ACTUARIAL POST FOR THE MODERN ACTUARY NOVEMBER 2020
MACHINE LEARNING IS KEY
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CAPITAL OPERATIONS AND STRATEGY Growing International Business
RESERVING AND CAPITAL LEAD Qualified
NON-LIFE LONDON OR EUROPE
Take up a Chief Actuary role with a diverse and challenging portfolio of responsibilities in an international environment where you will work with a wide range of professionals. Please contact us now to discuss this exciting role.
A highly-visible role, using your project management experience to lead strategic capital initiatives including the introduction of novel capital instruments and potential changes to capital structure.
Make your mark in this wide-ranging, consultative role, developing the firm’s reserving and capital capabilities by using your strong technical background together with your knowledge of the UK motor market.
NON-LIFE SOUTH EAST
Part-Qualified / Qualified
Part-Qualified / Qualified
NON-LIFE LONDON / EAST OF ENGLAND
A fantastic opportunity to optimise, design and implement the UK IFRS17 reserving process, developing new IFRS17 calculation and reporting tools, and influencing the wider programme of necessary changes.
Take responsibility for executing a wide range of Solvency II risk and capital reporting efforts, with a specific focus on the overall delivery of the quantitative aspects of Solvency II regulatory capital reporting.
An excellent career development role, reviewing and validating the internal model results, supporting the independent review of the Strategic Plan and providing a second opinion on the proposed reinsurance coverage.
DATA ANALYTICS - BANKING
SOLVENCY MONITORING ACTUARY
Part-Qualified / Qualified
Major Global Consultancy
WIDER FIELDS LONDON
Global Insurance Group
LIFE NORTH / SOUTH WEST / AGILE
Join this evolving international team to use your strong P&C knowledge, and experience in the development and data-driven calibration of pricing tools, within a multi-national data landscape.
We have a number of exciting opportunities for data analytics experts to provide a range of advanced operational and risk analytics, and risk management and quantitative advisory services to top-tier banking clients.
Manage the Solvency Monitoring process, supervising current and future solvency and risk levels against tolerances and risk appetites. You will also manage the production of capital MI, for use by a variety of audiences.
FTC: REPORTING AND ANALYSIS
CAPITAL PROJECTS SENIOR ANALYST
SOLVENCY II ANALYST
LIFE LONDON / SOUTH EAST / AGILE
LIFE NORTH / SOUTH WEST / AGILE
LIFE NORTH / SOUTH WEST / AGILE
Use your leadership and influencing skills to assist with the delivery and analysis of this Group’s actuarial reporting requirements and lead the development and enhancement of the actuarial reporting metrics.
A fantastic career development opportunity, using your ability to interpret data to establish alternatives and solutions to complex problems. You will have strong skills in communication, teamwork and Excel.
Help to produce current and projected solvency positions, and proactively manage the inclusion of emerging solvency impacts (such as COVID-19), whilst analysing current and future solvency and risk levels against tolerances and risk appetites.
CHANGE ACTUARY - RISK ANALYTICS
IN-HOUSE PENSIONS ANALYST
LIFE PENSIONS RISK LONDON
Take up this key role, providing actuarial change within the risk analytics team and subject matter expert knowledge regarding Life, Pensions Liability and Asset modelling and methodology under various reporting and regulatory metrics.
A superb opportunity to deliver an end-to-end process, including robust calculation of the pensions balance sheet and capital risk/ requirements, documentation and communication to senior internal stakeholders.
Part-Qualified / Qualified
Solve investment and risk management challenges with innovative strategies, including growth portfolio design, liability hedging and cashflow matching.
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Lance Randles MBA PARTNER
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EDITOR’S NOTE At the time of writing we have entered a second lockdown in the UK and we are still unsure who the President of the United States is as their election continues to rumble on. Even in these uncertain times let’s hope that this second lockdown will help reverse the upward trend of this pandemic. Our main story comes from Tom Murray at Majesco, looking at machine learning as the key to individualised insurance. Dale Critchley examines the new rules for ‘small’ pension schemes and Fiona Tait asks where does abridged advice fit in the scheme of things. We trust that you enjoy this month’s magazine and you and all your families stay safe and well. We look forward to welcoming you all back next month.
