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The Actuary The magazine of the Institute & Faculty of Actuaries

Letters to the editor 1

Letter of the month
Flawed argument: Response to W. Scott

I wonder if I was the only reader of William Scott’s letter (Global cooling, The Actuary, August 2009) who spotted the inconsistency in his argument? Surely, he cannot argue on the one hand, that his smoothing formula provides a valid insight into global cooling while at the same time criticising “sophisticated mathematical models that prove global warming will resume”. He simply cannot have his cake and eat it too!
More importantly though, his line of argument shows that he does not know anything about the fundamental causes of global warming. They have nothing to do with mathematical modelling, however elegant and sophisticated they may be. Rather, they are to do with physics and chemistry. Greenhouse gases in the Earth’s atmosphere cause the planet’s lower atmosphere and surface to be warmer than would otherwise be the case. These gases allow the passage of short-wave radiation — for example, sunlight — but absorb long-wave radiation — such as heat — and radiate a fraction of it back to the Earth’s surface. This fact has been well established for a very long time — for well over 100 years — and subsequently cited in many academic papers.
There will be few actuaries who gain reassurance from his suggestion that “in 15 years’ time... all the media talk about carbon footprints, carbon emissions and so on, will have been forgotten.”
Gordon M Morrison
12 August 2009

The writer of the letter of the month receives an iPod Shuffle and a £15 iTunes voucher kindly supplied by Hazell Carr

Sunspot cycles: Response to W. Scott
A couple of years back I learned that the 10-year sunspot cycle produces a corresponding cycle in the Earth’s temperature. From 2007 there is a 10-year cooling effect. So William Scott is right to say that “mathematical models are not infallible” (The Actuary, August 2009). That includes his simple one.
My concern for the last two years has been that the combination of the sunspot effect and global warming from the effect of greenhouse gases will produce arguments that global warming is wrong. By the time the sunspot cycle changes in 2017 we will start to see both factors increasing global warming. By then, action may be too late.
Mr Scott starts the process of arguing against the existence of global warming. He may be right; I may be wrong but do you want to gamble humanity on his arguments? We must assume global warming is right because not doing so if it occurs may see the human population reduced in what will be most uncivilised ways.
Ian Reynolds
24 August 2009

The future of climate change: Response to W. Scott
William Scott announces that “global warming ceased in 2004” (The Actuary, August 2009) based on smoothing formulae by Herbert and Scott and data from the Met Office’s Hadley Centre. He may want to look further on the very same Met Office’s website where it predicts a two-to-three degree increase in temperatures by the end of the century. Indeed, it describes the assertion that “lower monthly temperatures in 2008 mean that global warming has stopped” as a “myth”.
Our article tried to show that there is, of course, variability in the upward trend of temperature changes. It is well known that there are natural climate variations, which may cause temperatures to decrease in the short term and, extrapolating a short period of cold weather, to conclude that global warming isn’t happening is misleading. Finally, to denigrate the detailed and peerreviewed work of scientists on climate change and predict that we will have forgotten about carbon emissions in 15 years’ time is, frankly, a disservice to future generations.
Valentina Rocchi and Simon Brimblecombe
3 September 2009

The mathematics of love
As an old Blue, your article on Barnes Wallis (Arts page, August 2009) has been drawn to our attention by the Christ’s Hospital (CH) association. I was surprised at your comment that he was self-educated. In fact he was at CH for four years at the turn of the century and may have been there when the school moved out of London about that time. He clearly enjoyed his time there as he gave most, if not all, of the money he received at the end of the war to form a gift for pupils to go to CH; there will undoubtedly be children there today benefiting from his generosity.
I certainly recall a splendid memorial service at St Paul’s some years ago when the bulk of the music was provided by the two schools’ choir and both schools attended en masse. I was, by that time, not at school but working in London, I hasten to add. I’m sure you will have received a number of similar letters to mine from those who know much more, but I thought the record should be put right.
John Ollerhead
2 September 2009

Manipulating the vote
Paul Clayson re-expressed the vote for the merger as a percentage of membership and noted that it was below 50% for both Faculty and Institute. Based on this, he declared that the merger “is not on” (September 2009).
Two can play at that game. While the votes for were 47.1% (Faculty) and 42.9% (Institute), the votes against were both 17.0%. How many other ‘democracies’ give a veto to that small a minority?
Robert Steel
1 September 2009

