The Actuary- November 2022

39 Investment: The unfolding of time

Jon Exley considers whether investors are thinking about the passage of time in the right way

42 World view: Indonesia

Puneet Nayyar reflects on nine years spent in this Asian archipelago

get to grips with the biodiversity crisis, say Alex Martin and Ryan Allison

matter of

Ziling Jiang considers private assets

the PRA’s proposed matching

At The Back

Student

Ciara Izuchukwu on a recession’s implications for insurance

need to

the

proactive in

actuarial niches,

Nick Spencer and Nico Aspinall

Choosing a

Yiannis Parizas and Phanis Ioannou

commercial

insurance:

behaviour

open-

Could behavioural modelling play a

in general insurance? Damiano Massimi and Thibault Imbert discuss

The latest news, updates and events

Megha Srivastava on moving continents and staying focused

Exclusive

nation

With inflation soaring, what’s next for the Bank of England?

www.theactuary.com

for all

at bit.ly/1MN3bXK

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FEATURES EDITORS

Kimberly Chimsasa: Pensions and investment

Travis Elsum: Environment and sustainability

Alex Martin: Environment and sustainability Blessing Mbukude: Life Fiona Neylon: General insurance Yiannis Parizas: General insurance and data science

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Venturing forth

The last edition of The Actuary went to press on 26 September 2022, and what a month it’s been. In an online exclusive, Richard Silveira’s exploration of the Bank of England’s future monetary policy couldn’t have come soon enough – you can read it at bit.ly/3TzowHx

As IFoA president Matt Saker alludes to in his column (p5), many actuaries are venturing outside of our traditional fields. In this issue, Nick Spencer and Nico Aspinall, two members of Project New Horizon, set out ways in which the actuarial community can support our growth into new areas (p33).

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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.

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© Institute and Faculty of Actuaries, November 2022 All rights reserved ISSN 0960-457X

In our technical features articles, we have a truly diversified and multi-disciplinary issue this month. We read about the potential impacts that climate change could have on mortality (p18), compare different technological options in insurance pricing (p34), apply a framework for understanding our exposure to geopolitical risks (p24) and, in the cover article, consider an approach to understanding price elasticity (p36).

Finally, in the interview, Alex Martin asks Paul Dalziel what it means to take wellbeing into consideration in economic decision-making, both at a national level and at the level of individual businesses (p14).

I hope you enjoy this issue.

RUOLIN WANG EDITOR

Ruolin Wang is a Solutions Manager at Schroders. Any views are her own and not those of Schroders.

Upfront

MATT SAKER

STEPHEN MANN

A crucial vote Listening and acting

This month we will be asking qualified members to vote on the proposal to introduce new designations for IFoA qualified actuaries – ‘Chartered Actuary (Associate)’ and ‘Chartered Actuary (Fellow)’.

In September I wrote about why I support this proposal and believe the new designations will have a positive impact on our status and success (bit.ly/3ENMc6I). The term ‘Chartered’ is used in other professions and is an untapped asset for the IFoA and our members. Use of the word ‘actuary’ is not currently protected, and Chartered designations will distinguish between IFoA actuaries and others who practise actuarial work, reflecting your status. This change will not have any impact on where the bar is set for Associate and Fellowship. Our qualifications’ rigour and quality will not change, so there is only upside in terms of enhanced nomenclature.

Employers have told us that rebranding as ‘Chartered Actuary’ will give our qualifications global appeal and broaden IFoA actuaries’ relevance across industries and sectors, encouraging non-traditional actuarial employers to use actuarial qualifications more flexibly in their businesses. This will enhance the employer proposition and enable us to attract a broader range of graduates.

As actuaries diversify into new sectors, we need to consolidate recognition outside our traditional spheres. We want to establish the title ‘actuary’ for our members more strongly in new sectors and highlight the relevance of our skills to employers’ changing needs.

More details can be found on our website, and I encourage you to vote in favour when voting goes live in mid-November.

We have been carrying out a huge listening exercise in the past couple of years to help us transform your IFoA experience. During the past 12–18 months, this has led to the delivery of more than 15 new initiatives and countless other minor improvements. Initiatives have included online exams, an improved Virtual Learning Environment, a new thought leadership programme and a more user-friendly website. We’ve also been working to make our culture more member-centric, and in our recent employee survey, more than 90% of colleagues agreed or strongly agreed that we put our members at the heart of everything we do.

We need to keep improving and have exciting plans for 2023, including the launch of the digital communities and a new member portal that will make accessing our services simpler. An online examination solution is also in development. We also want to provide value for money; membership fees have fallen for qualified actuaries by 16% in real terms since 2017 and will remain flat for the upcoming year. Many of these things are the culmination of years of hard work; thank you for your patience while they have become visible.

One important area is the IFoA’s role in upholding high standards. Our Regulatory Board has recently published its annual report (bit.ly/3CLCNdb) reflecting its first full year with an increased remit, including responsibility for disciplinary and enforcement matters, and the public interest regulatory aspects of our qualification and admissions frameworks. The report also highlights its regulatory work to enhance transparency and accessibility.

I echo Matt’s sentiments on Chartered Actuary. The benefits are huge, protecting the profession’s status, enhancing the value of IFoA qualifications and standards, and supporting the growth of the profession, so please do cast your vote.

MATT SAKER is the president of the Institute and Faculty of Actuaries

I would like to finish by continuing my wellbeing theme. Society is increasingly competitive, and we are often told that ‘nice people finish last’. This mindset is not part of our natural biology and is driven by our environment. There are huge benefits in receiving warmth and compassion, but showing it to others also brings benefits for our own wellbeing. Why not introduce an act of kindness into your day? It can be a small thing, like paying a compliment, or something more significant. It’s hard to see a downside.

STEPHEN MANN is the chief executive of the Institute and Faculty of Actuaries

Finally, our next annual member survey launches this month. We want to know what you think about the progress we’ve made and where you are looking for more. I hope you can see that we have been listening, and acting on what you have told us.

Creating a more inclusive profession together

Since our previous update in September, the IFoA has been working with members, volunteers and partners to improve diversity, equity and inclusion (DEI).

Leadership and culture

The IFoA responded to the Financial Services Skills Commission (FSSC)’s Menopause Impact Survey, as well as encouraging members’ employers to take part. Following the launch of its report Menopause in the Workplace: Impact on Women in Financial Services (bit.ly/Menopause_Finance), the FSSC’s survey will show how the sector is building menopause awareness across the workplace, and how firms are supporting employees experiencing menopause transition.

DEI at the IFoA

The IFoA celebrated National Inclusion Week with a series of daily activities and resources for colleagues, including a six-part blog series (bit.ly/NIW_Share) from IFoA education actuary Sally Calder. Sally’s popular and well-received blog series looked at autism and neurodiversity in the workplace from a personal perspective, covering topics including neurodiversity and creativity, and how to support neurodiverse people.

DEI in our community

The IFoA partnered with the Institute for Public Policy and Research to host a fringe event at the Labour Party conference in Liverpool on 26 September. Former chair of the General Insurance Board Sameer Keshani led a discussion on the poverty

premium in insurance, alongside Shadow Work and Pensions Secretary Jonathan Ashworth MP, Treasury Select Committee member Emma Hardy MP, and Martin Coppack of Fair By Design.

We continue to work closely with the FSSC, having signed up to its Access, Diversity and Inclusion Commitment in April. We are monitoring its DEI workstream, with a particular focus on projects investigating how financial services firms are developing and implementing menopause programmes and policies, and how to develop neurodiversity initiatives.

The IFoA’s Quality Assurance Scheme (QAS) is supporting its members through DEI specialist reviews this year, with QAS accredited firms audited on the scheme’s DEI sub-outcome. Firms receive tailored recommendations on their policies, procedures and DEI practices, and guidance on how to go above and beyond the schemes’ DEI sub-outcome requirement.

Supporting members in their work

The 2022/23 Actuarial Mentoring Programme (AMP) launched in October with the support of the IFoA, the Pensions Investment Corporation and the IFoA Foundation. The AMP is a cross-company mentoring initiative that is designed to improve diversity and inclusion within the actuarial profession.

You can find out more about how the IFoA is putting DEI at the heart of its work in our DEI Strategy bit.ly/IFoA_DEIStrat

IN BRIEF...

Impact Report

We have published our second Impact Report, showcasing members’ achievements during the past year. Find out how actuaries have contributed not just to the profession but also society, bringing their skills and abilities to bear across numerous areas. From volunteering for boards or committees to developing and piloting new courses and credentials, and from giving evidence at select committees to ensuring that sustainability stayed high on the agenda, actuaries have shown their willingness to deploy their skills and expertise for the public good. Our Impact Report pays tribute to their work – read it at bit.ly/IFoA_Impact2022

The CMI is looking for volunteers

The Continuous Mortality Investigation (CMI) is looking to appoint experienced volunteers to its Executive Committee, which oversees its work (on behalf of the directors of CMI Limited).

The CMI seeks to produce high-quality impartial analysis, standard tables and models of mortality and morbidity for long-term insurance products and pension scheme liabilities on behalf of subscribers and, in so doing, to further actuarial understanding. More information is available at bit.ly/3rKbLhf

To find out more, please view the volunteer vacancy at bit.ly/3ezqmcu. The closing date for applications is 13 November.

Regulatory Board publishes annual report

The Regulatory Board has published its annual report for 2021/22, highlighting its key achievements of the past year and setting out its work plan for the year ahead. It reflects the first full year as the new Regulatory Board with an increased remit, including responsibility for disciplinary and enforcement matters, and the public interest regulatory aspects of the IFoA’s qualification and admissions frameworks.

The past year’s highlights include the start of the IFoA-led reflective practice discussions under the Continuing Professional Development Scheme, a review of the UK Practising Certificates regime, a consultation on proposals related to climate change, and thematic reviews under the Actuarial Monitoring Scheme, including those on the topics of general insurance pricing, trust-based funeral plans and climate risk. Read the report at bit.ly/3CLCNdb

The IFoA at party conferences

Since 2018 the

First was the Labour Party conference in Liverpool, where delegates, buoyed by the party’s polling lead, were optimistic about returning to power at the next election. Our fringe event focused on our Poverty Premium campaign, where former General Insurance Board chair Sameer Keshani was joined by Shadow Work and Pensions Secretary Jonathan Ashworth MP and Treasury Select Committee member Emma Hardy MP.

The mood at the Conservative Party conference in Birmingham was gloomier, with many MPs staying away. A highlight was our panel discussion on ‘demographic dilemmas’ and how we can provide long-term sustainable support for an ageing population. IFoA member Stuart McDonald spearheaded the discussion, and panellists included Financial Times columnist and former head of the No 10 Policy Unit Camilla Cavendish and Alzheimer’s campaigner John Teeling, who gave a moving account of his own experience.

Above: Shadow Secretary of State for Work and Pensions, Jonathan Ashworth MP, speaking at the Labour Party conference in Liverpool Left: Members of the audience clap as they attend the Conservative Party’s annual conference in Birmingham

Mr Robert James Hammond FIA

On 8 June 2022 the Disciplinary Tribunal Panel considered a charge of misconduct against Mr Robert James Hammond (the respondent).

The charge relates to the period March–August 2021. It was alleged that, being at the time a member of the IFoA, the respondent sent emails and made statements to Person A and Person B about his HMRC tax payment and/or debt status that he knew to be untrue. It was also alleged that he sent screenshots and attachments to Person B that did not show the true amount of tax outstanding. His actions were alleged to be dishonest and in breach of the Integrity principle of the Actuaries’ Code (version 3.0) in that he failed to act honestly and/or with integrity.

The panel found all elements of the charge proved, by reason of admission, and that they constituted misconduct. It determined that the most appropriate and proportionate sanction was suspension of IFoA membership for two years.

ADJUDICATION PANEL MEETING

Mr Peter Gatenby FIA

On 13–14 June 2022 the Adjudication Panel considered an allegation of misconduct against Mr Peter Gatenby (the respondent), relating to the preparation of an Actuarial Report on Pensions on Divorce for Person A and Person B.

The panel found evidence to support the allegation that when calculating the pension credit in the Principal Civil Service Pension Scheme (PCSPS), Nuvos Scheme pension, the respondent used an incorrect pension factor and pension age, and did not adequately explain why he used a pension age of 65 for calculating the pension credit in the PCSPS. This was found to be in breach of paragraph(s) 1, 3, 3.1, 3.2, 3.3 and/or 5 of TAS 100.

The panel also upheld that, when responding to Person A’s complaint about the report, he: advised Person A that he had calculated the pension credit in the PCSPS correctly when he knew that the pension factor and/or pension age he used was not correct, which was misleading; did not respond appropriately to Person A when asked to confirm that he had notified his professional indemnity insurer of her complaint.

The panel found that there were associated breaches of the Actuaries’ Code (version 3.0) compliance, competence and care and communication principles, and that the allegations disclosed a prima facie case of misconduct. Taking all information into account, it was satisfied that the appropriate and proportionate sanction was a reprimand, a £7,500 fine and a period of education, training or supervised practice.

MEMBER SURVEY

Are we getting it right? Take three minutes to let us know

It takes just three minutes to let us know how we’re doing in this year’s IFoA member survey, so please watch out for the email carrying your unique link from membersurvey@actuaries.org.uk

During the past few years the IFoA has been listening and learning to better provide what you need to meet the changing demands of your career.

We have done a lot on the basis of your feedback, including holding or reducing fees to deliver better value for money, publishing annual Impact Reports to show how we’re enhancing the profession’s profile, modernising continuing professional development to make it more meaningful, making online events free for all members, launching learning and credentials in banking, data science, climate and IFRS 17, building a new website with improved navigation and functionality, and launching the IFoA Foundation to support those working in the profession during difficult times.

Our programme of member insight includes surveys and focus groups to build data on your experience, informing decisionmaking at the highest level.

“Through gathering data and developing insights we have a

better understanding of the wider IFoA membership and how we can support you in your career,” said chief executive Stephen Mann. “We see members who care passionately about the profession and the importance of keeping standards high, and who want the IFoA to make a difference in some of the bigger issues out there, as well as providing good value for money and being easy to transact with.

