GIROscope - Blog by Archie the actuary, reporting from Liverpool

(Scroll to the bottom of the page to find out the true identity of Archie!)

Friday 14 October 2011: Final (half) day of the conference

PLENARY 5:  Solvency II

I found my seat in the cavernous theatre for the penultimate plenary session with a little trepidation. But what threatened to be a highly technical model-based set of monologues emerged as a lively practical and informative trio of presentations. Kathryn Morgan brightly kicked off with ever welcome guest from the CAS, Louise Francis (left), and asked to share with us where our American cousins were going with their program(me) of research. Louise stressed the co-operation that was in place with many other associations. She gave us a practical guide through the CAS research space on the website, so that we could find out what was being done and by whom. I noted from an impressive list, climate change which involved many outside professionals and the R working party – a topic which our own Profession is fostering at the moment.

Kathryn (pictured right) was forced to break her personal promise not to mention the “S” word as she was next forced to introduce three speakers on Solvency II topics. Andrew Hitchcox was first out of the gate, still glowing from his Brain Hey triumph the night before. Andrew told us how he and his company embed their internal model. This was an impressive description of thoroughness and involvement. His lords and masters were calling for six different capital measures, but somehow, he argued, this added clarity to the output and purpose of the model. He had no problems running through the many facets quarterly – but we would have expected nothing less from our Andrew. I added EP to my record of buzz phrases.

Gareth hit the stage with all the aplomb of an ex-banker. How could we leverage Solvency II to optimise our corporate structures. This came as a follow on to QIS5 which surprised many in the capital required the investment risk. He showed us, using a case study, how we might maximise return to shareholders per unit of capital and per unit of risk. Key tools were greater diversification and targeting of risk which offered higher returns. He then turned to an investment allocation which maximised the return on the remaining capital (set in total at 165% SCR) and subject to 10% surplus volatility, the risk appetite criterion. 2+2=5. Simples!

Charles Garnsworthy was the last of Kathryn’s merrie men. He was a life consultant who invited us to a broader Solvency II perspective. He confirmed that although it would not now go live before 1 January 2014, we should not take our foot off the gas, that there were still issues to be resolved around contract boundaries, discount rates, the value of future premiums. And to avoid further complacency, he saw further medium term concerns in rating issues and accountancy changes. Solvency II is an opportunity to be grasped. He cited the counter example of Decca records who in 1962 chose a Dagenham group called the Tremeloes ahead of the Beatles because their travelling expenses would be less; Decca has now all but disappeared, he reminded us. We must reassert our unique contribution to the business or we will fail to maximise our opportunities from the “S” word.

PLENARY 6:  Keynote addresses by Jane Curtis, President, Institute and Faculty of Actuaries, and Lord Digby Jones

After a sprint for a coffee and a rhubarb and ginger biscuit, I was back in the auditorium in time for Colm D’Auria to introduce the two keynote addresses of the Conference. President Jane Curtis (pictured left) was aware of what the GI community had to offer and had ideas of what it wanted from its Profession (to speak out, to be more relevant internationally, to provide education in line with the coalface etc). She claimed progress already in all of these areas and cited growing links with the CAS and other international bodies. She left us with two messages – that really successful actuaries are those that add business skills to their natural analytical abilities, and to paraphrase Darwin, the survivors are not always the strongest nor the most intelligent but those who can readily adapt to change.

The man who needed no introduction glided to the podium. This was an unashamed businessman – creating wealth and business is the only way out of current mess.  He took us on an international business tour stopping off in China, in India (which he reckoned to be a stronger candidate for future world economic domination than its trans Himalayan neighbour), in Russia, in the US (which would never again be capable of pulling the world singlehandedly out of recession), in Brazil and into the EU (sad). The problem here was that the emphasis was on equality, a lowest common denominator – if one had a broken leg, we should all have one. He argued that we should migrate upwards and pick the best bits from  each member state to maintain/achieve a competitive position in face of the emerging nations. He looked to us as young and thrusting professionals in the financial services space to “sort things out”.