Fair access to the professions — but who for?
The government recently published its final report on access to the professions under the headline ‘Unleashing Aspiration’. The Panel on Fair Access to the Professions was established by the prime minister to advise the government on how professional careers can be made genuinely open to as wide a pool of talent as possible. The panel concluded that the problem with access to the professions is one of social mobility; or rather the lack of it.
Social mobility is an inherent and essential human trait. It is what drives mankind forward. In the context of the professions we need people improving their lot in life and joining the ranks of doctors, lawyers and actuaries.
If the report is correct in its findings, it would appear that the professions themselves are the cause of the problem. The professions are accused of limiting social mobility to protect their own. If you want to follow a professional career, it is all a matter of who you know rather than what you know. It also helps if your parents are at least comfortably off, as the report argues that nearly all members of the professions come from the parents in the top 30% of income-earners.
The report argues that it can be sorted out rather easily. The professions have to lower their entry requirements and create more ways of joining a profession than available now. Not too much emphasis must be placed on degrees when selecting potential professionals.
Whenever a government seeks to blame anyone else other than themselves, as this report does, the first place to look for the cause is the government itself. It is a well-known fact that social mobility is at its highest when there is a fully functioning and effective primary and secondary education system. Successive governments have systematically dismantled our education system. This has effectively destroyed most peoples’ opportunity to become socially mobile. It will take a considerable amount of time and investment to put our primary and secondary education systems back where they belong; as among the best in the world.
It is in the interests of all professions, including the actuarial profession, to get more people to join their ranks. As a nation we will become more dependent upon professional services as a source of revenue. It is incumbent upon those professions not to wait for the government to act but to act themselves; now.
Kevin Dougall
3 August 2009

What’s in a name?
The choice of name for the proposed merged body is silly. How could supposedly intelligent people think up such a monstrosity?
I am a fellow of the Faculty and, therefore, am a member of the Actuarial Profession. Actuaries in the US, Australia and South Africa are all members of the profession. They are all fellows, or some associates, of their actuarial bodies. If the new name were to go through, these would be members of the Actuarial Profession without most of them being members of the Chartered Actuarial Profession. How confusing can that get?
And how can a profession grant a fellowship? An august body like the Faculty or the Institute or even the Society can grant qualifications — fellow of this or that. But fellow of a Profession? Where is our sense of the academic status of our beloved professional bodies? What’s wrong with the Faculty and Institute of Actuaries?
James Nelson
6 September 2009

Probability in court
There are interesting probability issues in the case of Hotson v East Berkshire Area Health Authority (1987) AC 750 (HL).
This was a case where a boy fell out of a tree and, following hospital misdiagnosis, developed a hip deformity. Experts confirmed there would have been a 25% probability of preventing the deformity if the hospital had diagnosed correctly and given the boy the right treatment.
The trial judge awarded 25% compensation and the court of appeal agreed. However, the House of Lords reversed this decision on the grounds there was less than a 50% probability of the misdiagnosis making any difference. Therefore, the 50% standard of proof was not satisfied.
On actuarial grounds, the 25% award would seem appropriate.
Anthony Pepper
10 September 2009

In search of lost time

I hope that this letter wins the prize so that I can placate my wife to whom all matters actuarial have always been sacrosanct. She relies on your folding calendar and was thrown into confusion when the guests due on 10 August arrived on the Monday. Whatever happened to the day after 31 July 09.

I am sorry this did not reach you by the deadline Wednesday 14 August in time for the July issue but I might be in time for the October version. Happy days.
Stan Alfert
16 August 2009

Public sector pension debate
I am sure John Maynard-Keynes would agree with Cathall Rabitte’s comments (Letters, August 2009). Being a very talented mathematician himself, he was however highly skeptical of valuation models for long-term investment, remarking that the basis of knowledge for estimating the yield 5 or 10 years in the future, "of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner or a building in the City of London amounts to little and sometimes to nothing". The decision to invest, where the consequences are drawn out over a long period of time, "can only be taken as a result of animal spirits and not as a weighted average of benefits multiplied by probabilities".

In the same edition, James Guszcza’s excellent article (Black swans and red herrings, August 2009) warns us further of model risk and other highly significant inherent problems of long-term modelling. So, should we just give up on trying to make ’financial sense of the future’? Well, in the debate on public-sector pensions, the actuarial profession would appear to believe so. Here is a topic entirely suited for a professional debate and consensus to put forward to the public and government the possible implications of current policy and practice. And yet, no debate or consensus from the profession.

