Actuarial Post | May 2021

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Leading Consultancy







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Unique opportunity for a high-calibre actuary with strong technical and consulting skills to build a new non-life practice for a leader in the life market.

Major global consultancy has a fantastic leadership role for a qualified, market-focused non-life actuary to join its team as Director with a capital focus.

Provide reserving, capital, pricing and structuring support for new acquisitions across North America and Bermuda, using your strong stakeholder and project management skills.






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In this highly responsible and visible role, you will use your entrepreneurial spirit to establish and develop a new team of consulting professionals providing actuarial delivery support to clients in the retail GI market.

Leading insurer seeks delivery-focused Head of Technical Pricing where you will be responsible for developing robust technical models and implementing a framework of capability and tools that drives efficiency.

A diverse career development role, performing quarterly reserving and financial reporting and assisting with the internal model assumptions, taking account of the impact of catastrophe modelling and reinsurance on reserving.






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Leading Reinsurer



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.

Our client, a leading global firm, has an exciting opportunity for a qualified actuary with experience in pricing, reporting or capital modelling to take responsibility for reinsurance pricing and analytics.

Seeking a qualified or part-qualified actuary to provide the link between in-force management and reporting on the financial aspects of our client’s portfolio.





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Leading independent consultancy has an exciting vacancy for a Scheme Actuary with a proactive and commercial approach to lead client relationships and advise Trustee Boards.

An exciting opportunity for a Scheme Actuary, with client-facing experience, to be responsible for a portfolio of schemes, preparing and presenting advice to clients, and supporting new business opportunities.

Seeking an investment actuary with defined benefit knowledge, and excellent communication and interpersonal skills, to be responsible for leading technical investment analysis and asset transitions.




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Use your excellent modelling skills to provide cutting-edge investment solutions across life and non-life insurance clients, developing propositions and ensuring effective delivery, within a market-leading team.

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Take this opportunity for a qualified actuary with ALM experience to manage and lead a team in the establishment and delivery of our client’s investment strategy.

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Award-Winning Consultancy



In this key role with an award-winning consultancy, you will design and implement capital market and LDI solutions for pension funds to reduce risk or increase expected return.

Antony Buxton FIA

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Jan Sparks FIA






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ACTUARIAL POST RECRUITER OF THE YEAR 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018

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Actuarial Post Team EDITOR Jennifer Redwood SUB EDITOR Jennifer Stone ADVERTISING MANAGER Alan Burns @actuarialpost @APjobs Head Office 13 Vale Rise Tonbridge Kent, TN9 1TB 01732 359488

EDITOR’S NOTE With certain restrictions being relaxed, after the 3rd UK lockdown, and with more and more people being vaccinated we can start to look towards the future with a little more optimism. However, with what is happening in India currently we have no room for complacency with this dreadful disease. In this month’s magazine our cover story is from Simon Young from Willis Towers Watson looking at designing better risk models for infectious diseases. Kate Payne and Max Ballard from ARC Pensions Law provide us with a view of the Winners and Losers from GMP Indexation Dale Critchley from Aviva looks at The Pensions Regulator’s new code of practice for Trustees, whilst James Burton from LexisNexis says insurers need to be making the right call for customers. We trust that the enjoy this month’s magazine and we look forward to welcoming you back again next month.

Jennifer Redwood

Legal Notice All rights reserved. No part of this publication may be reproduced or transmitted without the prior permission of the publisher in writing. Whilst every care has been taken to ensure the accuracy, Actuarial Post cannot accept responsibility for loss of business to those referred to in this magazine as a result of errors.

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Movers & Shakers


City Dealings


Risk Models


Inner Workings


Tait’s Modern Pension


GMP Indexation


Solvency II


Pension Pillar


Retirement Puzzle


Lights, Camera, Actuary


Information Exchange





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NEWS MAY Is The Ski Slope of Doom the most worrying chart in pensions Prevailing industry wisdom has been that while DB pensions are dying, autoenrolment and the new flat-rate state pension will soon be able to pick up the baton. While it is possible to tell a relatively optimistic story about pensions in the UK, this masks the fact that the ‘DC cavalry’

will take a long time to arrive. This paper delves into the data to analyse under-saving for retirement in modern times. With barely one quarter of employees, overwhelmingly those in the public sector, now building up DB pension rights urgent action is needed to speed up the accumulation of

Global M and A performance set for record breaking year Global mergers and acquisitions (M&A) performance surged in the first quarter of this year, continuing the momentum gained in the final months of 2020 and fuelled by a flurry of completed deals. From standstill to recovery, this represents an extraordinary rebound of deal activity and performance, even as ongoing waves of COVID- 19 continue to trigger lockdowns and impact the world economy. Based on share price performance, buyers outperformed the market1 by READ MORE

DC pension pots. If not, millions of private sector workers could reach traditional retirement ages simply unable to afford to stop work or forced to retire in relative poverty or rely on non-pension savings. Key discussion points READ MORE

Continuing COVID hangover would see pension liabilities drop Only in the event of a tragic Covid-19 scenario, seeing continued substantial additional deaths for many years would there be a significant reduction in UK DB scheme liabilities, according to a new report from LCP. While LCP believes that the financial impact on DB schemes of direct deaths from the first two Covid-19 waves is likely to be marginal, it outlines several other scenarios around the pandemic’s longer-term impact on mortality rates and scheme labilities. The range of outcomes illustrates the challenges of choosing an appropriate mortality assumption at the current time, with much

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uncertainty over how Covid-19 will play out. • The scenario that would have the mildest impact on schemes is one which sees Covid-19 as being READ MORE

