate and industrialise their business-critical actuarial and financial processes.
Not really as much as it used to. The technical training helps somewhat when discussing with current and prospective clients how we can automate their technical and actuarial processes. Largely though it’s the way of thinking that has helped a lot; being structured, rigorous and complete. More often than not I’ve found myself thinking “a quarter mark per idea” when helping clients think through all of the pros and cons of their process industrialisation.
What is the defining moment of your career to date? As you grow through your career, every big new step you take feels defining. That said, the two enduring ones are making the move from Johannesburg to London 15 or 16 years ago, and setting up Dynamo Analytics. Both taught me self-belief and resourcefulness, and by taking me way outside of my comfort zone forced me to grow as a person.
When did you first join the Institute & Faculty of Actuaries, and what advice would you give to those students looking to emulate your career path? I joined more years ago than I care to remember. Someone once told me that most business ideas are good ideas, the success is all in the execution. I’d encourage anyone who has an idea and wants to start a business to give it a go. Somethings will help in the journey; find a mentor who has been through the mill and made mistakes that you don’t have to, build and use your networks, form strong relationships with your clients as these are crucial no matter what you are selling.
In your opinion, what prepared you best to take on your current role? As most people who have set up a business from scratch will tell you, almost nothing prepares you. However, I have found that I’ve needed to reach for the “stubbornness” cultivated from years of grinding my way through the actuarial exams, to help me never give up on the business, especially during the early years when the odds were stacked against us. What is the biggest challenge you face in your role within this market? There isn’t really any one single biggest challenge when running a business; there’s just a multitude of challenges which increase or decrease in urgency daily. At Dynamo, we’re growing and looking for really good people to join our great team, and finding that perfect match is always difficult. On a personal front, trying to balance being a good husband and father with being a good business leader is something I know a lot of people find challenging.
If you had your time again, what would you do, career-wise? I ended up where I am by quite a meandering route, working for big and small businesses, both consulting and underwriters, in both South Africa and in London. I gave up actuarial science (thankfully temporarily) back in the 90’s, and switched from Life to GI somewhere in the middle. We are a product of our experiences, and we are who we are precisely because of the route we have taken. What would I do differently; not a thing. Please share your favourite piece of trivia with our readers! My five year old is a big fan of nature programs, and told me last week that sea otters hold hands while they sleep so that they don’t drift away from each other. This is probably the cutest thing I’ve ever heard.
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INFORMATION EXCHANGE
TRUE QUOTE OR NOT TRUE QUOTE?
Jay Borkakoti Director, Home Insurance, UK & Ireland LexisNexis Risk Solutions
Jay Borkakoti reveals how the home insurance market is battling with data discrepancies as 65% of consumers think it is acceptable to provide inaccurate information for lower home insurance quotes. The ABI’s latest Home Insurance Premium Tracker recently confirmed that home insurance premiums are at an all-time low. That’s good news all round isn’t it? It points to improvements in affordability of insurance for households. However, LexisNexis Risk Solutions research has revealed that despite low premiums across the market, two in three consumers would be happy to manipulate the information they provide when requesting a home insurance quote to cut the cost of their premium further still. This willingness to stretch the truth in search of a lower price implies that there is still a degree of frustration about the cost of home insurance or insurance pricing in general.
Two thirds of respondents (65%) feel it is ’somewhat’ or ‘completely’ acceptable to manipulate the information they provide to online aggregators to obtain a lower quote for their home insurance. This figure is significantly higher than the 43% of motor insurance policy holders who said the same in a previous LexisNexis Risk Solution study. Three in five shop every year Our research also found that three in five consumers shop around for home insurance at renewal. They may be encouraged to do so by their insurer’s requirement to publish last year’s premium with their new renewal quote. With 74% of consumers now buying their home insurance online, including 54% buying indirectly through aggregators, our study of 1,500 UK homeowners has revealed the extent of the challenge facing home insurance providers in
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Data breaks through
gaining a true understanding of risk for pricing and retaining customers beyond year one in order to increase their lifetime value. So are consumers more comfortable manipulating data for home insurance? Lack of awareness of the risk, lack of appreciation for the value of cover, lack of trust in the sector may all have a part to play. Unlike motor, home is not always a compulsory insurance purchase and therefore manipulating data could be perceived as being less serious. The ABI data also showed that 1 in 4 households live without contents cover, which really underlines the poor perceived value of home contents insurance. Home in on the customer journey However, we believe the customer journey from application to quote and underwriting is at the heart of the issue. When arranging cover, there is an opportunity for the consumer to misstate details about themselves, the property, past claims and contents value, making it easier than it should be for data manipulation. In the past, we have established that some consumers feel frustrated at having to enter details into a long home insurance application and struggle to accurately answer certain questions. So operators in this market need to find a way to deliver the right cover for the risk at the right cost and in a way that is simple for customers to purchase. This is where data has a valuable role to play. The good news is that we believe we’re on the cusp of bringing some real step-changes to the type of data available to help understand risk in this sector.