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Movers & Shakers
Taitâ&#x20AC;&#x2122;s Modern Pension
Lights, Camera, Actuary
NEWS NOVEMBER 70 percent of pensions would fail TPRs Fast Track conditions Nearly three quarters of DB schemes (70%) would not meet TPR’s fast track requirements according to analysis undertaken by Hymans Robertson. Using the funding plans of a representative sample of clients, the leading pensions and benefits consultancy found that less than a third of schemes
(30%) would pass all four of the proposed Fast Track tests on the Long Term Objective, technical provisions, recovery plan and investment risk. The firm warns that, in the wake of Covid 19, it is likely that TPR’s parameters for the Code, being consulted on next year, will need to be more flexible
Implementing changes from McCloud case may take over 2 years The Pensions and Lifetime Savings Association (PLSA) has warned that proposed changes from the McCloud Judgement to the Local Government Pension Scheme (LGPS) members in England and Wales could take over two years to implement. The views come as part of the PLSA’s McCloud Judgement consultation paper response which looks at how the judgement will affect LGPS members in England and Wales. READ MORE
to allow Fast Track to remain achievable for most schemes. The analysis of which schemes will meet Fast Track requirements is almost exactly in line with the results on a poll of DB trustees held by Hymans Robertson at a webinar earlier in the year. 35%... READ MORE
COVID will impact employee health benefits for years to come Disruption to the delivery of healthcare and lasting changes to work patterns resulting from the COVID-19 pandemic will have a major impact on both the cost and design of employer-provided health benefits, according to a new report by Mercer Marsh Benefits (MMB). The sixth annual, MMB Health Trends: 2020 Insurer Survey (formerly known as Medical Health Trends Around the World survey), reveals that 68% of insurers expect increased medical claims driven by COVID-19 diagnostics, care and treatment. Insurers also said they expect increases in medical costs to
continue to vastly outstrip inflation in 2021. In 2019, insurers reported cost increases of 9.7%, which was just under 3 times the rate of inflation. In 2020, they expect a rise in medical costs of.. READ MORE
NEWS Survey shows half of savers unsure over financial future The latest BlackRock DC Pulse Survey has revealed that over half of UK savers (51%) do not believe they are on track to live the kind of lifestyle they want in retirement, with 100% of those over the age of 65 feeling they’re falling behind their retirement savings. The survey shows that contributions remain short of the levels required to meet what retirement savers want, with 49% of participants saying they are not contributing enough. Worryingly, the ‘magic number’ of 15% of salary contributions seems an impossible target for many. Only 35% of respondents believe their contributions (including employer and tax contributions) need to equal or exceed 15% to meet their retirement READ MORE
How Covid is changing claims trends and risk exposures
Women pensioners set for 100m plus refund from DWP The Department for Work and Pensions (DWP) is likely to face a bill in excess of £100 million for underpaid state pensions, based on new evidence given to MPs by the DWP’s top civil servant, according to LCP Partner Steve Webb. Earlier this month, Peter Schofield, Permanent Secretary at the DWP was quizzed by the Work and Pensions Select Committee on research by LCP about underpaid state pensions and a transcript has now been posted on the Select Committee’s website. The issue relates to the ‘old’ (pre April 2016) state pension system where women could claim a state pension based on the National Insurance
record of a husband, ex husband or deceased husband. Although in most cases the system has worked correctly, a worrying number of cases have come to light where women were not benefiting correctly from these rules.
Ministers have so far said publicly: - Anyone who thinks they have been underpaid should contact the Department; - DWP is checking its own records to identify those who may have been underpaid; According to the Permanent Secretary’s new evidence, around 11,000 people have so far been in touch and READ MORE
The Covid-19 pandemic is one of the largest economic loss events in history for companies and insurers alike. However, it’s not only the magnitude of the impact which is unprecedented. Claims trends and risk exposures are likely to evolve in both the mid- and long-term as a result of the pandemic. With the reduction in economic activity during lockdown phases, traditional property and liability claims have been subdued, most notably in the aviation and cargo sector, but also in many other industries with fewer accidents at work, on the roads and in public spaces, according to a new report Covid-19 – Changing Claims Patterns from Allianz Global Corporate & Specialty (AGCS). “The coronavirus outbreak READ MORE
MOVERS & SHAKERS The latest moves and appointments from the actuarial marketplace PLSA are recruiting for pension experts for Policy Board
Redington appoint actuary Maggie Kearney as new Director
The Pensions and Lifetime Savings Association (PLSA) is calling for experts and thought leaders from the pensions sector to apply to become a member of its Policy Board. Formed in 2018, the PLSA Policy Board guides and decides on the PLSA’s public policy positions, with a remit stretching across all PLSA policy work on pensions and lifetime savings. Its goal is to shape the policy agenda for all aspects of retirement income. It is chaired by Emma Douglas, Head of DC, Legal & General Investment Management, and encompasses around 15 participants from across the PLSA’s membership, in particular Pension Funds from the DB, DC, LGPS, and Master Trust sectors, as well as Business Members such as Employee Benefits Consultants and Law Firms. There are up to seven places available, due mainly to members coming to the end of their two-year READ MORE
Hiscox appoints new Chief Operating Officer for UK
Redington has announced the appointment of Maggie Kearney as a director in its DC and financial wellbeing team. Kearney has been in the industry for almost 30 years and joins from Accenture, where she headed up the firm’s Pension and Benefits team in the UK. Prior to this she held various DC focussed roles at organisations including Aon Hewitt and Hazell Carr (now known as First Actuarial). Kearney is a Fellow of the Institute of Actuaries.
