UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
UK Actuarial Profession
Merger of Faculty with Institute?
Jon Spain
protecting actuaries’ rights
16 June 2009
Isle of Man Actuarial Society
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
overview
Several general points
Excessive pressure by Councils towards merger
Using our resources wisely
Where is UK actuarial profession?
Current proposals still lack clarity and sense
What else are we missing?
Where next?
Must vote by Thursday 23 July 2009 {SGM}
 this time, students can’t vote (normal position)
16 June 2009
Isle of Man Actuarial Society
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
several general points
Scotland and history? not bovvered except for “WLQ”
Current situation not truly broken, fix not needed
Two bodies are much closer than I had even realised!
Were we consulted about pension schemes merger?
 I don’t recall it at all, does anyone else?
Competition reduced, tolerance of alternative views?
 based upon what we’ve seen so far, probably not
Proper arguments were and remain required for merger
 such action likely to be virtually irreversible
 detailed cost analysis sought but not provided
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
excessive pressure by Councils towards merger
Councils’ pressure towards merger enormous
 objectors unfairly described as just negative
 almost black propaganda – and contemptuous
Whatever happened to “professional independence”?
OK, we wouldn’t have started from where we are now
…oh, we didn’t, Faculty walked away in 1856
 they can transfer back extremely easily
Merger is far from being only appropriate route
We’re supposed to be evidence-based profession
Approach to statistics has been quite interesting
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
interesting approach to statistics
“You Said” said 70% wanted merger (online survey)
 weighted mean of 58% (Faculty) & 72% (Institute)
Faculty respondents were 35% of eligible voters
 58% is lower than trigger of 67%
 58% is lower than previous survey of 64% (August 2008)
Institute respondents were 26% of eligible voters
 72% is lower than trigger of 75%
 72% is lower than previous survey of 83% (August 2008)
So good to be part of “evidence based profession”
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
using our resources wisely
“I hold every man a debtor to his profession” (Bacon)
Much made of too many people involved
 in running the profession
 …but that’s what some actuaries might want to do
Having just 1 president instead of 2?
…could reduce volunteers as fewer opportunities
UK actuarial profession has some real problems
 see next 7 slides
Are we merely fiddling while Rome burns?
 historically inaccurate (fiddle invented 1,500 years later)
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where is UK actuarial profession? (1 of 7)
Frankly, we’re nowhere, we’ve lost our way
No-one knows our “unique selling point(s)”
Not “predicting” future (erroneous common view)
If only there were a Carlsberg actuary
 probably best advice in the world
No-one on Earth knows future
 when?
 which direction?
 how far?
 how long?
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where is UK actuarial profession? (2 of 7)
Too much copy-cattery, too little free thinking
Pensions mis-selling in 1980s and 1990s
 we really didn’t say very much very clearly
With-profits life funds not being that well capitalised
 we really didn’t say very much very clearly
Pension accounting standards (FRS17)
 we really didn’t say very much very clearly
 no-one paid much attention to what we did say
Is LDI the next pensions mis-selling scandal?
 we’re really not saying very much very clearly
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where is UK actuarial profession? (3 of 7)
Capitalisation was all we had for many decades
It diverts attention away from underlying cashflows
Others have now started using “our” approach
We’ve lost control of our main professional tool
Trustees must take account of employer covenant
…but the pension scheme itself weakens covenant
We should be looking at overall picture but do we?
So just what are we contributing?
…for which others should be willing to pay
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where is UK actuarial profession? (4 of 7)
“Today’s” conditions are useless as long-term indicator
Some actuaries say “today” is only evidence we have
That is simply not true, there is far more
 not just “judge, fudge and bodge”
Looking back, we have had huge variability
Ignoring variability excludes virtually all of the data
“Spot” value can’t be superior to “whole population”
Why assume future experience must be worse?
Is that what actuaries really think their job is?
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where is UK actuarial profession? (5 of 7)
“Risk management” is to be our new mantra
Will we confuse “management” with “avoidance”?
Narrow approach insufficient to gain real credibility
We should be emphasising risk AND reward
 as we used to for pension fund assets (DCF approach)
Can’t invest assets “short” and “long” simultaneously
Actuaries can help choose appropriate assets
…so long as we’re aware of realistic timeframe
No need to fund in advance for wind-up if event unlikely
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where is UK actuarial profession? (6 of 7)
Short-termism commonly seen as systemic problem
Short-term optima won’t deliver long-term optimum
 path dependence is crucial
Actuaries were supposed to specialise in long-term
No-one else in UK used to be seen as doing that
If we don’t regain our ground, others will take over
We must stop being fixated by “now”
We need to focus upon strategy rather than tactics
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where is UK actuarial profession? (7 of 7)
Actuary’s primary task is to take account of evidence
 data source and bias?
 data consistency (internal and external)?
 data sufficiently robust and fit for purpose?
Then identify options
 behaviour (new), demographics, financials
 in order to price fairly and appropriately
Actuarial world has changed since 1970s
Chief actuaries are no longer in control
 nor should Presidents and Councils think they are
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
current proposals still lack clarity and sense
Now voting for Faculty to join Institute
 originally the other way around
 apparently reversed because of pension implications
 don’t need a merger for that (individuals can transfer)
Merger not sole solution to governance problem
We wouldn’t agree client merger without full details
…so why should we do it here?
Why are Faculty so nervous about Institute support?
Charter problems
Can pension fund wind-up deficit be carried forward?
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
charter problems (1 of 2)
Originally going to be based upon Faculty
 because Faculty were taking over Institute (you knew?)
New charter to be adopted with little discussion
 Faculty being transferred to Institute (pensions)
Why do we need new charter at all? Objects clause?
New Charter claimed to be simpler, more efficient
 members deprived of right to vote on many issues
 Council deprived of powers of detailed control
 small Management Board and Chief Executive granted
very substantial powers
Changing charter later on will be virtually impossible
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
charter problems (2 of 2)
Current collective names for actuaries
 stupor (I prefer “mego”)
 actuaraei
new singular name is to be “FCAP”
 just say it fast
 corresponding collective noun?
prospectus offers choice of sticking with FIA/FFA
…but that defeats whole purpose of merger, right?
That is only a “reserved right” under regulations
 Council can easily remove that under regulation 1
 I believe that will be their first step
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
what else are we missing?
The elephant in the room…
…the Board for Actuarial Standards
Why (how) did that happen?

right, we really didn’t say very much very clearly
Borders between {IoA & FoA} and BAS unclear?
No, BAS now possess most of “our” former powers
So just what can a residual body even offer?
This is vital, to be ignored at our peril
BAS have already told us to show cashflows √
West Lothian question?
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UK Actuarial Profession : Merger of Faculty with Institute? : Jon Spain
where next?
Don’t know where we are or where we’re going
Can’t be sure merged body would share common views
Merger in near future on proposed terms is inappropriate
 lack of clarity over we’re really voting for
 is rollover of Faculty wind-up deficiency “done deal” (PR)?
 excessive biased pressure by Councils towards merger
 merger won’t necessarily solve governance problems
 wasting time and resources, ignoring real problems
 merger case simply not made out as only possible solution
Please vote “against” ,…not necessarily forever
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