It was only when questioned that Lord Jones (right) produced his four quick wins for the economy:

• Intelligent government procurement – buying British justified by its value to the economy and not just by price, to satisfy EU scrutiny
• Abolish NICs for employers. There can be no justification for a tax on jobs. Increase corporation tax if necessary
• Abolish income tax on the minimum wage – further encouragement for some to get off their bums.
• Ensure that when kids leave school, they can read, write and count. Although this was more of a medium term benefit, he saw this as the first stage to solving our skills inadequacy
• He further argued that any tax shortfall arising from the above measures might be balanced by an increase in Corporation Tax or by a retention of the 50p income tax rate. But this should be strictly hypothecated such that they be abolished when superseded by the gains from the measures above.

Gavin Dunkerly introduced the winners of the prediction surveys, Martyn Green and Henry Onions and presented them with sumptuous prizes which I am sure they will declare under the Bribery and Corruption Act and Colum closed the Convention, thanking all appropriately (especially Kate Harris) for whom this was a last GIRO – and her last day with the Profession) and looking forward to seeing all in Brussels next September.

As I left the Liverpool Auditorium for the last time, my thoughts were with Comrade Digby. This was definitely more than just an after-dinner speech. My only regret was that he did not compare and contrast the Blair regime with the current state of play. Ten years ago, in the context of innovation and entertainment, we had Steve Jobs, Bob Hope and Johnny Cash. Now we have no jobs, no hope and no cash.

Archie the Actuary
Liverpool, Friday 14 October

(scroll to the foot of the page to find out the true identity of Archie ... )

Thursday 13 October 2011: A fine soft morning on Merseyside, Plenaries 3 and 4 and more workshops

With a feeling that GIRO was trickling too fast through my fingertips, I made my way determinedly across the Albert Dock to the Conference venue. This was a fine soft morning on Merseyside. I thought it high time that I considered alternatives and this made my first breakout session compulsory.

Breakout session: Alternative careers for GI actuaries

Three active stalwarts of the  Profession were about to give their ideas on Alternative Careers for GI Actuaries. Fiachra McLoughlin had broken free of a major consultancy to start something new; but the focus of this delivery was on the history of Excel and job opportunities in energy, catastrophes and gym membership retention. Mark Flower admitted to having been around the block but he described his working life as an evolution from traditional actuary to broker with 55 days annual holiday and many twists to come. Finally Tim Edwards, although not one of our kind, cajoled us to be two-footed like David Ginola and warned us that we may need to take more exams to achieve the holy grail, the CRO post. But more positively he recounted the recent news that South African banks were paying big bucks (boks?) to attract as many life actuaries as they could find for their modelling skills. The room was packed.

PLENARY 3:  The actuarial role under pressure

Buoyed by the knowledge that career opportunities were limitless, I joined the masses for the first plenary of the morning, the actuary under pressure. Wendy Hawes rose to introduce Bill Burns (left). As someone who has seen the Billion Dollar Bubble so many times that I even recite lines in my sleep, this was a session which somewhat surprisingly exceeded all expectation. Bill was chief actuary of a US company which failed in 2005. He took us through the key issues, the fatal decisions, those bonuses that continued to be paid and the eventual invasion by the State  Insurance Commissioners. As Margaret Thatcher allegedly said after a visit to the Clyde shipyards, it was riveting.

Wendy next introduced us to Catherine Barton. Whereas there are no limits to Catherine’s talents, this would be the first time that she had headed an Arrow visit, at least notionally. She had her regulatory crossbow firmly trained on the Blackbox Insurance reserving actuary (played by Gavin Dunkerly) and on its CEO (played by James Orr). I was unsure whether the discomfort felt by two insurance executives was on account of their professional transgressions or on account of the near-waterboarding interrogation techniques pursued by Ms Barton. The audience was left in no doubt as to the guilty parties by the time that the Arrow had hit the target.

Could this session get any better? It very nearly could. Third up was Phil Hesketh (pictured right). Here was an expert in psychology and  persuasion who had the patter of a stand-up comic and an accent straight out of Coronation Street (Ashton-under-Lyme, to be strictly accurate). His tales were countless from airport business class lounges to the beaches of Brazil to concert halls in Harrogate to his reasons for continued failure at golf. We were rolling about in the aisles. He kept us tantalisingly waiting for the key question which will close any sale and everybody made a careful note of this when it was revealed.