PLSA appoint two new Non Executive Directors The Pensions and Lifetime Savings Association (PLSA) Board has appointed Carol Young and Dave Coplin as Non-Executive Directors (NED). Both will be proposed for appointment for initial three years terms at the PLSA AGM on 3 November 2020. Richard Butcher will also be proposed for reappointment as PLSA Chair, extending his term for a further year until autumn 2021. Both Carol and Dave have been selected based on their skills in developing strategy and commercial experience. Carol joins as a member NED and will bring with her an indepth understanding of the issues facing the UK pensions market while Dave is joining as an independent READ MORE
The news follows Jonathan Parker’s appointment as Head of DC and READ MORE
Specialist global insurer Hiscox announces the appointment of Louise Marling to Chief Operating Officer for Hiscox UK. Louise joined Hiscox UK in December 2019 as Interim Change Director, having previously held the role of
Chief Operating Officer at global health insurance provider, William Russell. Prior to that, Louise worked for Aviva in both the UK and the US in various operational positions. Louise has a Masters in Business Administration from the University of Warwick.
Since joining the business on an interim basis last year, Louise has supported a number of challenging change and IT projects and played an instrumental part in successfully shifting the UK business to remote-working in response to Covid-19. READ MORE
CITY DEALINGS Keeping up to date on acquisitions, mergers and the dealings of companies in the city
Just Group complete buy in deal with Ibstock Pension Scheme Just Group has completed a £340 million Buy-in transaction for over 1,800 pensioners of the Ibstock Pension Scheme, representing just over 50% of the total pension liability in the scheme. The sponsor, Ibstock PLC, is one of the UK’s leading suppliers of bricks and concrete products. As well as providing further security for all members of the pension scheme, this transaction represents a significant step in the Ibstock Group’s continuing strategy of derisking its pensions exposure. The trustees were advised on the transaction by LCP, Buck (as the Scheme Actuary, investment adviser and administrator to the scheme) and their legal READ MORE
L AND G ANNOUNCE BULK ANNUITY TRANSACTION WITH BHS SCHEME READ MORE
David Richardson, Group Chief Executive Officer at Just Group, said “We are pleased to have supported the trustees and sponsor of the Ibstock Pension Scheme in their de-risking journey to help members. This is a significant milestone for our Defined Benefit Solutions business. It’s our largest single transaction to date and marks our 200th transaction. We have written over £7.5bn of premiums to secure the benefits of over 30,000 members since we entered the defined benefit de-risking market in 2012.”
Aviva announce 400m bulk annuity deal with Marks and Spencer
Call for unregulated financial promotions to be regulated
Aviva have announced it has completed a £400 million bulk purchase annuity buy-in transaction with the Trustee of the Marks and Spencer Pension Scheme.
PIMFA, the trade association for the wealth management and financial advice industry, has today called on the Government to tighten the rules around the promotion of unregulated financial products.
