Commercial Actuarial Practice
S2, 2015
Orientation
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Commercial Actuarial Practice
Communication
The Course
Case Studies
Pre-Course Work
Assessment
Logistics
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CAP Orientation S2, 2015
Commercial Actuarial
Practice
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CAP Orientation S2, 2015
Learning Objectives
apply actuarial skills across a range of
traditional practice areas
and in unfamiliar (i.e. non-traditional) areas
by contextualising actuarial solutions or
approaches in the wider commercial
environment of the business as a whole
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CAP Orientation S2, 2015
Learning Objectives
• apply ethical concepts, corporate
governance requirements and actuarial
professional standards when
contextualising actuarial solutions or
approaches.
• successfully communicate the actuarial
solutions or approaches to a range of
audiences.
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CAP Orientation S2, 2015
CONTEXTUALISATION
Getting this right is essential to
pass CAP
CAP Orientation S2, 2015
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Contextualisation
• Everything occurs in a particular context
• There is rarely a single correct answer
• All business decisions are about
optimising between competing issues in
the context of uncertainty
• Our clients want to know the implications
of their decisions in their particular
situation
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CAP Orientation S2, 2015
Contextualisation (cont.)
The technical work is not the end of the job.
It is merely the start of being able to provide
proper actuarial advice.
High quality technical work is a Necessary but
not a Sufficient condition for excellent advice.
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CAP Orientation S2, 2015
Contextualisation (cont.)
• The client is not interested in the actuarial
answer !!!
• They want to know what action to take
– What does the result imply for action
• This does not mean that we produce the
answer the client wants!!
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CAP Orientation S2, 2015
How do we Contextualise
• Draw the right conclusions
• Answer the right question
• Do the right analyses with the
right assumptions
• Provide the advice which
addresses the business issue
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CAP Orientation S2, 2015
Draw the Right Conclusions
• What’s going on
• Where
– Financial Services environment
• Who
– Organisations
• Roles & Relationships
• Views
• Risk Appetite
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CAP Orientation S2, 2015
Draw the Right Conclusions (cont.)
• Who (cont.)
– People
• Position
• Views
• Client
• Professional Issues
• Conflicts of Interest
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CAP Orientation S2, 2015
Answer the Right Question
Determine the business issue
The right question is always of the form
What business decision(s) should I
make to resolve the issue
It is not
What is the answer
CAP Orientation S2, 2015
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Answer the Right Question (cont.)
• Scope
• The scope is limited to
• The business issue, and
• Your recommendations for its solution
CAP Orientation S2, 2015
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Do the Right Analyses with the Right
Assumptions
• What analyses?
– What will the results be used for?
• Set the right assumptions
– Determine what assumptions are needed
– Examine the experience
– What will the future environment do to the
expected experience
– Set the assumption
• Do the analyses
CAP Orientation S2, 2015
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Provide the Advice which
addresses the Business Issue
• The client is not interested in the actuarial
answer !!!
• They want advice which will be serious input
into resolving the Business issue
• They want to know what action to take
• What does the result imply for action in respect
to BUSINESS decisions !!
• This does not mean that we produce the
answer the client wants !!
• Provide analysis of the KEY risks
CAP Orientation S2, 2015
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Contextualisation Example
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CAP Orientation S2, 2015
Draw the Right Conclusions
Example
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CAP Orientation S2, 2015
Draw the Right Conclusions
• What’s going on
– Marketing Director has sketched a new
product
• Big Mac Investment
• Investment earnings will be credited at the S&P
Accumulation Index performance
• No derivatives, etc
– The product will use the Economist
magazine’s Big Mac Index as the $US to $C
currency conversion rate
CAP Orientation S2, 2015
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Draw the Right Conclusions (cont.)
• Where
– Capland
– No regulations given
• Who - Organisations
• Exotic Investment Management (“EIM”)
– Speciality investment manager
– Has a “very good reputation” with customers
– Achieves a rate of business retention which is the
“envy of all Capland investment managers”
– Specific financial targets
– No specific info on risk appetite but look at its name,
its customers’ behaviour and its business summary
CAP Orientation S2, 2015
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Draw the Right Conclusions (cont.)
• Who – Organisations
– Actuaries for Weird & Wonderful Investment (“AWWI”)
• Long track record of providing investment advice to EIM
 No specific info on risk appetite but note its name
• Who – People
• Director of Marketing
• Owner of the new product proposal
• You
• Senior partner of AWWI
CAP Orientation S2, 2015
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Draw the Right Conclusions (cont.)
• Client
• EIM
• Professional Issues
• None obvious
• Conflict of Interest
• None obvious
CAP Orientation S2, 2015
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Answer the Right Question
Example
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CAP Orientation S2, 2015
What is the Business Issue
• Investment strategy for this “very
different” product
• Carefully note the product specifications
CAP Orientation S2, 2015
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What is the Business Issue (cont.)
• Scope
– Single piece of advice
• What investment strategy should be adopted to
ensure that the usual financial targets are achieved
for the BMI product.
CAP Orientation S2, 2015
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Communication
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CAP Orientation S2, 2015
Audience
• They assume actuaries know what they
are doing
• They want
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Proposed actions
Why
Leading to results
Identification of key risks
Risk management
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CAP Orientation S2, 2015
Understanding the Audience
• Understanding the audience means
understanding how they process information,
the language they use, what motivates them
and what convinces them.