“Gaining a richer understanding of what is important helps us to focus our efforts on your priorities, knowing that they are grounded in evidence. So when we know that your time is precious but there is a demand for learning support, we are able to launch a new and much simpler modern virtual learning environment.

“But the power of our insight depends upon your participation to make sure we get as rich a picture as possible. Our 2021 full-length member survey saw a response rate of 12.5%. Our 2020 short survey hit 18.5%. The larger the sample, the more confidence we can have that we’re living up to our promise to be member led.

“I am asking you to help us by adding your voice. To keep improving, we need to hear from as many members as possible.”

“We need to hear from as many members as possible”

Why we’re voting

for Chartered Actuary

Between 15 November and 13 December, all qualified members will be asked to vote on adopting ‘Chartered Actuary’ designations: Chartered Actuary (Fellow) and Chartered Actuary (Associate). The IFoA believes that this will protect the status of the title ‘actuary’, increase recognition of the level of qualification actuaries have achieved, and support the future growth of the profession.

Sandy Trust

Director, Sustainable Finance, EY

Adding Chartered status to our qualifications will make them even more attractive in the highly competitive global financial services market in which actuaries work. It will also help to encourage the recruitment of actuaries into wider fields, including sustainability, which is rapidly becoming an important skillset for actuaries to have if they are to remain relevant.

Chartered Actuary.

Here five members tell us why they are supporting the proposal to move to Chartered Actuary.

John Taylor

Non-executive director and president of the IFoA, 2019/20

Cynthia Yuan

Senior risk director, China Re

Being a Fellow or Associate of the IFoA is very renowned in China –not just because of the wide range of subjects that need to be passed, but because it also requires sharp business sense and other soft skills. Chartered Actuary will show that we have the qualities required to do that role. It shows the competence and integrity that is needed to manage the risks in this changing world. It shows the legacy carried forward from the world’s oldest actuarial organisation, and that we are sincerely trying to do the right thing to serve the public interest.

Introducing the Chartered Actuary title will only be good for the profession. Reinforcing the Associate qualification as a desirable destination will help the profession compete for new graduates. And, as a Fellow myself, I don’t foresee that it will undermine existing Fellows: employers that value Fellows will continue to do so. Moreover, I can look forward to belonging to a profession that remains dynamic as it becomes more attractive to new graduates.

Marjorie Ngwenya

Non-executive director and president of the IFoA, 2017/18

Why do I support Chartered Actuary? During my term as president, the IFoA consulted with members on the Chartered Actuary proposal. Chartered is an internationally recognised term that will enhance our already respected title. This change will also recognise more prominently the Associate qualification. That’s why I’ll be voting ‘Yes’ to Chartered Actuary.

Nico Aspinall Chief investment officer, Connected Asset Management

I support the Chartered Actuary proposal because it will help improve the brand of qualified actuaries both in the UK and around the world. Most people are amazed when they find out that the word ‘actuary’ is not protected –anyone can call themselves an actuary, regardless of whether they’re qualified or not. Putting ‘Chartered’ in front of ‘actuary’ protects us and will ensure that no one can take advantage of our great name or bring our profession into disrepute. I think it’s also an important stepping stone towards a profession that really values the general skillset in a variety of business contexts. We need to get Chartered actuaries out into wider domains, where they can help address many societal issues, from climate change to artificial intelligence and many points in between. For me, the Chartered Actuary proposal is a positive move and I’m hopeful we can get a good turnout to show we’re ready to face the future.

The vote runs from 15 November to 13 December. Whichever way you vote, it’s important to have your say, so please do cast your vote.

A packed agenda for the first Council update of sessional year

Council’s first meeting of the sessional year took place on Wednesday 28 September by videoconference. We welcomed the new Council members elected at the June AGM to their first formal Council meeting.

As this was the first meeting of the sessional year, we took time to discuss how we would work together this year and what we would focus on. We also considered the results of our annual effectiveness review for 2021–22 and what we could learn from it.

Council received its regular updates from the chief executive and the chair of the Management Board, and noted the work undertaken to rearrange planned activities around the mourning period for the late Queen Elizabeth II. Many activities are underway to improve the member experience and the way you engage with us, and we hope you will see the benefit of these in the coming months.

During the past year, we have been carrying out work to develop and implement a revised risk management framework for the IFoA, to enable us to better identify and oversee threats and opportunities to the profession. At this meeting, Council gave feedback on the latest drafts of some of the key materials underpinning this work, including risk appetites and a new strategic risk register. We look forward to reviewing a revised iteration of the framework at our November meeting.

As part of our strategic commitment to a modern regulatory regime, Council received an update from its Regulatory Strategy Steering Group on the UK government’s review of actuarial regulation, and the proposed introduction of a new

statutory regulator (the Audit and Governance Authority) to replace the non-statutory Financial Reporting Council. While no major policy announcements have been made since our June meeting, we are keeping a close eye on wider developments to ensure we are appropriately informed and positioned to represent the profession’s best interests.

Council considered the nominations of Stuart McDonald MBE and Sundeep Raichura for receipt of the IFoA’s Finlaison Medal, and emphatically approved them – we extend our congratulations to both!

We then discussed our Nominations Committee’s recommendation on how future nominees for Honorary Fellowship of the IFoA should be identified and scrutinised. This discussion was scheduled before the recent member vote on proposed changes to the process, but was given greater emphasis after members decided not to support the proposal. Council agreed with the Nominations Committee’s recommendations to strengthen the robustness of our internal scrutiny of nominees, and to ensure nominees are aligned to and able to contribute to the IFoA’s strategic aims.

Council also agreed proposed changes to the IFoA’s Regulations, which are intended to better reflect its responsibilities as a controller of members’ data. Formal notice of these proposed changes will be posted on our website shortly.

Council’s next meeting will take place in person in London on 30 November 2022. The minutes of our meetings are available at bit.ly/2u1gmx9 and you can contact us at presidents@actuaries.org.uk

New Practising Certificates Scheme

The IFoA’s new Practising Certificates (PC) Scheme comes into effect on 1 December. It introduces more flexibility into the process for applicants and takes a more proportionate approach, with less focus on the annual renewal process.

The new approach moves to a competency-based criteria, promoting a more effective, fair and inclusive process for members looking to obtain and retain a PC.

Find more information on the new scheme, together with the PC Handbook, new application forms and example applications, at bit.ly/3ENDFku. The IFoA has also produced guidance to assist current and future PC holders in completing their application.

The format of the UK Practice Modules (UKPM) is changing to an online workshop. The updated resources will be available from 1 December and further detail can be found at bit.ly/3S6uq1F

Information about transitional arrangements for existing PC Holders and non-PC Holders who have sat the current UK Practice Modules is also available on the PC pages of the IFoA’s website, together with a list of FAQs about the new scheme.

We welcome any questions about the new scheme and application process – get in touch at practising.certs@ actuaries.org.uk

More comments are posted online about news stories published on www.theactuary.com

A RESPONSE FROM THE IFOA

A right to move on

Our last issue featured a letter from Peter Shellswell, who wrote in to share his concerns over certain aspects of the IFoA’s disciplinary process (‘A right to move on’, October 2022).

Here, the IFoA responds.

Dear Mr Shellswell, Thank you for your letter to the editor in relation to the public naming of individuals who are subject to the IFoA’s disciplinary process.

We appreciate that being subject to a disciplinary investigation is stressful, and that for some members the publication of adverse findings is more concerning than any sanction imposed. The IFoA aims to support members through the disciplinary process by progressing cases as efficiently as possible, allowing individuals sufficient time to respond to the allegations against them, and being available to answer questions about the disciplinary process and the options available.

The IFoA also operates a Capacity for Membership process as an alternative to the Disciplinary Scheme, which is intended to support members who are experiencing significant issues of health that are impacting their ability to hold membership of the IFoA.

In disciplinary proceedings, the rights of the individual subject to an allegation must be weighed against the public interest. Openness and transparency are fundamental to the IFoA’s disciplinary processes. Publication of determinations allows members and the public to understand how and when disciplinary action has been taken by the IFoA. Publishing named determinations provides protection for the public by allowing easy access to recent adverse disciplinary decisions against members and enables the public to make informed decisions.

In addition, holding hearings in public and publishing determinations ensures fairness in

the disciplinary process and provides reassurance that the IFoA has acted appropriately, proportionately and consistently. This helps to protect and maintain public confidence in our processes and the profession.

The IFoA’s Disciplinary Committee has published guidance to help panels determine whether to publish a notice of hearing or determination, what information should be published and how long for. Respondents’ names are not published in all cases – for example, if an allegation is dismissed by the Adjudication Panel, details, including the name, will remain confidential. In other circumstances, while there is a presumption in favour of publication for the reasons given, it is open to the panel to anonymise, redact or direct that a determination should not be published, for example where the consequences of publication on an individual outweigh the duty to keep the public informed. The issue is considered carefully in each case, and it is open to the respondent to make submissions on this point to the panel. This enables the individual’s rights to be weighed against the need to protect the public and confidence in the profession.

Thank you again for sharing your views on this matter. We really value all feedback on the IFoA’s disciplinary processes and will continue to keep the Disciplinary Scheme under review to ensure that it meets best practice and follows the principles of better regulation.

JENNY HIGGINS, HEAD OF DISCIPLINARY INVESTIGATIONS

n 1933, Professor Paul Dalziel’s grandfather lost his job at the height of the Great Depression. He and Dalziel’s grandmother had just married and found out that they were expecting their first child; they were to remain without income for six years.

The impact of such a struggle passes through the generations. For Dalziel, fresh out of school in the late 1970s, it sparked a question that he was to spend the next 50 years trying to answer: “How is it that systems break down so that people are unable to create good lives for themselves?”

As part of his quest, he has become a world expert on wellbeing economics, and was the lead author of Wellbeing Economics: The Capabilities Approach to Prosperity – Palgrave Macmillan’s fifth most downloaded book on economics in 2018.

What is wellbeing economics?

Dalziel’s underlying belief is that “the primary purpose of economics is to contribute to enhanced wellbeing of persons”. ‘Wellbeing’ is a broad term that covers a variety of topics, from reducing child poverty or domestic abuse to improving people’s mental health or self-reported happiness. It is purposefully

broad because economics can help to make so many areas of our lives better.

The main objective in the current economic discourse is to grow the economy – specifically GDP. However, GDP doesn’t capture changes in child poverty rates or the value of the natural world. It doesn’t consider the vast amount of volunteering that takes place around the country or the unpaid work done in the home – predominantly by women.

Dalziel argues that “the ultimate test of whether economic policy is doing a good job is not how fast the economy has grown, but what kinds of lives are people living. What can they create with the resources the economy is producing?”. Wellbeing economics attaches much more importance to these questions than to the growth of GDP.

The New Zealand option

Dalziel isn’t alone in holding these views. In 2019, New Zealand’s Labour government introduced the world’s first ‘wellbeing budget’ in response to concerns that little progress had been made on child poverty or the climate emergency, despite economic growth.

While he doesn’t want to oversell the change, Dalziel describes a shift in emphasis that took place throughout New Zealand’s

Paul Dalziel talks to Alex Martin about the true purpose of economics and the lessons we can draw from the 2019 New Zealand wellbeing budget

Features Interview government, prompted by the new framework within the wellbeing budget. Under the new system, any budget policy proposal must improve at least three out of 12 domains. These domains include things such as social connections, subjective wellbeing, housing, health and the environment, cutting out the ‘middleman’ of growth so that “the civil servants and the cabinet making the decisions were focusing on what is the impact of this decision on wellbeing”.

An example of this new way of thinking was a ban on issuing new permits for offshore oil and gas exploration. While increased oil and gas production might improve economic growth, it does not align with the impact of climate change on future wellbeing.

As we discuss how New Zealand’s economy has developed in the three years since the wellbeing budget was introduced, Dalziel explains that one of the leading criticisms is that it hasn’t gone far enough. Given that one of the domains is ‘work’ and another is ‘consumption’, it is easy to construct a policy that “is not that different from what we used to do – a GDP-plus”.

A shift in emphasis can take time to make a difference. Even so, Dalziel suggests that we need to look at redesigning key economic systems. His term is ‘Wellbeing 2.0’: a framework that builds on the lessons of the past three years. Much will depend on the outcome of the 2023 New Zealand election.

New Zealand is not the only economy trying to move the focus from GDP to wellbeing – Dalziel describes how countries with strong leaders are joining the Wellbeing Economy Government partnership: “Iceland, Scotland, Wales, Finland, New Zealand have visionary leaders who are committed to the practice of designing economic policies that respect planetary boundaries and expand capabilities for people to create good lives.”

The role of business

It isn’t just governments that are leading the shift in focus from growth to wellbeing. “The fundamental concept of business bringing together resources to expand capabilities for wellbeing is really important,” says Dalziel. Decentralised markets give the choice of how to exchange goods and services to the person who is best placed to know what is best for their own wellbeing.

Governments and business therefore need to work together, he says, and “the trick is for

the government not to set itself up in opposition to business”. Creating partnerships and incentives for things such as “green technology” will help to ensure that companies operate along the same lines as the wellbeing budget.

In terms of the finance industry, Dalziel observes that “financial companies are very sensitive to risks, and it is becoming apparent that climate change is creating systemic risks that portfolio diversification isn’t strong enough to cope with.” Looking at the impact of Pakistan’s recent floods, he provides an example. “If we had similar storms, [New Zealand’s] Canterbury Plains could easily go underwater. What does that mean for any of the major trading banks that have diversified their portfolio across the Canterbury Plains? Suddenly, all of that [investment] could be at risk if we had an extreme weather event on that scale.”

higher risks for insurers and investors alike. One area of creativity and entrepreneurship that will be required in the insurance industry is learning how to underwrite for these risks.

Dalziel doesn’t think the job is done, though. “The big gap, globally, is how do we marry the wellbeing narrative with the distinctive contribution that business has to make to expanding capabilities for leading good lives?”

Rediscovering relationships

There is also a deep and complex connection between economic growth and wellbeing in our own lives. Dalziel brings up a recent study that showed an increase in the percentage of each day that Americans spend alone: “We have become isolated from nature and isolated from each other, and we’ve made those sacrifices in the name of economic growth.” Part of the movement towards wellbeing economics is to rediscover our relationships with each other and the natural environment.