NEWS PPF publish responses to actuarial assumptions consultation PPF publishes response to section 143 and section 179 actuarial assumptions consultation The Pension Protection Fund has today confirmed changes to the actuarial assumptions used in section 143 and section 179 valuations. The majority of the changes will be in line with the proposals set out in the PPF’s consultation, which ran from 4 February to 18 March, with a slight amendment to the mortality assumptions for s143 valuations. The changes will bring the assumptions in line with pricing in the bulk annuity market, and will come into effect from 1 May 2021. The response to the 2021 consultation on assumptions to be used READ MORE

Mental health benefits will become valuable to insurers The COVID-19 pandemic has opened up a wealth of opportunities for insurers and employee benefit providers to deliver mental health packages as prolonged lockdowns and periods of mental strain and stress, as well as financial concerns for some, have further raised the significance of mental health in the workplace, says GlobalData, a leading data and analytics company. Research by GlobalData highlights that both employees and employers understand the importance of people’s mental health in the workplace. In addition, the Association of British Insurers launched a bespoke mental health training

program in April 2021. GlobalData’s 2020 UK SME Insurance Survey asked respondents to rank possible benefits by importance and found that 21.8% of SMEs consider providing mental health and wellbeing benefits to be their number one priority, second only to financial security. A further 24.7% ranked it as the second most important benefit. Ben Carey-Evans, Insurance Analyst at GlobalData, comments: “Mental health in the workplace is a highly valued aspect of employee benefits by both the employer and employee. The COVID-19 pandemic has undoubtedly made employers and company READ MORE

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Scammers turn to social media to target younger generation Scammers are increasingly targeting younger victims through online and social media adverts, according to new insight1 from Phoenix Group, the UK’s largest long-term savings and retirement business. In the past year alone, almost three in ten (29%) 18-34 year olds have fallen victim to a scam or fraudulent activity causing them to lose money or have had their personal details compromised. • One in ten (11%) fell victim to fake online financial promotions • 10% were targeted by computer or app hacking • 7% bought a product online that did not exist in real life. The research revealed that a much higher percentage of younger people have been caught .READ MORE

MOVERS & SHAKERS The latest moves and appointments from the actuarial marketplace Sedgwick appoints Aviva appoints AEGIS London Emma Douglas appoint Head Ruth Leggett as as MD Workplace Speciality CEO in Ireland Savings Sedgwick, a leading global provider of Delegated technology-enabled risk, benefits and Facilities integrated business solutions, today announced the appointment of Ruth Leggett as CEO of its operations in Ireland. Leggett steps into the role held for 24 years by industry veteran Malcolm Hughes, who will remain with the company as executive chairman for Ireland and international executive director. As CEO, Leggett will work to further grow Sedgwick’s business and resources in Ireland — a key geography in Sedgwick’s global network. Her deep involvement in the company’s day-to-day operations as chief of staff and deputy CEO for Ireland and years of experience integrating teams, empowering colleagues, and advancing organizational development position her well for success in her new role. “Ruth has spent her entire career supporting and empowering Sedgwick colleagues, and she’s made an especially powerful mark in spearheading female leadership READ MORE

Hymans Robertson promotes Philip Pearson

Lloyd’s managing agency AEGIS London has appointed leading underwriter Lizzie Powell to the newly created role of Head of Specialty Delegated Facilities.

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

Joining from Canopius Group, where she was Head of Canopius Special Risk, Lizzie will build out the diversified follow portfolio that complements AEGIS London’s strong performing core account whilst adding new and accretive opportunity for profit. Lizzie takes up her new role with immediate effect reporting to AEGIS London’s Head of Specialty, Ben READ MORE


Hymans Robertson, the leading pensions and financial services consultancy, has appointed Philip Pearson as Head of LGPS Investment. Philip is a senior investment consultant who has helped to develop client consulting and strategic focus on the LGPS since joining the firm and brings

over 20 years of investment experience to the role. With almost 25 years’ experience in the financial services industry, Philip joined Hymans Robertson in 2020. Prior to this Philip was Head of Asset Management at AgFe, an asset management/advisory

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firm specialising in real asset financing. He was also previously Head of Alternative Investments at Aviva Investors. In these roles, he advised and supported institutional investors in allocating capital to a variety of private markets including private equity/debt, real estate and READ MORE

CITY DEALINGS Keeping up to date on acquisitions, mergers and the dealings of companies in the city

Chubb engages Willis Towers Watson for pricing software Willis Towers Watson’s Insurance Consulting and Technology business today announced that Chubb, the world’s largest publicly traded P&C insurer, has licensed Radar Live, Willis Towers Watson’s advanced pricing delivery software. Radar Live’s pricing technology and capability to seamlessly integrate across multiple channels gives commercial insurers increased pace and agility to generate and benefit from ever more sophisticated insights. Clients like Chubb also benefit from advanced analytics and machine learning models, in real time and from a single platform.

Dave Ovenden, Global Pricing and Underwriting Leader, Willis Towers Watson, said:

“We are delighted that Chubb has chosen to work with us and implement Radar Live. Chubb is recognised for its underwriting excellence and our advanced pricing delivery software will support their focus on responding even more quickly to changing market conditions in an efficient way that delivers an exceptional customer experience.”


