ACTUARIAL POST FOR THE MODERN ACTUARY JUNE 2020
THE EVOLUTION OF SCAMS
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Leadership role for an actuary who enjoys people management, whilst keeping close to technical matters. Strengths in reserving and capital, and the ability to interact comfortably at board level, are required.
An exciting corporate role, enhancing and developing financial, capital and underwriting reporting capabilities. You will have strong people skills, and gain exposure across capital modelling, reserving, reinsurance and more.
Join an established group as they launch a brand new motor business, seeking to disrupt the market with a unique proposition. Use your expertise in motor pricing to shape and influence the team with the support of senior executives.
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Take this excellent chance to build upon your reserving experience and your strong people skills within an entrepreneurial team. Clientfacing consulting and project-leading experience would be advantageous.
Reporting to the Chief Actuary, you will work on pricing reinsurance treaties across multiple lines of business, collaborating with other teams and communicating results. You will also improve the efficiency of the pricing processes.
A challenging role for a technically strong reserving actuary with experience of London market reserving, Solvency II, IFRS 17, and a keen eye for emerging dynamics in the market.
SENIOR ACTUARIAL ANALYST
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Lead the development and delivery of technical pricing models, using your strong experience in data and statistical analysis, using cutting-edge tools and programming languages.
Join a leading reinsurance organisation, carrying out experience analysis work, improving the tools and processes used, and demonstrating the impact of underwriting rules on pricing.
In this key role, you will manage existing and new protection treaties throughout their lifecycle, and contribute to the development of reinsurance solutions and services, considering risk appetite and client needs.
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Use your excellent analytical, communication and consulting skills, to assist in developing our client’s covenant business. This is a great opportunity to play a key role in providing specialist advice in a growing sector.
Work with a variety of trustee and corporate clients on a range of scheme types and sizes, performing crucial calculations and offering bespoke advice. Knowledge of all technical aspects of UK pensions work is essential.
Deliver pensions advice across a wide range of projects, including valuations, accounting disclosures, options for de-risking, and advising on PPF levies.
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Take up this key role, using your experience to conduct first-class investment manager and equity market research, and communicate the advice clearly and professionally to clients.
Global Investment Specialist
Take up this superb opportunity to build upon your experience of pension scheme investment strategies and strong knowledge of multiple asset markets. Excellent communication, influencing and technical skills required.
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Provide investment support within a collaborative, solutions-focused team. Experience in ALMs, quarterly reporting, investment markets and regulation, will all be utilised and developed in this exciting role.
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EDITOR’S NOTE With lockdown measures easing and with some schools and year groups returning to school we can see how the virus will change our way of lives now and in the future. Rail transport have already brought in new rules that face masks must be worn or you cannot travel, this plus the effective way a large proportion of the workforce now work from home shows strong indications of how the way we work has changed perhaps permanently. The magazine’s regular authors continue to provide excellent insights on our changing world. Articles from Fiona Tait from Intelligent Pensions and Dale Critchley from Aviva both examine the way scams have evolved during the pandemic. Katherine Daguer from PwC look at, equally topically, the FCA test case on Business Interruption and Tom Murray from Majesco looks at the way we work now with an article entitled Who’s Zoomin’ who. We hope you enjoy this month’s edition and once again we look forward to welcoming you back next month.
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Movers & Shakers
The Evolution of Scams
Lights, Camera, Actuary
NEWS JUNE Update on FCA test case of the validity of BI claims The Financial Conduct Authority (FCA) is providing an update on progress on its court action on business interruption (BI) insurance policies. Since the FCA made its last announcement on 1 May, they have approached 56 insurers and reviewed over 500 relevant policies from 40 insurers. They have identified a sample
of 17 policy wordings that capture the majority of the key issues that could be in dispute.
those insurers we have invited, and have agreed, to participate in the proceedings.
