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The Actuary The magazine of the Institute & Faculty of Actuaries

Cancun cocktail

Actuaries from all over the world
gathered in Cancun, on the
Caribbean coast of Mexico, in
March for the 27th International Congress of Actuaries, organised by the actuarial profession in Mexico, with some assistance from international actuaries and the International Actuarial Association. AFIR and ASTIN colloquia were taking place simultaneously with this congress, as well as a ground-breaking international health seminar.

A long cycle
A welcome reception on Sunday evening was the first formal event on the terrace above the beach, windy but with nice margaritas and pina coladas, and fireworks with sparks blowing all over the place. The congress was being held in a huge resort hotel (all rooms with sea view and two-person jacuzzi), cut off from the ‘real world’ by a four-kilometre-long drive.
Proceedings opened the next day in a vast hall, with a swish production, more like the Society of Actuaries AGM (see The Actuary March 2001) than a typical UK actuarial meeting. A video recalled what had happened since the previous congress in Birmingham in 1998 (including Viagra and the Y2K bug) and the message seemed to be that in the new millennium actuaries should do actuarial things to help the world. There were many introductory speeches, some in the same vein, and we learned, incidentally, that there are now around 35,000 actuaries throughout the world less than the number of accountants in Ontario. Tributes were paid, deservedly, to the Mexican profession. The move into wider fields and the need to attract good candidates into the profession were clearly worldwide concerns.
Pablo Noriego, a former president of the Colegio Nacional de Actuarios, one of the Mexican actuarial professional bodies, addressed the congress on pre-Colombian Mesoamerican mathematics. He had much very interesting material on the famous abilities of the pre-Hispanic Americans in astronomy, as well as less-well-known material on numerology and demographic census-taking. Mayan astronomy uses a ‘long cycle’ of 5,125 years the current one will end in December 2013, a date for everyone’s diaries. As he talked of the princely cast of mathematician-astronomer-priests, and the influence that they held, were not others in the audience imagining actuaries as heirs to this elite estate in the modern world (though without the human sacrifice)? The main difference, perhaps, is that whereas pre-Colombian cultures saw time as a series of cycles, modern actuaries see compound interest and related functions decaying to nothing or spiralling away exponentially, functions of entropy and increasing funnels of doubt.

The scientific programme
Leaders of western hemisphere actuarial employers talked about prospects for the profession. Clemente Caballo talked about the need for international actuarial practice standards, given an increasingly globalised insurance industry. The same issue was also touched on by Patricia Guinn, who, while warning that actuaries needed to develop more business skills, had a bright vision of the future. Timothy Lynch spoke of ways in which actuaries could distinguish themselves from other professionals, and move forward into new fields. He quoted the thought ‘Mas vale ser padre del futuro que hijade pasado’ ‘It’s better to be a father of the future than a son of the past’. Globalisation also entered into Dale Gifford’s contribution, focusing on pensions matters.
Most of the scientific programme was in the form of parallel sessions my areas of interest mainly related to social security and pensions.

Social security
The social security programme kicked off with a debate on the future of social security financing. Robert Holzmann of the World Bank, who with his organisation had been involved with pension reform in Latin America, Eastern Europe and OECD countries, reported that further reform is expected in more of Europe, and Africa in the coming decade. The World Bank’s concerns are first to ensure delivery of adequate, affordable, sustainable, and diversified pension benefits, and second to encourage developmental effects (for instance in labour and capital markets). The multi-pillar approach so strongly associated with the bank is a benchmark, not a blueprint contractual (pension) savings are neither necessary nor sufficient to develop financial markets, but they can help. Pension reform is a multi-disciplinary affair, in which he saw actuaries providing useful factual information in their reports, but not otherwise focusing enough on the effects of cashflows and wider economic and political questions.
Robert Brown, former president of the Society of Actuaries, stepped in for a missing speaker. This gave us three chances to hear him on social security issues during the congress, and his material bore listening to more than once it just got better and better. He also stressed that studying social security systems needed more than just the actuarial skills developed in advising on employer-sponsored pension arrangements. He presented a number of rules particularly memorable was rule 4: ‘In the presence of a corrupt government, the only thing riskier than an unfunded pension arrangement is a funded arrangement’ (could ‘incompetent’ be usefully added to ‘corrupt’?). Pay-as-you-go approaches looked reasonable when considered in the light of higher population growth and lower rates of return in the 1960s. Until recently many people had the ability to mix defined benefit (DB) social security and occupational pensions with defined contribution (DC) personal savings: recent changes and proposals implied that more people would have only defined contribution pillars to their retirement income.
A panel discussion on defined contribution approaches to social security followed, covering developments in Latin America, China and Kazakhstan. Josh Banks spoke in Rob Brown mode: ‘With pay-as-you-go the government steals your money before you see it: with funding, the government steals your money from in front of your eyes.’
The next day dawned with a panel discussion on innovative solutions to social security funding problems in developed countries. Chris Daykin explained the UK system of contracting out at least as far as he was able, as he claimed that it was the most complicated in the world. The Swedish system (reformed in the mid-1990s), the Australian approach, and the debates about US social security reform at the time of the last presidential elections were covered by Bengt von Bahr, Helen Martin, and Ron Gebhardtsbauer respectively.
In further social security sessions Rob Brown described his ‘wealth transfer index’, whereby the total demands on the economy of those not working (because of youth, old age, or unemployment) can be correlated with changes in actual retirement age. Barry Kozak presented a paper on targeting pension levels with DC accounts, while Chiu Cheng-Chang presented a prize-winning paper on an approach which combined a social security pension system with the ability for individuals to save for other life events.

