ACTUARIAL POST FOR THE MODERN ACTUARY JUNE 2021
WHAT DOES ESG REALLY MEAN FOR FIRMS?
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HEAD OF PRICING - HOUSEHOLD LINES
SENIOR PRICING ACTUARY - LONDON MARKET
NON-LIFE LONDON / SOUTH EAST / HOME STAR6752
NON-LIFE LOCATION UPON APPLICATION STAR6787
In this highly-visible leadership position, you will take overall responsibility for the delivery and development of our client’s technical pricing capability across multiple lines and contribute to strategic decisions for the business.
Analyse and develop pricing structures for new household products, seeking to use appropriate external data sources to enhance risk selection. You will collaborate with other stakeholders, particularly in pricing, underwriting, and claims.
In this fantastic career opportunity, you will support statistical analysis, including individual risk analysis, rating model development, and portfolio analysis and performance segmentation.
INSURTECH - CUTTING-EDGE PRICING
CASUALTY REINSURANCE PRICING ACTUARY
NON-LIFE PRICING MANAGER
NON-LIFE FLEXIBLE LOCATION
Join a fast-growing insurer as their first in-house actuary working closely with their data scientists to build pricing capability. Emblem and Radar experience essential. Remote working, flexible hours and unlimited annual leave available.
A highly-visible and interesting role, using your knowledge and experience of the reinsurance market to provide actuarial pricing support to the Casualty Reinsurance class, taking responsibility for the pricing models used.
A diverse position, where you will define and deliver pricing analysis projects to improve underwriting performance whilst supporting GWP targets through competitive product/ price positioning.
FTC: SENIOR IFRS 17 ACTUARIAL ANALYST
FTC: SENIOR PRICING MANAGER
ACTUARIAL MODELLING LEAD
Qualified / Part-Qualified
Major Global Firm
Qualified / Part-Qualified
NON-LIFE SOUTH EAST / AGILE WORKING STAR6782
LIFE SOUTH EAST / AGILE WORKING
A 2-year contract with potential to move into a senior-level permanent role upon completion. You will take responsibility for the interpretation of the IFRS 17 Standard and the specific implications for our client's businesses.
In this 12-month placement, you will ensure our client has market-leading pricing capabilities by driving best practice model development for risk cost models and rating structures, using GLM analysis and machine-learning techniques.
Use your advanced knowledge of Prophet or SQL, along with your clear understanding of a range of reporting metrics (including IFRS17) to deliver changes to the pricing and valuation models, tools and code for this leading insurer.
CAPITAL ACTUARY - LIFE REINSURANCE
ANNUITY SYSTEM MODELING LEAD
Qualified / Part-Qualified
Leading Global Firm
LIFE PENSIONS LONDON
A fantastic career development role, taking responsibility for reinsurance pricing and analysis. You will conduct detailed analysis of regulatory balance sheets and contribute to research and development work.
Take full control of the structure of new products, from idea to implementation, in this exciting role. You will also monitor performance, identifying shortcomings and opportunities, and lead strategic projects to develop products.
In this unique role, you will take ownership of our client's new longevity data and benefit modelling system, becoming the authority on the system and identifying and specifying future enhancements.
LONGEVITY RISK ACTUARY
MANAGER - CORPORATE PENSIONS
LIFE PENSIONS LONDON
Use your broad experience across pricing, capital and reporting to assist with the production and communication of longevity assumptions for UK and international retirement business.
Enjoy deep involvement in a diverse range of workstreams, including de-risking, member options, funding, endgame planning. and consolidation. Flexible working options will be considered.
PENSIONS EDINBURGH / FLEXIBLE
Use your skills to support companies who are developing their long-term pension strategies, undertaking risk transfer and liability management exercises, and advise on other specialist projects, in this key, diverse role.
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EDITOR’S NOTE Welcome to this month’s edition of the magazine and without risking jinxing it we are at last enjoying some lovely summer weather and hopefuly the June 21st easing will take place despite the Delta variant, we have every reason to feel cheerful. Our cover story from Christine Korwin-Szymanowska from PwC examines what does ESG really mean for firms with ESG having roots as far back as the 1960s she looks at the increasing risks that insurers now face. Our regular columnists review subjects ranging from, amongst others, ADAS data from Carla McDonald from LexisNexis Risk as the UK leads Europe in the number of ADAS-equipped cars on the road. To Fiona Tait from Intelligent pensions asking what has AE done for us as ONS figures show a rise in participation rate up to 78% in 2020. We hope you enjoy this month’s issue in what we hope will be the continued sunshine of a British summer.
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 this magazine as a result of errors.
Movers & Shakers
ESG for firms?