Breakout session: Quinn- where did it all go wrong?

There was one breakout session to negotiate before lunch and fired by Bill’s US example , I went to hear what Simon Sheaf would (and could) tell us about the demise of Quinn Insurance. Armed with many stories and even more slides of Cavan, Simon revealed early on that Quinn had been sunk by systematic underpricing and by delays in recognising large claims. But the final torpedo amidships had been the discovery of the guarantees given by the insurance subsidiaries to the parent group. He was now the de facto chief actuary and was firmly convinced that much could have and would have been done better if they had employed actuaries earlier in the 30 odd years of insurance selling on both sides of the Irish Sea.

PLENARY 4: Risk/ORSA
The post lunch session headed us back to the heartland of actuarial practice – risk and the ORSA. The Profession had again asked  Alex Marcuson (pictured, left) to raise our awareness of the TASs. Alex took us on the scenic route charting the historic and regional origins of Morris dancing. For those new to Alex’ sense of humour, he explained the TAS link via the Morris Report, to whose tune we  are all currently dancing.

Alex stressed the wider issue that the Profession still self-regulates while POB oversees. His most helpful or possibly controversial slide was in declaring that the areas of GI work most clearly affected by the TASs were reserving, audit support, SAOs, AF opinions under Solvency II, regulatory capital calculations, pricing frameworks and transformations. Those clearly unaffected were management activity, non-technical work and unimportant stuff. His advice to all were these – don’t ignore, don’t descope, define your own framework, take a risk-based approach and think through the scenarios.

Just when I though my hunger had been satisfied, Gavin Dunkerly, the session’s chair, asked Paul Barrett to talk through his company’s risk appetite .Paul explained that he was flying solo because his colleague Justin Skinner had failed to allow risk margins in his travel plans approaching the railway station. Paul bravely took on the actuarial aspects of the presentation as well. He described risk appetite as the reward/risk trade-off, the boundaries within which to operate, part of risk management. His practical approach to business planning consistent with his company’s stated appetite was much appreciated by all.

Then came Phil Ellis, a true veteran of the GIRO battlefields, and Dom del Rey, a rookie. Dom focussed largely on the recent Japanese tsunami in discussing the use of cat models to derive loss estimates arising out of natural catastrophes. Phil followed with a practical pos t-ORSA approach to loss estimation. He argued for both liabilities and assets to be investigated. He strongly urged us to revisit the business plan and to validate our models using back-testing. To add  further fuel to the argument that this was a GIRO of surprises, he and Dom climaxed by breaking into karaoke mode with their own version of “I will survive” but limiting themselves to just the first verse.

Breakout session:  Resource and environmental limits to economic growth

My last formal session of the day was a breakout. Coming from an economics background, I was intrigued to hear how Oliver Bettis dared to suggest that resources and the environment might place a limit on worldwide growth. He put forward the arguments of many global experts that growth of economies was not the universal “good” which I had been taught at university. It might have been true during the industrial revolution but there was strong opinion that times had changed. He argued that actuaries could do the analysis, a profession with the skill-set to understand what is going on, using our long-term thinking. Insurance actuaries, he stressed are used to looking at data and stripping  away the bias. This would become features in two areas – Solvency II and personal financial security.

Conference Dinner - and award presentation

Whew – heady stuff to end a Thursday night – but GIRO was not yet ready for bed. The organising team had claimed THE most coveted dining venue in Liverpool – the Anglican Cathedral – in fact the largest Anglican edifice in the world. Beneath the centuries-old stain-glass windows and archways, we dined in culinary splendour while our ears were treated to some of the finest operatic voices that make British opera the envy of the world. GIRO chairman chose his moment carefully to grab a mike and relate just a selection of the many contributions a certain man had made to the furtherance of GI and risk methodology on behalf of the Profession. Andrew Hitchcox seemed genuinely surprised to be the recipient of this annual award for remarkable service. I myself was less timely in deciding to make my exit while Figaro, the demon barber of Seville, was in full flow – I was nearly knocked flat by a scintilla in arpeggio.

