Dec 25, 2008

Price of Greed and Fear

Despite of all our knowledge, training and experience we sometimes decide to follow our heart instead of our head.
What's wrong with that?

Nothing, as long as your decisions are not based on greed and fear

Illustration: We all know.....

I. How to advice on getting a better reward/risk ratio.
Modern Portfolio management (MPT) helps us.

Risk/return trade-off between bonds and stocks1980-2004 (AAII)
Bonds: 60% 5-year Treasury Notes+40% LT Treasury Bonds
Stocks:(S&P 500)


II. The performance/time model of stocks

Correct Outlook

III. Asset allocation is key behind portfolio returns
So it's not about Market Timing!

Moreover Market Timing is a dangerous game as research firm DALBAR showed.

Although the S&P 500® 1988-2007 Index had an annualized return of 12%, the average equity fund investor (in equity mutual funds) only generated a 5% return and market timers, who tried to outsmart the market by timing their inflows and outflows, generated an annualized loss of 1%.

Market Strong ... Investors Wrong

Chart: Market Strong ... Investors Wrong
*Measures returns of investors in equity mutual funds. Source: Bureau of Labor Statistics, DALBAR

Greed and Fear
When the asset strategy has been chosen and implemented, it comes down to strong nerves, to hold this strategy.

But nothing human is strange to us. Who can resist the pressure of shareholders, advisors or analysts to question the current strategy after 2 or 3 years of extremely high (or low) stock returns?

In straightening out and defending your policy, stakeholders and advisors will often argue that you're a rearview mirror actuary or board member. They'll stress that the actual situation is not comparable with any situation in the past.

However, always keep in mind the words of Sir John Templeton (1912-2008) :
The four most expensive words in the English language are
'This time it's different'

So how successful are you, in cashing in on your emotions an withstanding pressure?

Still, if you nevertheless give in and are going to change your bond/stock ratio based on fear, greed or hype, all bets are off.


As is clear form the example above, when your strategy is vulnerable to heart cries, you'll end up in the famous Pork Cycle , which - in this case - leads to a return level beneath that of risk free assets. The price of Greed and Fear!

When you've set your assets according your chosen asset strategy, only change this strategy when the underlying long term asset-modeling parameters substantially change. In every other case, don't decide on basis of 'heart over head'.

Define and allocate equity (as security) for an 'up front' defined period of time in wich you're willing to except lower or even a defined maximum negative performance. Agree this strategy up front with the supervisory board and national Supervisors.

Sources: MyMoneyBlog , Schwab, DALBAR

Dec 17, 2008

Credit Crisis Predicted

Lyndon LaRouche, economist, long-range forecaster, risk manager 'avant la lettre' and one of the initiators behind the SDI-project (Strategic Defense Initiative) in the 80s.

With firm quotes like "there has been no economic growth on this planet, since the end of the 1960s. None, if you measure the right magnitudes", he takes stand in the sometimes overoptimistic and misleading world we've created.

Back in 1995, in Germany, he stated "We are at the end of an epoch".

He warned that a global financial bankruptcy and collapse would be under way and introduced in an econometric form his 'famous' "Typical Collapse Function" or "Triple Curve"to illustrate that power statement.

In his daring view, he describes the interplay of the three curves (non mathematical directionalities) that characterize the collapse process:
  1. Physical-economic input/output (bottom curve)
    The productivity and functioning of the physical economy, upon which all human existence depends;
  2. Monetary aggregates (middle curve)
    The increase in monetary aggregates (approximately represented by money supply measures; injections)
  3. Financial aggregates (upper curve)
    Growth—which can become hyperbolic growth—in financial aggregates of all kinds: run-up of debts and other obligations, speculation in currencies, stock markets, futures (derivatives), etc.

As in the case of a "typical collapse function," the interaction of the upper two curves sucks the underlying physical economy dry.

But at a certain critical point (around 2000 in the USA), no matter how much money is injected in the economy, the financial bubbles cannot be kept aloft! The rate of rate of growth of monetary aggregates becomes higher than the rate of rate of growth for financial aggregates. In graphical terms, this is the "inevitable crossover" point of the middle, monetary curve, breaking up through the top financial curve.

Although this looks like intuitive econometric science, LaRouche illustrates this with some striking examples.

