Oct 28, 2008

Credit Crisis Manageable?

In order to succeed in a certain action, we often develop an action plan, a process that defines sub-actions in terms of who, what, when and where.

To guarantee that we succeed as much as possible, we have to maximize the control of this process of sub-actions. Make the process manageable.

In managing this process it's important to identify the nature and co-dependency of your sub-actions.

In general it's important to characterize sub-actions as follows:

Characteristic Understandable
Predictable Solvable
Simple ++ ++ ++
Complicated + + ++
Complex - - +
Chaotic -- -- -


Characteristic Example Description
Simple Doorbell
Single component/ process with defined output
Complicated Watch
Several components working together with defined output
Complex Weather
Many interdependent components with hardly predictable output.
Chaotic Clouds (form)
No sub components to identify, output unpredictable

Always analyze and characterize the components or sub actions of your action plan.
Not doing so will certainly cause trouble.

One of the causes of the 2008 credit crisis is that we try to manage an in essential 'chaotic process' as a 'complicated process'. More traditional regulation rules (or governance back up) won't stabilize the banking system on the long run (in fact they make it worse), because these rules would imply that the nature of the financial markets is known and can be captured in a controllable mathematical linear system.

Financial markets are complex and chaotic systems, just like the weather. This implicates that regulation should be much more focused on "Plan B" measures than on detailed rule based regulation.

This means that regulation has to be formulated in such a way that Banks, instead of proving more and more that they will 'never' be insolvent (e.g. calculated risk=0,5%, that can't be calculated!), are forced to deliver Plan B's in which they state how they'll act in the 'unexpected' case of insolvency or iliquidity (average at least once in 200 years).

Just like you've got an umbrella in your car (Plan B), because you know that even though the weather forecast was 'sunny', you never can tell precisely when it's going to rain.

Most processes in life turn out to be chaotic on the long run. Analyze and control them, but don't forget to (always) carry your "Plan B" in your pocket.

Oct 27, 2008

Credit Crisis caused by Pyramid scheme

"Modern banking principles, as defined in the fractional reserve banking system, are essentially an ordinary (and illegal!) Pyramid scheme based on the arithmetic (geometric sequence) of fractional banking.

In an interview, called The Game Is Over, Michael Hudson states that the Fed and Treasury are following the traditional “Big fish eat little fish” principle of favoring the vested interests.

Just like in another Youtube movie he remarks that instead of bailing out the big financial institutions and rescuing billionaires and private investors, the government should have saved only the savings of savers at the bank, pensioners, Social Security recipients and other small fry.

No doubt, given How The Credit Markets Work, current measures will not solve the credit crisis ( Nothing Proposed Will Solve the Credit Crisis ).

Oct 25, 2008

World Facts

Just some DYK's as published by the Harvest Field Index and based on the free downloadable CIA World Fact Book 2008.

Do You Know the worlds population size?

Do You Know the world's Average Life Expectancy at Birth?
Answer: 66 years!

Now do you know the answer to the next DYK's?

- Top 3 of biggest continents?
- Top 3 of largest countries?
- Top 3 of biggest world cities?

Just check if your answers are right and you belong to the worldwide best non introvert actuaries,


Biggest continents?
1. Asia 4,002 Million people
2. Africa 934 Million people
3. Europe 730 Million people

Largest countries?
1. China 1,330 Million people
2. India 1,148 Million people
3. United States 304 Million people

Biggest World cities?
1. Tokyo, Japan 35 Million people
2. Mexico City, Mexico 20 Million people
3. New York City, U.S. 19 Million people

Oct 24, 2008

Demographic Winter

Are we heading for a demographic winter?

Worldwide, birth rates have declined by more than 50% in the past 40 years.

In most of the industrialized world, birth rates are well below replacement level.

Main issue: The decline of the human family.

View the trailer or the complete movie 'Demographic Winter'.

Oct 22, 2008

How European are we?

Two demographers, Wolfgang Lutz and IIASA’s Vegard Skirbekk, teamed up with a political scientist Sylvia Kritzinger investigated (2006) the emergence of a sense of European identity.

On the question "How European are you?" they got these results:

Country Expressing


Luxemburg 78%
Italy 72%
France 68%
Spain 64%
Belgium 59%
Netherlands 59%
Germany 56%
Denmark 54%
Ireland 53%
Austria 51%
Portugal 50%
Greece 46%
Sweden 45%
Finland 43%
UK 40%

They analyzed and extrapolated the trends found in the Eurobarometer surveys from 1995 to 2004 for the EU-15.

What they found is that there's an emergence of multiple identities across different age groups in Europe today.

People are increasingly feeling that they are both nationals of their home country and Europeans as well.


Oct 20, 2008

About actuary Schmidt!

A movie about an actuary? Yes it's true! Nobody else than Jack Nicholson, alias insurance actuary Warren Schmidt, retires at age 66 in the movie "About Schmidt" (2002).