Verified customer and property data, including past claims collected from across the market related to the household, can help insurance providers to deliver more fair and accurate quotes. Utilising data to both prefill the application and price as part of the quote process should help to create a more holistic understanding of risk. Prefilling information also serves to smooth the customer journey, reducing drop outs whilst improving confidence in the process – for both the customer and insurance provider. Data that is known about the property is already available to help take some of the pain from home applications through reducing the number of questions and improving data accuracy. Add access to perils data at Point of Quote and, again, the picture of risk grows to help ensure that first quote is as accurate as possible. Flood, fire, escape of water and subsidence risk can all be understood right down to the individual’s address.The advances in data insights for home insurance are set to be transformational. These solutions are emerging as household compositions are changing and consumers are looking for protection that reflects shifting home ownership and home make-up. We have a whole generation of young people who might not see home ownership in their future and we could see multi-generational households becoming more common. The use of data insights allows providers to better understand the risk and improve the customer experience, but beyond this, it can help the market evolve their offerings to meet ever-changing consumer needs.
1.
https://www.abi.org.uk/news/news-articles/2019/01/cost-of-home-contents-insurance-falls-to-a-record-low-yet-one-in-four-ukhouseholds-are-uninsured/ 2. This report examines consumer behaviour and attitudes in this market, as they search for a provider they can trust; looking at how and where consumers buy home insurance. To discover these details, LexisNexis Risk Solutions commissioned a survey of 1,500 UK homeowners who had owned their current residence for two or more years and were equally or solely responsible for home insurance decisions. LexisNexis Risk Solutions was not identified as the sponsor of this research, which was completed during January 2018. 3. LexisNexis Risk Solutions was not identified as the sponsor of this research, which was based on a survey of 1,500 consumers who had bought motor insurance within the last 12 months and was conducted during January 2018 4. LexisNexis Risk Solutions carried out an anonymous survey, the UK Home Insurance Consumer Study, 25 January–1 February 2017. The sample was 1,500 residential homeowners in the UK, who owned their current residence for two years or more, home insurance covering their primary residence, equally or solely responsible for home insurance decisions.
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TEMPORARY JOBS • LIFE • GRADUATE • CONSULTANTS • TEMPORARY JOBS • LIF JOBS • £100K+ • CONSULTANTS • TEMPO • IMMEDIATE JOBS • £100K+ • CONSULTA ATE • PENSION • IMMEDIATE JOBS • £100 LIFE • GRADUATE • PENSION • IMMEDIAT PORARY JOBS • LIFE • GRADUATE • PENS SULTANTS • TEMPORARY JOBS • LIFE • G • £100K+ • CONSULTANTS • TEMPORARY MEDIATE JOBS • £100K+ • CONSULTANTS PENSION • IMMEDIATE JOBS • £100K+ • C GRADUATE • PENSION • IMMEDIATE JOBS JOBS • LIFE • GRADUATE • PENSION • IMM • TEMPORARY JOBS • LIFE • GRADUATE CONSULTANTS • TEMPORARY JOBS • LIF OBS • £100K+ • CONSULTANTS • TEMPOR MMEDIATE JOBS • £100K+ • CONSULTAN
RECRUIT
• PENSION • IMMEDIATE JOBS • £100K+ • FE • GRADUATE • PENSION • IMMEDIATE ORARY JOBS • LIFE • GRADUATE • PENSIO ANTS • TEMPORARY JOBS • LIFE • GRADU 0K+ • CONSULTANTS • TEMPORARY JOBS TE JOBS • £100K+ • CONSULTANTS • TEM SION • IMMEDIATE JOBS • £100K+ • CONGRADUATE • PENSION • IMMEDIATE JOBS Y JOBS • LIFE • GRADUATE • PENSION • IM S • TEMPORARY JOBS • LIFE • GRADUATE CONSULTANTS • TEMPORARY JOBS • LIFE S • £100K+ • CONSULTANTS • TEMPORAR MEDIATE JOBS • £100K+ • CONSULTANT • PENSION • IMMEDIATE JOBS • £100K+ FE • GRADUATE • PENSION • IMMEDIATE RARY JOBS • LIFE • GRADUATE • PENSION NTS • TEMPORARY JOBS • LIFE • GRADUAT
