'In times of change learners inherit the earth while the learned find themselves beautifully equipped to deal with a world that no longer exists' - Eric Hoffer.
That could be the epitaph to both the life assurance industry and defined benefit pension schemes. In the 1990s the former was caught out by the conflation of two events that its management had no experience of: the death of inflation and the transfer of power from the providers and professions to the consumers.
The industry would have been better run by a set of wise men with no prior knowledge of the business. With the latter, a noose had gradually been tightened round the employer by the progressive improvement in the rights of early leavers and the way surpluses were dealt with. In both cases, actuaries should have been more proactive in alerting their principals. Alas, senior actuaries were learned not learners.
'Nearly all men can stand adversity, but if you want to test a man's character, give him power.' - Abraham Lincoln.
Sadly this is the cause of the problems of the Equitable, the Independent, Northern Rock and the Royal Bank of Scotland. 'Better to remain silent and be thought a fool, than to speak and remove all doubt.' - Abraham Lincoln.
OK, Abe, I will stop, but let me make a final point.
Will Solvency II really be a panacea? It seems to me that at a basic level it makes insolvency more likely because of the depletion of net assets by the cost of building complex models, encouraging blind belief in its output when a dose of common sense is all that's required.
Surely it is far better to create an environment in which prudent attitude is taken to risk management and there is congruence of interests of the shareholders, senior management and traders?
Icki Iqbal 15 July 2014
The editor welcomes readers' letters but reserves the right to edit them for publication. Please email [email protected]. The deadline for receiving letters for the September issue is 17 September 2014.