Willis Towers Watson and CMS advise on 6bn longevity swap


Willis Towers Watson and CMS have acted for the trustees and as lead advisers to the Joint Working Group of a large UK pension scheme on a £6 billion longevity swap. The longevity swap protects the Scheme against the risk of its pensioner and dependant members living longer than expected. The longevity risk was reinsured to the International Reinsurance business of The Prudential Insurance Company of America (PICA), a wholly owned subsidiary of Prudential Financial, Inc. (PFI) (NYSE: PRU), with Zurich acting as intermediary on a “pass-through” READ MORE

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AXA Partners in new deal with A1 Comms and Citymain AXA Partners UK & Ireland is extending its presence in the consumer electronics space, via a new deal with business communications and consumer mobile phone contract specialist, A1 Comms, in partnership with SPBowned Citymain. AXA Partners has been appointed to underwrite A1 Comms’ insurance policies for several brands within the company’s portfolio, including its two flagship brands Affordable Mobiles and Buymobiles. Over the course of the long-term partnership, AXA Partners and Citymain will provide flexible and affordable Mobile & Gadget Cover to READ MORE


by Simon Young, Snr Director, Climate and Reslience Hub, Willis Towers Watson It will take time and resources to build an infectious disease risk model – re/insurers will have to be more innovative in their pandemic coverage and exposure management. Natural catastrophe risk models have revolutionised the property/casualty re/insurance business over the past 30 years. They have allowed more efficient deployment of capital by providing a rigorous way of estimating potential losses, better quantifying the tail and increasing trust in the probabilities assigned to natural disaster events and the damage and losses they produce. All of these models have been developed from common foundational assumptions: an event happens and produces impacts on a known (although somewhat uncertain) exposure (property or other fixed asset), which has a known (although, again, somewhat uncertain) vulnerability to the consequences (hazard) of the originating event. Using an intricate mix of physics (through natural science and engineering lenses) and statistics, such models produce insurance loss estimates that are, generally, robust and defensible. As new systemic and non-natural risks have emerged, establishing the potential future loss range of perils, such as terrorism and cyber, has required the introduction of social science disciplines (and greater levels of uncertainty), but did not greatly disrupt the established logic of the cat model; the components and controls remained familiar. Not so infectious disease models. First introduced to the insurance sector to capture excess mortality

from global pandemics in the life insurance business, they began as a combination of stochastic elements of natural catastrophe models with a well-established form of epidemiological model, the Susceptible – Infectious – Recovered compartmental model (and its many and varied siblings). Unknowns From a traditional cat modelling perspective, there remained a lot of unknowns. For example, the two components of “hazard” – location and intensity – were both poorly understood, thanks to a very sparse and poorly documented experiential history, and only a rudimentary understanding of the zoonotic viruses that are the dominant cause of epidemics and pandemics. And the model architecture required was more Gaudí than Brutalism. There is no fixed exposure or vulnerability; both are dynamic and feed directly back into the model in its next time step. And exposure and vulnerability are not controlled by engineering equations, they are assumed impacts of political decisions and human behaviour, of travel webs and social networks. The Sars-CoV-2 virus has brought epidemiological modelling to our living rooms (many doubling as home offices). Previously obscure epidemiological modellers have become household names and the concepts of reproduction numbers, nonpharmaceutical control measures and even herd immunity have become all too familiar. Covid-19 is by far the best-documented pandemic ever, but even after many months of live information being available

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(although to widely varying degrees and with a broad quality range) to calibrate forward-looking models of case-counts and mortality, inconsistencies and uncertainties abound. Epidemic forecasting, by nature, is a tall order. In some cases, these model inconsistencies are due to different assumptions that necessarily change as new information becomes available. Another reason model outputs may not reflect future outcomes is because there is a feedback loop dynamic – models affect reality. If a model predicts a dire outcome, it may in fact prompt decision makers and even the general public to change their behaviours, thereby changing the final outcome. Further challenges are found in the conversion of pandemic model outputs to the shortterm economic impacts of interest to P&C re/ insurers. The literature on the economic impacts of pandemics is extremely sparse (although this will change) and dominated by economic simulations that sit on top of epidemic simulations, rather than empirical data. The consequences of government policy responses (like lockdown) and sociological dynamics (fear, social distancing) are generally not economic outputs from models but input assumptions driving the direction of the reproduction number and, ultimately, the outcome of the epidemiological event. As one moves from modelling a single event to the full probabilistic modelling familiar to the re / insurance industry, additional challenges must be addressed. We think near misses are frequent in real life and must be captured via counterfactuals in the modelling domain; two coronaviruses with very similar characteristics emerging in very similar locations can lead to very different global outcomes, at the whim of individual actions – by patient zero, a head of state or many people in between – impossible to fully capture stochastically. Big challenges remain in quantifying public policy and behavioural elements that shape the nature of risk; these too need to be mapped out as they evolve over time and then linked to biological and epidemiological modelling frameworks. Lessons to learn Progress is being made, however, and Covid-19 learnings will help, although the temptation to model

to the last big event has to be closely managed. The next pandemic will most certainly be different in character as compared to the present event. There have been significant advances in our understanding of the nature and spatial distribution of zoonotic viruses that pose the greatest risk of spilling into human populations and igniting pandemics. Improvements in biosurveillance have also shed new light on the rate of spillover, which is critical to characterising high-frequency events, as well as the tail. There are also continuing advances in modelling methodology, ranging from the incorporation of socio-political factors to capturing population movements. And there is still work to be done. The assumptions required to construct a probabilistic pandemic model are hugely influential on outcomes but are now based on expert judgments that are art as much as science and vary (often in ways that are not readily quantifiable) from modeller to modeller. The use of structured expert judgment to quantify and constrain uncertainties in such assumptions – and thus in model outcomes – is an area of development that carries promise from successful deployment in other contexts and, alongside other innovations, will help to build a level of trust in pandemic models that approaches that found in nat cat models. Despite present and future scientific and modelling advances, the full benefits will not be realised if there is a failure among decision makers to effectively use data and analytical tools as part of their decision-making process, whether it be to inform preparedness or guide response activities. In the context of the global re/insurance market, it must be recognised that while modelling infectious disease risk is challenging and will take time and resources to build the level of trust found in nat cat models, there are already pathways to gain an understanding of the risk. This present understanding is sufficient to support tangible innovation – policy experiments, insurance structures, refinements to preparedness and mitigation strategies – within both public and private sectors. Ultimately, further innovation will be necessary (and is entirely within our grasp) if we hope to better manage the financial and social consequences of future epidemics and pandemics.