This update gives further detail on the proposed court action, including identifying the representative sample of policy wordings to be examined in the test case, insurers that use those wordings, and which of
This initial list of insurers and the policy wordings they use is not exhaustive, and they are also now publishing a short consultation on draft guidance asking all insurers to check their policy... READ MORE
Covid19 and the implications for the bulk annuity market At start of this year the bulk annuity market was setting itself for another busy year building on the record levels seen in 2019, with further strong demand from pension schemes looking to insure some or all of their pension liabilities. How has this market fared during the Covid-19 crisis? What does this mean for schemes and sponsoring employers? By Gavin Markham FIA, Partner and Head of Bulk Annuities and Rosie Fantom FIA CERA, Principal and Bulk Annuity READ MORE
FCA issues next steps to improve DB pension transfer market The Financial Conduct Authority has set out a package of measures designed to address weaknesses across the defined benefit (DB) transfer market. It includes steps to reduce conflicts of interest by banning contingent charging, as well as help for advisers who want to do the right thing and provide good quality advice to their customers. The package also includes further support for customers who are considering whether to transfer out of a DB scheme, or who have
transferred out. The FCA has also published the results of its ongoing targeted work looking at the advice firms have given. Christopher Woolard, Interim Chief Executive of the FCA said: â€˜The proportion of customers who have been advised to transfer out of their DB pension is unacceptably high. While much of the advice we looked at was READ MORE
NEWS Over 5m either a Covid19 scam victim or knows someone who is The IASB staff have provided a verbal update to the Board on the initiatives in progress leading to the release of the final IFRS 17, anticipated in June 2020. Ralph Ovsec, Senior Director, Insurance Consulting and Technology, at Willis Towers Watson, said: “In spite of the challenges posed by COVID-19, the implementation of IFRS 17 remains urgent, as entities need certainty of the amendments to IFRS 17 to avoid unnecessary and undue costs and disruptions in its implementation.” A pre-ballot draft of IFRS 17 has been circulated to the Board and to a select group of SMEs, and many comments have already been received. The IASB staff is reviewing those comments to confirm READ MORE
Societal Risks in a Post Covid19 Era
John Scott, Head of Sustainability Risk at Zurich Insurance comments in the WEF & Zurich Insurance Covid-19 Risk report: “Increasing inequality, dramatically shifting consumer behaviors and a lockdown that is having a significant toll on young people’s prospects, mental health and wellbeing are highly interdependent issues which impact the global economy, geopolitics and our societies in equal measure. On top of this, we are already seeing record levels of unemployment due to lockdown measures and are having to re-learn hard lessons - in particular that social deprivation determines health outcomes.” Employment: • HR departments have rarely been more important. Working
remotely increases the risk of isolation, alcohol dependency, excess smoking and bad backs through poor ergonomic posture. • The state was previously seen as the ultimate safety net but employers have had to accept that they too have to protect their workers in order to survive and thrive. • Getting back to a pre-Covid-19 growth phase is likely to be a long and difficult task and businesses will likely use fewer employees in the future. The challenge to return to normal is, therefore, as much a psychological as economic choice. Inequality: • This economic crisis has already hit those in more socially disadvantaged groups... READ MORE
New report sheds light on COVID19 insurance crisis A damning new report from Mactavish has exposed huge conflicts of interest for brokers as they derive as much of 80% of their revenue from insurers while only 20% is composed of fees from their clients. The paper, entitled ‘Broker Conflicts’, also reveals that much of a broker’s revenue is directly linked to the price of premiums so they benefit when insurance costs rise, which is currently happening partly because of the Coronavirus crisis. Based on analysis of FCA data Mactavish estimates that potentially around one quarter of the 80% is legitimate commission leaving at least 60% of broker income in total being both premium linked and based on services to insurers rather than policyholders which is untenable as a market READ MORE
MOVERS & SHAKERS The latest moves and appointments from the actuarial marketplace Hymans Robertsons largest partner intake in its history
Actuary Sophia Singleton joins XPS as Head of DC
Hymans Robertson has promoted three partners to the role of equity partner and nine colleagues to partner. This is the largest partner intake in its almost 100 years history. The firm has promoted; Anthony Ellis (Head of Investment Consultancy), Catherine McFadyen (Head of LGPS), Gill Tait (People Director) to equity partner. Its nine promotions to partner are Clive Moorhead, Elaine Torry, Gary Evans, Heather Meighan, Laura Andrikopoulos, Michael Ambery, Richard Allen, Ross Fleming and Steven Law. Commenting on the range of promotions across the firm, John Dickson, Senior Partner at Hymans Robertson said: “As a firm, our strength lies in our diversity and depth of expertise and I’m thrilled to see this reflected in each of our promotions to Partner and Equity Partner, with representation from our more traditional TPA and LGPS businesses to our newer digital and READ MORE
31 Trustees at Dalriada become accredited by APPT
Cardano strengthens DC offering with two new appointments Cardano have announced two senior appointments in its Defined Contribution (DC) team. David Bird joins as Head of DC Platform, a newly created role within Cardano, on 1 June 2020. Cardano also announces the appointment of Stefan Lundbergh as Head of DC Design for the Group.