Tait’s Modern Pension
Lights, Camera, Actuary
NEWS JUNE TPR publishes its Annual Funding Statement 2021 Trustees of defined benefit (DB) pension schemes must remain alert to the risk of weakening employer covenants as uncertainties remain following a challenging year for businesses. This is just one of the expectations The Pensions Regulator (TPR) outlines in its Annual Funding
Statement (AFS) 2021, published today. Even though trading conditions have been difficult for many during the past year, many employers and trustees have worked together to maintain their funding commitments. However, there is still
AXA hit by ransomware attack Branches of insurance giant AXA based in Thailand, Malaysia, Hong Kong, and the Philippines have been struck by a ransomware cyber attack. The Avaddon ransomware group claimed on their leak site that they had stolen 3 TB of sensitive data from AXA’s Asian operations. Additionally, BleepingComputer observed an ongoing Distributed Denial of Service (DDoS) against AXA’s global websites making them inaccessible for some time. The compromised data obtained by Avaddon, according to the group, includes customer READ MORE
uncertainty in the market due to factors including the COVID-19 pandemic and Brexit so trustees should remain vigilant and if necessary act quickly to protect savers. David Fairs, TPR’s Executive Director of Regulatory Policy, said: “This has been READ MORE
FCA measures on loyalty penalty for home and car insurance The FCA has implemented a package of remedies to improve competition and protect home and motor insurance customers from loyalty penalties. This includes new rules so that renewal quotes for home and motor insurance consumers are not more expensive than they would be for new customers. These measures address the issues identified in the FCA’s September 2020 market study, which found that millions of home and motor insurance customers lose out if they renew repeatedly with their current providers. In 2018, 6 million loyal policy holders would have saved £1.2 billion had they paid the average
price for their actual risk. Many firms increase prices for existing customers each year at renewal – this is known as price walking. This means that consumers have to shop around and switch every year to avoid READ MORE
NEWS 10 tips for helping members save more for their retirement What do you get when you combine a head of pensions, a behavioural scientist and 3 pension scheme members talking about retirement? A whole load of good ideas on how to encourage members to save more for retirement, that’s what. It was my pleasure to host 5 wonderful guests recently on a series of podcasts recorded as part of our 100th Birthday celebrations. The theme was the same for all how can we get people engaged and saving more for their retirement? Here are the 10 key takeaways: Set targets One of the most common questions asked by members is “how much will I need in retirement?”. Helping your members set a target for income READ MORE
Even 2025 looks challenging for Pensions Dashboard rollout he Pensions Dashboard Programme has published a ‘call for input’ into the sequence in which pension schemes will have to provide data to pension dashboards. Previously the PDP had indicated that dashboards would “start to operate” from 2023, but today’s document is more explicit that full coverage may not be achieved until 2025 or beyond. And, according to George Currie, consultant at LCP, who until December 2020 was seconded to the Pensions Dashboards Programme, even that timetable may be challenging. George Currie said: “The PDP’s timeline for onboarding pension schemes
and providers to the dashboards ecosystem is undoubtedly ambitious and even 2025 looks challenging. If it delivers find and view functionality for the vast majority of pension entitlements by 2025, this will be a remarkable achievement. However, the scale of preparation required in a relatively short space of time by so many schemes, with vastly different types of entitlement, will be a significant challenge for schemes, who will have to update – and in some cases revolutionise – data management and governance processes to ensure compliance with the timeline. Equally, this timeline is dependent on the successful development, testing, and roll out of the digital READ MORE
PLSA to launch LGPS research on schemes best practices Julian Mund, the Chief Executive of the Pensions and Lifetime Savings Association (PLSA), will announce the launch of important Local Government Pension Scheme (LGPS) industry research by the PLSA at its digital Local Authority Conference Speaking to the conference, Mr Mund will announce that the PLSA will be launching its new research project to look at the state of the nation – both areas of best practice, as well as the future challenges for the LGPS. The research is going to look at the biggest issues facing the LGPS including getting the guidance funds will need, attracting the talent they want, and reducing the burden of its burgeoning administration from complex regulation. READ MORE
MOVERS & SHAKERS The latest moves and appointments from the actuarial marketplace Barnett Waddingham promotes eight new partners
Aviva appoints Redington makes Emma Douglas two senior as MD Workplace sustainable Savings investment hires
Barnett Waddingham has appointed eight new partners among its 2021 promotions to support the continued growth in client demand and success at the organisation. Alongside the new partners, there are also 17 principal and 25 associate promotions across a diverse range of business areas, advising trustees, employers, insurers and private clients. With the promotions taking effect on 1 June 2021, the total number of partners reaches 89. The promotions demonstrate Barnett Waddingham’s investment in the future for the organisation with the brightest talent at the heart of its leadership. These eight new equity partners ensure the organisation’s true independent ownership continues and our unique culture thrives so we can continue providing the personal, quality, tailored service our clients expect. Andrew Vaughan, Senior Partner at Barnett Waddingham, said: “Against
Redington has announced the appointment of two highly experienced and specialist sustainable investment hires as it continues to evolve and integrate RI into its proposition and grow its presence across new channels and regions.
Aviva announces that Emma Douglas has been appointed Managing Director, Workplace Savings Emma, who was previously Head of Defined Contributions for Legal & General, will join Aviva and will report to Rob Barker, Managing Director, UK Savings & Retirement. Commenting on the appointment, Rob Barker said: “I am delighted that Emma is joining Aviva to lead our highly-successful Workplace Savings business. We see big opportunities to continue to grow our business and Emma’s knowledge and experience in the market will further strengthen
This announcement follows the firm’s commitment in April to align all its default client investment advice with the goal of reaching net-zero carbon emissions by 2050 at the latest. It estimates this change should see most clients achieve a 50% reduction in carbon emissions by 2030. Paul Lee was Head of Corporate Governance – Stewardship at READ MORE
READ MORE XPS Pensions Group XPS has promoted six new partners across its actuarial, Pensions pensions, investment, and Group administration businesses. promotes six They are based across the UK in locations including new partners Birmingham, Guildford,
London, Manchester, and Reading. The new partners are: Helen Ross, Head of Member Options; Julie Moores, Deputy Head of Compliance; Jordan
Harrison, Head of Investment (Birmingham); Matthew Plail, Head of Member Analytics; Mel Collins, Regional Operations Manager; and Vicky Mullins, Head of GMP READ MORE
CITY DEALINGS Keeping up to date on acquisitions, mergers and the dealings of companies in the city
British Airways appoint BlackRock as its outsourced CIO British Airways Pensions has today announced the appointment of BlackRock as the outsourced chief investment officer (OCIO) for c. £21.5 billion of its pension schemes’ assets, creating a pioneering OCIO model which will form the cornerstone of a bespoke new offering for the UK pensions market. The agreement encompasses the assets directly under management for Airways Pension Scheme (APS) and New Airways Pension Scheme (NAPS), which serve more than 85,000 members, and until now, have been managed by the in-house provider, BAPIML.