This is the second buy-in transaction between Aviva and the Marks and Spencer Pension Scheme, following a £925 million transaction announced in May 2018*, and it was completed using a pre-agreed ‘umbrella contract’ to support a quick and efficient process. It builds on the important wider existing corporate relationship that Aviva already has with Marks and Spencer, for which it provides health and general insurance. READ MORE
Responding to HM Treasury’s consultation on the approval of financial promotions, PIMFA has called for the approval of unauthorised financial promotions to become a regulated activity, having previously raised concerns about the issue and its impact on the industry and consumers alike. This issue is particularly salient in the READ MORE
INNER WORKINGS MACHINE LEARNING IS KEY TO INDIVIDUALISED INSURANCE
Actuaries have always assessed the past in order to predict the future. However, forecasting the future is very labour intensive; they need to crunch through the numbers and establish the likelihood of death occurring and thereby work out the risk parameters of different products in order to maximise profitability whilst delivering value to the customer. Much of the work involves identifying patterns in the data to explore that can enable them to predict the likelihood of re-occurrence. It was an extremely time-consuming task and much prone to mathematical error, prior to the arrival of computers with their ability to crunch the numbers at speeds way beyond the ability of a human. Computers took a lot of the donkey work away from actuaries leaving them free to examine the data from multiple angles to derive new insights. Machine learning, where the numbers are crunched by intelligent algorithms which can identify new patterns and thus give new information regarding future probabilities, is a huge boon to the actuarial profession. Life and Pension companies have enormous amounts of data that is often dispersed and difficult to draw inferences from. Linking it all together gives a huge data pool from which accurate analysis of the behaviour of people and the performance and suitability of products can be assessed. Trawling through this huge data pool is still major effort, even with computers, and this is where machine-learning algorithms can be of major benefit to actuaries. Machine learning algorithms can detect patterns that were never noticed before and bring them to the attention of actuaries, allowing deeper analysis of the data. In turn this can inform the design of new and more suitable products and can hone the pricing to ensure that the most competitive products can be put on the market. Platforms that incorporate machine-learning algorithms to constantly analyse the data would allow the insurers to provide up to date pricing changes as the underlying information grows, allowing the production of more real-time insurance capability. This would reduce the overhead of underwriting complex and variable risks, allowing companies to scale their underwriting easily and with more confidence. But platforms with machinelearning embedded can do much more. Ongoing
real-time analysis of the interactions of customers and potential customers with the company can identify their behavioural patterns. These could therefore drive efficiencies and improvements in the interactions, ensuring that bottlenecks are identified and eased, encouraging more potential customers to move straight through the process to purchase. The benefits of machine learning that have already been applied to standard consumer retail can also be made to work for the more complex area of financial services sales and servicing. However, platforms for the insurance industry are still at the early stage, due both to the complexity of the need to be satisfied and the volumes of data involved in the whole financial services sector. This has to be the focus of software suppliers going forward, as the volume of data that can be mined gives huge potential. Machine learning algorithms could help actuaries by spotting patterns right across the lifecycle of the product from the recommendations and sales side through to the claims process. The information gathered can then be analysed by the actuaries to help define the life and pension product sets of the future, far more closely honed to the needs of the consumer and allowing real-time risk adjustments that better reflect the changing day to day requirements of the individual consumer. As the world got used to consumer retail on demand and entertainment on demand, the demand for the individualization of other business sectors, including financial services is growing. Already much of the consumer banking market is adopting a far more individualized approach in the services delivered, powered by AI and machine learning. The life and pensions industry needs to follow suit. Platform providers to the L&P industry need to be embedding machine-learning into their services from the design phase, so that the full benefits of these powerful algorithms can help insurers meet the more demanding requirements of the next generation, by providing the capability of more individualised insurance. The future belongs to those companies that can hone their pricing in real-time to reflect individual risk better and thereby provide the most efficient pricing for their customers.
by Tom Murray Head of Product Strategy LifePlus Solution, Majesco page 11
Where does abridged advice fit? There’s a new kid on the advice block – abridged advice for transfers from policies with safeguarded rights. The intention is to allow the ‘screening out’ of obviously unsuitable transfers at an early stage which is highly laudable but does mean that members may now have to go through a 3-stage process before they can transfer their money. So, where does abridged advice fit and is it a welcome protection or an unnecessary hassle? Where it fits Let’s start by stating that abridged advice is advice. It is not guidance and is therefore clearly distinguished from triage, which under the updated regulations has been put firmly back in the guidance box. There are 2 practical consequences: 1. A member seeking to transfer their safeguarded benefits may well have to go through 2 stages before they receive a personal recommendation. 2. Unless they do progress to abridged advice the responsibility for any action taken lies with the member. It is not necessary for advisers to offer a triage service however most agree that it is beneficial. It is a lowcost service and requires very little effort from the adviser to deliver. What it doesn’t do is provide any protection for the member if things go wrong.
be limited to scenarios based on benefits remaining in the scheme. So, in theory at least, abridged advice does around half of the job and full advice completes the process. Will it be a success? It certainly has the potential to be, but as an entirely new service the results will probably only be known once it has been tried out. Key factors include: • Cost – the FCA believe abridged advice should be a low cost or even free service. Certainly, there is less work to be done however a significant proportion of the full advice process is still required, and much will depend on whether advisers can deliver their recommendations without the extensive to-andfroing to obtain scheme information. In theory, without the need to carry out a Transfer Value Comparison all the required information should be available in the member’s statements and scheme information booklets, in practice this is may not always be the case. • Member demand – uncertainties arising as a result of COVID may put members off self-managed solutions; alternatively, loss of earnings and employment could lead more people to consider accessing their pension fund earlier with the option to turn income on and off.