It isn’t just about climate change. The impact of wellbeing economics on the finance industry extends to issues that it wouldn’t typically consider to be in its purview. Dalziel explains that as a country shifts focus from growth to wellbeing, it becomes more aware of poor business practices.

Lenders and insurers must start to consider their borrowers’ and customers’ ‘social licence to operate’, he says. For example, New Zealand’s dairy industry is leeching nitrates into rivers and lakes, and while these businesses contribute to economic growth, there is currently a backlash against them, prompting regulation in line with the wellbeing economics framework. Regional councils will now need to have regard to the quality of the water for its own sake – expressed in Māori as Te Mana o te Wai, or the integrity of the waterway.

Investments that disregard their social responsibilities will increasingly become

It was workers in New Zealand who set up the first social security system in the world in the 1930s. Despite increasing hardships, they were willing to accept a levy on their wages to fund a welfare state that would pay for universal education and free healthcare. In contrast, as we look around the world today, the dominant question seems to be “how can I maintain my standard of living, or how can I reinforce my privilege?”.

Dalziel’s view is that despite the extra wealth resulting from economic growth, “we haven’t become better people… yet we can. Humans have this amazing capability for solidarity and generosity, but when it comes to designing national economies, we seem to lose all that and it becomes more ‘what’s in it for me?’”

He argues that “governments must empower people, including future generations, so that people can create lives they value and have reason to value within the limits of planetary boundaries.” He expects that we are coming to the top of an S-curve of economic growth and should expect the never-ending increase in GDP to slow, or even flatline. It is a poor measure of most of the things that matter in a country; perhaps we should take our steer from New Zealand and the wellbeing economics movement to find a better way.

“The ultimate test of economic policy is not how fast the economy has grown, but what kinds of lives are people living”

Climate

Integrating ESG into portfolio management and underwriting workflows: the state of the market

As insurers move towards automation and further digitisation of their underwriting processes, accurate data and sophisticated analytics are becoming increasingly important. This is particularly significant in environment, social and governance (ESG). ESG factors and scores offer insurers new insights into risk and decision-making, but also bring new data integration challenges. Insurers that meet these challenges can benefit from considerable competitive advantage.

To understand more about the commercial property and casualty (P&C) industry’s journey to implement ESG scores, Moody’s Analytics and RMS, a Moody’s Analytics Company, carried out a comprehensive, independently-run market survey. The results, plus our experts’ insights, help validate the current state of the market and identify pain points.

Progress on implementation

Our survey received 36 responses from commercial P&C (re)insurers, all from individuals engaged in portfolio management and underwriting functions. Respondents were from a range of institutions, with gross written premiums ranging from US$100m to over £5bn. Almost 80% were directors or more senior, including 14% at C level. The survey was global, with most respondents having operations in North America.

Why integrate ESG?

The survey results present some interesting data about the key drivers for commercial P&C insurers integrating ESG into their business. Of respondents, 65% identified

risk management as a key driver, with 81% identifying managing reputational risk in particular. While we expected this, given where many insurers are in their ESG journey, we were encouraged to see that one in three respondents also saw potential for unlocking new revenue opportunities. We believe that this number is likely to increase as insurers start to realise value and see the opportunities that they can derive from using ESG as an additional risk factor in risk selection, pricing and product development.

A phased approach

Our conversations in the market suggest that insurers have an appetite for rapid progress in integrating ESG into their businesses. However, they must take an iterative, phased approach rather than rushing towards full integration. The full paper explores this further.

Understanding correlations

Survey respondents were asked which correlations they wanted to understand further and could select more than one answer. Three quarters of respondents want to understand correlations between ESG risk and claims, almost two thirds want to understand correlation between ESG risk and premiums, and more than half want to understand ESG risk against natatural catastrophe model results.

This is consistent with a broader emerging theme around correlations with performance metrics. Insurers may find that they have multiple exposures around the same event. It is important here to take a holistic view of ESG.

Personalising the view of ESG risk

Of respondents, 52% are considering whether to personalise the view of ESG risk. This could include blending multiple data sources or weighting data elements that are important to the strategy and vision. We expect this figure to increase as insurers get ahead of the problem, develop frameworks, assign responsibilities and include ESG into their decisionmaking process.

Consistent market standards

The commercial P&C market often exhibits an approach where there is safety in numbers. The direction of travel is likely to be similar for many participants. Almost two thirds of the respondents indicated that they would like to be able to leverage a market standard ESG framework that further supports the peer consistency that is important in the commercial P&C market. This confirms our observations that insurers would welcome a standard framework that helps formalise the assessment process, but crucially still allows them to impose their unique view of the risk.

Download the paper at bit.ly/MoodysCRI

Moody’s has been engaging with the market and taking a partnership approach with our commercial P&C customers to develop a solution that considers ESG in the risk selection process. To find out more about how Moody’s ESG Insurance

Underwriting solution can help your business, contact us today.

Paul McCarney, director – advisory services, Shaheen Razzaq of RMS and Salman Siddiqui, director – industry practice lead, present the fifth executive summary in a series on climate risk topics for insurers

series sponsored by

BOILING POINT

nsurers are spending an increased amount of time and effort on understanding how their financial position might be impacted as the consequences of climate change become more prevalent and severe. While the initial focus has been on assets, there is acknowledgement that a more holistic view is required that also considers liability exposure.

While the Bank of England’s 2021 Climate Biennial Exploratory Scenario overlooked liability risks, it did stress that mortality risk for life insurers could be material and should be seriously considered in the future. Former Bank of England governor Mark Carney has said that “the world is heading for mortality rates equivalent to the Covid crisis every year by mid-century unless action is taken”.

Life insurers’ liabilities could be impacted in several ways. Mortality assumptions alone are subject to primary effects such as temperature, air pollution and extreme weather, as well as secondary effects such as disease and food shortages. Since temperature and mortality data are publicly available and scientific research confirms a relationship between the two, we have explored the future impact of changing temperatures on mortality.

In the months since we started our analysis, the UK has experienced record-breaking temperatures, emphasising the importance of researching this topic. As part of our investigation, we modelled daily temperatures in a variety of climate change scenarios and quantified the consequential changes in future mortality rates.

Based on our findings, we believe that the frequency of extreme heat events in the UK will continue to rise, driving an increase in temperature-related deaths.

As quantifying climate risk exposure becomes increasingly important, Dan Gill, Rajinder Poonian and Alex Harding investigate the effect of rising temperatures on future mortality

Predicting future temperatures

In July 2022, Coningsby, Lincolnshire recorded the UK’s highest-ever maximum daily temperature of 40.3°C. The Met Office red warning at the time stated that this heatwave would cause “population-wide adverse health effects, not limited to those most vulnerable to extreme heat, leading to serious illness or danger to life”.

Calibrating our model to a day where maximum temperatures reach 40°C, we would anticipate mortality rates for those aged 65 and over to rise by up to 10%. The July heatwave’s impact on UK mortality is unclear at the time of writing, but this is an area that needs to be closely monitored as the frequency and severity of heat events in the UK increases.

Our investigation takes a twostage approach, the first being a temperature model to predict UK future daily temperatures, the second a mortality model that measures the temperature–mortality relationship.

The 4most temperature projection model is built as a stochastic simulator that randomly selects from a range of climate scenarios to forecast future temperature pathways. The model leverages data from the Met Office’s UKCP18 investigation, which provides probabilistic scenarios for average temperature change during the next seven decades. The UKCP18 forecasts are split by global emissions scenarios known as representative concentration pathways (RCPs), where the first challenge comes from identifying how a weighting can be applied to each pathway. RCP8.5 is the worst-case (no action) scenario, but this is unlikely to occur, given government mitigation actions. For our

current model, these weightings are set using expert judgment.

After calibrating, the Monte-Carlo Python model is used to yield the projections seen in Figure 1. The distribution represents temperature increases that are likely to occur during the next 70 years, relative to 2020. They generally show an upward trajectory –although, in extremely optimistic scenarios, the effects of climate change on temperature could be reversed. The array of pathways reflects the uncertainty of climate change effects and the extent to which human action can reduce the impact.

Converting these temperature increases from average to daily increases presents several challenges, including the question of whether daily temperature volatility would change over time. To model this, we must consider changes to extreme weather in the UK, as well as the climate. The expectation is that climate change will drive an increase in extreme weather, particularly through effects such as damage to the Gulf Stream weather system, but available research seems limited on this topic. This warrants further investigation to improve projections.

Temperature change and mortality

With daily temperatures forecasted, the next challenge is to build a mortality model that investigates the connection between mortality and temperature change. Scientific research to date examines the U-shaped relationship below which the curve shows the relative risk of mortality at various temperatures (Figure 2). Note how mortality sharply increases beyond pinch points at both hot and cold temperature extremes. Studies suggest that the relative risk of

The ‘U-shaped’ relationship between temperature and mortality highlights the pinch-point temperatures (red) and point of lowest mortality (blue). The temperatures labelled are calibrated via the 4most mortality model.

mortality in temperature-related death grows with age, so our investigation focuses on those aged 65 and over.

The model was parameterised for these extreme temperature definitions and for the lag effect – the number of days following an extreme temperature event where a resultant spike in mortality is observed.

Our findings suggest optimum parameter values: a minimum temperature for hot events of 24˚C with a lag of zero days, and a maximum temperature for cold events of -3˚C with a lag of 10 days (Figure 3). These figures can then be validated by comparing them with findings from scientific research papers. With parameters assigned, we investigated the relationship between temperature and mortality.

The models show that the impact of temperature change is greater for cold events than for hot events – 1˚C colder for a cold event causes a 1.69% increase in mortality, whereas 1˚C hotter for a hot event causes a 1.48% increase.

As the planet warms, the frequency of cold events reduces, so fewer people are expected to die from coldrelated illness – but this will be counteracted by the frequency of heat-related illnesses as the number of hot events increases substantially. We have focused on hot events here, but both elements will need to be considered –especially for UK insurers with large annuity books, where longevity improvements in winter months could reduce liabilities.

We explored several scenarios created by the temperature model to show how the increasing occurrence of hot events would impact the expected number of deaths. Even in the

median scenario, the number of deaths expected to occur on hot event days from 2040–54 is significantly larger than the number of deaths experienced for such events in the recent past (Figure 4). The biggest increases in number of deaths can be seen for the oldest age group, 90-plus, where in the 99.5th percentile the expected number of deaths is more than double what was experienced between 2005 and 2019.

The current analysis is limited by data availability; if we had more data on deaths caused by temperature events, causes of death, and data on actual age rather than age groups, we could create more informative model results. In addition, the current mortality model doesn’t allow for future mortality improvements after 2021, so there will be further considerations about how human physiology and healthcare may adapt to cope with a changing climate.

Are you capturing this risk?

The human impact of climate change is a complex problem, and with research still in its infancy in some areas, it is a challenge for the insurance industry to understand its exposure to these risks. However, while arguing immateriality has been sufficient in the past, increasing regulatory pressure to quantify financial exposures (for example via the insurance stress test) suggests that it’s only a matter of time before more comprehensive climate stresses are required.

We believe it is increasingly clear that the incidence of extreme heat events will grow as UK climate change transpires, resulting in an escalation of heat-related deaths. Companies with mortality or longevity risk exposure should leverage internal and external data to ensure their

models are capturing this risk and providing the capability to understand how capital positions will be impacted – both today and in the future.

FIGURE 4: The expected number of deaths on hot event days from 2040-54 across the 50th, 75th and 99.5th percentiles, compared to historic data from 2005-2019.

Convergence between actuarial and data science is coming

Guillaume Béraud-Sudreau, chief actuary and co-founder of Akur8, presents the results of Akur8’s Global Pricing Survey, providing direct insights into the pricing challenges and expectations of non-life insurance carriers worldwide

Akur8 has surveyed more than 100 non-life pricing professionals across 34 countries, covering all lines of business, to find out about their pricing practices, limitations, business impact and the outlook for the future of ratemaking.

According to the survey, pricing is perceived as the most important competitive differentiator for insurers in the marketplace, being deemed ‘very important’ or ‘extremely important’ by 81% of the respondents. This indicates that property and casualty insurance, like many other markets, is seen as primarily price driven. This perception is influenced by the fact that respondents are all insurance pricing professionals, but is also likely reinforced by the current macroeconomic outlook, which is driving customers to be price cautious and sensitive.

With pricing widely recognised as being the first strategic lever for insurers, we would expect pricing teams to feel well equipped for embracing their day-to-day activities. However, the results of the survey indicate otherwise: according to respondents, pricing teams are facing several challenges, chiefly a lack of data (described as ‘very affecting’ or ‘extremely affecting’ by 70% of respondents) and internal resources (described as ‘very affecting’ or ‘extremely affecting’ by 67% of respondents), followed by the lack of collaboration and automation.

From our perspective, many of these challenges are interrelated. Lack of automation is linked to manual ratemaking approaches that are common practice in the market. This manual work contributes to a lack of resources and understaffed actuarial teams, preventing actuaries from investing time in new data acquisition and exploration. Streamlined and automated

Figure 1: How much is your business affected by each of the pricing challenges below?

pricing, in contrast, allows actuaries to focus their time and energy on valueadded tasks and decision making.

The challenges caused by a lack of automation have been worsened by the effects of COVID-19, which have disrupted existing trends and made the use of historical data more complex. The head of pricing for a leading Irish carrier states: “COVID-19 has really disrupted trend experience, resulting in inconsistent patterns” – exacerbating the difficulties of challenges related to insufficient data,

resources and automation.

Traditional pricing tools and approaches remain manual and iterative, limiting the ability to leverage external data in quantity and variety. When asked to specify the name of the software or programming language they use at each stage of the pricing process, respondents provided the information shown in Figure 2, attesting to the general undertooling across the pricing process:

Reliance on legacy tools holds insurers back from leveraging pricing’s full potential as a business lever. The typical actuary is largely absorbed by repetitive tasks and cannot fully focus on decision making.