TMENT
NON-LIFE
Star Actuarial is working with a niche retail insurance business looking to hire a high-quality technical pricing actuary into a strategic role that traverses international borders. This is a real opportunity to make your mark on pricing within a unique business. Working closely with key stakeholders, you will be a major contributor to technical pricing strategy, implementing your in-depth experience and knowledge from the retail general insurance market to enhance the performance of the business. You will have a track record of delivering on pricing-related initiatives, a good understanding of pricing and analytics techniques and software, experience in a project environment, and the ability to influence, challenge, and develop structured solutions. Contact Lance Randles (+44 7889 007 861, lance.randles@staractuarial.com) now for more details on this superb role.
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STAR5397
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STRATEGIC TECHNICAL PRICING
CHIEF ACTUARY Qualified
London Market
NON-LIFE LONDON
STAR5570
Lloyd’s Syndicate seeks Chief Actuary with strong problem-solving and interpersonal skills to lead and develop its actuarial team. Please contact us for more information.
HEAD OF RESERVING Qualified
Managing Agent
NON-LIFE FLEXIBLE WITH TRAVEL
STAR5547
Use your reserving experience to review the underwriting performance of several business lines, helping to develop the actuarial function. You will be able to challenge and review work in a precise, pragmatic and professional manner. MOVE TO BERMUDA
DATA SCIENCE, TECHNOLOGY & ANALYTICS
Part-Qualified
Global Consultancy
NON-LIFE BERMUDA Qualified
InsurTech
NON-LIFE LONDON
STAR5508
Working in a fast-paced environment alongside a team of data scientists and underwriters, this is a role for a technical actuary, with strong experience in both pricing and reserving across speciality and commercial lines, to work alongside a team of data scientists and underwriters. This is a role focused on looking to the future, requiring someone who is able to recognise trends, understand fundamental causes, and recommend best courses of action. Equally key will be developing methodologies and frameworks, whilst supporting on commercial aspects. The successful candidate will be experienced with both Excel and ResQ, whilst strong data handling skills with Python, SQL and R would be advantageous. Please contact Lance Randles (+44 7889 007 861, lance.randles@staractuarial.com) to discuss this excellent opportunity.
NON-LIFE PRICING EXCELLENCE
RISK PRICING MANAGERS
Part-Qualified
Qualified
International Business
NON-LIFE LONDON / SOUTH EAST
STAR5567
Join a cutting-edge, pricing-focused project team, bringing your sophisticated knowledge of pricing, analytics and programming, and your passion for new approaches utilising machine learning and data science.
Leading Insurer
NON-LIFE SOUTH COAST
STAR5554
Play a key role in the performance and profitable development of products through control of technical pricing in response to claims trends, market conditions and regulatory impact. Talented exam-stoppers will be considered.
STAR5470
Join a highly-collaborative P&C department to play a key role in loss reserving analysis across all lines of business. You will also support other workstreams, such as rate setting, capital, forecasting, M&A and product development. INTERNATIONAL PRICING ACTUARY Qualified
Multi-National Insurer
NON-LIFE SOUTHERN EUROPE
STAR5522
Seeking an analytical pricing actuary to deliver our client’s pricing strategy. You will develop complex optimisation models, investigate price elasticity, and review and test the existing infrastructure.
Is your next role one of the
95
NON-LIFE & HEALTHCARE
VACANCIES on our website?