XPS Pensions Group (XPS) announces the appointment of Sophia Singleton as Head of DC to help grow the business. Sophia joined from Aon on June 2 2020. Sophia, Head of DC said: “Of course, the current crisis creates enormous challenges for pension schemes, employers and their members. Protecting savers and helping them make appropriate choices is now more important than ever. I have been really impressed by XPS’ fresh approach to DC alongside the strength of its mastertrust, the National Pension Trust. This is a fantastic opportunity for me to be READ MORE
Dalriada Trustees has put 31 professional trustees successfully through the new accreditation process operated by the Association of Professional Pension Trustees (APPT). In total Dalriada employs 40 trustees, with a further 9 newer recruits
In his new role, David will lead the continued development of Cardano’s DC offering which advises single employer schemes, particularly those of a certain size or with specific requirements. He will advise trustees on investment and risk management approaches to deliver robust and stable results for members. David and Stefan will also be working closely with NOW: Pensions... READ MORE
also due to undergo the accreditation process. Its trustees come from a range of backgrounds including law, actuarial, pensions management, investment, insolvency and corporate finance, with the youngest being 28 and the oldest aged
over 70. The accreditation process has been introduced following The Pensions Regulator’s toughened stance on what was required to be a ‘professional’ trustee and its focus on improving governance... READ MORE
CITY DEALINGS Keeping up to date on acquisitions, mergers and the dealings of companies in the city
L and G announces 650m bulk annuity deal with 3i Group Legal & General announces that it has completed a £650m buy-in with the Trustees of the 3i Group Pension Plan. The agreement provides a policy in respect of the Plan which matches the benefits of around 280 pensioners and 570 deferred members. It follows on from the two pensioner buy-ins previously undertaken by the Trustees (with Pension Insurance Corporation in 2017 and Legal & General in 2019) and means that the Plan is now fully insured through buy-in policies held as assets of the Plan.
Laura Mason, CEO Legal & General Retirement Institutional, said: “We are delighted to have continued our partnership with the 3i Group Pension Plan and help complete the final step of its de-risking journey, providing a solution that ensures the long-term benefits promised to its members are fully secured.”
ROYAL LONDON ANNOUNCE THE SALE OF ASCENTRIC READ MORE
Aon advises NN Life on 13bn euro longevity transaction
Aviva announces 95m bulk annuity deal with the BBA
Aon has announced that it has assisted NN Life with a €13.5 billion longevity transaction covering a portfolio of annuity policies for over 200,000 pensioners and dependants.
Aviva hs announced it has completed a £95million bulk purchase annuity transaction with LawDeb Pension Trustees, Sole Corporate Trustee of the British Bankers’ Association Pension Scheme (BBA).
The transaction will reduce NN Life’s exposure to longevity risk and further strengthen its capital position under Solvency II. Aon advised NN Life, the largest insurance company in the Netherlands, in a number of areas. These included: • Advice on portfolio-specific best estimate longevity assumptions, combining both Aon’s Demographic READ MORE
Aviva will insure the defined benefit pension liabilities of all 213 members, removing the investment and longevity risk of these members from the Scheme. Members will see no change in the amount of their benefits or the way in which they are paid as a result of the transaction. The process to select an insurer and negotiate terms was led by LCP on behalf of LawDeb Pension Trustees READ MORE
by Fiona Tait Technical Director Intelligent Pensions The Evolution of Scams
This involved scammers tricking people into transferring their funds to offshore arrangements They say that a crisis often brings out the best which allowed them to access their savings – and worst in people and the COVID-19 pandemic after a sizeable fee had been siphoned off by the is no exception. Whilst dedicated key workers, fraudster. fundraisers, and neighbour support schemes are giving their all, it is an unfortunate reality that This has now been made easier for the scammers there are some very nasty people out there who since all they have to do is target anyone over are happy to exploit the current situation as an the age of 55 who can legally access their funds opportunity to leech even more money from the and withdraw the whole lot if they want to. vulnerable and financially naïve. Pensions are becoming increasingly likely to be an individual’s biggest asset and the consequent The Pension Policy Institute (PPI)’s recent report impact is often devastating. In 2018, 180 pension “How have scams evolved since the introduction savers reported losing an average of £82,000 each of pension freedoms?” shows that for these to scammers, equivalent to 22 years’ of minimum people it’s just business as usual and fraudsters contributions under automatic enrolment. Many continue to look for new ways to target potential of course lost more, with Action Fraud having victims. been informed of at least 2 fraud cases involving over £1m. And those are just the ones that are The COVID effect reported. The pandemic has not really affected the way in which scamsters operate or the types of scam Why is it still happening? they are perpetrating, what it has done is make The simple answer is that the scammers are very, people more vulnerable to their blandishments. very clever. Scams are constantly evolving and People who are facing significant reductions in becoming more and more sophisticated. Since their income, or who have seen the value of their the ban on cold calling more are using social fund drop as a result of market uncertainty, are media and other on-line approaches, accounting more likely to listen to fraudulent promises of for more than half (54%) of those who were access to their pension funds and promises of inspired to check the FCA Warning List. ‘safe’ investments and higher returns. As a result, both the FCA and the Pensions Regulator (tPR) have issued bulletins to investors and trustees respectively warning people not to act too hastily It doesn’t help that people tend to be overconfident of their own ability to spot a scam.The with regard to their pensions. websites and letters often look very professional, This warning is necessary, as one of the key and phishing – copying legitimate organisations techniques used by scammers is to put pressure and websites – is common. While 64% told the on people to act quickly; research carried out as ScamSmart investigators that they thought they part of the ScamSmart campaign showed that 1 in could spot a scam only 12% of people asked by 4 people admitted they took less than 24 hours the Citizens Advice Bureau were able to do so, to decide whether to accept a pension offer. and the FCA point out that this trait is even more prevalent among educated people. This Pension Freedoms was backed up by research from PensionBee Unsurprisingly, this was the real game-changer who found that the majority of people tend to in the pension arena. Prior to 2015 the majority believe the victims of scams are likely to be other of scams focussed on pension liberation. people. page 11
What can we do about it? Keep fighting. Everyone is potentially vulnerable to a scam and it is incumbent on anyone with specialist knowledge to do what they can to protect others. By specialist knowledge I include those who have been victims of or approached by a scammer themselves, however the onus is even more upon the professionals to support their members and clients. It is already a requirement to include ScamSmart warnings with pension transfer and retirement packs but we can go further than this. Links can be provided to ScamSmart, The Pensions Advisory Service and Pension Wise websites, however there is nothing stopping us from reiterating the warnings they contain.