Looking into the types of models used for pricing, generalised linear models (GLMs) stand out as the market standard for non-life technical and commercial pricing, with 66% of respondents using them for technical pricing and 51% for commercial pricing. They are widely used because they are transparent and explainable, while black box generalised

boosted models are often only used as a complement or for exploratory purposes. However, in terms of the external data sources used to feed these models, there seems to be little variety, with only five different types of data sources quoted by all respondents. This is consistent with the prevailing manual modelling approach.

When looking into the future of ratemaking, pricing teams report that they expect major untapped value potential to be liberated by automation such as native machine learning, and by integrated cloud-based pricing processes, allowing for unlimited data exploration and seamless collaboration. These expectations are directly mirroring the challenges reported by pricing teams, given the limitations of manual rate

modelling approaches.

For early adopters of automated ratemaking tools such as Akur8, these benefits are already materialising. One of Akur8’s clients states: “On a combined ratio basis we’d be looking at a 6% improvement in our performance based on the work we did with Akur8. That’s a huge improvement for us, and is basically the difference between the class of business being loss making and performing well.” We believe the adoption of automated pricing platforms will further accelerate in the future as business performance improvement fuels market differentiation.

Respondents share this belief, with 88% expecting convergence between data science and actuarial science to bring

value to the pricing process; this convergence can be materialised using an automated but transparent pricing approach. It is also underlined by the high importance of business expertise and decision making, which are only possible if actuaries can move away from repetitive manual modelling tasks. As a pricing actuary at a major US managing general agent puts it: “I deeply believe that machine learning will lead to higher underwriter profits. Besides, offering a transparent and visually explainable pricing process that can be updated regularly will be a dramatic improvement for the team.”

Ultimately, this survey supports Akur8’s mission to revolutionise insurance pricing with transparent artificial intelligence. Ratemaking automation paves the way for actuarial and data-science convergence and provides tangible operational value. At Akur8, we know the future of insurance pricing is available now. We empower pricing teams to make better decisions more quickly, and to generate immediate, measurable business impact.

Figure

Which software or programming language do you use at each stage of the pricing process?

3: How valuable would the improvements below be for your pricing team over the next five years?

you are interested in learning about the full results of Akur8’s

global pricing survey, go to www.akur8. com/white-papers/ global-pricing-survey

you can scan this QR code

Lawrence Habahbeh considers what a geopolitical risk framework for the 21st century would look like

In recent months, firms have heightened their awareness of geopolitical risk. Such risks can have financial and economic consequences in the short, medium and long terms. A firm’s geopolitical risk exposure does not just involve its own direct exposure, but also extends upstream to supply chains and counterparties and downstream to clients.

Geopolitical risks increase the likelihood of business and supply chain interruption, and of armed conflicts destabilising trade and investment flows. In a globalised, densely interconnected world that faces new challenges and opportunities, geopolitical risk should be a factor in the strategic decision-making of all firms with a significant overseas presence.

Definitions

Geopolitics is the role that geography plays in a state’s political character, dictating its strategic value, how it takes part in global affairs, and its relationship with the rest of the world.

I would define geopolitical risk as the expected and unexpected losses that arise from firms’ upstream, direct and downstream exposures to short and medium-term geopolitical risk factors. These can include political factors such as revolutions, coups, contested elections, ethnic conflicts, and the activation of separatist and irredentist movements. They can also include long-term geopolitical trends and strategic risk factors that act as threat multipliers to existing financial, economic and social risks, such as competition for natural resources, climate change, emerging technologies and mass migration.

Geopolitical risks can cause common consequences as they cascade through society. These events are systemic in nature, potentially impacting individual firms’ safety and soundness while also having broader implications for the stability of the global financial system.

What differentiates geopolitical risk from political risk? Political risks arise from within states’ political boundaries and are driven by internal political factors and situations. They include, for example, government expropriations and breaches of contract, discriminatory taxation, regulatory changes and civil war. Foreign investors protect themselves from political risk and enhance their reward profiles by diversifying their investments, evaluating the risk of political turmoil in the countries where they invest, and buying political risk insurance.

Geopolitical risk drivers

As the war in Ukraine has shown, it is becoming more important to understand major drivers of geopolitical risk in a transitioning world order. These include state collapse, regionalism, non-state actors, malicious use of emerging technologies such as artificial intelligence, lethal autonomous weapons, directed energy weapons, biotechnology and quantum technology, and the competition for the rare earth minerals needed for the renewable energy transmission, such as cobalt, copper and lithium.

These risks will drive future dynamics and relations between states, and in a geopolitically contested world, this competition could lead to more frequent geopolitical conflicts.

Global financial markets

Heightened geopolitical risks have historically led to lower stock prices in the short term. At the start of the Russia–Ukraine war, the Russian rouble–US dollar exchange rate dropped by more than 20%, volatility in the global equity indices increased sharply, and global bond indices reflected a higher default risk. This resulted in high yield spreads widening across the world: spreads in emerging markets widened by about 174 basis points following the start of the war, and by about 63 basis points in Europe and the US to reflect a higher geopolitical risk premium.

In the credit default swap (CDS) market, CDS spreads priced in a 55%–60% chance of a Russian sovereign default as five-year CDS spreads soared to a record high. While these represent higher risks of default, they also represent higher compensation for those who are willing to take the risks.

In short, geopolitical risks result in investors requiring a higher return on investments. This higher return, or geopolitical risk premium, acts as a cushion, compensating investors for the losses that could arise due to geopolitical events.

A geopolitical risk framework

The first step in effective geopolitical risk assessment is horizon scanning over the immediate, short, medium and long term. Such analysis should account for the potential trajectories of geopolitical risk event trends. This can be achieved by engaging with external experts to hear diverse perspectives on specific strategies to identify, evaluate and monitor these risks and the different approaches to cope with them, as there is typically no historical data for risk managers and underwriters to rely on.

Features Risk

Some geopolitical trend questions to consider include:

What are the most significant geopolitical risks we face in the short term, and how is the firm’s risk profile positioned against these events? How would financial and macroeconomic shocks arising from these developments impact the firm’s direct, upstream and downstream risk exposures?

What are the most significant geopolitical trends in the medium and long term that will drive future dynamics between friends, foes and allies? How will this drive countries to think about who their major allies are? Specifically:

Who is the major power they must deal with?

Who is the major power that they can rely on?

The dynamics driving these questions are also factors that drive the risk of conflict. How is the firm’s risk profile positioned against negative shocks that could arise from the evolution of these trends?

In today’s context, example questions might be:

What will happen in Europe? Will a more secure or fragmented Europe emerge after the war in Ukraine? What are the implications of NATO expansion into Central Europe –for both Europe and the world? Will this lead to further escalation and more geopolitical conflicts? How will it impact investment and trade flows? How is the firm’s risk profile positioned against these developments?

Will Russia become a status quo power? How will that affect the global distribution of power, as well as the distribution of power within the strategic equations of post-Second World War global institutions and regional blocs?

How would the rise in the scope, scale and frequency of extreme climate events in the Middle East interact with the existing security risks and energy, food and water resource issues affecting relations between Middle Eastern countries?

What would be the regional and global security and economic implications of a complete takeover of Jordan by Hamas, Hezbollah and Iran?

On the other hand, how is the warm peace between Israel and six Arab States, coupled with the recent Negev Summit, creating positive regional momentum and driving regional integration and connectivity efforts for deeper co-ordination and interaction among participants through multilateral co-operation in the economic, political, security, food and water and energy spheres? How would this change the relationship between the Middle East and other regions of the world? What are the plausible structures for a multilateral regional architecture in the Middle East? How would these developments impact investment and trade flows to the region? What are the potential opportunities and rewards of enhancing regional peace and co-operation for the region and the world?

What are the possible developments in Asia-Pacific, in particular amid growing tension between the US and China and the Thucydides trap?

What scenarios would lead to, or avoid, large-scale social collapse due to several concurrent strategic risks, such as macroeconomic, geopolitical and climate risks in critical parts of the world?

How likely are these geopolitical risks to materialise?

What are the most likely, optimistic and pessimistic reasonable scenarios and consequences for firms’ exposures under each scenario?

What are the underlying causes or drivers and strategies of the actors involved that could make a geopolitical risk more likely than not to materialise?

How would the firm’s risk profile react to different timings (immediate, short, medium or long-term) of consequences?

Conduct scenario planning for assessing emerging geopolitical risks and the consequences of several future possibilities, including those that may seem highly unlikely.

Using Ukraine as an example, scenarios could be:

Ukraine capitulates

Regime change in Ukraine

Regime change in Russia

A broader NATO–Russia war

What are the economic, political and conflict war risk implications of a Fukushima-style nuclear accident in Ukraine’s Zaporizhzhia nuclear power plant – Europe’s largest nuclear station – and how would it affect the regional configuration of power? How would the firm’s direct, upstream and downstream risk exposures react in the short, medium and long term?

Quantify the expected and unexpected losses per scenario to create a geopolitical risk exposure map, based on a geopolitical risk event model that accounts for the intensity and size distribution of jumps in asset prices such as equity, bonds, foreign exchange, commodities and credit spreads associated with current and historical geopolitical risk events. Apply these jumps to current market prices of assets and do a full revaluation of portfolios based on a range of scenarios. What is the distribution of expected and unexpected losses per scenario, asset class, geography, counterparty, client, supplier and so on?

What we should do now to prepare?

Preparing for the worst

The world faces many concurrent strategic risks, such as COVID-19, systemic cyber attacks, the increase in scope, scale and geographic extent of climate risks, and a contested geopolitical landscape. These have all exposed the fragility and inadequacies of our current risk management models and enterprise risk systems.

The goal of a geopolitical risk framework is to help decision makers see what may lie beyond the horizon by applying out-of-the-box thinking, and to help them avoid failure of imagination in identifying these types of risks. It can also offer management an array of possible futures with a range of plausible consequences, including those that may seem unlikely.

Effective international co-operation through international and regional organisations can also help countries to overcome differences by opening new strategic prospects, enhancing the rewards for countries and firms alike. While we prepare for the worst, let us not forget to also strive for the best.

LAWRENCE HABAHBEH is a traded and enterprise risk specialist, a member of the Risk Management Board and chair of the Black Swans Insurance Working Party

Engagement

that

does not change

for the

no changes to strategy are needed to stay within

published data. One argument is that customers and investors will shy away from companies that don’t reduce their emissions and produce credible data. A counterargument notes the existence of indifferent investors and customers, shown by the rise in profit and share prices of energy and fossil fuel companies due to the Ukraine war. (For example, Thungela Resources, Anglo American’s coal-focused spin-off, has seen its share price rise by more than 1,000% since June 2021.)

Intentionally changing your strategic asset allocation – for example, by tilting away from certain sectors and markets – has similar effects and considerations as divestment. However, its broader, less-targeted approach and inherent lack of direct engagement can reduce investors’ impact on a given company.

Both divestment and changes to strategic asset allocation can have notable impacts on risks relative to risk appetite, as well as key aspects of portfolios. These impacts may include:

Less diversification across sectors and regions, and fewer holdings Changes in the timing and size of expected cashflows

Changes in risk and expected returns.

Pension buy-out

A completed pension buy-out will see all pension scheme assets and liabilities transferred to an insurer and the scheme wound down, with all trustee responsibilities ceasing – including those around climate risks. However, trustees can still select an insurer whose approach to environmental, social and governance factors is aligned with theirs.

In fact, a scheme’s transferred funds can produce greater impact post-buyout, since insurers may find it easier to invest at scale in the more risky early stages of ‘green’ investments. This is because insurers are not subject to the Pensions Regulator’s guidance, which encourages well-funded pension funds to de-risk their investments.

What would you do?

Most of these options and considerations are relevant for a range of asset owners, including family offices, insurance companies and private equity investors. Which apply to you? What can you do once metrics and targets are in place?

MICHAEL SHER sits on the Board of the IFoA Sustainability Volunteer Group and leads a small team in building a user-friendly asset liability climate model

Divestment and investment strategies

Divestment rapidly improves

whether this induces companies to improve

there

and

You may be a trustee, sponsor, member or adviser; a general partner, portfolio manager or regulator; even an interested member of the public. Whichever stakeholder you are, you have a mandate to contribute to the mitigation of climate risks and improved outcomes for your beneficiaries, your clients and your future.

I

n November 2021, the UN Climate Change Conference (COP26) took the world by storm. For two weeks, world leaders sat and debated how we might fix the climate crisis. Business leaders flew to Scotland to be part of the debate, and campaigners marched through Glasgow trying to make their voices heard.

The UN Biodiversity Conference (COP15), on the other hand, attracted far less attention.

The importance of biodiversity Biodiversity is a topic with a wide scope, covering the variety and abundance of all living things, from plants and animals to fungi and

plankton. It is vital to humanity in a vast number of ways: it supports food provision, generates raw materials for manufacturing, sequesters carbon via the carbon cycle, and purifies air and water – not to mention the cultural value we place on forests, rivers, lakes and streams. And that is just scratching the surface.

One of the most obvious ways in which biodiversity helps us is in crop pollination, but its value in food production is far wider reaching than this. A plethora of bacteria and fungi are crucial to the breakdown of organic matter in the soil, which produces the nutrients that crops require to grow. A complex web of predator–prey systems ensures that no single pest can take hold in the fields, and farmers can mitigate the impact of crop diseases by having a wide variety of crop species.

Biodiversity decline

In 2015 the UN set out 17 Sustainable Development Goals (SDGs), designed to be a “blueprint to achieve a better and more sustainable future for all” (Figure 1). These are intended to be achieved by 2030, and biodiversity will be key to achieving this aim.

The UN SDGs include two goals for biodiversity: 14 – Life Below Water and 15 – Life On Land. The Zero Hunger (2), Clean Water and Sanitation (6), Sustainable Cities and Communities (11), Responsible

A S TE E P D ECLI N

Alex Martin and Ryan Allison discuss the upcoming UN Biodiversity Conference – and why biodiversity is an aspect of the sustainability crisis that actuaries must not ignore

Consumption and Production (12) and Climate Action (13) goals also depend on biodiversity in some way.

However, biodiversity is declining. Every 10 years the WWF produces the Living Planet Report, its attempt to measure the population sizes of all mammals, birds, fish, amphibians and reptiles. Between 1970, when it first undertook the exercise, and the most recent report in 2020, this aggregate world population fell by 68%.

