The Actuary magazine - September 2021

SEPTEMBER 2021 theactuary.com

The magazine of the Institute and Faculty of Actuaries

INTERVIEW James Dyke on the pitfalls of net-zero policies

Why a diverse managerial approach pays off when nurturing renewable energy investments

ENVIRONMENT

RISK

GENERAL INSURANCE

Putting the United Nations SDGs at the heart of climate policy

Exploring a new moral order for the financial sector

How can we improve coverage for people in disaster zones?

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Contents September 2021

19 Features

12 A

12 Interview: James Dyke Pinning our climate hopes on as-yet unrealised solutions is a mistake, warns the Global Systems Institute director 15 Environment: Covering all bases Renewables investment benefits from a diverse approach, says David Hunter 18 Opinion: Coughing up Trevor Williams discusses the economic ins and outs of carbon taxes

Up Front 4 Editorial Dan Georgescu on our profession’s opportunities to influence the outcome of the climate crisis

19 Environment: Hand in glove Sustainable development must be at the heart of the Paris Agreement, say IFoA Sustainability Board members

5 President’s comment Our Thought Leadership Series has been IFoA strategy at its best, says Louise Pryor

22 Modelling: All together now Małgorzarta Śmietanka, Dylan Liew and Claudio Giorgio Giancaterino demonstrate federated learning

5 CEO’s comment Stephen Mann reflects on how the pandemic prompted a different approach to IFoA thought leadership

27 Risk: Moral fibre We need a new, more virtue-based approach to risk, says Anthony Asher

6 IFoA news The latest IFoA news and events

COVER: IKON IMAGES

40 Data science: Hack to the future Louise Pryor, Colin Dutkiewicz and Krishna Kumar Shrestha report back from ICAT’s recent hackathon

At The Back 42 People/society news The latest news, updates and events 44 Puzzles 45 Student Adeetya Tantia looks at the emerging need for cryptocurrency insurance 46 Forging ahead Sara Daly on keeping momentum

Web Exclusive

32 Microinsurance: New tricks Tawanda Chituku on setting up microinsurance in Zimbabwe

Environment agents An introduction to reinforcement learning bit.ly/Environment_agents

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37 Health: The vaccine dilemma Servaas Houben explains how the ‘prisoner’s dilemma’ relates to vaccines

30 Risk: The new R word Dermot Grenham and Isaac Alfon discuss business resilience

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34 General insurance: The lake of fire How can we boost insurance takeup in geographically vulnerable areas?

Brian McGregor investigates

Additional content including daily news can be found at www.theactuary.com Weekly newsletter: for all the latest actuarial news, features and opinion direct to your inbox, sign up at bit.ly/1MN3bXK SEPTEMBER 2021 | THE ACTUARY | 3

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PUBLISHER Redactive Publishing Ltd Level 5, 78 Chamber Street, London, E1 8BL +44 (0)20 7880 6200

EDITOR Dan Georgescu editor@theactuary.com

SUB-EDITOR Kate Bennett

F E AT U R E S E D I T O R S Stephen Hyams: Pensions and investments Rajeshwarie VS: General insurance Travis Elsum: Environment and sustainability Ruolin Wang: Sustainability, reinsurance and data science Blessing Mbukude: Life Yiannis Parizas: General insurance and data science Fiona Neylon: General insurance

NEWS REPORTER Christopher Seekings +44 (0)20 7324 2743 christopher.seekings @redactive.co.uk

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EDITORIAL ADVISORY PANEL Peter Tompkins (chairman), Chika Aghadiuno, Nico Aspinall, Naomi Burger, Matthew Edwards, Jessica Elkin, Martin Lunnon, Richard Purcell, Sonal Shah, Nick Silver

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E: membership@actuaries.org.uk Delivery queries: contact Rachel Young E: rachel.young@redactive.co.uk Published by the Institute and Faculty of Actuaries (IFoA) The editor and the IFoA are not responsible for the opinions put forward in The Actuary. No part of this publication may be reproduced, stored or transmitted in any form, or by any means, without prior written permission of the copyright owners.

While every effort is made to ensure the accuracy of the content, the publisher and its contributors accept no responsibility for any material contained herein. © Institute and Faculty of Actuaries, September 2021 All rights reserved ISSN 0960-457X

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Meet the challenge As the world prepares to ratchet up international negotiations during COP26, editorially we continue to highlight and support the work of actuaries and others who are contributing to the bold thinking required to solve the climate change problem – and this issue of The Actuary is no different. As Louise Pryor said in her presidential address, climate change isn’t a risk, but a certainty.