I could hardly wait to see Just what further surprises this most remarkable GIRO had to yield as it approached its last half day.

Archie the actuary ...
Liverpool

(to be continued ... )

(scroll to the foot of the page to find out the true identity of Archie ... )

Wednesday 12 October 2011: Plenaries 1 and 2 and the start of the workshop sessions

From the word go, the first official morning was one of interaction and surprise - the unexpected mingled with the carefully rehearsed.

Colum D'Auria, the Convention Chairman, welcomed a record attendance of 640 to the 38th GIRO, proving that GI actuaries were busier than ever, and he called on all delegates to forget the office and immerse themselves in the Convention, in the interests of shaping the profession of the future. Given that my Blackberry’s signal had long since given up the ghost, I was happily compliant on this front.

PLENARY 1: Reserving

Seamlessly Colum passed the baton to James Orr (FSA, pictured left), our host for Is there madness in our methods?. As one would expect, James had some messages for us from much beloved regulator. The FSA is continuing to upgrade its regulatory processes – no madness there, we hoped. He promised more of a challenge to insurers on their reserving plans. I was intrigued by his reference to GRIT (still a watershed in GI productions) as a timeless classic; by this he suggested that GRIT would remain a target of excellence that most were unlikely to reach. A double challenge then.

Jerome Kirk assumed the podium and immediately chastised us for our unwillingness to accept the existence and synchronicity of the reserving and underwriting cycles. As if by magic, slides appeared to substantiate his rebuke. Further he showed stats to prove that good years get better and bad years get worse – something along the lines of the laws of perpetual motion. He introduced us to the concept of IBNR burn, thus adding clarity to how reserving actuaries “work out”. The morning was about to become full of Greek philosophical analogies. Jerome reminded us of that old Pythagorian chestnut that concern should drive us into action and not into despair.

Nick Line next took the tiller. He had been asked to recycle the messages from the Cycle Survival Kit. He too was not in a complimentary mood. He warned that hard market perceptions still persist in circumstances which have been soft for at least three years; this he called the cheating stage of the cycle. He rose in the saddle to decry our complacency  in our understanding of the cycle: “You’re not that smart and that’s really dangerous”

Graham Fulcher also took us back to Hellenic literature …. have you heard the one about Plato, Sophacles and the shadows in the cave? With two very clever slides, he drew parallels between Platonic ideology and the modern actuaries who place too much faith in their triangles (he resisted the temptation to mention Pythagoras again) without ever emerging from their cave to see the real world and its catastrophes waiting to happen.

This turn towards the classics was not wasted on the senior members of the audience. Martin White, rising from the tiered seats of the auditorium, captured the thoughts of many by relating the concerns of the recipients of actuarial advice: “I find it difficult”, they say, “to accept just how bad or good things really are”. A fundamental communication issue?

Chris Gullick was waiting to take control. Unashamedly a non-actuary, he did confess to working with them and he again picked up a communication theme at the centre of his all-too-short presentation on data governance. He called for greater inter-communication between data consumers and producers. The primacy of data for actuarial work, was such, he stressed, that it needs to be underpinned with senior sponsorship to ensure that things get done.

James closed the session with an entreaty that while we were all very much tied up with Solvency II currently and its many tentacles, we should all be looking at upping our contributions to the Profession in three to four years’ time. The guy has definitely got presidential credentials.

By the time that I rose from the theatre, the number of delegates had risen dramatically; railway problems had obviously been rectified in time for the first break-out session. Anyway I was off to find out what Paul Kennedy and Graham Finlay thought of our adoption of their two-week old baby, the Insurance TAS.

PLENARY 2: Pricing

Back on the plenary front later that morning, the chair for the pricing session was David Brown. He quickly introduced GIPEC supremo Duncan Anderson (Towers Watson, pictured left). Duncan, in the few moments allocated to him, thanked his GIPEC members and the work done by their subgroups. He gave some examples of the speed of the PEC in responding to national insurance issues and finally thrust wine into the hands of Peter Stirling (below, right) in recognition for nearly ten years of stinting work to the GI profession as secretary, fac totum and general good egg.