Trustees and providers may want to check out the Pension Industry Scams Group (PISG) code of practice â€“ it is 107 pages long and therefore very comprehensive as a source of reference. Consumers and advisers have recourse to the ScamSmart website and the specific warnings issued by both the FCA and tPR.
PENSION PILLAR THE RISE OF THE SCAMMERS by Dale Critchley Policy Manager Aviva I’ll be blunt here. There are many awful things that we are experiencing as a result of the Coronavirus pandemic. But one that really angers me is the rise of scammers. Just when we’re all facing economic uncertainty, learning to cope with being shut in our houses, not seeing friends and family, home-schooling…these despicable people emerge ready to take advantage. It’s not a new phenomenon. Scammers have always been around, but they usually ramp up their efforts when they know people will be at their most vulnerable. Right now, people are worried about their health, their families, and their finances. It’s the perfect breeding ground for con artists. And they can mobilise their operation quickly – Action Fraud, the UK’s national reporting centre for fraud and cybercrime, reported a 400% increase in corona-related fraud reports from February to March. The Association of British Insurers (ABI) has compiled a list of the potential ways scammers can try make themselves seem genuine. The ones I get asked about are around pensions. Pension scams are particularly popular at times of economic difficulty because it’s the one asset that scammers know we’ll have. The scammers will either target those in need of cash through an offer of early access to a pension (typically aimed at someone under 55) or use the opportunity created by the market downturn to offer big investment returns. As pension professionals we know the rules. Apart from in very specific circumstances (an old scheme with a retirement age of 50, a specific occupation or terminal or long-term illness) accessing your pension before you turn 55 isn’t authorised. If you’re contacted by someone claiming they can do it, it’s a scam, and if you go head, one of two things will happen: 1) They’ll take all your money and you’ll never hear from them again.
2) They’ll take a large chunk of your money as a fee and pass the rest to you. After which, HMRC will ask you to pay 55% in tax on the total taken out of the pension, leaving little for you. But if you’re falling behind with bills, a professionally produced brochure about pension loans (that many won’t understand), claiming to be able to put cash in your pocket today, may sound appealing. The second type of pension scam is where someone offers you better returns. The ban on cold calls about pensions has helped, but like playing whack-a-mole, the scammers have popped-up elsewhere, often now using social media to identify and contact their targets. Scammers can amplify the messages seen in the mainstream media about “zombie funds” and “rip-off pensions” to present an alternative, low risk, high return nirvana through investing in hotel rooms, car parks, land or whatever else they come up with. We’ve seen scammers exploit a lack of understanding to compare DB revaluation rates with DC returns and persuade people to move out of secure pensions in favour of high charge, high risk investments which often have no secondary market. Promises of better returns can be very attractive, and mistrust in pensions can easily be stoked up amongst a population that’s more comfortable investing in real assets like land and property than shares and bonds. We need to do all we can to stop the scams and alert the public to the problem. At Aviva we’ve launched our own online scam reporting service. Anyone concerned about fraudulent activity that mentions Aviva or their pension can pass on the details to us. Our Financial Crime Intelligence Unit will then investigate and give personal guidance on what action to take. Although we can do a lot to close down scams, financial education and understanding around pension saving is key. Most ‘get rich quick’ schemes have a loser, and while it’s a cliché, if it seems too good to be true, it probably is.