Roger Maynard, Chair of Trustee APS and NAPS Trustee, said: “Operating as our in-house investment manager, BAPIML has delivered excellent investment performance and stewardship of the Schemes over many years. This agreement is the necessary next step in the evolution of the Schemes as they look to enhance their respective investment strategies, working toward their funding goals.”
LCP TO ACQUIRE AONS PENSIONS BUSINESS IN GERMANY READ MORE
ICL Group Pension enters longevity deal with Swiss Re
L and G agree pension risk transfer deal with TUI Group
The Trustee of the ICL Group Pension Plan, a Fujitsu pension scheme, has insured longevity risk in respect of £3.7 billion of its liabilities, with Swiss Re providing the reinsurance coverage. Working with its advisers the Trustee was able to optimise pricing by utilising a new Insight Investment platform to provide access to the reinsurance market via a Trustee owned Guernsey insurance cell.
Legal & General Assurance Society Limited (“Legal & General”) today announces that it has agreed two pension risk transfer (PRT) transactions with the TUI GROUP UK Pension Trust (the “Scheme”).
The hedge covers pensions in payment for approximately 9,000 members of the Plan and provides long term protection against additional costs resulting from pensioners or their dependants READ MORE
The two transactions include a £610m partial buy-in for the BAL section and a £184m full buy-in for the TAPS section of the Scheme. These transactions mark the Scheme’s first PRT transactions with Legal & General and cover two of the three pension sections within the Scheme. The Trustee was advised on the READ MORE
WHAT DOES ESG REALLY MEAN FOR FIRMS?
by Christina Korwin-Szymanowska, Partner, Insurance, Strategy & UK, PwC ESG is a framework for insurers to think about their impact and dependencies on the environment and society, and to assess the quality of their corporate governance. While ESG has roots as far back as the 1960s, it has become increasingly prominent in the last 18 months due to factors such as climate change, increasing social inequality, and the COVID-19 pandemic. This is combined with a rise in social media use and global connectivity, seeing greater public engagement with ESG issues, and a rising number of stakeholders putting pressure on insurers. PwC UK’s Annual CEO Survey, for instance, has shown that 70% of CEOs are concerned about climate change, compared to only 44% in 2019. Likewise, a 2021 PwC consumer survey has shown 67% of respondents, across all
age groups, want to see businesses operating in a sustainable manner. It is thus becoming increasingly important for insurers to assess their own ESG ambitions, and take appropriate action. ESG highlights the increasing risks that insurers face, both in their own activities and through underwriting the activities of other corporates. Increasing climate risks, for example, expose insurers to larger, more frequent losses (e.g. from more frequent extreme weather events). Insurers are facing greater difficulty in accurately underwriting certain classes, which is reflected in increasing coverage prices. Likewise, insurers will see changing business dynamics through the next few years from transition risks, often associated with regulatory changes.
On the other hand, ESG presents an opportunity for insurers to combat these risks, re-evaluate their role in society, and embrace innovation. Insurers, for example, can reassess the sectors they choose to underwrite, moving away from high-emission companies or sectors with higher risks for modern slavery. Likewise, there is potential to protect more vulnerable populations by creating products (e.g. life protection) that can protect minority groups and improve social inclusion. Product innovation can stretch across each aspect of ESG. Alongside protections for vulnerable groups, insurers can look to create green and socially responsible products. These could include energy efficient insurance, property coverage for social enterprises, specialty insurance for electric and micro mobility vehicles, and beyond. Despite challenges, ESG thus presents significant opportunities for those in the insurance sector that choose to take action. Insurers can approach ESG using PwC’s ESG strategy framework to help think through business initiatives while identifying growth opportunities. This framework can help bridge the gap between high-level ESG articles and the more technical ESG papers. The first step is to break down each element of ‘Environment’, ‘Social’, and ‘Governance’ into manageable subcategories. These include aspects of the insurers offering, such as products and services, or elements of the value-chain, such as the supply chain and distribution. Companies should determine their ambition against each sub-category, keeping in mind their overall ESG ambition and the expectations of stakeholders. Stakeholder expectations can be prioritised based on those who matter most to the long-term viability of their business. This approach and alignment allows insurers to understand which areas they want to focus on and which areas will simply follow the minimum regulatory requirements. To take action on their ambitions, insurers should look to generate and implement practical initiatives, aligned to their strategic goals, with assigned metrics that can be measured and tracked against targets. Initiatives
can be assigned to each ESG element and subcategory, and prioritised to create a coherent response. Prioritisation should focus on initiatives which have the greatest ESG impact, while offering higher ease of implementation. Insurers may also consider factors such as feasibility of innovation or expected return on investment. Successful implementation of the prioritised initiatives will rely on execution supported by robust initiative ownership and governance that is tied to ESG values. One way of ensuring this is through ‘integrated reporting’, reporting to stakeholders on ESG factors and corporate strategy at the same time. This is done through combining historical metrics (e.g. revenue) with new ESG indicators (e.g. revenue from ESG-related products) to integrate ESG within company performance and reporting. Implementing initiatives in this way ensures a coherent ESG response and appropriate accountability. One way for companies to think about their ambition and subsequent initiatives is to consider varying ESG ‘personas’: Zealot, Sceptic, Pragmatist, and Strategist. The ‘Zealot’ and the ‘Sceptic’ both represent companies which choose initiatives with low coherence to their corporate strategy. For ‘Sceptics’, this is due to low adoption of ESG initiatives. This could be, for example, insurers with a low level of commitment to ESG, who choose to focus on meeting minimum regulatory requirements only. Conversely, the ‘Zealot’ views ESG as a key driver of their purpose, and implements many initiatives even if they are at odds with their strategy. ‘Pragmatists’ and ‘Strategists’ are personas with high ESG coherence to their strategy. The ‘Pragmatist’ selects targeted initiatives to see quick wins in strategic areas. The ‘Strategist’ persona, on the other hand, integrates ESG more broadly, incorporating it within their strategy. This can include more fundamental organisational change, including operating model and business model transformations to integrate strategy, ESG and business operations. Awareness of one’s persona can help insurers achieve greater alignment between their goals and ESG strategy.