Plot summary
Schmidt retires from his actuary job at the Woodmen of the World insurance company in Omaha, and is given an impersonal retirement dinner at a local steakhouse. He visits his young successor's office to offer his help, but he is not needed. As Schmidt leaves the building, he sees the contents and files of his office in the basement, set out for garbage collectors.

Schmidt describes to his foster child Ndugu his longtime alienation from his wife, who suddenly dies after his retirement. His friends arrive for the funeral. His only daughter Jeannie and her fiancé Randall. Schmidt finds Randell, a water-bed salesman, mediocre and unsuited to his daughter.

Randall recommends the book "When Bad Things Happen to Good People" [not everything in your life has a purpose: Life(You) = God(You) + Randomness] by Harold Kushner to Schmidt.

Perhaps the opposite view from Kirzner [everything in your life has a purpose: Life(You) = God(You) ] of this book would have helped Schmidt more?

Already interested? Read more at Wikipedia or go and see the movie!

Just as Warren Schmidt, we actuaries want to make the difference in life. To do so we have to 'act' as non-conformists.

Oct 10, 2008

Economics: Playing with fire

Read this splendid article by Robert Clarkson.

He discusses the dangerous misuse of modern finance models that sparked the current worldwide credit crisis.

Much of the responsibility for the severity of the present worldwide credit crisis can be attributed to the unthinking use of dangerously unsound financial models by American and European banks.

In July 2008 Clarkson gave a corresponding
presentation entitled “Actuarial insights into hedge fund management” at a conference on managing risk in hedge funds.

Some quotes:
    The chance of loss is by most men undervalued.
    The further you look back in history, the further you can look forward.

Oct 8, 2008

Make the world a little better......

The next German (Bayer) advertorial for an actuary, just touches what a lot of Actuaries actually drives: Make the world a little better.

It's wonderful symbolized in two 'peaceful' Indian-like scars on the face.

Lars Achtruth, Datenanalyst bei Bayer, verfolgt täglich ein Ziel: Die Welt ein bisschen besser zu machen. Diese Leidenschaft ist es, die uns verbindet und uns die Suche nach dem Neuen niemals aufgeben lässt. Wir nennen es den Bayer-Spirit. Wenn auch Sie ihn spüren, ist es höchste Zeit, zu uns zu kommen.

Compliments Bayer!

Look it up if it's still actual: Versicherungsmathematiker (m/w)

Oct 3, 2008

World Drug Report 2008

The opium/heroin market continues to expand on the
production side. The total area under illicit opium poppy cultivation
increased by 17% in 2007 .

The opium/heroin market continues to be dominated
by the large levels of cultivation and production in
Afghanistan (82% of global production).

Worldwide there are around 16.5 million opiate users (some 12 million use heroin).

More statistics in the World Drug report 2008.

Oct 2, 2008

Edelman Trust Barometer 2008

The credibility of a CEO doesn't seem sky high.....

More, in this interesting report of the Edelman Trust Barometer 2008.

What about the trust in Lawyers or accountants?

These are the Coredata results:

Pity an actuary isn't reviewed. So, what about the credibility of an actuary?

In short: It's at steak!

These are the recommendations the "Task Force On Actuarial Credibility"
as advised in a October 2007 presentation, based on the original CAS report 2005.

Task Force Recommendations
  1. Enhance transparency of the actuary’s conclusions by identifying differences between the “best estimates” of management and the actuary.
  2. Enhance the public’s understanding of actuarial estimates and to refine actuarial methodologies.
  3. To improve the transparency of actuarial estimates by providing the changes from one reporting period to the next within the actuarial report.
  4. To enhance the quality of corporate governance for property/casualty insurers by educating audit committees and/or boards of directors on the roles and responsibility of the appointed actuary.
  5. To enhance self-governance of the actuarial profession with respect to reserve opinions by requiring the appointed actuary to provide an explanatory document with the ABCD whenever the change in the actuary’s reserve estimate over a defined period of time exceeds certain predetermined thresholds.
  6. Incorporate the actuarial statement with the Jurat page of each property/casualty insurance company’s Annual Statement.
These recommendations could also apply to non-casualty actuarial areas.

Oct 1, 2008

European Actuarial Academy

The European Actuarial Academy (EAA) was founded on 29 August,2005, by the Actuarial Associations of Germany, Switzerland, Austria and the Netherlands.

These four associations are also the EAA stakeholders. Its foundation was a response to the increased demand from Central and Eastern European countries for Actuary professionalisation.

EAA strives to become the knowledge centre of European Actuary education.

EAA has on offer:
  • Actuarial education, including examination
  • Permanent education for (certified) actuaries
  • Consulting on Actuarial education.
From October 1st to 3rd 2008, there's an EAA Seminar, ‘Pricing in General Insurance’ in St. Petersburg/Russia.

Read more about EAA.