It is, however, being discussed elsewhere: The Times published a rather frightening article on 29 June 2009 (Cost of public sector pensions estimated at £1.2 trillion). The calculation had been performed by the ’British-North American Committtee’, made up of academics and business leaders. One of the committee, Neil Record, a former Bank of England Economist, is recorded as saying: "We are hiding behind actuarial assumptions that are designed to push costs out to the future. What we need is more transparency." Incidentally, ’the Treasury admits to an estimated public sector pensions liability of £886 billion but has defended its calculations.’

This is a very serious issue. As they are unfunded liabilties, these ’shocks’ (additional costs) can only be funded through increased taxes, reduced public expenditure or increased government debt (or some combination thereof). This is already the major dilemma facing the UK regarding the present state of the economy. In three very clear articles in the 9 July 2009 edition of the Economist (Unsatisfactory State, Dodging the Bill, and Missed Opportunity), we are presented with the dangers of the over-blown public sector pensions on the economy, the growing inequity between the public and private pension provision - essentially ’public affluence and private penury’ - and the political economy of why we are unlikely to see reform anytime soon - state employees vote too.

Under Gordon Brown, as part of a process of trying to build for himself a monumentum aere perennius, first as Chancellor then as Prime Minister, the public sector grew enormously; it now employs around every fifth person. It is also notoriously difficult to reduce. In 2008, David Craig, a former government consultant, calculated, as a result of this expansion, that for the first time private sector workers were paying more in taxes to fund public sector pensions than they managed to save for their own retirement.

In his essay, Of Public Credit, David Hume talks of one problem being a supine public. I wonder whether, when the public sector pension liability ’problems’ of the future are felt across the economy, people will look back at a ’supine actuarial profession’ and wonder at the hollowness of their slogan, "Actuaries make financial sense of the future".

Robert Chote, director of the Institute for Fiscal Studies, believes the next party to take government will find it a Phyrric victory, and that we can expect at least two more parliaments of pain - possibly even up to 2030. Unless something is done now about public sector pensions transparency and reform, we can probably expect a considerably longer period of ’pain’. For the actuarial profession’s mission statement, ’making financial sense of the future’, to have any value it must lend its voice to these types of public debate and not shy away from potential conflict.
John Seldon
13 August 2009

Global cooling models: Response to W. Scott

William Scott’s observations (in letters, August 2009) on model based forecast global cooling are worthy of further comment. A more relevant example of the fallibility of mathematical models (than those used to support AAA ratings of CDO’s) is that by the IPCC in their 2001 report for forecasting global temperature. This showed expected warming of up to 0.5C by as early as 2009. As noted, the world has actually cooled over that period.

What is arguably more serious was the forecast increase to 2100 of 6.4C! - and a range of accompanying climate based disasters, all claimed to be the result of increased greenhouse gas emissions - . This sent the media into a frenzy, spawned Al Gore’s (now discredited) An Inconvenient Truth, and caused western governments into Canute type activity to control carbon footprints, and fund lots more research into what can be done about it.

Although the 2100 temperature rise forecast in the IPCC’s 2007 report was modified to around 3C (without mentioning the previous gross errors), this still represents a significant rise having regard to only a 0.8C rise over the last century, and in the face of actual recent global cooling. This hardly justifies the certainty which Simon Brimblecombe and Valentina Rocchi accord to such a forecast in their July 2009 article, Global Meltdown. - and their focus on a possible 5C increase!

Scott anticipates that any actual cooling over the next 15 years will result in "all the media talk about carbon footprints, carbon emissions and so on" being forgotten. Sadly, with the prospect of UN agreement of some sort on international action on CO2 at the Copenhagen conference in December, any actual cooling will be claimed to have been the result of such action, rather than the far more likely natural causes. Actual CO2 emissions may well have been buried - possibly physically through some claimed sequestration, and the numbers publicly muddied as a result of the unreliability of the measurement processes.

And the Human Induced and Human Controlled Climate Change bandwagon will roll on. Except if the growing number of sceptics can get their governments to rein in the unreasonable expenditure and disruption of industry from climate change mitigation actions unless or until it is properly established that humans are warming the planet to dangerous effect.
Geoff Dunsford
1 September, 2009

Your letters
Due to the high volume of letters being received, we are currently publishing additional comments on the website. Please visit www.the-actuary.org.uk/868892 for a letter from Gerry Devenney on the merger, and corrections to the text of Brendan McBride’s letter of 3 August. The editorial team welcomes readers’ letters but reserves the right to edit them for publication. Please e-mail actuaryletters@incisivemedia.com The deadline for receiving letters for the November issue is Friday 16 October.