SOLVENCY II & BEYOND
SWIFT ACTION REQUIRED AFTER FCAâ€™S BUSINESS INTERRUPTION CASE
FCA draft guidance on Business Interruption sample of 17 policy wordings to be examined insurance test case, requires swift action from by the court, insurers that use those wordings, and which of those insurers have agreed to firms participate in the legal proceedings. The Financial Conduct Authority has laid down the gauntlet in its efforts to resolve contractual Alongside this, the FCA also published draft uncertainty in business interruption (BI) guidance setting out expectations for general insurance due to the COVID-19 pandemic with insurers and intermediaries handling BI claims and complaints that might be impacted by the a test case at court. test case results.. In terms of scale, approaching 56 insurers and reviewing over 500 relevant policies from 40 Workload: in summary insurers is a major effort, but only to be expected Under the proposed guidance, firms will have two on such an important issue. weeks to identify policies, claims and complaints The court action being taken is aimed at providing that are likely to be affected by the test case.Within clarity and certainty for policyholders and a further week following identifications firms will insurers involved in these BI disputes. For those have to inform claimants or complainants about in the actuarial sector entrusted with modelling the test case before providing updates at specific and forecasting those policies the ramifications points as the test case progresses through the courts. The timings can prove challenging for are clear to see. many firms who are yet to carry out analysis of Whatâ€™s happening? their non-damage BI policy wording. The regulator is providing detail on the proposed The guidance test case, including identifying a representative policyholder page 14
also contains general and specific communication
requirements until the test case is completed. Expected timelines, assuming the test claim is filed on 9 June, include completing BI policies categorisation and provide the results to the FCA by 23 June.
using the representative sample of 17 policy wordings that capture the key issues as a reference point.
Insurers will need to classify these policies into one of three categories: a) test case impacted b) test case may provide guidance but claims decisions not affected c) not test case impacted,
As the FCA says, the aim is to “achieve clarity for all concerned in an unprecedented situation”. Actuaries and the wider sector will be front and centre of this activity.
Firms should appoint a senior manager responsible for overseeing this project and consider how By 30 June, firms must notify policyholders that to identify policies, claimants and complainants have made a claim or a complaint whether or within the required timeframes. Having the right not their claim or complaint is a test case claim governance in place will be key to be able to or complaint and the reasoning behind this demonstrate reasonable steps in carrying out this determination. exercise, appropriate documentation of rationale The detail: what do firms need to do now? around decision making should be a priority. The guidance is proposed to take effect from 9 Insurers will need to draft a project plan and June 2020, the date on which the FCA intends to consider the tools and resources needed to file its claim in court.The FCA proposes to require meet deadlines as these are very tight. Businesses insurers to identify and categorise policies that should also commence reviewing and updating provide cover for business interruption losses in claims and complaint procedures, customer circumstances where there has been no physical documentation and underlying IT systems, damage to the insured property and where including preparing for settling claims soon after pandemic-related claims are not being paid in full the test case is completed possibly towards the end of the summer. (‘BI policies categorisation’).
by Kareline Daguer, Financial Services Regulation Director, PwC page 15
WHOâ€™S ZOOMINâ€™ WHO?
For many businesses, the online element has been seen as an adjunct rather than a primary channel and the life and pensions sector has been no different. One results of the Covid-19 crisis has been a massive uplift in the use of the Internet in doing business; customer interactions via web channels have dramatically increased and, due to the lockdown, companies have had to sell and service their products via a distributed model with their staff working from their own homes. This has involved using new tools to allow staff to be managed, to collaborate in teams, and to deal with the customer base. For the life and pensions industry, this has got to be the hottest topic of the moment. Sure, technology will allow us to dramatically improve overheads and provide insurance services in a far-more customer focused way than heretofore. But the very nature of our business and the type of information we hold means that data privacy and security have got to remain our number one priority as we embrace our digital future. Our customers have to give us a lot of personal
information, ranging from their health details and family history to their current financial position and future goals. This is the kind of information that is clearly dangerous to lose and could cause huge problems for the organisation that loses it. The primary issue most companies need to focus on is the security of their distributed networks. With so many people connecting to the network from the outside, the task of authenticating the users has become much harder and the need for multiple levels of authorization complicates the task of having so many external people logging in. What is new is the scale of the number of staff who are working from external sites, in this case their own homes, who are dealing directly with customers via conferencing systems and also using them to connect to other staff. The amount of customer personal information being discussed on these calls and shared among groups of staff that are not in environments controlled by the company means that there are many weak links in the process that didnâ€™t exist before.