That said, it is important not to be seduced by doomism or exaggerate the threat to such a level that no action can be seen as meaningful.

The neat slogan used by some climate change communication experts to summarise the position is: “It’s real; it’s us; experts agree; it’s bad; there’s hope.” It is an enormous challenge, but also a huge opportunity for insurance firms, their consultants and regulators to ensure our profession is actively supporting the drive towards a net-zero world.

This month we interview James Dyke, who warns about relying on fictional, future and unproven technologies to reach that net-zero target. The core policy elements to get there should rely on viable solutions that keep fossil fuels in the ground, he argues (p12).

Finance will play a key role in climate solutions and decarbonisation, particularly investments in renewable energy sources and storage; David Hunter’s cover article suggests some practical approaches for those investing in these sectors (p15).

Lucy Saye, Melissa Leitner, Shyam Gharial and Thrinayani Ramakrishnan tell us about the UN Sustainable Development Goals and the link between climate action and poverty eradication (p19).

A systems thinking approach will be required when integrating policy developments from COP26 to understand and mitigate adverse effects of inequality, they say – and the conference is an opportunity for policymakers to keep this on the agenda.

I hope you enjoy the issue.

DAN GEORGESCU EDITOR editor@theactuary.com

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LOUISE PRYOR

STEPHEN MANN

Shaping the future

Thinking differently

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W

ne of the best things about being president of the IFoA is seeing seeds that were planted long ago start to take root, sprout and flower. The Thought Leadership Series is one example of this, and shows what our strategy looks like at its best: repositioning the profession through visible thought leadership in the public interest, transforming the member experience by providing compelling events, with our members debating important issues with recognised experts, and fostering a vibrant global community by offering a programme that is available to all our members, wherever they may be.

We’ve learned a lot about what works well and what is less successful during the past few months, and over the next year we’ll be feeding these lessons into our longer-term thought leadership strategy – including how we measure the success and impact of our activities in this area.

We will be using our platform to contribute our actuarial skillsets, influential insights and bold ideas to help shape the future on macro changes, challenges, risks and opportunities for society and the economy. We will promote the actuarial voice to ensure it is heard and valued by key decision-makers and influencers in politics, regulation and business, establishing the actuarial profession as a go-to source of expertise, insight and original thinking. As part of our next phase of ‘being the voice of actuaries’, the IFoA aims to be at the heart of key public policy debates, which will not only strengthen existing relationships but also broaden stakeholder connections, expanding the profession into new domains.

On that note, I hope you will join us later this month as we launch our ‘The Road to Glasgow: Sustainability Series’ ahead of COP26 in November of this year. And, because true sustainability goes hand in hand with diversity, equity and inclusion, our Diversity Series will follow in early LOUISE PRYOR 2022. It is an exciting time to be part is the president of of the IFoA. the Institute and Faculty of Actuaries

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hen we started discussing the 2021 IFoA’s Thought Leadership Series and how we could position it in support of our purpose – that is, to be the voice of actuaries, and to support, develop and be the voice of our members – we knew member involvement had to be at its heart, not least because thought leadership is often described as being when one person’s thoughts are used to lead others. We also knew that there was a danger of overthinking what we needed to do to establish this thought leadership.

Ironically, faced with a global pandemic, we were free to approach the series with greater speed, agility, imagination and courage than we have perhaps been known for in the past: the first chapter in this initial series was up and running within a month of us formalising what we were going to do. It has been inspiring to see our members step in to lead the debate and, in turn, inspire many more actuaries (as well as those beyond the profession) to think differently about the future. The true legacy of the work will be in its impact.

On a practical level, we delivered 42 events across this first series, with close to 8,000 attendees. I hope you enjoyed our line-up of decision-makers and influencers, who challenged historical perspectives on climate risk and impact investing, finance for public interest, growth mindsets, mathematical futures and the actuarial profession, among other things. We are especially indebted to Patrick Poon for his generous sponsorship of the Presidential Speaker Series and the opportunities it has created.

Members often remind me how important it is to them that the IFoA has views on the bigger issues of the day, pushing the boundaries of what actuaries think about and helping them to reflect and become better actuaries.

It is evident from the feedback we have had that this first series has lit a lot of STEPHEN MANN fires. Our second series will fan those is the chief executive flames, and I am confident we will see of the Institute and the benefits in the profession over Faculty of Actuaries time, supporting the public interest.