Two of the biggest issues on the pricing front are the ECJ’s ruling on gender discrimination and telematics. Camilla Bennett rose to speak on the first topic. We are where we are, she explained, not because of public outcry or complaint but because of legal principle. This could be, she warned, the tip of the iceberg – age, employment, disability, location, medical history, religion, smoking, parent, pregnancy, marital status, pet ownership and ethnic origin were all on the radar to be disallowed as differentiators in our rating processes.

The second topic, telematics or the box in your car, was aired by way of a debate – this house believes that telematics will be at the heart of insurance rating within the next ten years. Proposing the motion, I was pleased to see Tony Lovick, one of the profession’s outstanding proponents of the art. He sold us completely on the information that we would have to underwrite in the brave new world. Against the  motion, Simon Black was the voice of solid reason – practically and economically it was just not going to happen. If there a bonus prize for dry humour and sardonic delivery, it was Simon’s. The Chairman tried three times to get the 640 judges to cast their votes and in the end declared a perfect balance.

To take the theme of telematics to its logical conclusion, Clive Girling from one of the leading motor tracking service firms, recounted with great gusto, the evidence taken from seven boxes placed in the cars of seven actuaries just one month ago. One rogue actuary (Tony Lovick) had somewhat invalidated his experience by taking his box (and car) around Brand’s Hatch on an open rally day. Meanwhile claims that she had disqualified herself by crashing her car, were hotly denied by a voice from the floor sitting very near to Kathryn Morgan.  But the insurer’s best friend and top driver of the secret seven was Richard Bulmer – who was seen busily signing autographs during the lunch session.

Breakout sessions: Sex, life and videotape, and solvency assessment ....

My afternoon began promisingly with a breakout sessions involving sex, life and videotape in the company of Cherry Chan and John O’Neill – they too saw the heavy disadvantages in the gender discrimination legislation which will hit the EU’s underwriters in December 2012. After a short coffee break and a visit to the Exhibition, my third breakout choice fell on a paper on Own Risk and Solvency Assessment – the lessons learnt, whose ORSAs, Stephen Kelly and Simon Sheaf, explained knowledgeably the practical considerations in using standard calculations or developing an in-house model. Stephen in particular was keen to stress that we had all of the information that we needed to boldly go forward.

A hard day's fight ...

By the time that I got to Zelig’s for the Beatle Revival Concert that evening, it had definitely been a hard day’s fight and I was determined to get high (of spirit) with a little help from my friends.

Archie – your short haired blogger from Liverpool

(scroll to the foot of the page to find out the true identity of Archie ... )

Tuesday, 11 October 2011:  Arrival and welcome reception

I was blown away when, on arrival at Liverpool Lime Street Station, one of the busiest of provincial termini, I found coloured banners “Liverpool welcomes GIRO”. What a greeting from the 2008 European City of Culture! I suspect that a small minority of the locals might have been somewhat confused by the mention of GIRO, not being used to the delivery of their weekly unemployment cheque by train.

I  found my hotel and, after a swift goblet, made my way across the cobbles of the renovated Liverpool Docks to the magnificent Arena and Conference Centre. It was chucking it down – why did I think that I would not need a brolly? I am sure that you could have housed both local premiership’s football games on a Saturday afternoon within the confines of the fabulous Conference structure overlooking the Mersey. The ever-charming Actuarial Profession staff furnished me with a badge and suggested politely that I go directly to the basement.

The basement was huge and open plan. Around the extremities, the Exhibition was already in full swing. Black-clad Liverpudlians wove their way through the gathering actuaries carrying trays of stimulating substances. I was busy meeting and greeting new friends, from the States, from various parts of Europe and of course from Blighty. Meanwhile a table in the middle offered me copious quantities of Scouse (a cross between Irish stew and shepherd’s pie) and upmarket pastries; commonsense could wait until tomorrow.

Eventually I retired while I could still find my way back across the cobbles. Was it still raining? I could not tell.

Archie the actuary  ....

So who is Archie?

'Archie' is the Institute and Faculty's Staff Actuary for General Insurance, Neil Hilary (pictured below), whom many delegates may have met at this year's conference ...