Lance Randles MBA
Paul Cook
Satpal Johri
PARTNER +44 7889 007 861 lance.randles@staractuarial.com
ASSOCIATE DIRECTOR +44 7740 285 139 paul.cook@staractuarial.com
ASSOCIATE DIRECTOR +44 7808 507 600 satpal.johri@staractuarial.com
Clare Roberts
James Harrison
Diane Lockley
ASSOCIATE DIRECTOR +44 7714 490 922 clare.roberts@staractuarial.com
ASSOCIATE DIRECTOR +44 7591 206 881 james.harrison@staractuarial.com
SENIOR CONSULTANT +44 7492 060 219 diane.lockley@staractuarial.com
Antony Buxton FIA
Louis Manson
Joanne O’Connor
MANAGING DIRECTOR +44 7766 414 560 antony.buxton@staractuarial.com
MANAGING DIRECTOR +44 7595 023 983 louis.manson@staractuarial.com
OPERATIONS DIRECTOR +44 7739 345 946 joanne.oconnor@staractuarial.com
P LE A S E CONTACT US AT ANY TI M E TO D IS C USS YOUR RECRUI TM ENT NEEDS
page 32
+44 20 7868 1900
staractuarial.com
ACTUARIAL POST RECRUITER OF THE YEAR 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018
LIFE HEAD OF PRICING Qualified
HEAD OF ACTUARIAL
Leading Insurer
LIFE LONDON
STAR5562
Qualified
Fantastic opportunity for an actuary with strong project management skills to lead on all pricing and product development tasks for a variety of business lines, conducting market research, model development and experience analysis.
STAR5501
We have an excellent opportunity for a leader to manage and develop the actuarial function of a major financial services provider, taking responsibility for all the actuarial disciplines across several lines of business. The ability to influence, manage and interact with key stakeholders will be crucial, including the capacity to communicate actuarial results to a non-actuarial audience.
ALM CONSULTANT Part-Qualified / Qualified Leading Global Consultancy LIFE LONDON
Financial Solutions Provider
LIFE SOUTH EAST
The successful candidate will demonstrate strong business acumen, a thorough understanding of the UK life insurance market, awareness of how actuarial decisions affect the overall business, technical pricing experience, and a detailed knowledge of IRFS and Solvency II requirements for life insurers.
STAR5525
In this exciting, client-facing role, you will take an active role in supporting the strategic management and running of the ALM team, working on a number of diverse workstreams, and helping to develop a core product area.
Contact Clare Roberts (+44 7714 490 922, clare.roberts@staractuarial.com) for more details about this outstanding role.
MODEL DEVELOPMENT Part-Qualified / Qualified
RISK PRICING AND ANALYTICS ACTUARY
Global Reinsurer
LIFE MIDLANDS
STAR5518
Qualified
Use your IFRS17 knowledge to build, test, and maintain internal models, whilst also being responsible for the maintenance and development of the stochastic model used for With-Profits reporting.
Market Leader STAR5500
Take your career to the next level in this exciting role, assisting in the provision of expert balance sheet structuring and consulting solutions for life insurers across international markets.
E
IV
US
CL
Part-Qualified LIFE LONDON
In addition, you will interpret the results of experience investigations to develop and refine the pricing and best estimate bases, introducing new data analysis and modelling techniques. With strong analytical and problem solving skills, and a good working knowledge of retail protection products, the successful candidate will also possess excellent IT skills including Excel and SAS. Please contact Jo Frankham (+44 7950 419 115, jo.frankham@staractuarial.com) to find out more about this fantastic career opportunity.
LIFE BERMUDA
VACANCIES on our website?
International Consultancy STAR5469
Seeking a talented and innovative consultant or manager to support a range of client-facing workstreams, including financial reporting, risk, financial modelling, M&A, capital optimisation and IFRS 17.
Qualified
Major Insurer
LIFE LONDON
E
78
MATCHING ADJUSTMENT EXPERT
Part-Qualified / Qualified
IV
ISLAND LIFE
US CL EX
Is your next role one of the LIFE
STAR5551
In this key and diverse role, you will take responsibility for the development of the product range and the improvement of reinsurance arrangements. You will also support the end-to-end delivery of assumption setting processes and data analytics.