If this trend continues, we could see large-scale consequences across a wide range of industries. The World Economic Forum’s 2022 Global Risks Report placed biodiversity loss third-highest on its list of the most severe risks on a global scale during the next 10 years. In pensions, we could see big changes in investment values, as the costs of biodiversity loss will be increasingly internalised in asset values. In general insurance, we might see more claims on farms that fail following years of pesticide misuse, which destroys soil microecology. In health insurance, we might find that a reduction in access to green space has a long-term impact on mental health claims.

Biodiversity: a call to arms

Three easy questions you can ask to see if your company is switched on to biodiversity loss:

Does my company have a biodiversity strategy?

Does my company have any plans to measure biodiversity loss exposure and its impact on biodiversity loss?

Is my company reporting on biodiversity loss or does it have any plans to do so in the next three years?

If the answer to any of these is ‘no’, perhaps ask yourself if you can be the person to change that.

COP15

COP15 has a mandate to halt and reverse biodiversity loss through the UN Convention on Biological Diversity. The original plan was that it should occur in Kunming, China in early 2021, but it was postponed due to COVID-19 restrictions. In October 2021, a virtual week of meetings was held in which the Kunming Declaration was adopted. This is a high-level set of commitments that will guide the output of the in-person meetings. These will take place in Montreal, Canada, starting on 7 December.

The conference will involve representatives from the original 195 countries that signed the first convention at the 1992 Rio Earth Summit, including the UK, China, Europe and Japan. While the US signed the treaty, it has not ratified it, so will not have voting rights at the conference.

The focus of the COP15 in-person meetings is the setting of the post-2020 global biodiversity framework. One of the main parts of this framework is expected to be the 30x30 goal, which seeks to protect 30% of the land and seas by 2030. Other areas of focus might include agricultural subsidies or global environmental law.

A previous attempt at goal setting, the Aichi Targets, occurred in 2010, and each of the 20 targets agreed upon have been missed. The main criticism of the Aichi Targets was that there was a lack of accountability and governance, and so we can expect this to be a hotly debated topic at COP15.

To go with the 2020+ Biodiversity Goals there will likely be a vision for 2050 and 2100. This might include details on how finance companies are expected to report on biodiversity loss, based on work by institutions such as the Taskforce on Nature-related Financial Disclosures. It could also include specific long-term targets for key biodiversity indices, such as the Biodiversity and Ecosystems Services Index or the WWF’s Living Planet Report

If COP26 is anything to go by, there will be just as much focus on the peripheral events. This might mean that we see collaborations like the Glasgow Financial Alliance for Net Zero spring into existence, or perhaps companies will take the opportunity to release biodiversity strategies and targets.

Time to act

While there may be uncertainty around COP15, biodiversity loss is going to become increasingly significant in our industry. The actuarial skillset will be vital in helping us to navigate the formation of new reporting standards or the introduction of complex metrics.

As risk professionals, it is our responsibility to identify, monitor, manage and mitigate risk. We’ve spent the previous 10 years developing a skillset that can deal with climate risk, and we need to show our adaptability in applying this to biodiversity loss.

Source: Stockholm Resilience Centre, Stockholm University.

FIGURE

The UN’s SDGs.

ALEX MARTIN is a volunteer for the IFoA Biodiversity and Natural Capital Working Party

RYAN ALLISON is a volunteer for the IFoA Biodiversity and Natural Capital Working Party

Features Regulation

Under Solvency II, fulfilling certain criteria, annuity writers can discount liabilities using [risk free discount rate + matching adjustment]. The matching adjustment (MA) can raise companies’ discount rates and thereby reduce their liability valuations. It plays a vital role in helping companies to generate capital and offer competitive annuity rates.

The MA is a reflection of the ‘illiquidity premium’ in the assets backing the liabilities, and is calculated as [asset portfolio yield –risk free discount rate – fundamental spread], where the fundamental spread (FS) is an allowance for credit risk in the asset portfolio.

The FS calculation was originally defined by the European Insurance and Occupational Pensions Authority, and is currently [default cost + downgrade cost]. Broadly, it varies with rating, duration and bond category, but is agnostic to asset class. This means that some alternative asset classes that are favourably rated can exhibit a ‘too-good-tobe-true’ MA. In addition, the FS is currently floored by a long-term average spread that has been biting and stagnant, causing the FS to be insensitive to market spread movements. This sometimes causes the MA to exhibit more volatility than desired.

The Treasury’s X + Z formula Post-Brexit, the Treasury is reviewing the UK version of Solvency II, and has recently

held a consultation. One proposed clause that drew much attention was the proposed new FS formula:

FS = X * [n-year average of a benchmark spread] + Z * [asset spread – benchmark spread] where X is between 35% and 55%, Z is tentatively 17.5% and n = 5.

This new formula was designed to increase: 1) Risk sensitivity – the X factor retains more credit spread sensitivity in the FS 2) Asset awareness – the Z factor keeps a check on assets that can otherwise provide a ‘too-good-to-be-true’ MA.

Any increase in FS magnitude and volatility will negatively impact the MA and possibly the annuity industry’s business

capacity. This formula is widely believed to have such an effect. However, the Treasury argues that this will be more than offset by positive impacts of the other proposed measures: a 60%–70% reduction in the risk margin (RM) and more investment flexibility.

The IFoA welcomes the RM reduction proposal but is concerned about the potential balance sheet volatility and procyclicality introduced by the new FS formula. Instead, it proposes a ‘percentile’ method, based on the analysis of the MA Working Party. This involves adding an explicit margin for uncertainty to the FS’s ‘probability of default’ component, corresponding to the 85th percentile of the (default) loss distribution, calibrated using historical default data.

There are, however, two aspects of the analysis worth reconsidering: the working

Features Regulation

party modelled private debt as corporate bonds (Sterling iBoxx) + fixed spread, and did not consider the Z factor in its analysis. These will be our focus.

Applying the new FS formula on private assets

Private assets encompass a wide range of investment strategies, which can be very different from one another. Those with a significantly higher yield than the typical private placement/infrastructure debt (those that I believe implicitly underlie the MA Working Party’s analysis) will need a meaningful Z component to mitigate any ‘too-good-to-be-true’ MA issue and retain asset awareness. The Prudential Regulation Authority (PRA) suggested a 17.5% Z factor.

Considering the vast range of private assets in existence, I believe the percentile method will be difficult to calibrate and justify.

Private assets that bear low correlation with a traded spread benchmark will experience a disconnect between the X and Z components; should there be a spike in

traded spread, X will stay relatively unchanged because of its historical averaging nature (assuming n ≥ 5), while Z shrinks. As a result, the total FS shrinks and the MA increases. In this way, while these private assets are not generating more yield, liabilities become more discounted, creating an artificial additional surplus at a time of public market crisis – an unintentional ‘countercyclical’ effect.

Will illiquid assets lose their edge in MA portfolios?

No. Due to the counter-cyclical effect, higher-yielding illiquid assets can still expect to deliver a higher and more stable MA than liquid assets.

Consider the following example under base and stressed (spread event) scenarios. An annuity writer with £22bn assets and £21.5bn best estimate liabilities-without-MA is choosing between three sets of assets, with varying levels of yield and credit quality, for its MA portfolio. Each of the sets of assets can be in the form of a liquid or illiquid asset, and

Private assets will continue to shine even under the Treasury’s proposed changes to the Solvency II matching adjustment, says Ziling Jiang

“The Treasury is reviewing the UK version of Solvency II and recently held a consultation; one clause that drew much attention was the proposed new FS formula”

their base and stressed characteristics can be seen in Table 1

Note a key assumption that, under market stress, illiquid assets would experience less extreme spread widening than liquid assets – whether due to diversification, valuation lag or both. This is the most important basis in this article for deriving the different behaviours of FSs on these assets.

In addition, we make the following market assumptions for the base and stressed scenarios, where the stressed scenario represents a spread event:

Current benchmark spreads are 200 basis points for BBB and 400 basis points for BB respectively; in a market stress, they become 350 basis points and 700 basis points.

n = 5, and five-year average market spreads are 200 basis points (BBB) and 400 basis points (BB) and unaffected by the market stress.

Risk-free rates remain unchanged

stress.

awareness and asset awareness to the calibration, mitigating the ‘too-goodto-be-true’ MA issue in the current methodology. It also (unintentionally)

a counter-cyclical effect

illiquid assets, or any asset class

a low correlation to the

index – something that

methodology lacks.

main thing carrying this conclusion in the modelling is that we assume illiquid asset

widen less than liquid

spreads would. This is an

beneficial characteristic of these asset classes, which can’t be ‘overridden’ by regulatory

Allowing annuity writers to take advantage of these benefits can boost real economy-related investments.

The current calibration of 35%–55% for the X factor and 17.5% for the Z factor is likely to create an uneven contribution between X and Z components. This is as intended because Z, driven by current spread, can otherwise add volatility to the FS. In my view, for illiquid assets, Z can be slightly increased to account for a lack of historical credit data – for example to 20%–25%.

If, rather than tuning X and Z, the formula were structurally amended, then a private benchmark should ideally be used as the reference index and the Z calculation should be amended to [asset spread – average private benchmark spread] rather than [asset spread – current benchmark spread]. This would remove the mismatch between X and Z components, as well as the unintentional counter-cyclical effects. However, there will be difficulty in finding suitable private market benchmarks, given the great variety of private assets. All in all, the value-add of structurally amending the current X + Z formula is unclear.

ZILING JIANG is head of insurance analytics, EMEA at Neuberger Berman

The percentile method, on the other hand, is likely to be difficult to apply for illiquid assets that are more niche than private placements and infrastructure debt – not only because there are too many varieties of those, but also because of the scarcity of associated benchmarks and data point infrequency in those benchmarks.

Be the change

Nick Spencer and Nico Aspinall explain how the profession can expand into new domains and retain its relevance in a changing world

In his June 2020 presidential address, Tan Suee Chieh said: “This is a call for an open, imaginative and creative exploration of the domains we can work in and influence, given who we are and our DNA. We want to be recognised as actuaries and analytical problem solvers, not only in our core fields but also across a wide range of domains, wherever our unique attributes can add value.”

Project New Horizon has identified the growth of new actuarial domains as crucial for the profession’s future success. Actuaries are needed to help solve an abundance of problems – yet the successful creation of new actuarial domains remains rare.

If actuaries are so useful, why is it so hard to create new domains? This is both a missed opportunity and a threat to our profession’s vibrancy. We risk stagnation and decline if we cannot outpace the medium-term shifts in demands for actuarial work, such as those projected for UK defined benefit pensions and the substitution of artificial intelligence. Those involved in Project New Horizon spent some time thinking about how to make this easier. We must get this right.

Of course, there has been success. General insurance took off 30 years ago, and it’s now impossible to imagine it without actuaries. In some countries, such as Australia, actuaries are a key component of banking. In Africa, innovative and entrepreneurial actuaries are found in many new and evolving companies. However, these are limited case studies, and it has been a struggle to scale up such efforts. How can we learn from these experiences and make them more widespread?

Project New Horizon identified three dimensions for action:

progression, from forming beachheads to full-scale occupation

Using PR to enhance perceptions of actuaries and their unique attributes

Consistently supporting initiatives with large potential (for example data science)

Introducing regulation that distinguishes between (reserved) statutory and nonstatutory roles, simplifying the effort required to become a pioneering actuary.

Getting the message about flexibility out early to graduates and at qualification.

1

Creating fertile ground – ensuring new sectors know that actuaries exist and can make a vital contribution. Ideas included:

Developing a growth theory for new domains to support each step of the

2

Supporting the seeds – helping pioneering actuaries survive in small numbers as they carve out actuarial niches and demonstrate the value that we add. Ideas for this included:

Creating networks and mentoring groups to enable better knowledge transfer –especially technical jargon

Identifying knowledge and skills gaps to better support individuals in their learning Incentivising the retention of wider field entrepreneurs so that they remain within the profession

Bringing people who are later in their careers into the profession, for example via a fast-track one-year qualification for experienced individuals and those with backgrounds in suitable professions.

Our public interest duty will be enhanced if more actuaries are engaged in tackling a broad array of real-world problems. To reach new domains, we need to celebrate and embrace pioneers and innovators, and stop suggesting they’re not ‘real actuaries’. We must move beyond the mindset that initially criticised the COVID-19 Actuary Response Group for commenting on real-time data without waiting for long-term data to emerge. We can only succeed if we understand that an actuary is not just someone who works in pensions or life insurance, but someone who applies a skillset, using ethical conduct and professional judgment.

3

Increasing the number of seeds getting more actuaries to join entrepreneurial efforts, either on their own or by supporting emerging beachheads.

Ideas for this included:

Highlighting and celebrating case studies of exciting work in new domains

Making sure all actuaries are embraced as ‘real actuaries’

Identifying spaces that have an excess supply of actuaries and supporting these actuaries to transition into new domains

Improving support for people who are changing career

These ideas are at an early stage, but new domains don’t just happen – we must make them happen. We hope that you will join Project New Horizon members in supporting and encouraging the IFoA in these efforts. Our future depends on developing and applying our skills in broader domains, as this will grow, invigorate and cross-fertilise our profession to benefit our members, our clients and our futures.

This is the third in the series of articles contributed by members of Project New Horizon; the first article in the series can be found at bit.ly/Actuary_PNH

NICK SPENCER is a Council member and the founder of Gordian Advice

NICO ASPINALL is founder of Nico Aspinall Consulting

Actuaries have been data scientists since long before the term became popular, and the pricing process has been a complex machine learning pipeline for decades. Infrastructure ranges from simple multi-way rate books, crafted using expert underwriting experience, to data-driven, nested deep learning models. During the past decade, we have seen more insurers and products moving towards advanced infrastructure architectures and using more complex models. This has created business opportunities for vendors of deployment infrastructure and modelling solutions that are specialised for non-life insurance. We spoke to several of these companies and compared the merits of commercial solutions to an open-source route.

Current market practice

Developed insurance markets are dominated by commercial deployment vendors. An insurer’s choice of pricing implementation solution is driven by the market’s availability of people who have expertise in the proposed solution. As such, the software with the largest trained community in the local market has the advantage. Insurers seeking custom solutions and use of newly developed algorithms such as machine learning sometimes opt for open-source solutions. These insurers are usually insurtech start-ups that want to obtain a strategic advantage and build the skillset necessary to support such solutions.

