2006 PARIS
The Business of the Consultant Actuary
Chairman: Adrian Waddingham UK
Presenters: Segundo Tascon
Mexico
Ed Morgan
Switzerland
Stuart Leckie
China
1st June 2006 09:00 – 10:30
The UK “Morris Review” 2005
• Adequate choice of (actuarial) provider
• High concentration in advice to biggest
pension schemes ( four firms have 70%)
• Choice might be limited in future if smaller
firms have insurance problems and are
exposed to uncapped liabilities
• Market testing of providers, and
switching of actuaries, is low
• Preference for multi-service provision
could limit competition by
single service providers
Growth of UK consultants
1600
1400
1200
1000
800
600
400
200
0
1990
1996
2000
2004
(membership of the UK Association of Consulting Actuaries)
Choice of (actuarial) provider
• Significant entry by small/medium firms
(and the “big four” accountants)
• So good choice – except for investment
advice to large pension plans
• Recommended “un-bundling” of
investment advice
• And to help small firms on PI insurance:
–
–
–
–
Use liability caps
Set up “collective” insurance schemes
Improve risk controls
Use proportionate liability clauses
Market Testing (of actuaries)
• Pension trustees should
– Evaluate (informally) their actuaries
annually
– Formal evaluation every three years
– Market test no less than every 6 years
• Trustees should report their
compliance with this approach
(or if not, why not?)
Scrutiny of Actuarial Advice
• Address the “understanding gap”
between actuaries and their clients
• UK Pensions Regulator now giving
“code of practice” on pension trustee
knowledge and understanding
• Greater use of professional trustees
• Should the client’s existing actuary
provide the trustee training?
The Business of the
Consultant Actuary
Segundo Tascón Newton
Director General
Watson Wyatt Mexico
In Mexico
The Retirement Consultancy has been more
dynamic over the last six years than in the last
three decades to the point that it requires high
specialization of various retirement disciplines,
being the result of…
Factors of Influence in the Consulting Work
A.
B.
C.
D.
E.
- Social Security Law
- Legal Framework
- Demography
- Globalization
- Accounting Standards
Factors of Influence in the Consulting Work
A. - Social Security Law
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
2001
Law 1973
Law 1997
2005
2009
2013
2017
2021
2025
2029
2033
Factors of Influence in the Consulting Work
B. - Legal Framework
Mexican Labor Code
All companies have a statutory obligation to make a
severance payment if employment is terminated without
just cause.
Attainment of retirement ages is not deemed to be just
cause.
Therefore, Legal Termination Indemnity is payable upon
retirement.
Legal Termination Indemnity = 3 months pay+ 20 days pay x
Years of service
Factors of Influence in the Consulting Work
B. - Legal Framework
Income Tax Law
Pension Plan Advantages:
Tax deductible contributions
Investment income not taxed
Tax free pension up to 9 times the monthly wage salary
Factors of Influence in the Consulting Work
C. - Demography
Population Percentage
60%
50%
Age Groups:
40%
0-19
30%
20-59
>60
20%
10%
0%
1995
2000
2005
2010
2015
2020
2025
Years
2030
2035
2040
2045
2055
Factors of Influence in the
Consulting Work
D. - Globalization
Sox Law – PP Governance – Investment Strategy
Trend toward DC Plans
Global Actuary
Reporting Coordination
High level of Competitive Market
Communication
Factors of Influence in the
Consulting Work
E. - Accounting Standards
FAS 87
Boletín D-3
IAS 19
Evolution of Retirement Consultancy
From - Annual Actuarial Valuation for
Funding and Accounting
plus
To
- Pension Plan redesign
Pension Administration (benefit
statements, etc)
Workforce planning
Investment consulting
ALM
Specialized communication
Social Security and tax
planning advice
Evolution of Pension Plans
A. - DB plans equivalent to legal Termination
Indemnity
B. - Trend towards departure from traditional
DB Plans
Alternative Pension Plan Design
Pension Equity Plan
Seniority Award
Strategic Bonus
Health Retirement Account
Current Issues
 The constant ghost of a new pension
legislation
 Rules and regulations of investment
 SOX law
The Business of the Consultant
Actuary – A European View
Ed Morgan, Principal
MILLIMAN
SOMMAIRE/
SUMMARY
Introduction to Ed Morgan and my
experience as a consulting
Contrast consulting and Insurance
businesses
A background to actuarial consulting in
Continental Europe
Opportunities and Challenges
An introduction to Ed Morgan
 I am a UK actuary (FIA 1989)
 I am mainly a life actuary although I have also
done some non-life work
 I have been based in a number of European
countries (UK, Italy, France and now
Switzerland)
My experience in consulting
 I worked for 15 years in large insurance
companies
 In 1999 I started as an independent consultant
 In 2001 I started to build a group of international
consultants spread across several European
countries
 In 2004 our group of consultants became part of
Milliman
Consulting is very different from Insurance
 There are many fundamental differences between
the insurance and consulting businesses in terms of
the issues involved in managing a business. For
example:




Insurance workflows tend to be fairly predictable –
consulting workflows can be very uneven (e.g. year end
work) or unpredictable (e.g. M&A work)
(Life) Insurance is a “hard” selling business. Consulting is
(usually) a soft sale.
Insurance is a very regulated business. Consulting is quite
unregulated.
Insurance company structures are hierarchical pyramids.
Consulting structures are much flatter.
Actuarial Consulting is relatively
underdeveloped in Continental Europe
There are a variety of reasons for a lower level of
development than in the anglo-saxon world:



Insurance markets were significantly more
regulated (at least until 10 years ago with the
introduction of changes such as the 3rd EU Life
Directive).
More dominant role of state in pension systems
The role of the actuary was traditional seen as a
narrower “liability-side only” role.
European Actuarial Consulting Market
 Many small firms and independent
consultants
 More generalists than specialists
 Relatively limited presence of large
international firms (a situation gradually
changing over the last 10 years)
Opportunities
 Continuing rapid pace of change (e.g. Solvency II,
advent of stochastic modelling etc)
 M&A activity (although emergence of bigger players
can eventually lead to more self-sufficiency)
 Greater awareness of the value of actuarial advice
 “Industrialisation” of some actuarial processes
 Various audiences want an external opinion (e.g.
validation of internal models for Solvency II)
Business Challenges Facing Actuarial
Consultants in Europe Today
 Insurance companies are becoming better at
purchasing consulting (not necessarily a
disadvantage)
 Increasing risk of litigation and consequent impact on
cost of Professional Liability Insurance
 Need for specialisation (insurance world is too
complex for one person to cope with everything)
 Need for high-power tools (we need software
engineers as well as actuaries)
The Business of the Consulting Actuary
“The Challenges of Consulting – China”
STUART H. LECKIE
O.B.E., J.P., F.F.A., F.I.A., F.S.A.
TEL: (852) 2147 9998
FAX: (852) 2147 2822
E-mail: stuart.leckie@stirlingfinance.com
1 June 2006
29
Map of China
China Demographics
Total:
About 1.3 billion
Rural Population:
800 million
+
Urban Population
+
500 million
Consider:

One Child Policy

Greatly improved life
expectancy

Dependency Ratio
deteriorating rapidly
Ages:

0-14
90 million

15-59
370 million

60+
40 million
China Demographic Developments
77.1
71.5
59.6
28.2
7.8
6.1
1.7
Life expectancy
Source: UN Population Division
10.9
2.0
1.9
Fertility rate
1970
6.8
6.2
Old-age Dependency
Ratio
2005
2040
60+ as % of total
population
History of Life Companies

First insurance company in Shanghai, 1912

AIA 1919

People’s Insurance Company of China (PICC) restarted
insurance business in 1980

Today 34 life insurance companies operating in China

6 national domestic life companies
 20 international companies with J.V.’s

Growth rate extremely high

Interest rates low/mismatching problem

Life companies very restricted on investments

PICC, China Life, Ping An + others to go public

WTO restrictions to ease
History of Chinese Actuarial Profession

Introduction of overseas actuarial
education systems, examples




Graduate actuarial program at Nankai University jointly
developed with SOA, 1987
Exam centre of Institute of Actuaries at Central University of
Finance and Economics, 1993
Exam centre of Institute of Actuaries of Japan at Southwest
University of Finance and Economics and China Finance
College in 1998
Exam centre of Casualty Actuarial Society at Shanghai
University of Finance and Economics in 2002
History of Chinese Actuarial Profession

Construction of Insurance Regulation, 1995

Chinese Life Insurance Mortality Table, 1996, 2005

Actuarial Practice Standards and Actuarial Reporting
System, 1998

Organizational establishment, 2001

Majority of actuaries are company actuaries

Western consultancies active

No real emergence (as yet) of local consultants
Society of Actuaries of China (SAC)

First Chinese actuarial exams in October 1999

43 Chinese qualified actuaries

SAC set up as subsidiary of China Insurance Association and
under auspices of CIRC in July 2001

14 exam centres, including Hong Kong

2005, applied to become an independent organization

SAC Annual Conferences and IAA International Forums
Life Legislation
 Shanghai rules 1995
 Standardization of policy provisions
 Appointed Actuary system
 Embedded Value reporting requirement, 2005
 “Enterprise Annuities” – MOLSS
 Policy directive – State-owned enterprises to
concentrate on primary business and withdraw from
domestic partnership of JV insurance companies
Actuarial Activities
8 Functions:
•
Life
• Non-life
• Healthcare
• Social security
• Pensions
• Investments
• Education
• Regulation
Challenges
 Relationship based
 Data
 Fees
 Unsophisticated users
 Bonuses and “reasonable expectations”
 Accounting standards
 Governance
 Professional liability
Regulators

Banking
China Banking Regulatory Commission

Insurance
China Insurance Regulatory Commission

Investments
China Securities Regulatory Commission

Pensions
Ministry of Labour & Social Security
CIRC
CSRC
CBRC
Ministry of Finance
Comparison with Hong Kong

“1 country, 2 systems”

No. of actuaries, associates & students
Fellows:
China 50
Hong Kong 280
Associates:
China 160 (ASACs) Hong Kong 250
& Students

Joint Activities
IAA International Actuarial Forum
Shanghai-Hong Kong-Taipei Actuarial Symposium
Annual Joint Regional Seminars
Thank you!