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INNER WORKINGS MIND THE GAP IN WOMEN’S PENSIONS by Tom Murray Head of Product Strategy LifePlus Solutions, Majesco The perennial issue of the gender pay gap gets a lot of publicity but the same level of publicity is not given to an issue that is, at least in part, derived from it. A recent report by Profile Pensions showed that there was an even wider gender gap when it comes to UK pensions. Men’s pension pots are significantly higher than women’s – almost 50% bigger in some parts of the UK and averaging 40% across the country. Given women’s greater longevity, this is surely storing up big problems for the future. The gender pay gap itself is one of the creators of this problem. As men earn more than women, they can save more. This also means that matching funds from employers are higher, as are the governments contributions. Over time, these contributions compound to make men’s pension pots significantly bigger than women’s. While this problem that would dissipate as the pay gap narrows, it doesn’t solve the whole issue. The pension gap situation is much worse as it is almost double the actual pay gap. There are other reasons for this disparity in pension saving that need to be addressed. One of the most significant is that women are far more likely to have to reduce their working hours or cease working temporarily in order to provide both child-care and

elder-care during their working life. The resulting effect on their pay is also reflected in the effect on their pension savings. And for those who move to part-time work due to caring obligations, many fall under the £10,000 threshold for auto enrolment and therefore are no longer in any scheme. This means that they also forgo the matching employer and government contributions. When they resume, there is also a likelihood that, having been put out of the scheme for a while, they will have lost the long-term savings habit and will opt-out of being re-entered into the scheme. When auto enrolment was originally introduced, this threshold was put in place as it was felt that the contribution would lead to too big a reduction for those on lower wages and that the cost of administration would be too great for the amount saved. It was pointed out to the government that there were a significant number of people in the UK with multiple jobs and that they might not qualify for auto enrolment under any for them even though their cumulative earnings would comfortably exceed the threshold. The truth was acknowledged by government but it was felt to be too difficult an issue to tackle at the time.

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As the UK’s population ages, the issue of caring for the elderly is on the increase and will disproportionately effect women. In line with this, the rise of the gig economy will see more parttime workers or workers with multiple small jobs. Current trends indicate that more women will take this route to find employment that fits in with their other obligations. There is an urgent need to address this gender gap in pensions. If women could sustain the long-term savings habit that auto enrolment has inculcated, over time the gap could be narrowed. Combined with work on equalising pay, this could go a long way to ensuring a better retirement for many women. One of the easiest first steps would be to remove the £10,000 earnings threshold for auto enrolment. This would enable those who have had to reduce their working time and income to keep contributing to pension schemes. It would also ensure that they would not miss out on the matching employer and government contributions. The increasing digitisations of the pension’s industry will make this easier to achieve and will help women

maintain their pension plan as their ability to work and earn fluctuates throughout their working life. Not only does the digitisation of the pensions industry make it easier to maintain their savings, but by reducing costs it also allows the pension companies to facilitate larger amounts of smaller contributions and regular changes of employer without the massive overhead that occurs with more traditional administration. Cloud-based digital processing of pensions also facilitates the provision of portals that enable customer dashboards to show people how their savings are growing. By allowing the individual to check their details they can keep track of the payments and remain engaged with their pensions, a vital step towards keeping their savings growing. There are other areas that need to be looked at if we are to achieve equality in pensions, including what to do about those who interrupt their career completely to raise a family, but these are the easy steps that can start the process of narrowing the gap. There is no excuse for us not to start on this path immediately.

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Order of the day It may be an odd thing for a pensions specialist to say, but retirement planning is not all about pensions. It’s not just where people save their money that is important, but rather ensuring that they do commit to saving in the first place. Having a diversified portfolio of investments at retirement can also be a distinct advantage for those who can afford it. Pensions have three great things going for them as a retirement saving vehicle. The first is that any contributions receive tax relief up front which provides an immediate return on investment. The second, although many people do not appreciate it, is that they cannot be spent too soon, and the third is that there is a tax ‘brake’ on how much is spent when access is permitted. These three things together mean that putting money into a pension and leaving it there is extremely tax-efficient. This is all very good, but it means that although pensions are first and foremost intended to provide income in retirement, they are not always the best vehicle to actually do this. When it comes to withdrawing an income, there is a distinct order of encashment which makes better use of the tax allowances available than just simply taking it from the pension plan. 1. Pensions – PCLS Once an individual reaches age 55 it is possible to withdraw a proportion of their pension completely tax-free - the Pensions Commencement Lump Sum (PCLS). The amount available is usually up to 25% of the fund value in a Defined Contribution (DC) pension however, it is worth checking if any pre-simplification protections apply. Flexible pension arrangements – drawdown – allow this amount to be taken up front and it could then be used to cover income needs in the early years of retirement. Alternatively, the tax-free PCLS could be used to reduce the income tax due in each year, via phased retirement or a series of Uncrystallised Fund Pension Lump Sums (UFPLS). This may be suitable for people who remain in the higher and additional rate tax bracket after retirement, but it would trigger the Money Purchase Annual Allowance (MPAA) which would restrict future saving, and of course 75% of each payment would still be subject to income tax. If, however, the primary concern is to minimise the tax bill, the latter issue could be dealt with by restricting income withdrawals to within the Personal Allowance of £12,570, assuming there is no other income to take into account and meeting any additional needs by cashing in non-pension investments.