Less-developed markets make less use of commercial vendors for pricing deployment. Those that use commercial vendors are usually the largest local insurers, or multinationals that can afford or understand the solutions’ benefits. Most of the insurers in less-developed markets provide a simple-to-code algorithm to the policy management system vendor to deploy it. Alternatively, a simple Microsoft Excel Workbook is uploaded and called by the policy management system, providing an easy and transparent deployment method.

Non-specialised policy management systems cause slow deployment. The infrastructure cannot support all types of models and is not centrally controlled by

CHOOSING A PRICING ARCHITECTURE

pricing or underwriting teams. When talking to different vendors, it was clear that clients deemed deployment speed and control as necessary to react to market changes quickly.

Commercial vendor solutions

We reviewed some of the popular commercial solutions for modelling and deployment. All the vendors provide modelling solutions; most either provide deployment solutions or are working on providing automated deployment. All provide data pre-processing and visualisations, and support running

future scenarios for testing pricing strategies and potentially plotting strategy frontiers. Most provide cloud deployment and version management control.

Different vendors have different business models. Some are more focused on their modelling algorithm. Others offer their platform as a data science pipeline to be used alongside their internal models – models to be built externally and then imported from commercial modelling vendors such as DataRobot or open-source tools. Most solutions support machine learning model

SOFTWARE OPEN-SOURCE SOLUTIONS

SOLUTIONS ARE

Yiannis Parizas and Phanis Ioannou weigh up the benefits of open-source and commercial solutions for general insurance pricing

algorithms: mainly gradient boosting (GBMs) and generalised linear regressions (GLMs). A benefit of GBMs and other automated machine learning models over standard GLMs is that they materially reduce the manual work required for model selection; as a result, the time and labour cost needed for modelling decreases. The drawback of GBMs is reduced transparency.

All the providers offer training for their products. Some offer consulting services, where they can build the models and infrastructure for clients. For some, modelling and deployment infrastructure is just one of their offerings, and they can cross-sell their products among other arrangements. For example, reinsurers or reinsurance brokers sometimes offer tools to their clients, promoting economies of scope.

We reviewed the software of different vendors and asked them to summarise the strategic advantage they offer over their competitors. The aim was to maximise the sample of reviewed external providers for this exercise, not to promote any particular vendor. The goal is to educate the market on what exists, to enable insurers to identify and fine-tune strategies and make informed decisions about their pricing infrastructure.

One contributor, Akur8, provides an integrated pricing platform that allows risk assessment, price sensitivity, pricing scenario testing, forecasting and optimisation of pricing strategy.

Guillaume Beraud-Sudreau, founder and chief actuary, says: “The platform offers fully transparent machine learning capabilities to allow actuaries to accurately predict and understand the risk of their clients. This method increases modelling speed and accuracy without sacrificing the transparency of the models, effectively ensuring management of the adverse-selection risk.”

Another, Earnix, offers real-time artificial intelligence-driven rating, dynamic pricing, product personalisation, and fully operationalised telematics solutions. CEO Udi Ziv says: “With composable offerings, insurance carriers are empowered to break away from the status quo of legacy systems, transitioning to nimble solutions that can be rapidly deployed and respond to the needs of the market in real-time.”

Addactis embeds the pricing process in a single transparent solution, helping pricing

actuaries to gain more agility and control over business objectives. Partner Stéphanie Dausque says: “Our end-to-end approach guarantees a shallow learning curve and quick adoption of rating models in production. Concretely, Addactis Pricing integrates all data processing, modelling and publishing capabilities to deploy actuarially sound sales strategies and ultimately embrace the global value chain.”

Finally, Quantee provides a ‘nextgeneration’ pricing platform that helps insurance carriers to improve model accuracy and enables instant deployment and real-time monitoring. Founder and CEO Dawid Kopczyk says: “Our platform is reducing the time-to-market for any pricing updates. More concretely, we support building a competitive, flexible and end-to-end pricing pipeline from data processing, through advanced modelling, price optimisation, open-source integration and exposing pricing to sales channels instantly.”

The open-source route

The two most popular open-source solutions for non-life insurance modelling and deployment are currently R and Python. They offer the latest modelling innovations before the commercial vendors, as well as the option for full customisation. Modelling and impact analyses can be run fast by using central processing unit cores in parallel, graphics processing units or cluster machines.

R can be deployed on Linux environments with Plumber, pm2 and nginx. Likewise, Python can be deployed with Flask, Gunicorn and nginx. Both would enable parallel load balanced deployment for high performance in servicing requests.

Vendors for ‘cloud platform as a service’ such as Heroku are available to seamlessly manage and deploy the pricing web services. In higher demanding deployments, Kubernetes or Docker containers could be deployed in clusters. Library versions can be managed using Git, through GitLab, GitHub and others. Visualisations are possible in both R and Python and can be published as dashboards on Shiny (R), Dash (Python) and Streamlit (Python). Visualisations tools such as Microsoft Power BI or

Tableau can be used alongside open-source modelling and deployment solutions to enhance the pipeline’s speed.

Open-source solutions have a larger online community than commercial vendors, offering similar examples from other industries, from which knowledge can be transferred. They allow for customisation solutions and speedy uptake of the latest methodologies. However, they need different professionals to support the pipeline and have a steeper learning curve than commercial software. As such, it would be more difficult to source people who have both the necessary advanced coding skills and business knowledge. This creates a key person’s risk.

Commercial software, on the other hand, is easy to use through graphic user interfaces, so the challenge is more about what to do than how to do it. As such, the cost of commercial software may be offset by the cost of diverse teams and skills necessary for the open-source route.

Which solution?

The decision for the pricing deployment route depends on the insurer’s strategy. In our view, larger insurers that prefer a streamlined process, fast changes, accurate pricing and process control, and want to avoid any key people’s risk, should opt for commercial vendors. Insurers seeking full pricing customisation, implementing the latest technologies first and having technology skills available, should opt for the open-source route. Insurers with a simple pricing architecture and infrequent changes could deploy their prices within their policy management system as the most cost-efficient method.

Insurers sometimes use more than one solution, either for parts of the pricing process, for different products or for different distribution channels. To enrich their work opportunities, pricing practitioners should be up to speed with the current solutions. Decision makers for the pricing infrastructures should be aware of what is available so that they can choose the infrastructure that fits the business best and generates the most value.

YIANNIS PARIZAS is an actuarial pricing consultant

PHANIS IOANNOU is a quantitative risk manager at Grant Thornton

Damiano Massimi and Thibault Imbert discuss the potential benefits of behavioural modelling in general insurance, particularly in combining it with price elasticity

rice elasticity is a well-known concept in economics and its adoption is becoming more ubiquitous in the field of airline, hotel and car hire reservation pricing. However, its inclusion in the general insurance pricing process has not yet been fully implemented.

What is behavioural modelling? Behavioural modelling attempts to explain the purchasing behaviour of a customer and identify the main factors influencing the decision.

In an insurance context, behavioural modelling is addressed at different milestones in a policy’s lifecycle, from the first quote issued to renewal and beyond. Its four main applications are:

Conversion: predicting the purchase of a new policy

Midterm cancellation: predicting the cancellation of the policy during its lifetime (subject to regulations)

Retention: forecasting the renewal of the contract at expiration

Cross-sell/upsell: Cross-sell – which products the customer may buy from the company (for example buying home insurance while already owning motor insurance) Upsell – which extra coverage will be added (for example adding fire and theft to the existing motor product).

DAMIANO MASSIMI is engagement manager at Munich Re – Global Consulting Unit

THIBAULT IMBERT is senior insurance solutions manager at Munich Re –Global Consulting Unit

Behavioural modelling can be used regardless of the distribution channel, but usually brings the most value to direct business – especially on aggregators, where the price sensitivity is the highest and the most information is available. We will assume this context in the rest of the article.

Price elasticity and price test

Modelling approach

Price elasticity is defined as

where D is the demand and P is the price. Elasticity measures how sensitive demand is in response to a change in price.

The process of randomised price testing refers to a randomly assigned price adjustment (independently of risk) on every quote or policy – for example, - %,0%,+ %, assuming that this is permitted from a regulatory perspective. This process is used to capture the price sensitivity at conversion or renewal. The resulting loading or discount is a variable called price test (PT ), which contains the value of the price adjustment applied to each quote or policy.

Behavioural models are developed similarly to risk models. Generalised linear models (GLMs), generalised additive models (GAMs) and machine learning (ML) models represent the vast majority. Using a GLM or GAM approach, we obtain the following formula for demand: Where: is the vector of client details. is price-related information (proposed price, competitors’ prices, price positioning, etc.).

are functions obtained from GLM or GAM modelling.

Accounting for price elasticity requires adding additional terms to equation (1):

This extra term , to test elasticity, can be seen as introducing interactions between PT and other variables ( ), with PT independent from P.

Like , and are functions obtained during modelling, with Demand can then simply be estimated by applying formula (2), with PT=0 , which leads to (1)=(2).

How to measure and predict price elasticity

Because both the demand information and the price test variable are available, it is possible to assess the price elasticity per variable (for example driver age, vehicle make), thus obtaining the observed price elasticity.

However, this can lead to high volatility and significant noise in the results due to a potential lack of exposure for some modalities. It may therefore not be possible to correctly assess price elasticity for all possible profiles. Moving from the observed to the predicted price elasticity is the solution to address this problem.

This can be done using the equation (2):

1. Simulate demand for each line of the database and each level of price testing, obtaining the expected demand for each profile and different levels of the premium.

2. Assess price elasticity using the expected demand and obtain the expected price elasticity at the policy level.

3. Visualise or use the obtained predicted elasticity.

Figure 1 shows an example of price elasticity depending on how close the price proposed is to the ‘best market price’, defined as the cheapest price offered in the market for the same product. It can be provided (for example external data) or

Benefits

The main benefit of behavioural modelling for insurance is to enhance the pricing strategy and optimise the performance of the book. Figure 1 shows that price elasticity is much higher for policies that are priced close to the cheapest price (‘ratio to best price’ close to 1) than for the policies priced below or above, increasingly so as you move towards the extremes.

Three immediate conclusions can be derived from this example (for aggregator business):

1. Being significantly cheaper than the market does not increase demand.

2. Being unreasonably more expensive does not reduce demand. 3. Being the cheapest or not has a strong impact on demand: more than the price, ranking drives demand.

Looking beyond

Price elasticity will support the assessment of the change in demand in response to pricing changes. The insurance company can then quantify the expected evolution of demand following a change in the pricing strategy, and design improved strategies.

Two main approaches are usually followed when it comes to the next steps:

Scenario testing – simulating several scenarios, assessing the impact on performance and volumes, and making a decision on the best scenario to implement, as per the desired outcome. Price optimisation – finding the optimal premium level for each client such that the company’s ambition is reached at a portfolio level.

The advantages and disadvantages of both approaches are summarised in Table 1

TABLE 1: Scenario testing versus price optimisation.

SCENARIO TESTINGPRICE OPTIMISATION

PROS High control over the rating structure

possible premium level

CONS Premium level partially optimalLimited control and understanding of the premium level

Behavioural modelling, especially including price elasticity, is still a relatively new topic in the field of insurance and its potential is not yet fully perceived. However, implementing a modelling framework that integrates this aspect can provide various advantages, from a better customer understanding to higher sales, and from better profitability to improved relevancy of the commercial rating structure.

“Estimating price elasticity shows that more than price, ranking drives demand”

THE UNFOLDING OF TIME

Should investors be taking a more dynamic view of time?

Jon Exley shares his thoughts

T

he unfolding of time has been well understood in physics for many years, but causes widespread confusion in the investment world. A static view of time, and the measurement of investment risk in static time, can lead investors to the wrong conclusions.

The ‘time in the market’ fallacy A popular phrase among investment advisers is: “It’s not about timing the market, it’s about time in the market”. The suggestion is that equities are risky over, say, five years, but not over 10 years. Let’s analyse this further by looking at the ‘split period paradox’.

Let’s suppose that we hold equities for five years and lose a lot of money because they are risky. We now have five years left of our original 10-year horizon. However, we know equities are risky over five years, so what do we do now?

The unspoken inference may be that equities ‘mean revert’, so if equities have fallen during the past five years, we can somehow know that they will recover during the next five years. But let’s look at the equities today. They rose during the past five years – so do we know that they will fall during the next five? Do the past five years of returns tell us anything about the next five? If we don’t have this superior knowledge today, why do we think we will have it in five years’ time?

The annualised returns fallacy

We should recognise the simple mistake of looking at annualised returns, as in Figure 1, and believing that the convergence of this annualised rate of return over long periods proves the power of ‘time in the market’.

However, it’s the portfolio value that interests the investor, not the annualised return. If you remove the annualisation, as in Figure 2, the converging ‘funnel’ of returns becomes a diverging ‘trumpet’ of portfolio values. In one sense it is indeed proof of the ‘power’ of time –but only the 1/nth power.

The long-term risk fallacy

Quantities such as value at risk do appear to show that portfolio risk – as measured by low-probability downside outcomes – falls for equity investors over long time horizons. Even for complex models, most of this effect simply relies on the fact that, starting from today, expected return grows with time in a linear way, while volatility grows with the square root of time, which is a feature of combining independent variables and not just normal distributions.

Despite appearances, this phenomenon doesn’t prove anything about the benefits of time in the market – it is just a more sophisticated version of the ‘split period paradox’. The apparent reduction in risk relies on the fact that if we combine independent returns over independent time periods, we get a natural diversification between, say, returns in year two and returns in year 10. What is overlooked is that once the return in year two has happened, as we travel forwards through time, risk in year two is no longer available to offset risk in year 10. The investor cannot actually experience this reduction in risk, unless they can repeat the first two years multiple times!

This means that a statement about the probability of long-term loss is true only at the time of calculation and has no relevance even one time-step later, when the next period outcome has been realised. While it is presented as a long-term statement, it is only mathematically perfectly true for a vanishingly short period, so lacks practical relevance. In practical terms, the passage of time just means that the whole ‘trumpet of doubt’, including the end points, moves up or down with the daily movement in the starting point.