• Who is the audience for your written report?
• What are they wanting to see in the report ?
• How familiar are they with the content, and how
will this affect the words, language and
analogies you may use?
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CAP Orientation S2, 2015
Written Reports - General
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Executive Summary
Introduction
Reliances and Limitations (Only if appropriate)
The Issue
The Solution
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Key assumptions
Key model issues
Key implications
Risk Management
• Recommendations/Advice
• Appendices
– Data
– Model details
– Results
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CAP Orientation S2, 2015
The code and legislation may impose
communication requirements
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CAP Orientation S2, 2015
The Course
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CAP Orientation S2, 2015
Assumed Knowledge
• There are no formal prerequisites but
students are assumed to have the
knowledge sufficient to have passed
Modules 2&3 in one of the traditional
practice areas
• They are also assumed to have the level of
investment understanding required for a
pass in Control Cycle (or the previous
Module 1)
• Students are assumed to be competent in
the use of MS Word, Excel & Powerpoint
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CAP Orientation S2, 2015
Non-Traditional Practice Areas
• Students are not expected to have the
same level of knowledge as assumed in a
traditional area
• They are expected to have a general
understanding of the areas selected
based on the materials supplied and the
suggested readings
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CAP Orientation S2, 2015
The Specified Practice Areas [S2, 2015]
• Traditional
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Investment & Finance
General Insurance
Life Insurance, including funds management
Global Retirement Systems
Enterprise Risk Management
• Non-Traditional
– Health Financing
– Banking
– Environment, Social, Governance
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CAP Orientation S2, 2015
The Learning Environment
• Residential course
• Case study based learning paradigm
• The course staff comprise senior actuaries
with wide business experience
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CAP Orientation S2, 2015
Residential Course Program
[Semester 2, 2015]
• Tuesday 15 September to Friday 18 September
• Starts 8:30am
• Drinks, Tuesday [Institute President]
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CAP Orientation S2, 2015
Residential Course Program
[Semester 2, 2015] {cont.}
• Tuesday AM – Contextualisation
• Six case studies
• Each non-trad case is proceeded by a teaching
session on the area
• Communication teaching session – Andrew
Brown
• Friday PM – Review Session on “How to Pass
CAP”
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CAP Orientation S2, 2015
Case Studies
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CAP Orientation S2, 2015
The Case Studies
• Eight – one in each specified traditional
and non-traditional area
• But only do six - choose one of General,
Life or Global Retirement Systems
• At the course each case will be
considered in syndicates and discussed in
plenary sessions
• No actual report is required for the course
discussion but some cases may require
the production of an Executive Summary
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CAP Orientation S2, 2015
Case Studies
General session structure:
• Introduction
• One (or more) syndicate discussions
• Plenary for the delivery of one (or more)
syndicate solutions according to the type
specified by the session leader
• Summary by session leader on
– the key issues which should have (or were) identified,
particularly those required for a pass in the assessment
• Review of an actual past answer
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CAP Orientation S2, 2015
Pre-Course Work
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CAP Orientation S2, 2015
Pre-Course Work
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Orientation session
Read the material for the non-trad areas
Read the Professional Behaviour notes
Read the Communications material
Decide on one of General, Life or Global
Retirement Systems case study
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CAP Orientation S2, 2015
Pre-Course Work [2]
• Prepare notes on the following six cases
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General, Life or Global Retirement Systems
Investment
Environment
Health Financing
Banking
Enterprise Risk Management
• As follows
– 2 to 5 pages
– ALL quantitative analyses
• A copy of these notes MUST be handed in prior
to the first session on the Tuesday
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CAP Orientation S2, 2015
Assessment
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CAP Orientation S2, 2015
Assessment
• One assessment
• Two parts
– Post-course assignment
– Case study exam
[20%]
[80%]
• Marks from each part weighted and
added together
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CAP Orientation S2, 2015
Assessment Part One
• A full written report on a non-traditional case
study.
• The case study will be provided to students at
the end of day 4 of the residential course
[18 September ]
• Students will be randomly assigned one of the
three non-traditional areas. Each non-traditional
area will be completed by 33% of the students
• Report to be submitted by 30 September
• Feedback provided 13 October
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CAP Orientation S2, 2015
Assessment Part Two
• A case study style question.
• One to be chosen from the five case study questions
available with one in each specified traditional area.
• The answer is to be a substantial piece of written
communication which will be assessed in respect of both
its content and the quality of its written communication.
• As a guide to the extent of the answer expected, a report
of around 10 pages of text, single spaced, excluding
graphs, tables, etc., plus a one page executive summary
would generally be quite adequate. There is no explicit
limit.
• Must comply with any applicable Professional Standards
and the Code of Conduct.
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CAP Orientation S2, 2015
Assessment Part Two [cont.]
• Institute exam centres in Sydney and Melbourne
• Students in other centres MUST contact the
Institute well in advance to arrange temporary
examination centres.
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CAP Orientation S2, 2015
Logistics
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CAP Orientation S2, 2015
Residential Course Location
Macquarie Graduate School of
Management,
99 Talavera Rd North Ryde, Sydney
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CAP Orientation S2, 2015
Course Material
• Eight case studies, including supporting
material and data (in spreadsheets)
• Background notes and suggested
readings for each non-traditional area
• Background notes and suggested
readings on Professional Behaviour &
Corporate Governance
• Communication readings
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CAP Orientation S2, 2015