who have built up ISA savings over the years could therefore significantly reduce their tax bill by running down their ISA pot before their pension. This is even more efficient as any ISA savings left after the holder’s death would form part of their estate, while pension funds would not. Another tax saving. 3. General Investment Accounts (GIAs), unit trusts and OEICs Currently up to £12,300 may be withdrawn each year from capital investments without attracting a CGT charge, which may be used to provide a tax-free top up to other income sources, and it is also possible to utilise the £2,000 dividend allowance to make taxfree withdrawals from equities held within the fund. Depending on their current tax status, investors may also receive up to £1,000 within their Personal Savings Allowance from interest-based investments. 4. Investment bonds Onshore bonds may be used to provide a tax-deferred income of up to 5% of the value invested over a 20 year period. It is of course important to remember that this income is tax-deferred rather than tax-free, and if any gains have been made, they will be taxed as soon as the 5% cumulation is exceeded. It could however be another useful way of supplementing income in the early years of retirement when individuals are more likely to be paying higher or additional rate tax. 5. Pensions again Once all of these options have been fully utilised it is time to go back to pension savings again. It may seem counter-intuitive to leave them until last but the advantage of this approach is that the funds remain outside the estate as long as possible. Should the investor die before they reach age 75, any remaining funds would be passed on to their beneficiaries without being subject to Inheritance Tax (IHT). The situation should then be reviewed according to the individual’s personal situation, as beneficiaries would have to pay income tax on the death benefits. This may or may not be a higher amount than the IHT that would be due if the money is in the deceased’s estate. So there you have it. It just remains to say that tax is not the only consideration. Some investments, such as property or property-based funds, may be difficult to cash in, and others may carry encashment penalties in the early years. But there really is no need to just stick to pension savings in retirement, unless of course that’s all you’ve got.

2. ISAs Unlike pensions, withdrawals from ISAs are not subject to either income or capital gains tax (CGT). Individuals

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by Fiona Tait Technical Director Intelligent Pensions


by Katie Payne, Partner & Max Ballard, Legal Director, Arc Pensions Law LLP The UK Government has decided to make public service pension schemes fully responsible for annually increasing public sector pensions in line with inflation. After five years of uncertainty, in March 2021 the government confirmed its chosen method for ensuring that guaranteed minimum pensions (GMPs) continue to increase annually in line with price inflation. This decision applies to all public service pensioners with a GMP who reach state pension age after 5 April 2021. While the decision primarily affects public service pension schemes, it also impacts a small number

of private sector and other schemes. The affected schemes include those whose rules mirror the public sector provisions because they were originally sponsored by a nationalised industry such as Royal Mail or BT. Past governments gave unequivocal commitments to public servants that their guaranteed minimum pensions would continue to increase in line with price inflation each year. These increases were met through combining increases in the state pension with additional increases made through the public service scheme. However, the 2016 introduction of

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the new state pension simplified the state pension system, but impacted the mechanism through which the public service schemes were index linked. Up until 5 April 2016, a useful arrangement which existed to meet the government’s GMP commitments to members whose pensions were contracted-out through their membership of schemes in the private sector. Essentially, this arrangement saw the additional earnings-related part of the state pension increased in line with inflation, before the contracting-out deduction was made. The deduction was equivalent to the member’s GMP. The contracted-out scheme was only required to increase the post-1988 GMP in line with prices up to a maximum of 3 per cent annually. The rest of the inflationary increase was effectively provided by the state - provided the GMP was less than the additional state pension and the individual was entitled to state pension increases. This arrangement shared the burden of the annual inflationary increase between the state and the public pension schemes.

conversion, with GMPs converted into a regular scheme pension, which would be fully indexed. However, the government ruled out conversion as a permanent solution in its March 2021 response, saying that, “before conversion could be undertaken, schemes would need to ensure that they have accurate reconciled data, along with a finalised methodology to convert those GMP benefits where conversion on a £1:£1 basis would not result in equalisation. This is likely to be resource intensive at a time when public service pension schemes do not have the capacity to undertake conversion until at least 2024.” By contrast, full indexation could of course be implemented by April 2021 since it was already in force on an interim basis. In its March 2021 response, the government summarised the rationale for its decision that full GMP indexation was the preferable option. It said that the decision was reached in light of “capacity constraints” and “outstanding technical issues relating to conversion” as well as with regard to “legislative requirements; the diminishing numbers of members below SPa with a GMP” and the fact that “the majority of consultation respondents expressed a preference for the permanent extension of full indexation”.

This arrangement came to an end with the introduction of the single state pension. People reaching state pension age after 5 April 2016 no longer had have an additional state pension. This would have meant that such people could have lost full inflation protection of their GMPs, which would amount to a breach of the government’s commitments. To meet its commitment to fully uprated GMPs in line with price inflation, the government had to find a solution. Its interim solution involved issuing orders which made the schemes responsible for full price indexation on the whole of the member’s pension, including the GMP. This temporary solution initially applied to those reaching state pension age before 6 April 2018, before it was extended to 5 April 2021, while the government sought to alight upon a permanent solution to the issue. In the government’s March 2021 response to its 2020 consultation, “GMP indexation consultation: Proposal to extend full indexation”, the government called GMP indexation the “most practical solution” to the issue. The government had previously raised conversion as an option, and had tasked the Government Actuary’s Department to establish a possible methodology for GMP conversion. The conversion method mooted was based on a £1:£1

The recent decision to make public service pension schemes permanently responsible for indexing GMPs provides clarity for pension schemes going forward, while also providing certainty to their members. While the changes primarily affect public sector pensions and the schemes of former state bodies, other schemes impacted include those which provide comparable schemes to comply with Fair Deal, where a public service was outsourced. Some members of such schemes will also benefit from the decision to protect the increases on GMPs, although the employer will have to bear any additional costs. Some members with GMPs may be worse off in terms of their pension increases. However, the 2016 state pension reforms were complex and such losses could well be offset in other ways. For example, it may be possible for them to earn additional state pensions to replace the deduction they had from having had their pension contracted-out. After five years of rolling uncertainty, during which time interim solutions applied, at least the industry now has clarity as to the long term position. Such welcome certainty will enable the industry to plan for the future.