Data supplied for a legitimate purpose cannot be generically used across the organisation. It may be very tempting to use such data to offer services and products to people based on the information the company has stored in the organisation, but without the specific consent of the customer, it is not permissible to do so. But ensuring that this doesn’t happen is much more difficult when the employees are working from home. This is a completely different environment and one in which the company has no control over who is there, and what they can see and overhear. As a result, employees have become one of the biggest risks for a company in terms of their control of customer personal data. Employees, either through carelessness with the security of the data they have available to them or through the temptation to use it in ways for which no consent has been obtained, are constantly at risk of mis-using personal data. The risks of data being shared across video systems or screenshots being captured by customers is something that is very difficult to manage. And it’s unlikely that the regulator will show any tolerance for data breaches that have happened just because the life company had to re-engineer its business processes practically overnight. The possibility of fines from regulators, not to mention the risk of collective action lawsuits from aggrieved customers, is
something that all firms should be aware of and be working to mitigate. Then, there’s the fact that extensive use is now being made of conferencing technologies that were never really used before and possibly haven’t had the level of security testing that would usually be in place before adopting these in normal times. And the difficulty of knowing just who is on the other end of a call, when the company has zero ability to control access to this new “workplace”. Amid the excitement of new technology and the creativity of the employees, new ways of doing business and keeping customer satisfaction high are being developed. These are exciting breakthroughs for an industry that was notoriously a laggard in adopting customerfriendly processes. But they need to be accompanied by strict data protection policies adapted for the new environment. Life and pension firms need to update their policies on data protection and cyber-security and ensure that all staff are being trained in them for the new environment they are working in. One of the best defences for any issue that arises is that strict policies are in place and that the firm is endeavouring to ensure staff compliance. With distributed workforces, this has just become so much harder, but efforts need to be made both to keep data protection levels high and to be able to demonstrate this to regulators, if the worst happens.
by Tom Murray Head of Product Strategy LifePlus Solution, Majesco page 17
RETIREMENT PUZZLE WHAT TALF 2.0 MEANS FOR INVESTORS by Alex White, Head of ALM Research, Redington The Fed has launched a second iteration of its Term Asset-Backed Securities Loan Facility (TALF) program, first run after the financial crisis of 2008. Talf 1.0 supported securitisations and allowed investors double-digit returns.
without a direct cost (as opposed to, say, stimulus spending). Investors also benefitted, often with double-digit IRRs.
Here is a brief run-down of how it works: • A consumer takes out a loan to buy a car (for example) • That debt is packaged with other debt into a highgrade structure (ABS, MBS, etc) • An investor buys the asset with a non-recourse loan from the Fed, at a haircut of roughly 10% (depending on the type and term of the asset) • The investor pays around LIBOR + 1% for the loan • If the asset defaults, the investor can return it to the Fed in lieu of the loan If an ABS trades at 150 over LIBOR for example, and the haircut offered is 10%, an investor could buy the ABS, use a TALF loan (at roughly LIBOR + 100) to back 90% of it, and earn roughly 50bps with only 10% exposure, equating to a 5% return on investment. By offering both leverage finance and a cap on losses, the TALF program allows investors to leverage eligible assets and earn high returns on AAA ABS without risking more capital than that invested. TALF 1.0 was a fairly clear success after the global financial crisis. Economically, a functioning ABS market is critical for allowing credit to be extended for small loans, so supporting the ABS market helped the wider economy recover. Moreover, all loans were repaid in full either at maturity or earlier, meaning the TALF program supported the economy
It would be optimistic to expect returns to be as strong this time round. AAA spreads have already tightened significantly since the end of March, which is exactly the effect the TALF program was intended to achieve. Nonetheless, at the time of writing spreads were still materially higher than the cost of the loan, meaning investors can take a protected holding in a good quality credit and gear it. These investments will not be risk-free, and the gearing will amplify any mark-to-market or default losses. Nonetheless, they can offer attractive returns with downside protection even in the absence of any spread tightening. For example a 20 basis point tightening, with duration 3 and 6x leverage, would lead to an additional gain of c4%. While the reverse would be true for a spread widening, the protection implicit in the TALF program, coupled with the relatively short horizon of most of the assets, should allow most investors some ability to “ride out” any rougher patches. Investments using the TALF structure will not be appropriate for all investors - for example, they will be somewhat illiquid. Markets are also moving fast, which means the opportunity could become meaningfully less (or more) attractive very quickly. But that is no reason to rush decisions. As ever, there are plenty of good investments available, and investors should typically stay more focused on avoiding inappropriate investments, rather than looking to seize every opportunity. Nonetheless, this could be an opportunity worth considering for a reasonably broad range of investors.
DATA ON THE CAR AND FROM THE CAR WILL DRIVE MOTOR INSURANCE SERVICES OF THE FUTURE Since motor insurance has existed, insurance providers have calculated a consumer’s risk using combinations of location, claim history, gender, age, occupation, distance driven and other rating factors that have been a proxy for risk. Telematics transformed how risk could be understood, but usage-based motor insurance (UBI) has largely remained a niche proposition targeted to young drivers. This has been due to a variety of factors, not least the operational costs involved which means that aside from a few exceptions, telematics has only really been viable for customers paying the highest premiums. However, today we are witnessing a rapid increase in vehicle connectivity, as well as advancements in vehicle safety technology and autonomous driving. The car’s becoming the star This is opening the potential for dynamic data from the car and static data about the car’s build to be used for insurance risk assessment. In short, the car is becoming the star in helping the insurance sector deliver cover more precisely correlated with risk. Fundamentally, connected car data won’t just be for the young driver, but for all consumer segments. 100% of cars will be connected by 2030 All cars are expected to have connectivity by 2030 , feeding a wide range of data into car manufacturers who want to leverage this data to better serve
their customers and to support their goals of zero emissions and zero fatalities. This includes offering UBI based on how the car is driven as well as the presence and activation of increasingly advanced in-car safety features, otherwise known as Advanced Driver Assistance Systems (ADAS). In the UK, 78.1% of new cars on sale are offered with a self-activating safety system and 1.8 million buyers a year are able to benefit from collision avoidance technology. At the same time, the insurance sector has become acutely aware of the need to access connected car data and vehicle build data to remain relevant in a world where consumer experience will trump products. It will create new opportunities for risk modelling and new ways to deliver value-added services to consumers. We have estimated the value of connected car data to the insurance market is $5bn. Bringing insurers and car manufacturers together Significant steps have already been taken to bring the insurance and car manufacturing markets together. The formation of a connected car data platform and exchange with consumer consent, compliance and
control at its heart is providing a solution to help both markets leverage connected car data.
