Editorial: The Actuarial Dog Days of Summer
Editorial: The Actuarial Dog Days of Summer
The hot days of summer are upon us and, with it, the inevitable reference to the dog days of August. All over North America this year, summer began early with heat waves, heat alerts, smog alerts and hurricane and tornado warnings. Admittedly, this is not very encouraging news for our society which is concerned with preservation of life, quality of life and conservation of property. Accordingly, it is a challenge for our profession that prides itself on its ability to accurately calculate the financial impact of natural or catastrophic events on society at large.
As we ponder this summer coming to a close, at this time of the year, we are reminded of those issues that have "dogged" our profession in the past and continue to do so. Historically, as actuarial students, we can all recall coming off favorable or unfavorable exam results in July and getting down to the nitty-gritty of our studies in August in preparation for the fall exams. For the recently qualified actuary, this time of year is an opportunity to catch one's breath and begin the transition from apprentice to actuary.
For the more experienced actuary, this time of year has us moving towards the second half of the year. The final tweaks to the business plan are beginning to be made by the actuaries who work in the planning or chief financial officer's department. The corporate actuaries are working on Asset Adequacy tests in the United States or the Dynamic Capital Adequacy Tests (DCAT) in Canada to meet statutory filing requirements for life insurance companies. Pricing actuaries are putting the final touches on their re-priced products for launch in September to allow producers and marketers to meet sales targets for the year.
Pension consulting actuaries are beginning the preparations to meet with clients on a variety of pension valuation issues. The reinsurance actuary is preparing for the blitz to visit clients in the life insurance sector in the last quarter of the year.
Although the above are all issues that impact our daily lives, we at times lose sight of the bigger picture. It's clear that major issues are dogging our society, our industry and in turn, our profession. Three specific issues come to mind:
- Financial Solvency of Social Insurance Programs.
- The Evolving Regulatory Framework for the Actuarial Profession.
- The Increasing Variety of Work for Actuaries Today.
In terms of the financial health of social security, the issue has become a global issue. At the 2004 Global Financial Leadership Forum in London, the issue rose to prominence as one that does not only touch the developed world, but also the developing world. As industrialization grips more of the developing world, the same issues that confront us in our Western societies (the inter-generational transfer of wealth and the sustainability of social insurance programs) become more topical.
Developing societies in Asia, Latin America and Eastern Europe are experiencing the same concerns as those in the United States, Canada, the United Kingdom and Western Europe in terms of the financial solvency and sustainability of benefits for their social insurance programs. The United States is in the midst of debating the merits of going to private accounts, similar to the UK experience in the late 20th century. In Canada, the issue of solvency for the public pension funds was addressed in a two-step process. One smaller program, the Quebec Pension Plan, had always had a mandate of investing public funds according to private pension investment principles. More recently, this approach was followed by the bigger plan that covers the rest of the country, the Canada Pension Plan. Sustainability of funding the existing and future benefits of pension plan members has been assured by this private sector approach, and in so doing, retaining sound financial management of the overall programs.
The actuarial profession has increased in stature over the last few years in a positive sense, due to the successful promotional campaigns of the various actuarial professional bodies and in some negative respects, due to the notoriety of pension funding shortfalls in private pension plans and in life insurance companies. Each jurisdiction with a mature actuarial profession is undergoing an arm's length review of the viability of the profession. This issue is more advanced in the United Kingdom due to the Morris Review (see article in this edition). As these reviews conclude, the repercussions for the actuarial professions in the United States, Canada, Western Europe and Japan will be significant.
Finally, as the actuarial profession has become more broadly recognized in society, opportunities have developed for actuaries to pursue a variety of options to serve society. The Society of Actuaries' promotional program "Turning Risk into Opportunity" is a clear beacon to the possibilities for the profession in our Western society. Moreover, actuaries are utilizing their analytical skills, expertise and experience in new ways whether it is in the boardroom or to serve the public more directly (see articles in this edition).
These issues, together with others, will continue to serve as challenges for the actuarial profession, now and in years to come. As the days get shorter, the nights cooler and as a crispness returns to the air, we are reminded that the spectacular days of fall will soon be upon us–leaving as a distant memory the dog days of summer.