In the year 2000 LaRouche stated that compared with a worldwide GDP of about $41 trillion, the total amount of financial aggregate in short-term obligations was over $400 trillion. In other words, at least 10 times the amount of the total annual product of the world as a whole at that time. "

In 2008 he publishes in 'The Time Has Come for a New System':
  • We are a credit system, not a monetary system.
  • Outstanding obligations: $1.4 quadrillion, derivatives, short-term obligations of speculative nature
  • This mess is coming down.
  • System will be put into bankruptcy, by governments

And than to realize that there are still leading prominent professionals that like to make us believe that it's just some limited subprime issue. Regretful, it's the other way around. Subprime will just turn out to be the proverbial little stroke that'll fell the great oak.

Read more about LaRouche Writings

Let's hope that LaRouche is a pessimistic man....

Estimation of World Credit Loss

Have a guess. How much would you estimate the World Credit loss?

Answer: '$ 2.8 trillion' and still growing...

According to Bloomberg the actual losses and writedowns surpassed $1 trillion today,

More details at the Credit Crisis Timeline.

Who cares....
The cost of the US war in Iraq are estimated at Three Trillion Dollar (

Do(n't) worry, be hapy...

IPE: Ballendux goes it alone

According to IPE, Frans Ballendux, former business leader of Mercer Investment Consulting in the Netherlands, is starting his own investment consultancy business.

Frans joined Mercer in July 1997.

We wish Frans lots of success!

Dec 11, 2008

European Mortality

Go to HomeThe Groupe Consultatif Actuariel Europeen published end 2005 a study, which for the first time compares how companies in different European countries measure life expectancy for their pension schemes. It reveals vast differences in mortality assumptions and indicates that practice across the EU varies widely when assessing company pension liabilities.

As you may see from some examples to the left, a wide area of classic mortality formulae in the different European countries passes by.

It's clear that that mortality assumptions in company pension schemes vary from
country to country, due to variations in underlying population mortality as well as in
variations of the profile of typical membership of a company pension scheme. However, the
variations in mortality assumptions are much greater than would be justified by these
factors alone.

Some of the variation is due to the fact that some countries incorporate an allowance
for expected future improvements in mortality, while others use tables that relate to mortality observed over a period in the past, without allowing for the fact that life expectancy continues to increase.

The total actuarial deficit with regard to (future) longevity in company pension schemes is substantial.

As a 'Survey of Actuarial Education in Europe' showed, not only mortality rates differ, but also the the education of different European actuarial professionals.

In short, work enough for actuaries.

More information:

Dec 2, 2008

Netherlands Best EU Healthcare system 2008

The Netherlands are the overall winner in the Euro Health Consumer Index 2008, launched today in Brussels at a press conference hosted by the Health Consumer Powerhouse.

The Euro Health Consumer Index is the annual ranking of national European healthcare systems across six key areas: Patient rights and information, e-Health, Waiting time for treatment, Outcomes, Range and reach of services provided and Pharmaceuticals.


Client Lifetime Value (CLV)

In a Harvard Business Review called "Why satisfied customers defect", Jones & Sasser explain that even a 80% 'satisfied clients score', is no guarantee for sustainable success.

Common management misconceptions are:
  1. A client satisfaction level below complete or total satisfaction is adequate.
  2. It's not profitable to invest in changing customers from 'satisfied' to 'completely satisfied'.

Their conclusion is that, in most cases, 'complete customer satisfaction' is key in order to secure customer loyalty and generate sustainable financial performance.

Loyalty & Satisfaction
Despite of what sometimes intuitively is assumed, the relationship between loyalty and satisfaction is in most cases not linear, but depends on the competition level of a specific market segment.

In a Dutch presentation, called "CRM Myths", direct marketing professor Janny Hoekstra confirms this relationship and shows that even 'satisfied clients' are in the so called 'indifference zone'.

The 'art of client management' is obviously to create 'Apostles' and to avoid creating 'Terrorists'.

So stimulate, instead of discourage, your clients to give you feedback and to complain, because this is the only way to create new apostles.

A relatively new and, according to Harvard (The One Number You Need to Grow), probably better method to measure client loyalty is the 'Net Promoter Score' (NPS). Simply score your clients on a 0-10 points scale on the question: "Would you recommend company X ?'

Now simply calculate the NPS score (%) as:
NPS = Promoters% (rating 9&10) - Detractors% (rating 6 or less)

NPS scores of 75% or more prove world class loyalty.