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BRINGING IT FORWARDS TRANSFORMING PRICING TO A STRATEGIC PRIORITY Optimising the pricing process enables insurers to be more competitive - and this won’t change

A survey of UK life insurance pricing teams conducted by PwC UK and Montoux reveals the degree to which life insurer pricing functions have evolved and grown over the past several years. The survey highlights where certain insurers have made strong commitments to improving the pricing process, strengthening digital capabilities and integrating market data which has transformed pricing from a back-office function to a key growth lever.

With all the survey respondents confirming that they use competitor analysis as a key input in the pricing process, market insight is clearly a major influencer of pricing. But there’s more to pricing insurance products than merely being more competitive. Pricing with robust processes that are efficient and repeatable is also important, with faster repricing pointing towards a greater investment in tooling, processes and rate deployment capability.

Making the pricing process work for customers and insurers Over 80 percent of survey participants indicated they have a clear pricing strategy which is aligned to the objectives of business and have regular monitoring in place. While individual firms may be looking to differentiate themselves in areas such as product design, or customer service, the strong majority indicates UK life insurers understand the importance of pricing as a strategic lever for growth. With the focus on pricing as a strategic lever, it is unsurprising to see the high level sophistication of the pricing process within UK life insurers. Nearly half of all survey participants are repricing on an impressive 1-4 week cycle, making price agility a significant contributor to competitiveness and market performance. It also means those life insurers that are operating on longer timelines, months rather than weeks may well find themselves outmaneuvered on price by their competitors.

There is a significant spectrum in the number of pricing scenarios considered as part of a pricing exercise- half consider fewer than five scenarios but some considering more than 50. This reflects the variations in pricing strategy, the ease with which scenarios can be produced and analysed and the methodologies underlying them. More than three quarters of respondents use price optimisation in some form, but fewer than 20 percent feel their optimisation capability was mature and embedded in the process. Increasing pricing intelligence can be a lever to unlocking areas of growth within the portfolio. Room for growth in the pricing function Over 50% of participants identified resources as the biggest barrier preventing more frequent and agile pricing. However, only half of these respondents said

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they were likely to grow the team over the next three years.

training, and tooling to make up the difference. Those pricing teams looking to bolster their repricing frequency should consider specific opportunities to leverage tools and technologies in order to increase their speed from months to weeks. For pricing teams further along this path, this is a good time to consider what the ideal ‘end state’ of the pricing function will look like in the years to come. Rounding out the pricing process through an end-to-end integrated system that leverages available data and delivers precise, actionable insights will improve the ability for pricing to influence strategic decision making.

Additionally, half of participants feel they’ve identified clear capability gaps within their pricing functions, but only nine percent definitely plan to add resources to their teams. These barriers show that, while pricing is advanced in the UK life insurance market, there is still room for growth and improvement. This is true for all pricing teams, regardless of maturity. The development of new AI technologies and access to increasingly rich data sources means all pricing teams looking for the ‘what’s next’ have plenty of options at their disposal.

Time for change

The survey found 83 percent of respondents believed advanced analytics and data science would play a larger role in pricing over the next three years, and only 20 percent believe they are ‘above average’ in this area. Add in the fact that 94 percent rely on Excel for key steps of the pricing process and most don’t plan to expand pricing teams, it’s clear there’s an opportunity for new technologies,

The insurance market has undergone significant change over the last 12 months, and whilst there is a spectrum of maturity of pricing intelligence, UK insurers face similar challenges of resources, cost management and increasing competition. Creative solutions will be required to make the next step on the journey and to continue grow the UK insurance market as a whole in the future.

by Ewen Tweedie, Peter Heffernan (PwC) and Shelley Cox, Stephen Carlin (Montoux)

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PENSION PILLAR NEW CODE OF PRACTICE by Dale Critchley Policy Manager Aviva The Pensions Regulator’s (TPR) new code of practice was published last month and while many of the 149 pages are a clearer communication of existing expectations, there are some requirements which are new.

requirements are very similar to those that already apply to master trusts, which are required to demonstrate this level of control as part of the authorisation process, and will be a significant undertaking for some trustee boards.

One of the new requirements is that trustees have an effective system of governance (ESOG), and that they carry out an annual own risk assessment (ORA) on how effective that system is. While the emergence of more acronyms into an industry already overflowing with them isn’t something I would usually welcome, I think these new requirements are important in helping to raise the bar on scheme governance.

Schemes with more than 100 members are required to have a risk management function in place. This should be proportionate to the scheme’s size and complexity and its responsibility is to identify and evaluate risks and internal controls.

The requirements apply to all areas of governance required to ensure the smooth operation of the pension scheme, and the safety and security of member assets. TPR expects that trustees will have processes and procedures in place to cover 17 of the 51 modules included within the new single code of practice. Trustees need to have processes in place around governing the scheme, for example - meetings, the decision-making process, trustee remuneration, knowledge and understanding, dispute resolution and continuity planning. The processes which relate to the Chair’s role, conflicts of interest and management of advisers and service providers also need to be covered. Investment governance requires a raft of controls including decision making, monitoring, stewardship, and climate policy. The final area that needs to be covered is around the principles to monitor member communications.

In addition, schemes with over 100 members are required to carry out an annual ORA on their governance processes. It also requires schemes to establish and maintain policies for the review of each element of the ESOG and to review those polices at least every three years to make sure they remain relevant. TPR warn that “the ORA is a substantial process, and the governing body may need to expand its risk assessments to fulfil our expectations”. Those expectations are laidout over three pages within the new code of practice. Once again, master trusts will be largely meeting the ORA requirements, as the ongoing supervision of master trusts already requires an annual audit of the effectiveness of trustee processes. For smaller schemes, it’s clear that the workload of trustees is set to increase. While the code requires the response of trustees to be proportionate to their scheme, the scope of the controls to be put in place, and tested, is very much prescribed.