What has AE ever done for us anyway? It is accepted by most in the industry that automatic enrolment (AE) is not going to be enough to deliver adequate pensions for many people as they are simply not saving enough. It may work for the youngest savers but generations y and x have some catching up to do and minimum contributions rates won’t be sufficient. So what has it achieved? Apart from persuading 9.5 million more people to save for retirement, particularly women and lower paid workers? And, it goes without saying, lowering the age at which many people start saving to 22. In fact, recent statistics from the Office for National Statistics (ONS) show that AE has delivered pretty much what it was designed to do at outset and the areas where it has failed to make an impact are those that were outside of the boundaries set in 2012. Overall participation The ONS figures show that overall participation rate in workplace pensions rose from less than 50% in 2012 to 78% in 2020. This is an incredible feat and well beyond what was predicted. Whether inertia is simply stronger than expected, or because people have cottoned on to the notion of receiving ‘free money’ from the government and their employer, opt-out rates have remained much lower than expected by even the most optimistic pundits. Clearly if the minimum contribution rate is raised, as it needs to be, then optopts may increase but we would still be well ahead of the game in 2012.
Non-eligible jobholders - age The fact that this improvement is down to AE is demonstrated by the fact that only 16% of private sector employees aged between 16 and 22 years, who are not eligible for AE, were members of a workplace pension in 2020. This compares with 78% in the 22 to 29 age group who are over the minimum age threshold. The pattern is however different for public and private sector members. Looking at the same 16-22 age group, 75% of public sector employers are scheme members which is pretty much in line with older age groups. It is clear from this that if the age qualification was lowered to 16 the number of private sector savers would also increase.
Non-eligible jobholders - gender Participation rates among full-time employees are nearly identical for men and women, with 88% of the former and 85% of the latter remaining in their schemes. Among part time workers the rate is actually higher for women at 62% than men at 46%. However, this is overshadowed by other factors such as the fact that women are more likely to work part-time in the first place, 38% as opposed to 13% of male workers. They are, as a result, paid less and therefore contribute less to their workplace pension scheme, particularly once the lower earnings threshold is taken into account. Part-time workers are also less likely to exceed the earnings trigger of £10,000 and less likely to be eligible for AE in the first place. Lastly, there is the not inconsiderable fact that these statistics only actually looks at employees. Anyone taking a career break, most of whom are likely to be women, will remain outside of the scope of AE during that time, as are self-employed workers.
Contribution rates By far the most worrying statistic of all is however that, while more people are saving, the new savers are saving only minimal amounts. Previous figures from the ONS showed that the contribution rates for defined contribution pensions have clustered around the minimum contributions levels. If, understandably, both employers and employees are failing to voluntarily pay the levels required for an adequate retirement, then it is the minimum contribution rate which will have to increase.
Summary All of this shows that AE has been a success within its original parameters, but that the parameters themselves must be changed if we are to achieve adequate retirement for as many people as possible. The DWP is aware of the issues, as was shown in their review of AE in 2017. This report suggested a number of key changes including: • Lowering the eligible age limit from 22 to 18 • Removing the lower earnings limit so that contributions are made from £1, and • Gathering evidence to look again at contribution levels It seems to me that it is time to move forward with this. Granted, there a lot of other things on the legislative agenda, but the problem of retirement adequacy will only get worse the longer it is left. Pensions should not be seen as a rainy-day fund for the Treasury or short-term vote winner (or, more likely, loser); they need to be an integral part of government policy. Sources: ONS: Employee workplace pensions in the UK - Office for National Statistics (May 2020) ONS: Pension participation at record high but contributions cluster at minimum levels - Office for National Statistics (May 2017)
by Fiona Tait Technical Director Intelligent Pensions page 14
HOME, SWEET HOME
by Tom Murray Head of Product Strategy LifePlus Solutions, Majesco After a hiatus due to the pandemic, sales of equity release products have bounced back strongly to where they were pre-Covid. Sales have been growing steadily year on year since 2015 but are still nowhere near their full potential. Surprisingly, when one considers the amount of wealth that is tied up in equity in the UK, equity release plans are still a relatively niche product. According to information released from the FCA, less than 4% of advisers give advice on the options for equity release in any quarter. Given that the majority of their clients are property owners and therefore have a significant amount of their personal worth tied up in their home, this seems to show a marked reluctance on behalf of the general population to consider tapping into that wealth. Maybe the current surge in house prices, with prices in England rising 10.2% in the year up to March 2021 as reported by the Nationwide Building Society, will at last make this product more significant in the solution for those approaching or in retirement and considering care issues that might be arise in the future.