Travelling on a scenario path

To an observer at time zero, the downside risk of asset value projections over long horizons appears to be bounded or attenuated, but to an investor who is travelling along an experienced scenario path, asset class risk will appear to be much the same at all future points in time. The attenuation of risk seen by the observer at time zero is due to the offsetting of independent future realisations, and this effect disappears for the observer if they move through time.

We need to think in more relative terms when we design investment strategies, especially for individual investors – although there are also important implications for institutions. In other words, just as physicists think about sitting on a light beam, we need to think in terms of an individual investor sitting on a projected scenario path. In this framework, what is behind the investor has happened and simply determines the portfolio value at any instant in time.

Furthermore, whatever portfolio value the investor has accumulated at a future time will probably feel the same as the portfolio accumulated today, and the investor will probably feel much the same way about increasing or losing it. In particular, the investor is unlikely to have a memory anchored on what the portfolio value is today, because there is nothing special about today – tomorrow will keep becoming today. This is the essence of dynamic time, as opposed to static time.

This view of risk also links with the concept of constant relative risk aversion – the idea that however much portfolio value you have at any point in time as you travel along the actual realised scenario path, you tend to feel the same way about incremental proportionate gains or losses (gains or losses expressed as a proportion of your existing wealth at any time not anchored to a historic date). This isn’t a perfect model, but it’s a great first approximation that fits well with a dynamic view of time.

JON EXLEY is an actuary and head of innovation at Schroders Solutions

Implications for goal-based strategies for individuals

One implication of a more time-consistent way of thinking about risk is that it doesn’t support a ‘goalbased’ approach to personal investment strategy, where the investor’s asset allocation and thus their implied risk aversion is adjusted to meet their goals with the highest probability. The objective of maximising the probability of outcome is questionable in itself, but it also leads to the time passage problems that we have already discussed.

Under a constant relative risk aversion framework, an investor’s attitude to risk is assumed to be an intrinsic human characteristic like height, rather than something that can be manipulated in order to meet a goal. If investors are risk averse in this framework, they don’t want to see the wealth that they have accumulated at any time collapse by large amounts. We thus apply their attitude to risk continuously through time, rather than setting a strategy based on a probability of outcome calculated today, with all the inevitable contradictions tomorrow.

Implications for institutional investors

Most institutional investors wouldn’t fall for the mean reversion folklore or the annualised returns fallacy, and the relevance of constant relative risk aversion to an institution can perhaps also be debated. However, the concept that investors will probably feel the same anchoring to tomorrow’s position as they feel towards today’s position does have some resonance.

Furthermore, the more subtle implications of the long-term risk fallacy are pervasive, even for institutional investors. This is because the mathematical result that expected returns increase in time in a linear fashion, while risk calculated today increases with the square root of time, is at the heart of a widespread belief that, by taking more risk, an institution can have more certainty of achieving a target funding or solvency level over a long horizon. This is an obvious fallacy for the same reasons as it is for individual investors – it relies on the offsetting of independent risks in independent future periods. The offset falls away as we travel through time and outcomes are realised.

A new framework

Many traditional investment ideas fail when we analyse them in the context of the unfolding of time, and many treasured theories about how risk varies with time are shown to be contradictory.

A more coherent framework comes from assuming that investors always have constant relative risk aversion in relation to their total wealth at any time – but under this framework, their risk aversion is not a parameter that can be adjusted to meet a goal. It can, however, provide an alternative and more coherent explanation for investor behaviours.

“One implication of a more time-consistent way of thinking about risk is that it doesn’t support a ‘goal-based’ approach to personal investment strategy”

Ileft Indonesia late last year, having lived there for nearly nine years. I had a very memorable time during that period, and am excited to share my experiences with other actuaries who might be considering career opportunities in this amazing country.

Indonesians are known for their politeness and warmth, and they love their food – so the best way to make connections is to meet people over a relaxed lunch and be polite and respectful. You will learn a lot more about people and what drives them through these interactions.

Since Indonesians are culturally very polite, you have to be careful, as most of the time you won’t hear a direct ‘no’. You need to develop the art of reading between the lines and then reconfirming the message. Also, Indonesian society can be hierarchical, and many people won’t speak up in meetings if their managers are present unless they are asked to do so. I used to spend a lot of time going around the table in meetings and encouraging people to speak up.

Growing talent

Indonesia is the fourth most populous country in the world, with around 280 million people, and almost half of its population is under the age of 30. The Indonesian insurance market is underpenetrated and there are a lot of

opportunities in its growing insurance and financial sectors. Any young actuary moving to Indonesia should expect their mandates to increase over time, as the supply of actuaries is much smaller than the demand.

Considering this demand-supply gap, it is important to spend a lot of time growing and retaining actuarial talent. This is aligned with the expectations of the country’s Ministry of Manpower and its financial services regulator, the OJK, which wants expatriates to have a detailed roadmap for developing their identified successors. Any foreigner joining in a non-board role is required to give a presentation to the OJK with a detailed plan for training their staff and successors, with the aim of preparing a local person to take over the role in three to five years. The Ministry of Manpower generally expects companies to be very selective in hiring expatriates, so it may be difficult for accompanying spouses to find a job.

Apart from developing local actuaries, a lot of time also needs to be spent in attracting good graduates to the actuarial profession. We used to go around universities with alumni actuaries to introduce students to the profession, although students are now more aware of the profession

thanks to various initiatives run by the OJK and the Indonesian Society of Actuaries. In addition, a sizeable number of students go overseas for actuarial degrees and then return to Indonesia to start their career.

One regret for me is not having picked up the Indonesian language, Bahasa Indonesia, during my time in Jakarta. I never felt any pressing need to do so because all official communications in my company were done in English, but looking back, I realise that fluency would have helped me to contribute more to the profession and the local actuarial society. I would strongly recommend that expatriate actuaries moving to Indonesia invest their time in learning the language.

Cherished memories

There is so much to see in Indonesia other than the popular destinations such as Bali; I would recommend getting recommendations from locals for places to visit. We spent a lot of long weekends exploring various parts of the country and staying at places recommended to us. Each experience was delightful and will stay with us forever.

PUNEET NAYYAR is chief actuary, Asia at Sun Life

I’ve worked in various countries during the past 20 years, and would never have thought at the beginning that I would spend the longest period in Indonesia. Initially, we had agreed as a family to spend two to three years in this delightful country, but somehow that duration kept on extending and we ended up spending such a long period there. We made some great friends and will cherish these fond memories from Jakarta forever.

I would advise any actuary who is thinking about a move outside their home country to go for it.

There is a steep learning curve initially, but once you are settled in, there are substantial growth opportunities.

Puneet Nayyar provides a taste of what it’s like to work as an actuary in this south-east Asian nation

WORLD VIEW INDONESIA

In the slow lane

Since 2010, companies have enjoyed a period of economic growth, which has been boosted by technological improvements. Innovation has changed customer preferences and provided new communication avenues, leading to increased demand. However, this growth now seems to be plateauing. With the war in Ukraine and the aftermath of the COVID-19 pandemic to contend with, the insurance industry has entered a turbulent era – and we could be heading for a recession.

A recession is a significant decline in economic activity that is spread across the economy and lasts for more than a few months. According to the World Economic Forum, indications that we are experiencing a global slowdown are not only evident but also multiplying. Manufacturing is declining in Germany, Japan and the US, and even China, which consistently has a high annual manufacturing output, is slowing down. Other recession indicators include elevated inflation; in the UK, it hit a 40-year high in May 2022, and the Office for National Statistics noted in its July report that there

had been an 8.8% increase in the Consumer Prices Index during the past 12 months. This means that the value of people’s disposable income is falling – and in an economy where every penny counts, this will have knock-on effects for the insurance industry.

A fall in demand for insurance products will perhaps be the first and most obvious impact. While general insurance products are less elastic, as they provide customers with services that they need, optional add-on features may become less popular as people look to cut costs. The insurance market will likely become much more competitive, not only in terms of price, but also in attracting and retaining customers through better customer service – for example, personalised digital experiences.

In its Household Insurance premium tracker, the Association of British Insurers showed that the average price of home insurance has dropped by 7%, and the average cost of content-related insurance by 11%. Additionally, its Motor Insurance tracker found that the average price paid for motor insurance had dropped by 5% – the lowest number in seven years. Though this fall is

At the back School of thought

likely to be fleeting, it will alleviate some of the pressure on customers that has come from the increased cost of living.

StudentAs assets lose their value, the returns that insurers make by investing their premiums will fall, so insurers will need to look at other avenues to recover invested money. This may result in more insurers challenging the effectiveness of operations, such as claims settlements, in order to reduce costs, or taking out loans or financial reinsurance to ensure they have the required levels of solvency. In late April, developments in the government’s Solvency II reform laid out its plan to give insurers greater access to their investments. This may help insurers to mitigate losses and increase innovation.

Insurers should consider ways to cut down on unnecessary expenses, but rather than cutting head count or asset divestitures, they should consider increasing operational efficiency and taking a second look at business models. Technology, people, products and decisions that result in sustainable growth should be continually invested in, and more time should be spent considering the different risks being taken on. Constant consideration should be given to customers’ future needs and the market segments that are likely to dominate.

It is important that leadership navigates the next economic phase carefully. If it is complacent, an insurer may fall victim to poorly performing processes, leaving it unable to compete with other players. On the other hand, investing in the wrong assets, technologies or strategies to win more business can lead to insurers taking on more risk than they can handle, and expanding their expenses beyond what is sustainable.

The slowdown of the economy is happening; insurers need to find ways to reduce its impacts and ensure the industry is well placed to take advance of a postrecession period of growth.

CIARA IZUCHUKWU is a student editor

Ciara Izuchukwu looks at the impending recession’s potential impacts for the insurance industry, and how companies can ensure they are well positioned to ride it out

At the back Society news

Get involved with the IFoA Buddy Scheme

BY ADAM O’REILLY, CHIEF ACTUARY AT AEGIS LONDON

If ever you find yourself in an interview room with me, you are likely to be asked: “Career-wise, where do you see yourself in five or 10 years’ time?” Over the years I have heard a variety of different answers, from ‘on a beach’ to ‘CEO’ to ‘in your job’! In truth, it’s probably an unfair question, because it’s very difficult to look that far ahead and anticipate the different twists your career may have taken by that time.

Throughout my own career there have been several turning points at which a key decision has had to be made, or an unexpected opportunity has arisen. At these moments, I have found it beneficial to be able to talk it through with somebody –whether that’s a colleague, peer, friend or mentor. That’s why I was keen to get involved with the

IFoA Buddy Scheme when it was launched a few years ago.

Since getting involved, I have been a buddy to a few people, including recently to an early-career actuary who was contemplating a move from pensions to general insurance (a move I made myself 16 years ago). I have also talked to a couple of international actuaries who were looking to move to the UK – a huge decision that impacts both your personal and

professional life. I feel these conversations work best if you act as a sounding board, because most of the time, deep down, people know what they want and are looking for reassurance, a different perspective or advice on the best approach.

It has been a pleasure to meet actuaries who are working in other fields and geographies and are at various points in their career, and it has certainly helped to give me a wider perspective.

I understand from my recent reflective practice discussion that, in the coming months, more emphasis will be placed on the fact that the buddy system can be used for peer-to-peer workrelated topics such as emerging issues and actuarial methodologies. I think this is a great expansion and would encourage others to sign up and use it (mainly so I have someone to talk to!).

Terrorism in an Actuary’s World

During the past year, TANC has undergone a rebranding and is now The Actuarial Network at City. It retains a strong link between Bayes Business School (formerly Cass) and its actuarial alumni and their IFoA friends.

On 16 June, TANC hosted its first event since the emergence of the COVID-19 pandemic. The topic was Terrorism in an Actuary’s World, and Pool Re CUO Steve Coates was the speaker. Pool Re is the UK’s government-backed terrorism reinsurance mutual and Steve is responsible for all aspects of underwriting, claims, actuarial and exposure management, and modelling.

After the market failure in 1993, Pool Re ensured that property and terrorism covers

could be made available as standalone products through a loan agreement with the UK government, under which Pool Re would pay annual dividends. Since the 2001 attacks on the World Trade Center in New York, similar schemes have been set up in 20 countries.

Pool Re has insured liabilities of £2.2trn and funds of £6.8bn, and is estimated to reinsure 90% of the terrorism market. Steve talked about the development of the pricing techniques used since 1993, including: academic collaborations; conventional blast; chemical, biological, radiological and nuclear; and nuclear modelling.

Steve also discussed the need to understand the impact of such events and

any secondary perils to the distribution tails, along with the correlation of events across the world. With emerging risks and the constantly changing nature of terrorist attacks, the market must adapt quickly. For example, Pool Re covers any property damaged caused by cyber-attacks. Business interruption was previously dependent on property damage, but as of 2018, the cover can be bought without requiring trigger of property damage.

The event concluded with a lively Q&A session, followed by networking over drinks and nibbles.

For details about TANC’s next event, please visit tanc-bayes.co.uk

At the back Society news

Past president joins Norwich Summer Ball

BY RICHARD BROWN

Louise Pryor, immediate past president of the IFoA, attended the Norwich Actuarial Society Summer Ball in June 2022, along with her husband Trevor. The event was hosted at the St Giles House Hotel in Norwich, where members and guests enjoyed a three-course meal, followed by casino games and music. The event was originally booked in 2020 but had to be postponed due to the COVID-19 pandemic. The weather was on our side for the evening, with temperatures exceeding 30°C (although this was not ideal for a black-tie dress code!).

Following dinner, the chair of the Norwich Actuarial Society, Richard Brown, kicked off the speeches by highlighting that the society had been in existence since 1987 and that Norwich was the location of the first GIRO conference back in 1974. The building in which the event was hosted

was originally the headquarters for the London and Norwich Fire Insurance Company – which was ironically destroyed by a fire in 1901.

Louise gave members an inspiring speech in which she talked about her expansive career and time as IFoA president. She spoke about how she hadn’t always taken the traditional route with her actuarial roles, and how fulfilling it had been for her to keep changing positions for new challenges and following what she was passionate about. It was fantastic to have her at the event, where she mingled with attendees, and the Norwich Actuarial Society wishes her all the best of luck in her future endeavours.