• The quality of the advice – abridged advice may only be delivered by qualified Pension Transfer Specialists The next key point is that abridged advice is abridged. however this has not always provided sufficient It is not full advice. This mean that the client will be member protection in the past. It is essential that afforded the protection of regulated advice however advice firms do not seek to game the system and the advice is not based on the full story. The FCA deliver a fairly priced service. have stipulated what can and cannot be included in • The results – abridged advice will have served its abridged advice and, in simple terms, it covers the purpose if fewer members go on to seek full advice, first 3 stages of the full advice process: however if a significant majority are recommended to 1. Finding out about the member and their individual proceed then it will merely serve as a further delay in an already lengthy process. Equally if a significant priorities (fact-finding) proportion of those who do go on take full advice 2. Finding out about the scheme (information are recommended not to proceed there may well be a member backlash. gathering) I personally believe abridged advice has a useful part to play. There are identifiable factors which make it This tells the adviser why a transfer is being considered, highly unlikely that a transfer will be suitable, but it if the member can achieve their objectives without probably takes a professional adviser to easily spot transferring and if they should even be considering them and this will also ensure consumers have giving up a lifetime income guarantee. It does not, and some protection if the recommendation was clearly must not under the rules, consider how the member’s unsuitable. Success will however depend very much objectives could be achieved under an individual on what advice firms make of it and whether it makes pension arrangement. Therefore, those who do a difference to members’ decision-making. proceed to full advice will receive the obviously additional benefit of an in-depth comparison between their scheme and a suitable replacement, including by Fiona Tait any workplace pension arrangements. Full advice is also likely to include cashflow planning, which is not Technical Director specifically prohibited from abridged advice but must 3. Assessing the member’s attitude to risk
NEW RULES FOR “
by Dale Critchley Policy Manager Aviva Has anyone else found themselves getting annoyed by people who break the rules relating to COVID-19, even if in that given scenario they don’t make any difference? In the early days it might have been someone wandering the wrong way down an empty supermarket aisle. Some days I leave my car in a ‘COVID-secure’ car park, and I find that if even one driver parks their car poorly by using up extra space, it puts everyone’s parking out of kilter. But it doesn’t really matter as other people will just have to find ways to fit into the available space, so why do I notice it? I think after living under 7 months of rules, I’m just conditioned to follow them. To encourage smaller pension schemes to follow the rules around pension scheme governance, the Department of Work and Pensions (DWP) is consulting on “Improving outcomes for members of defined contribution pension schemes”. The consultation closes on 30 October, so I’ll ensure I submit a response by that date. Rules are rules! The DWP is trying to address the issue that trustees of smaller schemes haven’t been very
good at following the rules, as laid out by the Pensions Regulator (TPR) in their Codes of Practice. The latest report from TPR showed that the majority of small schemes failed to meet its key governance requirements. Less than half of schemes with 1000 or more members carried out an effective assessment of value for money. For schemes with fewer than 100 members, the numbers fall to around 10% of trustee boards. It’s a similar story with all four key governance requirements. This has implications for members as poorly governed pension schemes have the potential to deliver poor outcomes in retirement The new rules, which will take effect in October 2022, require trustees of “small” money purchase schemes (less than £100million in money purchase assets) to carry out a prescribed value for money test. This is based on an assessment of: • Costs and charges, compared to at least three large schemes (>£100million in assets).
• Investment returns, net of charges, against at least three large schemes, and; • The trustee board’s governance activity, against a range of criteria included within comprehensive statutory guidance The DWP are providing trustee boards with the tools to assess the scheme and their own performance, and make it clear that there are three possible outcomes from the review. Like the government’s current COVID-19 rules, these can be categorised into three tiers, as follows. Tier one includes schemes that deliver the best outcomes for members. The DWP make it clear that the key criteria for a pass are fund performance net of charges that’s on a par with comparative large schemes, and governance that’s up to scratch. Charges shouldn’t be the main factor here. They shouldn’t be ignored, but the clear message is that returns matter more, as does the governance activity of the trustees.
In the second and third tiers are schemes that fail to meet the required standard. This is where trustees will need to decide whether they are in the group of schemes where a few changes can move them to a pass, or if they are in the highest risk category, where they can’t realistically meet all of the criteria in fairly short order. The direction from DWP is that this group should wind up their pension scheme and find an alternative workplace pension for their members. This might be a master trust or a workplace personal pension. It’s clear that the DWP expect trustees to comply with the new rules. A compliance statement will be included in an annual return to tPR as well as being a requirement within the annual Chairs Statement which is posted online. TPR should be able to monitor compliance remotely, but hopefully they won’t need to. Trustees act in the best interests of their members. I expect that as they’re now equipped with clear guidance about what the rules are, they’ll simply follow them.