IAS19 is, by definition, an international issue, and Thursday morning saw pensions actuaries cover ‘differences in employee benefits accounting principles’ chaired by Paul Thornton. Speakers from Canada, the US, South Africa, the UK, Mexico, Australia, and Japan covered the widely varying systems in these countries will the upcoming review of IAS19 make them more alike (and like FRS17)?
A panel discussion on project management for international consulting provided a chance to retell stories about cross-cultural communications difficulties.
Thursday afternoon saw three UK papers on annuitisation spread across two sessions. David Riddington and Leslie Gray presented a version of the idea developed by a UK actuarial profession working party for compulsory annuitisation when a drawdown account fell below the cost of a specified annuity. This author presented his thoughts on why annuitisation was a good thing. And Mike Wadsworth and Alec Findlater gave a reprise of their excellent SIAS paper on the flexible product now offered by a leading UK annuity writer. Discussion mainly focused on the extent to which North American and Australian pensioners valued highly the freedom that lump sum distributions or variants of drawdown offered. In between, Lisa Larsen presented a useful case study of providing benefits to mobile employees of a large multinational company.
Friday morning was filled with a variety of pensions papers describing aspects of the Finnish, Hungarian, and Japanese pension systems. Many of the authors spoke well in English, even where it was a second or third tongue (there was comparatively little translation, and Spanish was definitely the second language of the congress unfortunately, without simultaneous translation some sessions in Spanish were deserted by UK and American actuaries). In the same session, Messrs Wise, Barnes, and Reid (the three Andrews) presented a prize-winning paper ‘Risk sharing in employer pension provision’.
In the afternoon we came back together for the plenary session and congress close. The session on genetics was interesting, and the excellent book produced by the profession in Australia showed that this was a worldwide concern for actuaries. Angus McDonald’s model for the effects of genetic-information- inspired selection on the life assurance market could be used to investigate the effect on other products for example on the annuities market if a ‘longevity’ gene were discovered, as André Chuffart, another speaker, requested.
The last scientific session covered actuaries’ moves into wider fields. Some of the speakers appeared to be exhorting the movers from the sidelines, while others spoke with personal experience. In Australia there are clearly some new areas discovered by actuaries, following Tony Coleman’s dictum ‘Where risk exists, actuaries can add value. Risks exist in lots of places.’ Much was made of increased involvement in finance and banking, which are already major areas of employment for French actuaries.
The closing session saw a rerun of aspects of the opening in reverse order. Prizes were given for the best papers several on health and investment, in addition to those mentioned above and awards were made to Mexican actuaries who had assisted in organising the congress. The joys of Paris, where the 2006 congress is to be held, were explained. And various ‘inspirational’ speeches were made and dignitaries thanked.

The social side
There was, of course, a social side to the congress. On the Wednesday delegates and accompanying persons were all taken to the Mayan site of Chichen Itza, to see the spring equinox. The large central temple is constructed so that at the equinoxes a shadow in the form of a writhing serpent is cast. The organisers even managed to have a break in the clouds for a few moments at the crucial time just before sunset. You could tell the actuaries because all had been told to wear Munich Re polo shirts. Many were also wearing Swiss Re baseball caps one company appealing to our hearts, another to our heads, obviously. Not what all were really there for, but a very pleasant occasion, mellowing us nicely for the intellectual rigours to come.