EX
CAPITAL SOLUTIONS
Major Insurer
LIFE FLEXIBLE LOCATION
STAR5485
In this international role with a pioneering team, you will use your matching adjustment and asset-side experience to develop reinsurance and capital solutions for a wide range of clients.
Lance Randles MBA
Peter Baker
Jan Sparks FIA
PARTNER +44 7545 424 206 irene.paterson@staractuarial.com
PARTNER +44 7889 007 861 lance.randles@staractuarial.com
PARTNER +44 7860 602 586 peter.baker@staractuarial.com
PARTNER +44 7477 757 151 jan.sparks@staractuarial.com
Jo Frankham
Adam Goodwin
Clare Roberts
James Harrison
ASSOCIATE DIRECTOR +44 7950 419 115 jo.frankham@staractuarial.com
ASSOCIATE DIRECTOR +44 7584 357 590 adam.goodwin@staractuarial.com
ASSOCIATE DIRECTOR +44 7714 490 922 clare.roberts@staractuarial.com
ASSOCIATE DIRECTOR +44 7591 206 881 james.harrison@staractuarial.com
Antony Buxton FIA
Louis Manson
Joanne O’Connor
Sarah O’Brien
MANAGING DIRECTOR +44 7766 414 560 antony.buxton@staractuarial.com
MANAGING DIRECTOR +44 7595 023 983 louis.manson@staractuarial.com
OPERATIONS DIRECTOR +44 7739 345 946 joanne.oconnor@staractuarial.com
SENIOR CONSULTANT +44 7841 025 393 sarah.obrien@staractuarial.com
Irene Paterson FFA
page 33
Experts in Actuarial Recruitment
search & selection Reserving Analyst / Graduate
Capital Actuary
General Insurance £45,000 Per Annum City of London
General Insurance Market Rates / Flex working London
Leading global insurer has an opening for a reserving analyst to work across international markets. You will have an outstanding academic background, be enthusiastic and have an ability to prioritise workloads. Exceptional IT skills are required and exposure to ResQ would be advantageous. Those candidates looking to embark on a career as actuary should get .in touch.
Highly reputable Lloyd’s and London market player has an opening for a capital actuary, nearly/ newly qualified. Reporting into the head of capital with the opportunity to train and develop more junior members of the team. You will be responsible for the Group’s Capital model, preparing internal model capital assessments and reporting these up to senior stakeholders.
REF: ZB 001135 HT/MM
Ref: ZB 001134 CS
Casualty Insurance Analyst
Head of Reserving & Analytics
General Insurance to £60,000 Per Annum + Full Study Support City of London
General Insurance £150,000+ Per Annum London
Leading Lloyd’s Syndicate is recruiting an Analyst to develop the Syndicate casualty pricing tools/price individual deals etc. Front office/client facing role which involves working very closely with underwriters. Diverse classes of business. Ideally 1-3 years experience of Pricing, Reserving backgrounds considered. Excellent communication/academics required. .
Lloyd’s Managing Agency requires a dynamic Head of Reserving & Analytics. Reporting into the Chief Actuary you will take responsibility for the quarterly reserve processes, along with leading the analytics function which will predominantly be a portfolio analysis focus at the outset. Qualified actuaries, with extensive pqe and Lloyd’s experience will be considered.
REF: ZB 001021 SC
REF: ZB 001133 ZB
Pricing/Data Specialists
Capital Modelling Manager – Contract
General Insurance £60,000+ Per Annum London
General Insurance £ Dependent on Experience London
Well-regarded analytics-focused insurer is seeking pricing/data analysts to join the expanding team. Those with experience in data science using R, Python etc and with aspirations to machine learning should apply. Roles will be workstream based, fast and iterative with collective and singular responsibilities. We need smart and dynamic people who want to. shape the portfolio optimisation.