With the Government endlessly promising to introduce a proper policy for long-term care and endlessly postponing grasping the nettle, the pressure is on individuals to provide sufficient funds for themselves in order to have sufficient money put by, in case the need for major expenditure on care arises. Education about the costs of care and the ways to provide for it is key to this and therefore far more advice about using property wealth as part of the solution should be given to the client by the financial adviser. For many elderly people, owning their own home gives them a sense of security that they are wary of letting go. Some of the fear of equity release plans comes from a misguided idea that they could lose their home and the security that comes with it. The fact that they are in no danger of being put out of their home via an equity release plan while they are alive needs to be emphasised more. Equity release plans are central to enabling the elderly to tap into their wealth in order to pay for any care costs. They can be difficult to arrange once the care is needed, as the individual is at that stage
incapacitated to some extent. Therefore the ideal approach is to put a plan in place at an earlier stage and draw upon it when necessary. This makes it easier for the individual to control the pace at which the equity is released. Providers of equity release plans need to make sure that it is not a major event to draw down the money. Currently, there is often a minimum amount that has to be drawn down, which means that often people have to draw down more than they want to. This can make them feel uneasy, as they are effectively taking out a much larger loan than they needed or wanted. This is where the use of digital technology by the providers could increase the attractiveness of equity release plans. The use of digital adviser technology to facilitate both direct advice and adviser led advice to those seeking to equity release plans would be very effective. Allowing customers to manipulate the plan options to allow them to try out what-if scenarios and see the effect over time would help them understand
the plan and feel in control of their money. Digital portals to allow the client to access their equity release plan will give them full control over the level and rate of drawdown. It also allows them to monitor the level of debt that is building up and project how much is likely to be left in the event of their death or committal to long-term care, facilitating their ability to plan their finances. Greater use of digital portals would also reduce the costs of transactions and would therefore enable drawing from the plan more frequently and at much lower levels than is currently possible. This would ensure the plan owners can draw down the exact amounts they want, when they want it rather than taking it in larger chunks dictated by plan rules. With so much of the UK’s wealth tied up in property, equity release products need to play a much larger part in solving care issues than they currently are. And one of the key factors in helping that happen would be a more customer-centric digital approach to the sale and service of the product.
HOW MUCH INCOME DO I NEED IN RETIREMENT?
by Dale Critchley Policy Manager Aviva When I started work in the late 1980s this was an easy question to answer - you’ll need a pension of around two-thirds of your pay at the point you retire, index-linked, of course.
income and younger age groups. Participation rates, which were as low as 20%, have been transformed. Now, 90% of eligible employees are enrolled into workplace pension schemes.
The truth is that the ‘two-thirds of final salary’ rule-of-thumb was probably outdated even then. It hadn’t changed since final salary schemes were established decades before. Back then, it was a time when single income families were more common, mortgages tended to have been paid-off before homeowners reached 60 years old, and only a small minority of pension scheme members rented their homes. A single pension was often the sole source of retirement income - in addition to the old age pension - and potentially an individual’s only realisable asset. A house was for living in, rather than investing in or using to fund later life. Life expectancy was shorter too, with a smaller proportion of time during retirement spent in poor health.
While the retirement needs of lower income groups might be met to a greater degree by the state pension, the increase in the number of younger savers adds a generational perspective to the diversity of retirement income needs. We can perhaps foresee that the challenge of achieving owner occupancy may be greater for generation Y, potentially bringing people on higher incomes within the cohort of renters in retirement.
Fast forward to today and what we see is far more diversity in scheme membership and the levels of income members need in retirement. Automatic enrolment has resulted in a big increase in the number of savers within lower
Home ownership has a significant impact on retirement income needs. The Resolution Foundation report on the Living Pension published earlier this year found a 50% increase in income was needed by renters in retirement versus homeowners, a stark demonstration of the difference in needs that might exist within a scheme’s membership. A further factor, which is often difficult to think about when planning for later life, is the cost of social care. A man aged 65 today can expect
to live to around 84, a woman until around 86. The number of over 85s is set to double by mid-2041, but healthy life-spans lag behind this growth in longevity. In a sobering statistic, Age UK have identified 1 in 6 people aged over 80 are currently suffering from dementia. Income needs for those of us who need to pay for social care may therefore increase in later life.
board tell us they favour a gradual retirement, perhaps working into later life - subject to physical and cognitive ability and the availability of suitable employment.