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Upfront News CHARITY

IFoA president calls on members to support the IFoA Foundation This month, actuaries will be receiving their annual reminder to renew their IFoA subscription. The IFoA and the IFoA Foundation are taking this opportunity to reach out to the membership, thanking those who have generously supported the Foundation so far and explaining more about the work it has done since its launch in 2020.

After an exciting first year, with income targets exceeded and several grant programmes launched and in development, the Foundation is embarking on an ambitious three-year plan that builds on the success of the past 12 months. With the backing of the actuarial community, it is well placed to deliver on its objectives and build a sustainable income model that will enable it to have major impact for years to come.

Although large donations have been gratefully

received, members are asked to consider signing up and making smaller, regular gifts that will support the Foundation’s longerterm goals – to open every door for the next generation of actuaries and empower the profession to be transformative in addressing the greatest global challenges of our time.

IFoA president Louise Pryor said: “If every member gave just £2 this year, the Foundation would be able to deliver against each of its goals for the next year. If this donation is repeated annually, members will be laying the foundations for sustainable charitable impact in years to come. The Foundation’s work spans many important areas – including providing opportunity to young actuaries facing financial hardship, promoting diversity and inclusion in the profession, and addressing global challenges in our society,

working in partnership with the IFoA. Actuaries have always given back, and I hope the membership will continue this long history by supporting the IFoA Foundation.”

To find out more about the Foundation’s impact, please visit bit.ly/IFoA_Support Foundation, or make a donation directly by visiting bit.ly/IFoA_DonateFoundation.

Alternatively, you can contact the Foundation’s general manager via gmfoundation@actuaries.org.uk

New world, new thinking We’re living in a changed world, and your IFoA membership is evolving to meet your new needs.

Our first major evolution, as we rethink and reset, is free access to online events for all members.

Find out more here: www.actuaries.org.uk/new-world-new-thinking

IMAGE: PETER SEARLE

This is just the beginning of our transformation. Join us on the journey.

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P U B L I C AT I O N

Call for Annals of Actuarial Science papers extended Contributions are invited for a special issue of Annals of Actuarial Science (AAS) featuring research on managing the risk of mortality shocks. The deadline for submission has been extended to 30 September 2021. Areas of interest include, but are not limited to: Direct effects on liabilities linked to mortality and longevity risks Capital market and insurance innovations for pandemic risk management Impact on the provision of, and demand for, healthcare Changes in economic activity, commodity prices and asset prices Increase in government debt and the effect on bond markets Changes in investor/policyholder behaviour Changes in regulation Preparing for the next pandemic Innovations in mortality modelling that can explain or capture shocks and are relevant to the understanding of industry impacts.

The issue will be guest edited by Michel Dacorogna (University of Zurich), Runhuan Feng (University of Illinois at UrbanaChampaign) and Annamaria Olivieri (University of Parma).

For more information and guidance about writing for AAS, visit bit.ly/AASCallforPapers

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FEES

IFoA membership renewals due As part of our commitment to our members, the IFoA is holding membership fees at 2019 levels for another year. And, of course, members can now access all IFoA online events for free. To help the IFoA support members worldwide – and to avoid late payment surcharges – we ask that members renew before 31 October 2021.

Renew your IFoA membership online by logging in to the My Account area of the IFoA website (bit.ly/IFoAlogin).

You can make a payment or download your subscription letter for employer payments in the My payments section.

On renewal, you will be asked to confirm that you have completed your CPD according to the requirements of the new scheme. Terms and conditions will also apply upon renewal to all student and Associate members. More information on the terms and conditions can be found at bit.ly/StuAssoc_TC IFoA membership provides you with essential career benefits, from the premium qualification you need to be recognised as an actuary, to membership of a vibrant global community that serves the public interest. Thank you for your continued support.

If you did not receive your renewal email, or have any questions about renewing your membership subscription, please email us at memberservices@actuaries.org.uk or call +44(0)131 240 1325

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Upfront News A DJ U D I C AT I O N PA N E L M E E T I N G S

Mrs Caroline Bayliss FIA

Mr Priyesh Bamania FIA

On 24 and 25 June 2021 the Adjudication Panel considered an allegation of misconduct against Mrs Bayliss (the respondent).

Between February and May 2020, while acting in the role of Director of Company C, she accepted a joint instruction from solicitors acting on behalf of Person A (the referrer) and Person B (his wife) to prepare an expert report on pension sharing on divorce.