ANTI - ANTI - FRAGILITY
by Alex White, Head of ALM Research, Redington The Coronavirus pandemic has reminded everyone how difficult prediction really is. Black Swans are, by now, somewhat canonical. One of Nassim Nicholas Taleb’s (who popularised the term) other big ideas, anti-fragility, has been less thoroughly embraced. This is a brief exploration of whether anti-fragility is a viable target for a portfolio. Firstly, this is only considering investments.You can apply the lens of anti-fragility to ideas, individuals, careers, cultures, and so on, and what’s desirable or practical can vary wildly in each. It is worth noting though that, all else being equal, anti-fragility is useful if you want the anti-fragile thing to persist; but that may not be the best outcome. For example, war is surely more anti-fragile than peace, in that it takes less to start a war than to end one. Antifragility may be a useful lens to see how viable a system is, but it cannot be the whole goal. In investment, however, the goal is typically maintaining and growing
a portfolio to some end, and I’m deliberately simplifying the scope of the problem. Secondly, doing well when things change, all else being equal, has to be desirable; the question is one of cost. It’s not quite true that there are no free lunches , but relying on them has rarely been viable over the longer-term. If it costs too much when things don’t change (or don’t change by enough, or change in a way you didn’t consider), then the theoretically lovely anti-fragile investment may be a poor one in practice. In some ways, this is what a risk premium is. Equities will probably go up, but crash periodically. Investors are rewarded for taking the risk- or, more prosaically, equities go up because they sometimes go down. Equities are fragile investments, but have proven to be excellent investments for a wide range of investors.
If we extend this, we can think of several fragile investments, and several industries where each individual firm should be fragile. In no particular order:
(so it may be slightly unfair of me to cite it as an example of anti-fragility here). However, the industry has proved fragile to a totally different threatnamely a sudden, legislated stop in demand. This shows that fragility and anti-fragility can only be seen relative to the threats you can think of. If you’re paying a lot for anti-fragility, you may well actually still be fragile, and just underweighting the unknown unknowns.
• Insurance companies • Shipping • Money-Lending • Any specialised industry • Mortgaged home ownership • Debt/Leverage No investment is right for every investor, but any firm in some of the oldest, most reliably established industries must be fragile (whether the oldest profession is anti-fragile or not is less clear). If an industry has functioned for centuries then it shouldn’t be dismissed too readily. Airlines- cited as an anti-fragile industry- are certainly faring worse. Airlines are actually quite an informative example. The industry is anti-fragile, in the sense that each crash provides data and improves the next plane
Like holding equities, writing options is fragile (while buying them is antifragile). Options can have spectacular payoffs. Generally speaking though, analogous to insurance products, they’re priced such that buying options tends to cost more than it earns. For example, the CBOE S&P500 BuyWrite index (shown below) tracks the performance of a simple strategy writing covered call options. This doesn’t mean investors shouldn’t use options (nor that individuals shouldn’t use insurance!)- it just suggests that anti-fragility may be an unrealistic goal for a whole portfolio.
Similarly, while value stocks have endured a horrible decade, the more established value-biased and qualitybiased (boring) stocks have historically outperformed smaller, exciting, growth stocks (especially when betaadjusted). This again suggests the premium for dramatic upside can be punitively high. All this presents anti-fragility in quite a negative light, and it’s worth remembering that the concept has a lot going for it. Individual firms will eventually go bust, but the stock market continues- this can be seen as the anti-fragility of investing in a basket. Fragility is almost certainly easier to gauge than the future is to predict, and being risk managed can often turn out better than being almost entirely right. Being too fragile is effectively the same as running too much exposure to one risk, and investors should aim to avoid this. However, the simpler approach of diversifying a portfolio and limiting fragility, while accepting some losses during downturns, may be more profitable over the long-run than aiming for the more ambitious and expensive goal of explicit anti-fragility.
search & selection
LIGHTS, CAMERA, ACTUARY!
Bolton Associatesâ&#x20AC;&#x2122; 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 James Norman, Head of Research and Development at RPC Tyche.
What is your current role, and how did you end up in it?
computing will, one day, revolutionise the way actuaries work. However, they will take time to be accepted and adopted.
I am Head of Research and Development at RPC Tyche, an actuarial software and consultancy firm. I joined around 4 years ago, when there were around How does your actuarial training and 15 people – now there are over 100! I knew the background assist in your day-to-day role now? founders well after working with them in previous roles. I saw the potential in their software product The actuarial training helps you to turn a business Tyche and knew that I would fit in well and add value. problem into a mathematical problem, and then a mathematical solution into a business solution. I use this approach, at some level, every day. What is the defining moment of your career to date? When did you first join the Institute & Faculty of Actuaries, and what advice would you give to those students looking to emulate your career path?