Many trustee boards will cover these aspects but may not have their policies and processes documented and agreed. Processes may have evolved over time, rather than been specifically designed to deliver the best member outcome in a way that maximises trustee efficiency. The

When tPR looked at options to raise governance standards, it stopped short of requiring professional trustees to be appointed. What the new code requires is greater professionalism from all trustees. Inevitably, this will come at greater cost to employers.

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RETIREMENT PUZZLE I LIKE THE WAY YOU WORK IT, NO DIVIDENDS The last decade or so has thrown down a challenge to a variety of conventional economic theories. One difficulty with economics is that it’s not a model of anything permanent, but ultimately a model of human behaviour. In physics, whether everyone believes something or no-one does has no impact on its truth or falsehood. In economics, if enough- or if the relevant- people believe in a theory and act accordingly, that can make it true. If enough stockholders believe a stock will fall, and either sell it or short it, the price will fall. It may become a good value stock as a result, and reward those who hold it or buy it, but the price will fall. That means economic theories are vulnerable to regime change in a way that gravity isn’t, which makes it harder to test. One theory in vogue now is that stocks have performed well recently and valuations appear high because rates are low. The idea is that future value- ultimately, future dividends -should be discounted less heavily. It’s plausible and coherent- but is it true? We know there should be some one-directional effects because lowering rates has been used as a policy tool after crashes, alongside stimulus packages. That is, equity crashes may now make rates falling more likely. But do lower rates drive higher equity prices? The simplest test is to look at correlations, and it’s not very strong. The correlation since 1994 between US 10y government rates and the S&P 500 has been 14%. High rates might indicate strong growth environments, which would appear to be a stronger factor. Even if we look rolling correlations, the trendline is actually the other way around, albeit with a lot of noise. So are higher rates good for equities?

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Well perhaps- there are, after all, a lot of other factors involved, not least regulation. A better test would be something simultaneous, reflecting the closest analogy to a control group. Can we do this? If the dividend theory is true, we might expect the impact to be lower on high dividend stocks. This is because stocks paying higher dividends today should be expected to pay less in the future. So, in theory, high dividend stocks should be less sensitive to rates than the wider market. Are they? Maybe. The correlation between high dividend equities and rates has been 2%, so smaller, albeit with a fair degree of noise around it. Set against that, high dividend stocks have outperformed even as rates have fallen and broader value factors have struggled.

This doesn’t disprove the theory. It’s also not an entirely rigorous test, and there are plenty of other possible explanations. What it does, however, is suggest that if it is true, it’s only very recently become meaningfully so. Discounting dividends gives a simple, coherent, elegant theory- but it’s not obviously backed up by the data. Maybe it’s time to bag it up.

by Alex White Head of ALM Research Redington page 23

search & selection


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 a leading actuary within one of the market’s actuarial technology providers. As the world, including the Lloyd’s and London Market, look to use AI techniques, and automated modelling in our data-rich world, both self-starters and larger corporations have turned their gaze and interest to using technology and modelling to automate systems, generate prices and break boundaries. These providers to the insurance markets, know what both underwriters and brokers need, and how the actuaries within them can benefit from the tools and software they can provide. 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 Bharat Amin, Head of Insurance R&D at QOMPLX.

What is your current role, and how did you end up in it?

different frameworks has been a real learning curve here. That is where communication skills and relationship building really come into their own.

Director of Insurance R&D What is the defining moment of your career to date?

How does your actuarial training and background assist in your day-to-day role now?

Hard to choose one moment. I had a lot of fun working in previous underwriting teams, but in recent times launching an MGA and rolling out new products on our platform was pretty special.

After studying for some of the exams, I think you have the confidence to take on any new course or form of learning. This really helps in the technology space where things change so rapidly.

In your opinion, what prepared you best to take on your current role?

Those endless hours spent reconciling data and tracking down unusual results in output have also come in handy. Debugging and problem-solving technology with modern levels of complexity is only going to get more fun!

A background of playing around with new technologies and techniques and enjoying doing so! I think you’ve got to enjoy what you do because you spend an awful lot of your life at work. On the management side, working in teams my whole career has helped me pick up things that work and things that don’t. There are even techniques I’ve used from the sports teams I’ve been in. You hear it a lot and I appreciate it more than I did at the beginning of my career, but the human element is so important in how a company develops. What is the biggest challenge you face in your role within this market?

When did you first join the Institute & Faculty of Actuaries, and what advice would you give to those students looking to emulate your career path? I joined in 2004. It’s very difficult to map your career, things will undoubtedly move and change around you, with resignations, mergers, acquisitions, and personal life. But if you align yourself with the business and provide value, you’ll always be in a good position.

Bridging the gap between the tech and the insurance world. Insurance still has a lot of ingrained ideas about how technology should fit together and the movement to new methods needs to be explained and reasoned.

If you had your time again, what would you do, career-wise?

Similarly, developers see things differently and are not aware of solutions that have been tried and tested in the insurance world for years.

Please share your favourite piece of trivia with our readers!

Integrations between external systems that use

I’d pursue my areas of interest sooner, without consideration of reward and recognition. Those will come later, just enjoy the journey.

There are 336 dimples on a regulation golf ball.