Huge thanks go to the Norwich Actuarial Society Committee for their continued hard work during the past couple of years, and to our members and guests (and honorary guests) for attending.

Charles Cowling – an IFoA Fellow – will serve as president of the International Actuarial Association (IAA) in 2024, having taken on the role of president-elect in 2023.

“As the incoming IAA president, I am delighted to welcome Charles as the incoming president-elect,” stated Cowling’s predecessor, the IAA’s 2023 president Micheline Dionne.

“His wealth of knowledge on many actuarial topics and his already established leadership in IAA matters has shown how important he is to the international profession.”

Cowling, who is chief actuary at Mercer in the UK, said he was honoured to have been elected.

“Actuaries have recently shown the important value they can bring in the areas of climate change and pandemics, and I hope to support the further growth and influence of the actuarial profession around the world.”

Meanwhile, the IFoA has expressed pride in the pensions actuary. “We would like to congratulate Charles on this appointment and wish him every success as he prepares to take on the IAA presidency,” declared IFoA president Matt Saker.

Cowling has chaired the IFoA’s Pensions Board and International Board. He is the UK’s pension representative at both the Actuarial Association of Europe and the IAA.

Call for your news…

We would be delighted to hear from you. If you have any newsworthy items for these pages, please contact us at: social@theactuary.com

Down

1 A part of Europe – its port is in the Caribbean (5)

2 Pull off a short feature the day before (7)

3 Whoa! Broken toes start to erode – it’s clear (4,2,3)

5 See 11 Across

6 Actuarial work is drab outside – interrupted by making jokes inside (4,3)

7 Wants my final income (9)

10 Appropriate point to enter into loveless arrangement (9)

13 Potential crisis is a puzzle

What’s needed for those rainy days Member puzzle 26

Across

Courtesy of Aktoro

1 They turn up parts of the company (6)

4 Spotted Dick’s a bit pedantic (6)

8 Money’s a way to save (4,3)

9 When pancakes are made from yeast and some pud (7)

11/5 A range of 1ac in bishop’s clothing with orangey brown trouser’s opening before that (10,5)

12 Sweetly perfumed jack-in-box is a trouble-maker (4)

13 Thanks! Queen’s gone – a point for the man’s game (5)

14 See 21 Down

without a re-shuffle (9)

15 It’s something: Special Forces are on the back foot (4,5)

17 Trendy guy has changed top, he claims to have valuable information (7)

19 Account includes a rich

16 Like Newcastle (FFAs excluded!) (8)

18 Brings up redhead’s head pieces (5)

20 Do it urgently – a snake’s outside (4)

21 Extreme views – manic, manic FIAs heading for Tynemouth (10)

23 Email phishing for background (7)

24 Uni abandons its grounds after some dean leaves (7)

25 Pan returning Liverpool player – I’d seen Everton’s top! (6)

26 Supplies punishment (6)

assortment about what happened long ago (7)

21/14 A way to save – modern debt could be the result of following this as an instruction (5,4,4)

22 A way to save is back on behalf of society (5)

puzzle 26 : Across: 1 Shares, 4 Stodgy, 8 Cash ISA, 9 Tuesday, 11/5 Investment trust, 12 Jinx, 13 Chess, 16 Northern, 18 Rears, 20 ASAP, 21 Fanaticism, 23 Context, 24 Decamps, 25 Deride, 26 Stocks. Down: 1 Spain, 2 Achieve,

Yearnings, 10 Pertinent, 13 Crossroad, 15 Rare treat, 17 Tipster, 19 Archaic, 21/14 Fixed Term Bond, 22 Sipps. Mensa puzzle 843: 560 844: Among, decor, loch, me and no.

Desk job,

to see,

MEGHA

Where are you based?

Originally from Delhi, India, but recently relocated to Dublin, Ireland.

When did you first consider an actuarial career and why?

I always knew I was fascinated by numbers, but seeing everyone around me studying to become chartered accountants didn’t really get me excited.

Being curious about actuarial science, I attended a seminar on the career path of an actuary – it was very new and niche, and I found the syllabus very interesting.

What subject(s) did you study at university?

Finance and accounting.

What has been most challenging throughout your work/study life to date?

Managing a busy season at work and studying for an actuarial exam amid the uncertainty of the COVID-19 pandemic.

What do you enjoy most about being an actuary?

I enjoy being part of the niche group that is one of the top-ranked professions globally –I particularly like the look on people’s faces when they hear I am an actuary!

Where would you like to be in five years’ time?

I would like to have gained significant expertise in health and a non-life actuarial domain and ideally be leading a team or project, while balancing this effectively with my family and personal wellbeing.

What is your most actuarial habit?

Implementing the actuarial control cycle in any problemsolving scenario – assessing the issue, analysing risks, weighing in external environments and monitoring the results.

What is the greatest risk you have ever taken?

I have recently moved continents and changed my actuarial domain after seven years in the health industry – it’s a change of physical and technical environment, and sometimes feels like I am starting afresh!

Forging ahead

Promising new qualifiers

How do you relax in your spare time?

I love spending time with my family, whether that’s stepping outdoors to enjoy the weather or cooking together. When I get more time than that, I love painting – it has a cathartic effect.

Who is your role model – in life or in business?

My mother is my role model – the way she manages to be a strong independent woman, a brilliant doctor and an absolutely doting mother is very admirable.

Give one piece of advice to the next generation of students entering the profession?

It can be a very rocky road if you let it become one, managing exams, work and personal commitments. Just tell yourself to stay focused and persistent with your exam progress during the first few years of student life, while you have the fire in you, to reap the benefits in the long run.

Name one skill (aside from technical) that is an important quality for an actuary?

Staying calm under pressure.

Now that you have qualified… what next?

I’n working towards becoming a Fellow now.

(Head of

CAPITAL MANAGER, London, £120,000-£140,000

DEPUTY CHIEF ACTUARY, London, c. £150,000 - £170,000

At the back Appointments

A London Market insurer is looking for a Capital Manager to assist in running their Internal Capital Model (Retail). You will support the Head of Capital Modelling and will be responsible for understanding the drivers of capital requirements for the relevant parts of the business, gathering data, analysing, and investigating model results and model change impacts. The role involves developing stakeholder relationships across the business; therefore, it requires a high level of communication as well as very strong analytical ability and a logical approach to problem-solving. The ideal candidate will have at least 6 years of significant non-life insurance capital experience.

Contact: rafaela.fakhre@eamesconsulting.com | 0203 846 5909

RISK PRICING ANALYST, London, £45,000 + bonus

A fast-growing pet insurer is looking to expand its pricing team. This is a well-established UK insurer with exceptional global growth plans. The insurer is looking to invest heavily in improving its pricing infrastructure. Employing next-generation modelling capabilities, machine learning, and AI. You will therefore support the end-to-end pricing function whilst focusing on pricing R&D. Working in tandem with the data science team to improve ML modelling. Candidates will ideally have a personal/commercial lines pricing background and coding experience in R or Python.

Contact: sam.baker@eamesconsulting.com | 0207 092 3230

REINSURANCE RESERVING MANAGER

London, c. £140,000

A leading Lloyd’s Syndicate is looking to hire a reinsurance reserving manager to lead their team of three. Reporting to the head of reserving and working closely with the Bermuda entity, you will be responsible for property and NAT CAT reinsurance reserving. This is a fantastic role for a qualified actuary looking to take a step up in their career, and manage a small team.

Contact: rafaela.fakhre@eamesconsulting.com | 0203 846 5909

SENIOR ERM ANALYST, London, up to £70,000

This role is a great opportunity to take ownership of your work and the validation process. You will be the ‘go to’ day-to-day person for validation and you will be collaborating with a variety of teams across the business which includes actuarial. As the risk team is small it offers great visibility and there is scope to go beyond the responsibilities on the job spec and get involved in wider business projects. You can make it your own. The team currently do 1 or 2 days in the office. We are keen to speak to individuals with 4-5 years’ of validation, ORSA and risk management experience.

Contact: hannah.turner@eamesconsulting.com | 0207 092 3249

RESERVE RISK ACTUARY, London, up to £100,000

A well renowned insurer is looking to hire a FIA qualified actuary to join a newly formed team as part of their growth plan. This is an excellent opportunity to own and run the reserve risk process. This is a line 1 role and therefore you do the numbers and own the numbers. There will also be an analyst to support you. You will be liaising with a variety of people throughout the business. For this role they need individuals who have a capital modelling background and ideally experience with Lloyd’s.

Contact: hannah.turner@eamesconsulting.com | 0207 092 3249

FINANCIAL LINES PRICING MANAGER

London, c.£80,000 - £110,000

The actuarial team in a growing London Market insurer is looking for 2 Pricing Actuaries/Managers to join their team and focus on their financial lines products. Key responsibilities will include individual pricing assessment of large or unique risk, communicating the impact of results to the underwriters and analysis of data from pricing models. Assistance of the building, review and maintenance of pricing models and business planning will also be within the candidate's remit. The role will also involve some reserve reviews. This role will have at least 1 direct report, and require candidates to be on the nearly/newly qualified level, with general insurance experience.

Contact: rafaela.fakhre@eamesconsulting.com | 0203 846 5909

A Lloyd's Insurer is looking to hire a Deputy Chief Actuary. This role would suit an FIA Reserving Actuary with Capital experience who is looking for the 'next step up' in their career. In this role, you will report directly to the Lloyd's Chief Actuary, and you will liaise closely with the Reserving and Capital functions. You will be communicating results to senior stakeholders in the business, and you will be responsible for the day-to-day management of regulatory requirements for Lloyd's Syndicate/PRA. This role has managerial responsibilities (team of 7 with 3 direct reports). We are keen to speak to candidates who have reserving and capital experience in the Lloyd's/London Market. Candidates must also have exceptional communication skills. You would ideally be a qualified actuary.

Contact: rafaela.fakhre@eamesconsulting.com | 0203 846 5909

MOTOR PRICING MANAGER

London, Manchester or remote, £80,000 + bonus

A leading UK motor insurer is looking to grow its pricing team, seeking an experienced pricing manager or senior analyst looking to step up. The role will be a combination of technical and commercial. You'll work with established pricing models in Emblem/Radar, while deploying new pricing models in Python. Further, the role will encompass advising on pricing strategy, liaising with senior stakeholders within the company. The ideal candidate has strong motor pricing experience, ideally with a technical background and an interest in machine learning.

Contact: sam.baker@eamesconsulting.com | 0207 092 3230

TECHNICAL PRICING ANALYST

London, up to £45,000

A Motor insurer is looking to hire an individual who has strong model build and coding skills to join their growing team. This is an excellent opportunity for someone who wants to be using R and Python on a daily basis and to be involved in their pricing transformation project. They are keen to speak to pricing analysts or data scientists who have between 1-3 years’ of experience and who have an interest in the motor insurance industry.

Contact: hannah.turner@eamesconsulting.com | 0207 092 3249

PRINCIPAL ACTUARIAL ANALYST, London, £80,000 + bonus

A leading home & motor insurer is looking to grow its actuarial team, seeking a candidate with a strong background in reserving or capital modelling. The role will be split between the two functions. You'll support the development of the internal model, validation, solvency II provisions, and quarterly reserving. You'll additionally work with cutting-edge actuarial software, with the company recently re-platforming both functions. The ideal candidate has strong non-life reserving or capital experience and is looking for wider exposure within a mixed role.

Contact: sam.baker@eamesconsulting.com | 0207 092 3230

PRICING ACTUARY

Manchester, £120,000 + bonus

An exciting MGA is looking to build out a pricing team, bringing on board an experienced pricing actuary/manager. The role will focus on the building and development of pricing models for multiple lines of business, across both home and motor. You will also have a strong underwriter facing element to the role, while formulating a plan for the growth of the pricing team. The ideal candidate has strong personal/commercial lines pricing experience and the drive to build out a pricing team.

Contact: sam.baker@eamesconsulting.com | 0207 092 3230

RESERVING ACTUARY, London, up to £90,000

A Lloyd’s/London Market insurer is looking to hire a nearly or newly qualified actuary to join their reserving team. This role will suit an actuary who wants to gain exposure to a range of products and territories. Joining a small actuarial team, you will gain a lot of exposure and visibility in the business. They are keen to speak to individuals who have an extensive reserving background (consulting or in-house) and who have ResQ experience.

Contact: hannah.turner@eamesconsulting.com | 0207 092 3249

FINANCIAL

NON-LIFE

Qualified

FLEXIBLE

STAR7832

CAPITAL

NON-LIFE LONDON /

RESERVING

NON-LIFE LONDON

INSURANCE RISK MANAGER

NON-LIFE SOUTH EAST / HYBRID

London Market

STAR7829

London Market

STAR7827

NON-LIFE

RESERVING

NON-LIFE BERMUDA

Insurer

STAR7838

STAR7834

LIFE HEALTH LONDON

STAR7771

SALES DIRECTOR

LIFE WIDER FIELDS LONDON / HYBRID

HEAD OF MODELLING

Consultancy

STAR7750

NON-LIFE

SENIOR SYSTEMS ACTUARY

STAR7797

STAR7767

STAR7745

Qualified Global Reinsurer

LIFE HEALTH EUROPE / FLEXIBLE

INSURANCE RISK

STAR7772

SCHEME

PENSIONS

STAR7795

LIFE EDINBURGH / HYBRID Qualified Leading-Edge Employer

PRICING DEVELOPMENT

STAR7785

LIFE LONDON / HYBRID Qualified Market Leader

STAR7790

ACTUARIAL REPORTING MANAGER

LIFE SOUTH EAST / HYBRID Part-Qualified / QualifiedLeading Benefits Provider

SCHEME

PENSIONS

STAR7833

Consultancy

STAR7813

LIFE RISK WIDER FIELDS LONDON / HYBRID Qualified Leading-Edge Client

HEAD OF FINANCIAL RISK

STAR7823

LIFE FLEXIBLE / HYBRID Qualified Leading Employer

SENIOR MARKET RISK ACTUARY

STAR7764

Qualified Major Group

LIFE FLEXIBLE / REMOTE

STAR7783