A third factor affecting income need is whether people retire as a couple. More ‘dual income’ households mean more ‘dual pension’ households in retirement. The benefit of being able to share living expenses means that retirement income needs may be significantly different for those who remain as a couple, compared to those who divorce. It’s particularly important that during divorce women obtain a fair share of combined pension entitlements, given the Gender Pension Gap. However, increased outgoings are likely to increase the retirement income needs of all divorcees. The final consideration is how long people sustain income from working. Savers across the
It’s clear that the income needs of scheme members are becoming an increasingly individual assessment, as the lives we live become more ambiguous. Aviva’s three rulesof-thumb are useful – start saving 40 years before retirement, save 12% of your salary into your pension each month and aim to save 10 times your annual income. It’s also crucial that pension schemes are designed to give members a fighting chance of achieving a decent level of income. However, it’s also going to take engagement from individuals in seeking out advice and guidance, using planning tools and taking-up the opportunity for a mid-life MOT. All this can help savers set and review their personal goal for the retirement income they need and want, which is based on their plans, wealth, and ability to adapt to whatever life might throw into the mix.
RETIREMENT PUZZLE THOSE WERE THE BEST RATES OF MY LIFE The last 40 years have been a good time to hold bonds. As rates have continued to fall, long-dated bond returns have remained high. But with rates now extremely low, should we expect the same performance? In absolute terms, probably not. Since 1997, the all gilt index (based on BoAML’s G0L0 index) has returned nearly 6% per annum. Achieving that return from current yields would require almost a 4% fall in yields, to levels well below -3%. Over the same period, a rates rise of just over 1% could mean bond returns of zero. So surely rates will go back up again? Well, maybe. Or maybe not. Firstly, we should always be wary of assuming there’s anything unique about the present. While rates look extreme, this has typically been the case historically too1. Perhaps this is counterintuitive and worth explaining:
The chart below shows the frequency in which the long-term rate, at any given point, fell into different historical percentiles up to that point. What we see is that, 30% of the time, rates appear to be in one of the 5% tails. In fact, 17% of the time, the current level has been in the 1% tails, and 14% of the time in the 0.5% tails. So while rates seem extreme, it’s actually quite common for this to be the case. Still, zero seems qualitatively different from ‘low’ (although it seemed different for real rates too, before they went heavily negative). The original cash arbitrage argument – if rates are negative why not just hold cash – has been proven wrong by Swiss, German and Japanese rates in particular. And post-Covid, it has become increasingly clear that simply holding cash is not an implementable solution for large institutions who have to make tens or hundreds of thousands of payments each month (and no, they can’t use bitcoin either, at least not now).
We might still be near a floor, even if the floor is below zero. However, if we were near a floor, we might expect to see rate moves become smaller as they fall. Over the very long term (using Shiller’s data) this correlation is strong, at 56%. However, it’s entirely explained by the late 1970s and early 1980s. For rates below 10%, the long-term correlation is -4%, with recent 12-month volatility greater than the 150-year median. In a similar vein, we also don’t see any decline in rolling volatility as rates fall – with the telling exception of Japan, where volatility has reduced somewhat since the central bank started targeting zero rates. This could very easily be a precedent, as other central banks could enact similar policies, at which point we would expect rate volatility to decline. Even then, the most likely immediate consequence of a policy shift would be to flatten the yield curve, bringing longend rates closer to short end levels - which would be good for bond holders It’s unlikely that bonds will deliver the same nominal returns they have done in the past, but that doesn’t mean you should sell them all just yet. 20-year Interest Rates
Rolling 12-month volatility of 20-year rates
by Alex White Head of ALM Research Redington page 21
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LIGHTS, CAMERA, ACTUARY!
Bolton Associates’ focus is specifically in the non-life actuarial space; the largest dedicated GI actuarial specialist in the market. Working throughout the insurance market, the consultants at Bolton Associates offer an exceptional service, managing the process with the utmost tact and respect for all parties. We are passionate about our market, taking great interest in the insurance world as a whole, keeping up with trends and changes, and maintaining our everexpanding network. We are good at what we do, because we enjoy what we do.
The next focus for Bolton Associates’ Spotlight page, is an interview with one of the actuaries who dedicates their own time to sitting on GI Committees or establishing Working Parties, for the benefit of the wider GI Actuarial Profession. The Actuarial Profession relies heavily on volunteers, who are happy to design and implement annual events and conferences, or who are keen to present and share their expertise and findings, for the benefit of the profession and their peers. From the GI Board, to GILL, GIRTL and the GIRO Conference, Zoe Bolton will be talking to the actuaries who dedicate their time, and contribute to the continuous development of the actuarial community, and getting a brief insight into their career paths and visions for the future. This month Zoe talks to Catherine Drummond, Partner in LCP’s Insurance Consulting.
What is your current role, and how did you end up in it?
What is the biggest challenge you face in your role within this market?
I’m a partner in LCP’s Insurance Consulting practice. I graduated with a Physics degree from Imperial College and joined LCP’s pensions team in 2005. I qualified in 2008 and stayed in pensions for a couple more years, before deciding I wanted a change of direction. I tried my hand at a few insurance projects and the rest, as they say, is history!
Personally, my biggest challenge is fitting everything in! There are so many opportunities I’m keen to get involved in and the key is not to spread yourself too thinly.
I’m also the Chair of the GI Lifelong Learning Committee, which I started volunteering for in 2018. I had always been keen to be involved in the conferences I’d been attending and having the opportunity to input into these was something I jumped at the chance at getting involved with!
My day-to-day role includes helping my clients to understand and manage their risks better, which regularly draws on my actuarial training. In addition, my background in performing means that I work hard to ensure that events I’m involved in have high production values and include an element of theatre!
What is the defining moment of your career to date?
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?
