Editorial - The Only Constant Is Change


The Only Constant Is Change

It's been only a couple months since the last edition of The Actuary. In that short space of time, we have seen many new events. On the world stage, Indianapolis won the Super Bowl; President Bush announced a US$2.9 trillion budget; the Dow Jones continued to set new records; North Korea has agreed to talk about nuclear disarmament; and what could potentially be the most important event of them all, Hillary Rodham Clinton announced that she will be a contestant in the 2008 Presidential Elections.

Change is inevitable; in fact it's the only constant in our lives. As insurance professionals we are expected to create certainty from uncertainty. Perhaps the new Met Life campaign sums it up perfectly ... "Guarantees for the if in life."

Change can be exciting, even invigorating, seducing us to wild abandon (like the Internet-bubble). In order to be prepared for change, we must never forget certain principles. These principles include ethics, financial discipline, meeting client obligations, outstanding client service, treating your employees fairly, etc.–these principles are akin to the North Star that always leads you safely to your final destination.

A key principle of our profession is our Actuarial Standards of Practice. Larry Sher continues the debate on this issue responding to Dave Kass' previous article regarding how we must raise the level of practice amongst actuaries. However, Larry shares a different perspective than that of Dave and the contrasting positions provide a very practical insight into the thinking of a board member of the ASB.

Another key principle is the actuarial educational process. This defines us as a profession and has the objective of preparing us for the future. This is an area of change where the vast majority of actuarial students probably wish for less change ... until they qualify, that is. However, the SOA is quite right to implement continuous changes so that actuaries can be best prepared to contribute to the dynamically changing financial markets. The students will eventually thank the SOA for making the changes. Jacque Kirkwood gives us a quick tour regarding the Fundamentals of Actuarial Practice course which has been in place for just over a year and has had to date over 4,000 registered candidates. The FAP embraces e-learning and its objectives include a shorter travel time (to attain actuarial qualification), practical techniques to help students in their day-to-day work/study and the opportunity to apply traditional actuarial techniques to some non-traditional areas.

It will be interesting to see what impact the actuarial education process will have on our membership going forward. A current snap-shot of our membership can be seen within Sam Phillips' "Who's Who ... Demographic Data Provides a Profile of the SOA." As actuaries we have a keen interest in demography, but we absolutely love to see demographics of our profession. Thanks Sam!

Krzysztof M. Ostaszewski's article regarding Social Security and My G-g-generation is all about change–changes in life-style, working habits and human nature. He describes his generation as the generation that hopes to die before they get old, where no one wants to retire (just like the late Pope John Paul II), and muses that 60 is the new 40. The article discusses the effect this workaholic trend will have on Social Security.

Career changes can be daunting, whether they are self-imposed or mandated. The actuarial profession has the tendency to provide a really good, secure, safety net that inhibits us from looking at non-actuarial options. For us, the actuarial grass is pretty darned green and good. After a successful 30-year career at Watson Wyatt, Steve Vernon made a dramatic career change. He opened up his own business and now offers advice about integrated financial and non-financial strategies: including getting serious about diet, exercise and reducing stress; this is definitely a change that we all should be making. Steve is our Actuarial Pioneer for this edition.

Change can provide new opportunities. ERM will change how all organizations view risk and more importantly it is significantly enhancing the image of the actuarial profession. Max Rudolph explores yet another facet of ERM, namely how "Risk is Opportunity" and how companies can embrace a principles-based approach and enjoy a competitive advantage. Regulators will be interested to discover that in the United Kingdom, the Financial Services Authority has already embraced this approach.

Change can impact the balance sheet, net shareholder equity, solvency margins, ROEs and consequently pricing. Brazil is soon going to have a lot of changes. European Solvency II may have been in the news for a longer time, but as of Jan. 1, 2008, Brazilian insurance companies will have to substantially increase their minimum capital requirements. How the 20 multinationals that are based in Brazil deal with this issue will provide an indication of how they will adapt to European Solvency II. My friend and fellow-Brazilian actuarial colleague, David Sommer, summarizes what led to this proposal, what it means for the market and solutions to adapt to this new reality.

All of the changes covered in this issue are of immense importance as they guarantee that the financial institutions for which we are appointed financial guardians are able to endure another 100 years or so. As Harold Wilson advised, "He who rejects change is the architect of decay. The only human institution which rejects progress is the cemetery." In conclusion, this edition is all about embracing change and staying out of the cemetery for as long as possible.

On behalf of my colleagues on the editorial board, here's hoping that you enjoy reading this edition as much as we enjoyed putting it together.

Best regards from Rio de Janeiro,

Ronald Poon-Affat, FSA, FIA, MAAA, CFA
CFO, Icatu Hartford Insurance