ending the need for estimations, forecasts, and the potential for error.
This enables driving data from motor manufacturers and insurers to be brought together in one data exchange in a fully compliant manner, normalised, contextualised, standardised. It can then be delivered back as an actuarial grade driving score for UBI, regardless of the vehicle make, model or device type.
In addition, data from the car will support pay-howyou-drive options, where insurers can launch massmarket driver scoring and safety programs.
But with connected car data still on its upward trajectory, we also need to look at what’s deliverable to the market right now. VRN to VIN Starting with clean and accurate vehicle-based data, it’s already possible to convert the Vehicle Registration to VIN to build a solid data foundation. ADAS data first Static data on the build of the vehicle, including its ADAS features, is already well-advanced for use in pricing with testing underway with a number of UK motor insurance providers. This has been the priority given the majority of new cars come equipped with ADAS. Embedded telematics Building on these foundations, using the car manufacturer’s embedded telematics, usage-based insurance programs and driver behaviour scoring can be delivered. It will also become possible to deliver distance readings directly from the odometer,
A single integration Soon, from a single integration that they already use for more traditional data, insurance providers will be able to access a suite of vehicle data products and multiple car manufacturers’ data, to enable point-ofuse delivery across the insurance value chain. These developments are happening as consumer appetite for services based on vehicle data is growing. Consumer acceptance and appetite grows Research demonstrates, most consumers (80 percent) are between “somewhat” and “very willing” to share their data in return for a range of benefits, including lower prices, more relevant, personalised offers and alerts, and quicker claims processing. Clearly the insurance providers already offering telematics will be in a stronger position to tap into this consumer demand and leverage the data to come from the connected car than those who have yet to get on board. Connected car data is set to disrupt the market, but only for those who are least prepared.
1. LexisNexis Risk Solutions Research of the Automotive market 1. The Society of Motor Manufacturers and Traders Ltd (SMMT) 1. https://insights.lexisnexis.com/automotive/2019/05/vlog-with-paul-stacy-vehicle-data-exchange-and-the-neutral-server-moving-intounderwriting-pricing-decisions-for-insurance/ 1. https://insuranceblog.accenture.com/a-powerful-business-case-for-personalized-insurance-services
by Martyn Mathews, Snr Director, Personal Lines, LexisNexis Risk Solutions page 21
search & selection
LIGHTS, CAMERA, ACTUARY!
Bolton Associatesâ€™ 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 a leading actuary within one of the market’s MGAs. As the Lloyd’s and London Market has evolved, more and more new entrants are turning to the Managing General Agent set-up option. Many of these new businesses are sitting under umbrella MGAs, who have a number of individual underwriting teams, and assist with providing capacity. These MGAs understand the value of analytics and actuarial input, and for the next few months Zoe Bolton will be talking to the senior actuaries in these firms, getting a brief insight into their career paths and visions for the future. This month Zoe talks to Chris Drew of Volante Global.
What is your current role, and how did you end up in it? As the Chief Actuarial Officer at Volante Global, I’m responsible for the performance of our portfolios for our Carriers – our Carrier agreements mean that our fortunes are aligned to our Carriers and by looking after them we’re looking after ourselves. It was partly a unique opportunity at the right time for me, and partly a natural evolution to move to an MGA and do the same in a slightly different environment. Having previously worked for a number of large insurance companies, the opportunity to work at a company setting up from scratch was extremely attractive. This is where I’ve seen larger insurance companies trip themselves up, but we’re able to be much nimbler and use the latest technology to benefit us and our Carriers, particularly from an operational perspective. What is the defining moment of your career to date?
Personally, the biggest challenge has been not to do too many things and ensure we get the right people into the business at the right time. How does your actuarial training and background assist in your day-to-day role now? The attention to detail and questioning whether there is another, or better, way to do something. These ensure that we are making more informed (and hopefully better), decisions for the business. I also think subconsciously I use the actuarial control cycle more than I realise – given the responsibility for performance it’s crucial all useful and relevant information is fed back to our underwriting teams and into our pricing algorithms. 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? Long enough ago for me to have lost count of the number of exam syllabus changes since I joined!!