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Making the right call for customers starts with the right data at the right time. As the UK emerges out of lockdown, insurance providers will not only need to consider the change in mind-set that the experiences of the past year may have created amongst their personal lines and business customers, they also need to prepare for changes to pricing practices. These factors are heightening the demand for reliable and accurate data at speed, at point of quote, renewal and mid-term adjustment in order to make the most informed pricing decisions. The market is highly conscious of the financial stresses on individuals and businesses created by the pandemic and how this may play out in the way customers shop for insurance. Some may choose to strip back their cover to what they see as the ‘bare essentials’ raising the risk of underinsurance. Others may be tempted to manipulate the data provided in the application to try to secure a cheaper quote. Our own study prior to the pandemic found the manipulation temptation to be true for two out

of three of the home owners and renters we surveyedi. In a similar study conducted amongst motor insurance buyersii, 40% said they thought it was acceptable to use the same no claims discount/ bonus on multiple vehicles. And, 17% thought it was fine to change information regarding their occupation or age on a car insurance application to lower the cost of the premium (35% of 18-34s were most likely to try this tactic). Of course the biggest risk is that the customer comes to the decision that they don’t need or won’t pay for insurance – regardless of whether it’s mandatory or not. Insurance providers cannot risk falling at the first hurdle by delivering a slow, complicated application process with pricing that is out of step with the individual risk profile of the customer today. Instead, the focus must be on delivering a swift service that responds to each individual’s needs and how that might have changed as a direct outcome of the pandemic, while at the same time taking steps to protect themselves from fraud and increased claims losses which can only add to the cost of insurance.

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Making this work takes the right combination of data coming in at the right time in the customer journey. Clearly, the more data-led insights you have, the more accurate the risk assessment and subsequent pricing decision about the risk. However, it is also true to say that the more data you need to call out for and assess, the slower the quote process could become. When you consider how the volume of data has grown and continues to expand, the trick is funnelling this data into the market, so that is can be used in real-time to create a 360 degree view of the customer at speed, at the point of quote. The challenge of pulling together multiple datasets is one residential and commercial property insurance providers face every day. They need a complete view of the property, the neighbourhood in which it sits, the perils such as flood and fire, the people in the property and the history of past claims related to that property. In time, industry wide contributory data for home claims will add to this mix to help enhance that view. In motor, the volume of data available to the market is expanding rapidly to include new insights around motor insurance cancellations and gaps in cover, as a direct consequence of the pandemic, offering valuable context for the actions people have taken during the past year. Asset-based data on the car’s Advanced Driver Assist System (ADAS) features at a VIN level, along with new sources of high quality

data on valuation and MOT history will add to this blend of data in 2021, while industry contributed data on motor claims is also coming down the line. We must also consider the work underway to bring connected car data into the insurance eco-system. This all creates a huge amount of variables to consider at speed in order to deliver the most accurate quote that is truly reflective of the risk represented. The solution is one data platform where insurance providers can get all the data they need from just one place through direct integration or via their preferred software house. This platform approach means that high volume, real-time risk data can be delivered direct into insurance quoting systems to help inform pricing and underwriting decisions. At a base level this includes no claims discount data, perils data, public records data, credit and identity verification information, property characteristics, motor policy history and business data all from one single point of entry. The need for call-outs to multiple providers is eliminated and the potential for delays in quote processing is reduced for the insurance provider and the consumer. But ultimately, with an understanding of a customer’s risk in an instant, built on such a wide array of rating factors, insurance providers can be confident they are offering the right cover for the right risk at the right price – and making the right call for customers at every stage.

i Two in three consumers think it is acceptable to manipulate the information they provide when using price-comparison websites in order to get a lower quote for home insurance. LexisNexis Risk Solutions was not identified as the sponsor of this research, which was based on an online survey of 3,083 residential homeowners and renters (including 1,576 homeowners and 1,507 renters). The research was completed during 2019 ii LexisNexis Risk Solutions commissioned a survey of 1,500 UK consumers with equal or sole responsibility for insuring the vehicle they drive most often. LexisNexis Risk Solutions was not identified as the sponsor of this research, which was completed during January 2018.

by James Burton, Director of Project Management, at LexisNexis Risk Solutions, UK & Ireland page 27





search & selection Reserving Analyst

Digital Manager

General Insurance Up to £60,000 Per Annum London

General Insurance £Competitive Salary London

Leading insurer seeks a dynamic and commercially minded Actuarial analyst to join the reserving team. This hire will play a key role in reserving tasks and work closely with the pricing function and underwriters. Opportunity to travel to work with overseas team.

Digital insurer seeking entrepreneurial actuaries or exposure managers for Product Management and Portfolio Optimisation roles. Opportunities to be involved in designing pricing engines, risk selection decision trees and identifying new products. Will suit those looking to join an innovative environment.

REF: ZB 001683 MM

REF: ZB 001685 JC

Pricing Performance & Analytics

Projects Actuary

General Insurance £Top Quartile package City of London

General Insurance Circa £100,000 Per Annum London

**Exclusive Opportunity** - Our Client seeks a Senior Pricing Actuary who has the capability to build out a pricing performance and analytics platform, across the business units. You will have excellent pricing skills, but more importantly the vision and innovation to harness emerging techniques and platforms, to create a best-inclass approach to pricing and monitoring. Please email for more info.

A global reinsurer is seeking a specialist Projects Actuary to join their strategic advisory team to take leadership of projects on IFRS 17 and Solvency II. You will be very commercially aware, client focused and progressing towards FIA status. Previous exposure to IFRS 17 is essential and candidates from both a life and non-life background will be considered.

REF: ZB 001676 ZB

REF: ZB 001693 HT

Actuary – Broker

Nearly / Newly Actuary

General Insurance Circa £100,000 Per Annum London

General Insurance Up to £80,000 Per Annum London

Due to growth a specialty reinsurance brokers are hiring. In your role you will consult with brokers and implement complex models to assess risk. They will consider London market actuarial candidates from pricing, capital or reserving backgrounds. You must be an ambitious, driven individual who will be able to speak to clients and provide innovative solutions.

Top 5 Lloyd's syndicate is seeking a business facing actuary. Ideally you will have pricing experience or have worked across casualty / financial lines in a reserving capacity. The role will involve working closely with the head of business performance covering case pricing and analytics work, supporting the underwriters and contributing to strategy.

REF: ZB 001630 HT

REF: ZB 001471 CC page 24 30 +44 (0)207 250 4718 Bolton Associates, 5 St. John’s Lane, London, EC1M 4BH