It’s hard to choose a single moment - there have been a number of key milestones that have defined my career progression and which I am very proud of! Qualifying as an actuary and being promoted to partner are obvious highlights. I’m also particularly proud of setting up LCP’s LGBT+ network and chairing the first ever virtual GIRO last year. More recently, being recognised as Insurance ERM’s Young Actuarial/Risk Professional of the Year was a lovely surprise and is really a testament to the entire team at LCP who work so hard to deliver a great service to clients and are a pleasure to work with. In your opinion, what prepared you best to take on your current role? Probably my “former life” as a full-time musician! I spent a decade between the ages of around 1222 entertaining large audiences both in the UK and overseas and has meant that I’ve always been comfortable presenting to large groups and speaking publicly.
How does your actuarial training and background assist in your day-to-day role now?
I joined as a member in 2005 – the same time I joined LCP. I started volunteering a few years ago, when I joined the Solvency II Practical Review Working Party, before subsequently joining the GI Lifelong Learning Committee. In terms of advice, I’d say take every opportunity to learn, and to meet new people. Don’t be afraid to ask questions, or to do new things, and always strive to do your best in every situation. And look for opportunities to push yourself outside your comfort zone – it’s a great way to learn quickly and build your skills and experience. If you had your time again, what would you do, career-wise? I wouldn’t change anything - life is too short for regrets! Please share your favourite piece of trivia with our readers! The technical term for a hashtag is “octothorp”. Who knew!
ON THE ROAD TO ADAS DATA Not too long ago, slowing down a car and bringing it to a stop relied purely on the attention and actions of the driver. Today, over 70% of new cars in the U.K. have Automatic Emergency Braking (AEB) as standard and more than 83% have a selfactivating system. Globally, in the 5-year period between 2015 and 2020, the Advanced Driver Assistance Systems (ADAS) market doubled in size and is expected to reach nearly 32 billion U.S. dollars by 2023 . Safety technology in vehicles is developing at a rapid pace, and U.K. insurance providers are coming under increasing pressure to understand exactly how these advances impact claims and, in turn, could influence pricing. ADAS features exist to avoid or reduce the seriousness of collisions - as the features become more common, the dynamics of claims will change. For insurance providers this could have a material impact on the bottom line. It may be a surprise to learn that the U.K. leads Europe in ADAS-equipped cars. Based on our analysis of more than 1.4 million vehicles across Europe, on average there are 8 safety features per vehicle in the UK car parc – leading Spain which has six on average and Italy which has four. The fact that this may be news to most insurance providers gets to the heart of the problem. Until recently, the market has had no real way of knowing how a specific car is equipped. This is because each ADAS system can have a different name, functionality or calibration, making it hard to use in pricing and underwriting. The increasing penetration of ADAS in the U.K. car
parc that we have identified, along with predictions that Connected and Autonomous Vehicles (CAVs) could prevent 47,000 serious accidents (2019-30) and save 3,900 lives , really underline the value adding ADAS data to the risk assessment process for pricing and underwriting. Making this a reality started with the creation of a common classification of ADAS from millions of lines of car manufacturer’s data, so that the features of a car and their relative performance can be understood and used by insurance providers at a Vehicle Identification Number (VIN) level. Trim-level information isn’t sufficient, as some of these features are optional extras. We must also understand how the feature behaves. Is it there to warn the driver, is it there to assist the driver, is it there to take control of the vehicle? We also need to understand how the feature performs. Is it there to avoid a collision, is there to reduce the severity of a collision, is it there to sustain safe driving conditions? With that understanding, we then needed to start building insight on how these features work together or in isolation to reduce insurance claims frequency and severity. This led to the creation of ‘Core Features groups’ of the ADAS features fitted to a vehicle that are found to deliver a reduction in claims frequency. These may protect the front of the vehicle such as with Forward Collison Mitigation, the side of the vehicle such as Blind Spot Warning, or the rear of the vehicle with Rear Collision Warning. At a high level, the Core Features can help place what is in
effect a ‘safety bubble’ around the vehicle. 64% of the 2.5million cars we analysed in Europe were equipped with one of these core safety features and are therefore less likely to have an insurance claim. As technology develops, this percentage is expected to increase. Insurance providers also need to understand how vehicles compare. This is best achieved through a Rating Indicator, developed by LexisNexis as part of LexisNexis® Vehicle Build, which gives a value from 1-5 in terms of reducing claims frequency based on all the features on a specific vehicle. The higher the number, the better the performance in terms of reducing claims frequency. We found that 57% of vehicles analysed in Europe had an ADAS rating indicator of 1 or higher. Furthermore, there was a 14% reduction in loss ratio when the vehicle had an ADAS rating indicator of 1 or more. This type of enrichment will be business critical in the short term as ADAS becomes more prevalent in the driving behaviour of newly manufactured vehicles. LexisNexis® Vehicle Build has been tested in the market over the past year to help insurance providers understand and evaluate the specific standard and optional ADAS fitted to a vehicle at a Vehicle Identification Number (VIN) level. Insurance providers can now bring ADAS data into the quoting processes to improve loss and expense 1. 2. 3. 4.
ratios and support competitive pricing. The more insurance providers can understand about the specific ADAS fitments to the car, the more accurate their pricing. This is not only fairer for customers who have invested in ADASequipped vehicles but having this insight also helps prepare for a future in which cars will have increasing levels of autonomy. ADAS features represent stages 1 and 2 in vehicle autonomy and are critical steps towards the development and advancement of automated vehicles and systems such as Automated Lane Keeping Systems (ALKS). In April 2021 , the UK Government initiated its consultation seeking to gain insight into methods of permitting safe use of automated vehicles on U.K. roads as it looks to maintain its position as a global leader in vehicle autonomy. As Transport Minister Rachel Maclean has said: “Automated technology could make driving safer, smoother and easier for motorists and the UK should be the first country to see these benefits, attracting manufacturers to develop and test new technologies.” As technology is advancing and drivers are becoming more familiar with ADAS, we see a distinct shift in how certain features evolve from warning the driver to active mitigation as systems move from passive to dynamic capability. The insurance market will need to keep pace with these developments, and ADAS data is the first step on that road.