Some of the recent projects I have worked on, where we have taken models which used to take hours or days to run, and now run in minutes, have really transformed how these models are be used within these businesses, which has been very satisfying to see.
I joined in 2004, while finishing off my PhD. I would encourage students to develop a questioning mindset, where you constantly think that there may be better ways to do things, while at the same time understanding the reasons why things are the way they are.
In your opinion, what prepared you best to take on your current role? I think my PhD was good training for a role in research and development. It taught me perseverance, patience, and persistence. My role as a capital modelling actuary taught me pragmatism and commercial context, which is important to make sure that the R&D we are doing is useful and not just an academic exercise!
What is the biggest challenge you face in your role within this market? Many teams are just too busy with BAU to spend time looking at new solutions which could save time and money in the future. New techniques like machine learning and new technology like cloud
If you had your time again, what would you do, career-wise? I would have joined RPC Tyche earlier!
Please share your favourite piece of trivia with our readers! I like the statistic that 90% of the data in the world was recorded in the last two years. Although that statistic is from 2017, it highlights how data recording has exploded recently. Of course, the amount of useful data being created is much, much less!
VEHICLE DATA CAN HELP INSURANCE PROVIDERS BECOME EDUCATORS In 2020, most new cars in the UK come fitted with Advanced Driver Assistance Systems (ADAS) . But do consumers really know what they are buying, what these features do or if they are even activated? Several research studies suggest not . Insurance providers could help solve this problem through access to vehicle build data at point of quote. Confirming ADAS features to the customer at quote could do more than enlighten the customer, it could also positively impact driver safety. Car manufacturers are constantly enhancing ADAS technology as part of their zero fatality objectives. These systems feature driver alerts or can even complete manoeuvres - often safer than the driver can. Society of Motor Manufacturers and Traders research shows 8 in 10 new cars in the UK have driver assistance systems and over half have adaptive cruise control. However, a recent report from J.D. Power highlighted a lack of clarity among consumers around Advanced Driver Assistance Systems (ADAS). This lack of clarity, the report claimed, is ‘causing a disconnect that is not only hampering feature utilisation, but also confusion that can drive consumer frustration and lead to unintended use, infrequent use, and even incorrect use of features’.
The lack of clarity has not been helped by the fact that each system can have a different name, functionality or calibration. For example, there are over 40 different names for automatic emergency braking and 20 different names for adaptive cruise control. It is little wonder there is consumer confusion. A tragic example of this is Joshua Brown who died when his Tesla Model S was on self-driving mode using the Autopilot feature and collided with a tractor trailer . Some consumers believed that Tesla’s Autopilot made the car capable of driving on any road at any time of day and under any traffic conditions without the need for the driver to pay attention. This isn’t the case, Autopilot is intended for use with a fully attentive driver, who has their hands on the wheel and is prepared to take over at any moment. The findings of the JD Power report are not too dissimilar to a report from Brake and Direct Line in 2019 .
“Drivers don’t seem to fully understand the capabilities, how and when to use it, and even if their vehicle offers it.”
In a study of over 2000 drivers, respondents were asked about three ADAS technologies: Autonomous Emergency Braking (AEB), Lane Keep Assistance (LKA) and Intelligent Speed Assistance (ISA). More than half of respondents did not know what the technology was, more than half of respondents did not think their cars were fitted with the technology
(to their knowledge); and in the hypothetical scenario of buying a new car, more than half of respondents said they would not spend more or were not sure whether they would spend more, to ensure it had the technology. Consumer education and confidence is key, and as a Thatcham Research report - ‘Assisted and Automated Definition and Assessment’ - identified, there is a grey area right now in the handover, between what the typical driver believes these features can do, and what they can actually do . This is where the insurance market could play a hugely valuable role. To date, it has been a challenge for insurance providers to identify exactly what ADAS features a specific vehicle is equipped with when pricing and writing a motor insurance policy. It’s not just the features that come as standard, but also those chosen as optional extras – they need a complete picture of how the vehicle is fitted. However, as each car manufacturer has created their own unique terminology, definitions and naming structures – sometimes releasing multiple features within the same model year – bringing this data into the insurance ecosystem has been very difficult. To address this challenge, an ADAS classification system has been created to logically sequence and classify vehicle safety features and component’s intended operation or purpose. This classification system provides the foundation for LexisNexis® Vehicle Build. This will help insurance providers understand how specific vehicle i. ii. iii. iv. v. vi. vii. viii.