When I took the role of Syndicate Actuary at Syndicate 386 a number of years ago – this was the real start of my exposure to the London Market. This must have been another timely and fortuitous move as I stayed there for over 13 years! In your opinion, what prepared you best to take on your current role? I’ve always liked to understand how and why things work and wherever possible do them better. As a start-up there have been a lot of things to do at Volante that aren’t the typical actuarial pieces – an inquisitive and analytical nature along with understanding the impacts further down operational processes have been invaluable on the Volante journey. Oh, and being quite happy to muck in with anything that needed doing. What is the biggest challenge you face in your role within this market? We set Volante up with the aim of being the best and most Carrier friendly MGA in the London Market. There has been a lot of negative publicity around the MGA business model over the last few years so our biggest challenge has been to overcome those perceptions. With our business model, once we have a Carrier’s interest, it has actually been relatively easy to demonstrate 100% alignment to our Carrier fortunes which has in the main removed that hurdle.
It’s always interesting to hear other people’s experiences, as everyone’s career path is unique to them. There is nothing like experience to find out what you’re good at and what you enjoy. The world is an ever-changing place, and potential career paths open and close all the time. My advice to anyone would be to gain a broad experience early on and make sure your horizon and network are wide – those will ensure your eyes are open to many of the potential career paths open to you. If you had your time again, what would you do, career-wise? I’m pretty content with where I am and how I arrived here, so I wouldn’t necessarily change anything. I was interviewed on our local radio station as a teenager and one of the questions was career aspirations – pilot or brain surgeon were all I could come up with at the time! I can’t see me as either of them now, but I am a practical person so could easily see myself doing something in engineering or even on the operations side. Please share your favourite piece of trivia with our readers! I still find it amazing that a current iPhone has many thousands of times the processing power than the computer that landed the Apollo modules on the moon. And with all the increases in processing power, there have been no manned landings in almost 50 years.
search & selection Reserving Analyst
Pricing Actuarial Analyst
General Insurance £70,000 Per Annum London
General Insurance £60,000 Per Annum London
A leading specialty insurance company within the Lloyd’s market have a vacancy within their reserving team. This role will provide reserving and reporting support across a range of classes including aviation, marine, casualty, property and treaty. This is a fantastic opportunity for someone from a reserving/consultancy background with 2-4 years’ experience. .
Part Qualified GI Actuary required to join a dynamic team in a well-known Lloyd’s syndicate due to organic growth. Ideally, you will have 2-3 years of London Market/Lloyds pricing experience. To be considered you must have strong communication skills, have excellent Excel skills and experience using VBA, R, SQL or SAS is advantageous. Full study support provided.
REF: ZB 001418 HT
REF: ZB 001422 HT
Head of Pricing
General Insurance £125K + Benefits + Bonus London
General Insurance £100,000 Per Annum City of London
Lloyd’s syndicate has an opening for a new head of pricing. The role will suit an experienced London market / Lloyd’s pricing actuary looking to take the next step in their career. You will manage a small team covering multi lines. Given the size of the organisation you will gain direct exposure to C-suite level with a real opportunity to add value to the business. .
Global Specialty Insurer has openings for experienced London Market Pricing Actuaries from the Nearly Qualified level upwards. Partnering closely with (senior) underwriters, you will be pivotal in providing new insights in the performance of portfolios and pricing analyses and therefore help to inform pricing strategies. Good working knowledge of SQL, SAS, VBA or similar is a pre-req.
REF: ZB 001419 CC
REF: ZB 001414 ZB
Pricing Contractors – All Levels
Pricing & Reserving Manager
General Insurance Outside IR35 Daily Rate City of London
General Insurance £Market Rates London
Specialty London Market Insurer with Global reach requires experienced London Market pricing contractors, of varying levels, until the end of 2020. Of particular interest would be Marine and Liability experience along with a solid working knowledge of SQL, SAS, Excel.
Leading Managing Agent, seeks a high calibre qualified actuary for a Pricing & Reserving Manager position. Pricing/reserving experience preferably in London / Lloyd’s Market or consulting required. Seeking a team player with strong communication, planning and presentation skills who has the ability to work across multi- disciplinary teams. Strong IT skills eg Excel/VBA.
REF: ZB 001423 ZB
REF: ZB 001429 SC
www.bolton-associates.co.uk page 24 +44 (0)207 250 4718 Bolton Associates, 5 St. John’s Lane, London, EC1M 4BH
With lockdown measures easing and with some schools and year group returning to school we can see how the virus will change our way of lives...
Published on Jun 12, 2020
With lockdown measures easing and with some schools and year group returning to school we can see how the virus will change our way of lives...