Qualified GI Actuary required to cover a 12 month maternity contract. Work will include developing the IM, managing a small team, model runs, documentation, analysis, SII compliance etc and looking at methodology and infrastructure changes as well as ad-hoc project work as required. A high profile role visible across the entire business
REF:ZB 001137 ZB
REF: ZB 001136 PW
www.bolton-associates.co.uk
+44 (0)207 250 4718
Bolton Associates, 5 St. John’s Lane, London, EC1M 4BH
Longevity Risk Actuarial Analyst Investment, Life, Pensions £Negotiable + Study Support + Bnefits London FRG are currently working with a Leading Life Insurer within their Longevity team who are looking for a Longevity Risk Actuarial Analyst. You would be supporting the delivery of regular mortality analysis, focusing on Solvency II capital modelling and strategic analytics. The ideal candidate will have longevity experience and knowledge of Solvency II. If you are a part qualified actuary making good progress with the IFOA exams please get in touch. Ref: FRG
Part/Recently Qualified Actuary Life To £55,000, Study Support + Bonus London FRG is currently supporting a Major Life Insurance in their search for several Part/Recently Qualified Actuaries. This role is within the Retail Protection Risk Pricing Team and will involve: Deliver robust pricing and reporting assumptions in line with stakeholders’ expectations and deliver improvements to the methodology and processes as required. Maintain good standards of risk control and ensure that governance processes are adhered to. Ref: FRG/719
Please contact Fatima Pineiro-Somoza on 0203 017 5126 or email her at f.pineirosomoza@financialresourcinggroup.com
Please contact Fatima Pineiro-Somoza on 0203 017 5126 or email her at f.pineirosomoza@financialresourcinggroup.com
Senior Actuarial Analyst - BPA Employee Benefits, Investment, Life, Pensions To £50,000 + Bonus + Study Support London FRG is currently recruiting for a Senior Actuarial Analyst to join a leading Life Insurer in central London. The role sits in the Bulk Annuity team and you will be part of the most profitable and dynamic part of the business. Some of the key responsibilities will include: Supporting the team in providing post-sae monitoring calculations relating to reinsurance, longevity and inception pricing. Provide actuarial support on BAU arrangements covering complex issues such as implementing trivial commutations and calculating collateral amounts. Ref: FRG/748
Commercial Actuarial Analyst - Origination Investment, Life, Pensions £Excellent Salary + Bonus + Study Support London IFRG is working on an outstanding opportunity for an Actuarial Analyst to join the Origination team of an established, leading specialist UK bulk annuity Insurer. The Origination team contributes to the overall success of the business by developing prospects, pricing deals and executing contracts. You will be involved in: Managing increasing volumes of buy-in and buy-out quotations and managing transactions. New business pricing and pricing optimisation The ideal candidate will be a highly numerate part-qualified actuary . Ref: FRG/740
Please contact Fatima Pineiro-Somoza on 0203 017 5126 or email her at f.pineirosomoza@financialresourcinggroup.com
Please contact Fatima Pineiro-Somoza on 0203 017 5126 or email her at f.pineirosomoza@financialresourcinggroup.com
Technical Systems Actuary - Engineering Life, Pensions, Re-Insurance £Competitive Package + Car Allowance South East and London We are supporting a leading Life Insurer in their search to fill an outstanding vacancy as Technical Systems Actuary to join their most successful division - Retirement. This is a very exciting area Engineering Solutions - and you will be actively involved in the design and development of the company's actuarial systems. You will have ownership of actuarial design and will work with the Solution Engineering and Architecture teams. Ref: FRG766
Actuarial Analyst Investment, Life, Pensions £Negotiable plus bonus plus study support South East England I am working with a Tier 1 Life Insurer who are looking for an Actuarial Analyst to join their Reporting Team. You will be part-qualified actuary and ideally you will be working with profit and capital reporting although strong Pensions people can be considered. You will be involved in quarterly reports on Solvency II & Economic Capital, risk calibration and also exposure to other aspects of the business. The position offers competitive package with bonus and study support Ref: FRG/772
Please contact Ioana Pribac on 0203 017 5121 or email her at i.pribac@financialresourcinggroup.com
Please contact Fatima Pineiro-Somoza on 0203 017 5126 or email her at f.pineirosomoza@financialresourcinggroup.com
Financial Resourcing Group, 222 Bishopsgate, London, EC2M 4QD www.financialresourcinggroup.com • t: +44 (0) 203 017 5123
ACTUARIAL POST RECRUITER OF THE YEAR 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018
PENSIONS
INVESTMENT
The pensions market is currently extremely buoyant, with exciting opportunities across the UK at all levels. Now is a great time to contact us regarding the next move in your pensions career. ACTUARIAL QUANT Part-Qualified / Qualified
Hedge Fund
INVESTMENT LONDON
STAR5542
A unique opportunity for an exceptionally talented and intellectually curious candidate, with a quantitative background and database experience, to join a small team developing innovative ways to extract value from data.