The panel found evidence to support that, during the course of the instruction, the respondent did not provide a predicted income for each party after the pension split and after Person A’s pension age, despite being instructed to do so. The panel also found that, upon being questioned by Person A’s instructed solicitor in relation to her calculations, she refused to provide any structural answers in that she did not explain her view on how her calculations would be affected if Person B considered an income drawdown policy at the rate of 4% per year. The panel found these to be ‘low level breaches’ of the Communication principle of the Actuaries’ Code (version 3.0).

Taking account of all the relevant information, the panel determined that there was a prima facie case of misconduct.

No sanction was appropriate in this case.

On 18 and 23 June 2021, the Adjudication Panel considered an allegation of misconduct against Mr Bamania (the respondent). The allegations relate to actions between August and October 2020.

The panel found evidence to support that the respondent: sent and/or attempted to download and/or send confidential and/or commercially sensitive information held by Company A to his personal email address and to one or more data storage devices. The panel found evidence that this was done for purposes that were not related to his employment with Company A and was in breach of Company A’s information security and data protection policies.

The panel did not find an alleged breach of the compliance principle was made out in this case, but did uphold that there was a breach of the integrity principle in the Actuaries’ Code (versions 3.0).

The panel determined that these allegations disclosed a prima facie case of misconduct. In considering sanction, the panel considered all relevant information and was satisfied that the appropriate and proportionate sanction in this case was a reprimand and a fine of £1,500.

Find full copies of the published determinations at bit.ly/IFoA_DiscDeterm

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Upfront News

O

ne of the IFoA’s key responsibilities is to uphold standards. We do this because of our Royal Charter commitment to regulate the profession in the public interest, but also because you, our members, have told us that protecting the hard-earned reputation of our profession is one of the most important things we do.

In keeping with this, the IFoA is proud to be a member of the Joint Forum on Actuarial Regulation (JFAR), an innovative collaboration with other UK regulators.

A valuable collaboration JFAR comprises the IFoA, the Prudential Regulation Authority, the Financial Conduct Authority, The Pensions Regulator and the Financial Reporting Council, and enables these bodies to co-ordinate, within the context of their own responsibilities and objectives, the identification and analysis of public interest risks to which actuarial work is relevant. The value of this unique collaboration is threefold: 1 It provides a detailed horizon scan of key challenges for the actuarial profession in the context of the wider economic and political environment 2 It allows us to work hand-in-glove with other regulators to develop a clear line of sight to address and shape, rather than simply react to, these issues 3 In keeping with our new purpose (www.actuaries.org.uk/ about-us) the collaboration ensures the IFoA can be the ‘voice of the profession’ in articulating the public interest in these important debates.

population, unfair consumer outcomes, technological change, and effective communication in an ever more complicated world – but the issues are complex, with multi-layered inter-dependencies.

The IFoA has initiated a series of professional skills webinars to explore some of these issues in depth, engaging industry-leading experts and thought leaders to address your questions and share insight. The first webinar, which focused on climate-related risk, was chaired by Louise Pryor. Viewed by more than 550 participants on the day, it is now available to view on the IFoA’s website. Next, on 14 September, I will have the privilege of chairing an expert panel on the impact of technological change (bit.ly/IFoA_TechChange).

Further webinars are planned for the coming months, and will cover topics including unfair consumer outcomes and the impact of undue commercial pressure. To find out more, and to sign up, please go to actuaries.org.uk/learn-develop/attend-event

Justifying our position Despite the rich heritage of the actuarial profession, I don’t believe we have a divine right to a seat at the table; instead, we constantly need to justify our place through the expertise and insights that we provide. The JFAR collaboration provides the IFoA with the opportunity to engage with our ambitious strategic objectives – both in areas of traditional actuarial policy strength, and in new areas and domains such as climate change and big data. Through this engagement we can identify solutions to societal challenges such as social care and intergenerational fairness. Most noticeably, JFAR helped the profession to play an agile role during COVID-19, using the skillsets of the profession to articulate and influence solutions to one of the past century’s key public policy challenges.

JFAR has recently published its latest Risk Perspective (bit.ly/JFAR_RiskPersp21), reflecting the combined views of its members on the most important risks to the public interest regarding the work of actuaries. It is a stimulating read. The headline risks may not be a surprise – some of the eight issues identified include climate risk, the challenges of an ageing

Stepping up to the plate The Joint Forum on Actuarial Regulation provides the IFoA with a platform to engage with key societal challenges and influence possible solutions, says Matt Saker 10 | THE ACTUARY | SEPTEMBER 2021

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