SMMT Motor Industry Facts 2020 https://www.statista.com/statistics/591579/adas-and-ad-systems-in-light-vehicles-global-market-size/ SMMT and Frost & Sullivan report, 2019: Connected and Autonomous Vehicles: The Global Race to Market Government paves the way for self-driving vehicles on UK roads - GOV.UK (www.gov.uk)
by Carla McDonald, Snr Vertical Market Manager, at LexisNexis Risk Solutions page 25
TEMPORARY JOBS • LIFE • GRADUATE • CONSULTANTS • TEMPORARY JOBS • LIF OBS • £100K+ • CONSULTANTS • TEMPOR IMMEDIATE JOBS • £100K+ • CONSULTAN ATE • PENSION • IMMEDIATE JOBS • £100K LIFE • GRADUATE • PENSION • IMMEDIAT PORARY JOBS • LIFE • GRADUATE • PENS SULTANTS • TEMPORARY JOBS • LIFE • G £100K+ • CONSULTANTS • TEMPORARY MEDIATE JOBS • £100K+ • CONSULTANTS ENSION • IMMEDIATE JOBS • £100K+ • CO RADUATE • PENSION • IMMEDIATE JOBS JOBS • LIFE • GRADUATE • PENSION • IMM • TEMPORARY JOBS • LIFE • GRADUATE • CONSULTANTS • TEMPORARY JOBS • LIF OBS • £100K+ • CONSULTANTS • TEMPOR IMMEDIATE JOBS • £100K+ • CONSULTAN
PENSION • IMMEDIATE JOBS • £100K+ • FE • GRADUATE • PENSION • IMMEDIATE RARY JOBS • LIFE • GRADUATE • PENSION NTS • TEMPORARY JOBS • LIFE • GRADU K+ • CONSULTANTS • TEMPORARY JOBS TE JOBS • £100K+ • CONSULTANTS • TEM SION • IMMEDIATE JOBS • £100K+ • CONGRADUATE • PENSION • IMMEDIATE JOBS JOBS • LIFE • GRADUATE • PENSION • IM • TEMPORARY JOBS • LIFE • GRADUATE ONSULTANTS • TEMPORARY JOBS • LIFE S • £100K+ • CONSULTANTS • TEMPORAR MEDIATE JOBS • £100K+ • CONSULTANTS • PENSION • IMMEDIATE JOBS • £100K+ • FE • GRADUATE • PENSION • IMMEDIATE RARY JOBS • LIFE • GRADUATE • PENSION NTS • TEMPORARY JOBS • LIFE • GRADU
search & selection Data Engineer
General Insurance Circa £45,000 Per Annum London
General Insurance Up to £90,000 London
Innovative London Market insurer are seeking a technical Data Engineer to enhance their modelling capabilities. The successful candidate will have hands-on commercial experience using Python for analytics, data management and problem solving and be comfortable articulating technical issues to audiences.
Leading insurer seeks a dynamic and commercially minded qualified actuary to join the reserving team. This hire will play a key role in reserving tasks and work closely with the pricing function, underwriters. And the reserving teams in India, EU, and USA.
REF: ZB 001734 JC
REF: ZB 001725 MM
General Insurance Up to £50,000 City of London
General Insurance Up to £65,000 Per Annum London
Opportunity to join a leading Underwriter in a small Capital team as Capital Analyst. Reports to Head of Capital within the Risk Function. Ideally you will have 2 years capital modelling experience with IGLOO desirable. Strong communication skills a must, as the role will involve presenting to senior management and committees.
Leading Lloyd’s operation seeks a nearly/newly qualified Actuary. Reporting to the Head of Pricing, this role will work closely with underwriting teams to provide actuarial pricing support across several lines of business. Pricing from a GI insurance company/ Lloyd’s Managing Agent preferable. Advanced Excel/VBA, SQL with Power BI, R a plus.
REF: ZB 001602 SC
REF: ZB 001617 SC
Commercial Pricing Actuary/Data Scientist
Head of Pricing
General Insurance Circa £100,000 + Bonus + Benefits London
General Insurance £180,000 Per Annum London
Global reinsurer seeks a pricing actuary / DS who is an expert in R. You will be commercial, smart, driven, want to help others by developing excellent tools, a team player and have great communication skills. This team is working with cutting edge technology – experience in any of the following would be beneficial but not essential – Azure, NPL, API, SQL, Python, AI, ML.
Property, Casualty & Specialty start-up seeks a qualified actuary (through exam or experience) to join this fledgling team, working with underwriters to set up initial pricing models. You will have exceptional commercial and communication skills and become very much part of the business. Excellent long-term opportunities, and to build a small dynamic team.
REF: ZB 001731 CS
REF: ZB 001305 ZB
www.bolton-associates.co.uk page 24 28 +44 (0)207 250 4718 Bolton Associates, 5 St. John’s Lane, London, EC1M 4BH