SCHEME ACTUARY Growing Consultancy STAR5537
An excellent opportunity for a Scheme Actuary to take up a senior position within a business which is growing successfully whilst also creating an environment for efficient delivery and a good work-life balance.
Part-Qualified / Qualified
Leading-Edge Firm
PENSIONS INVESTMENT RISK LONDON
STAR5565
Leading-edge firm, has a fantastic opportunity for an actuary to join its in-house pension risk team to monitor pension risk internally and develop new risk management approaches. In this highly visible role, you will help to develop alternative funding and investment approaches whilst co-ordinating input from advisers and other Group functions to assist in developing the overall pension strategy. With a strong technical background, the successful candidate will enjoy analysing data and developing new in-house modelling solutions. Candidates from an investment background are welcome. A confident communicator, you will also be able to explain complex concepts clearly to non-specialists.
CL
Develop and run models to identify and implement suitable investment strategies. Conduct investment manager research and selection exercises. Monitor and report on investment performance.
CORPORATE PENSIONS - AGILE WORKING Part Qualified / Qualified
Growing Consultancy
PENSIONS YORKSHIRE / NORTH EAST
STAR5418
This is a unique role for a part-qualified or qualified pensions actuary based in Yorkshire or the North East to take their career to the next level with a growing consultancy.
Is your next role one of the
108
PENSIONS & INVESTMENT
VACANCIES on our website?
PENSIONS LEADERSHIP
E
STAR4158
IV
Major Consultancy
INVESTMENT SOUTH EAST
US
Part-Qualified
EX
INVESTMENT CONSULTANT
Qualified
Specialist Consultancy
PENSIONS MIDLANDS, WITH THE POTENTIAL TO WORK FROM HOME
STAR5318
A fabulous opportunity for a qualified pensions actuary to take up a significant, leading role within a growing team providing corporate pensions advice. You will have proven business development experience, entrepreneurial flair and a strong pensions network in the Midlands. You will enjoy building long-term client relationships, from initial contact, through feasibility studies and project planning, to successful completion. Contact Antony Buxton (+44 7766 414 560, antony.buxton@staractuarial.com) for more information regarding this opportunity to make a real difference.
DC PENSIONS DIRECTOR Qualified
TECHNICAL PENSIONS SPECIALIST Leading Consultancy
PENSIONS SOUTH
STAR5464
Seeking a proven leader to head up a DC pensions and benefits consulting team in the South. You will develop and grow the core offering both internally and externally, and be part of the national senior management team.
Qualified
Major Pension Scheme
PENSIONS NORTH
STAR5544
Seeking forward thinkers, with strong technical knowledge of service delivery and scheme design, to provide high-quality, client-facing actuarial management of liabilities and cashflows for a high-profile scheme.
Peter Baker
Adam Goodwin
PARTNER +44 7545 424 206 irene.paterson@staractuarial.com
PARTNER +44 7860 602 586 peter.baker@staractuarial.com
ASSOCIATE DIRECTOR +44 7584 357 590 adam.goodwin@staractuarial.com
Antony Buxton FIA
Louis Manson
Joanne O’Connor
MANAGING DIRECTOR +44 7766 414 560 antony.buxton@staractuarial.com
MANAGING DIRECTOR +44 7595 023 983 louis.manson@staractuarial.com
OPERATIONS DIRECTOR +44 7739 345 946 joanne.oconnor@staractuarial.com
Irene Paterson FFA
P LE A S E CONTACT US AT ANY TI M E TO D IS C U SS Y OUR RECRU I TM ENT NEEDS
+44 20 7868 1900
staractuarial.com
Star Actuarial Futures Ltd is an employment agency and employment business
Qualified PENSIONS SOUTH WEST
IN-HOUSE PENSION RISK MANAGER