safety features behave, for example if a feature will provide an alert or warning to the vehicle’s driver when a potential danger or hazard is detected. It will also allow insurance providers to understand the purpose of features. The prime intention of this solution is to support pricing accuracy but clearly there are much wider benefits. From a customer education perspective, when the customer applies for a motor insurance quote the insurance provider will be able to identify the specific ADAS features on the customer’s vehicle and confirm those features back to them, potentially even offering a discount for having the features. In some cases, for example, where a customer has bought a second hand car, they may be completely unaware of the presence of these features. This not only presents a great value add for the customer, it’s an engagement and education opportunity for insurance providers that can help change the customer’s perception of the brand. In the future, connected car data opens the potential for insurers to confirm which features are activated or not. Clearly it is not the insurance sector’s prime role to educate consumers on the presence and purpose of ADAS features but there is a greater societal and public safety benefit in doing so, aside from the potential it creates in lower claims costs and in-turn more profitable premiums. In time, as the industry learns more about the impact of specific ADAS features on claims losses, more awareness could help support greater investment in ADAS and in turn improve road safety standards.
Society of Motor Manufacturers and Traders: https://www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-Motor-Industry-Facts JUNE-2020-FINAL.pdf https://discover.jdpa.com/auto-industry-need-to-address-consumer-confusion-adas-full/ https://www.brake.org.uk/assets/docs/ dl_reports/DLreport_ADAS_report_February_2019.pdf Source: Society of Motor Manufacturers and Traders: https://www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-MotorIndustry-Facts-JUNE-2020-FINAL.pdf https://discover.jdpa.com/auto-industry-need-to-address-consumer-confusion-adas-full https://www.theverge.com/2019/5/17/18629214/tesla-autopilot-crash-death-josh-brown-jeremy-banner https://www.autosafety.org/consumer-group-says-teslas-autopilot-is-deceptive-calls-for-investigation/ https://www.brake.org.uk/assets/docs/dl_reports/DLreport_ADAS_report_February_2019.pdf http://news.thatcham.org/documents/assisted-and-automated-definition-and-assessment-summary-79399
by Carla Hopkins, Snr Vertical Market Manager, LexisNexis Risk Solutions page 21
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search & selection Model Development Actuary
Head of Pricing
General Insurance £120,000 Per Annum London
General Insurance Up to £140,000 Per Annum London
Fantastic opportunity for a pricing actuary to join a growing pricing team in a model development role. You will be leading on model development across the whole of the business in an over arching position working across all classes of business. The position is heavily strategic and demands someone with gravitas and the ability to really challenge the business and their current thinking. .
Newly established MGA seeks a Head of Pricing to join its growing team. With excellent business acumen, communication skills and modelling prowess, the successful candidate will be an integral part of the management team, and underwriting decisions. In addition they will be expected to get involved at ground level to establish pricing models, and build a team.
REF: ZB 001476 CC
REF: ZB 001512 ZB
Actuarial Systems and Data Lead
General Insurance £70-100,000 + Bonus + Benefits London
General Insurance £40-90,000 + Bonus + Benefits London
Newly created role with a leading London insurer seeking a motivated candidate to take the lead in drafting and spearheading their data transformation project. Open to those from an actuarial or data & analytics background, with the successful candidate expected to have experience building pricing models and working with a pricing platform. Technical literacy in either . Oracle/SQL/SAS/Python/R required.
Highly reputable Lloyd’s and London market company is looking for a student/qualified actuary to take on a broad role covering the end to end capital process. You will have non-life actuarial experience, preferably within capital modelling. You will be joining a talented team with plenty of opportunity for personal development and interaction with the wider business.
REF: ZB 001513 JC
REF: ZB 001339 HT
Senior Pricing Analyst
General Insurance £120,000 Per Annum + Excellent Package London
General Insurance £45,000 + Benefits + Bonus London or Horsham
Fantastic opportunity for a qualified actuary to join an Insurance/Reinsurance company in a Corporate role. This role will have responsibility for the IFRS 17 processes, manage the quarterly reserving and TP’s and have regular interaction with the Chief Actuary and the underwriters. Working across Specialty Lines, this hire will be contributing to the Business .Planning processes.
Personal Lines insurer requires a Senior Pricing Analyst who has strong analytical, communication and relationship management skills, with a sharp focus on delivering business results. They need someone to come in and conduct analyses and form recommendations to contribute to business decision-making and change activities.
REF: ZB 001502 MM
REF: ZB 001515 OG
www.bolton-associates.co.uk page 24 +44 (0)207 250 4718 Bolton Associates, 5 St. John’s Lane, London, EC1M 4BH