Loyalty effect
Another, intuitively driven, perception is that the more customers are loyal, the more they generate profit.

In general this seems true, however as Hoekstra shows: not every 'more loyal' client is also per definition 'more profitable'.

Just like Reinartz (Insead) stated in his article : 'Not all custumors are equal'.

Reinartz defines different client groups called: Butterflies, Strangers, True Friends and Barnacles.

Each group urges a different approach in a Customer Client Strategy.

Investing in 'True friends' appears essential and eventually pays out.

Customer Lifetime Value
Actuaries that combine marketing an actuarial sciences could help by defining and calculating what is called: The Customer Lifetime Value (CLV)

The CLV of a specific client(group) could be defined as the discounted value of the yearly margin (m = profits - costs), with discounting rate (i) and the (client) retention rate (r).

CLV:Rule of thumb
In the strongly simplified case with constant margin, the CLV - as a rule of thumb - could be defined as the margin (m) multiplied with the so called margin multiple = r/(1+i-r).

Example: Discount rate = i =12%, Retention rate = r = 90%, results in a CLV of approximately 4 times the yearly margin.

As is clear from the formula and table above, the choice and impact of the discount rate is only significant in combination with a high (>90%) retention rate.

Modeling and creating Client Value is not only in the interest of the shareholder, but moreover a case of creating creating added value for clients, in particular 'best satisfied clients'.

More info at: Modeling CLV(insurance), Customer Metrics

Nov 20, 2008

Investment Banking explained!

As actuaries we all know investment Banking is a complex business.
This Youtube video explains the essentials of Investment banking in about 8 minutes.

Be sure to study the video seriously, it will be the best study investment you've done in years.

Credit Crisis Indicators

Credit Crisis Indicators: Treasury, Libor, Ted, Paper & Bonds.

The credit markets indicators give a better measure of the crisis than the stock markets. NYT gathered five ways to measure the recent disruptions in the credit markets.


Actuarial aerodynamic careers

Did you know that actuarial careers follow the laws of aerodynamics?

Read more about this and find out whether you are a "Balloon Career Maker" or a "Wing Career Maker.


Nov 15, 2008

Whistleblower Risk Management

We all know Risk Management is key in our business.

Yet, almost all risk models (e.g. Coso) emphasize mainly on known or knowable risks.

Of course, as we could have seen in the 2008 credit crisis, the art of Risk management is in managing the unknown or unknowable risks.

But how?

Let's try to learn from two main major accidents:

I. The Challenger shuttle disaster (1986)
The accident was caused by failing O-Rings. Warnings of many engineers were overruled and ignored. This crash was the consequence of a typical effect called GROUPTHINK. Groups naturally look for consensus and will often come up with a false consensus, even when individual members disagree.
Watch a video of the space shuttle Challenger disaster that illustrates this GROUPTHINK phenomenon.

Other examples are the Columbia shuttle disaster and the 9/11 attacks. In all cases Management failed because the information suggesting a disaster was weakly transmitted within an bureaucratic system, and managers failed to authorize action because of bad communication and performance or time pressure.

II. The 2008 credit crisis
  • Underestimating early signals
    The first indication of the coming credit crisis was the collapse of Enron in 2003, uncovered by whistleblower Sherron Watkins.

    After the collapse, the FED refused to come out with new 'rules based' guidelines . A Senate investigation showed that - starting already in 2000 - some major U.S. financial institutions had "deliberately misused structured finance techniques". But the Fed and the SEC underestimated the situation, kept to their 'principles based' system and consequently missed the opportunity to to flex their muscle by regulating market conditions for subprime mortgages.

    Lesson: It's not about 'rules OR principles', Football Or Soccer, but it's about 'Rules AND Principles'.

  • Mixed Central Banks (FED) responsibilities
    Central Banks, The Fed in particular, have at the same time two main responsibilities with regard to (other) financial institutions:
    1. Supervision
    2. Providing financial (banking) services

    Those two functions clearly conflict with each other. It's impossible to independently supervise the financial company you're financing at the same time. Supervisory advises will be suspicious by definition.

    Secondly you can't supervise yourself as central bank. Therefore, every country needs an independent (that is 'without central bank board members'), professional supervisory board, that audits and supervises the central bank and the national bailout plan(s).

  • Whistleblowers
    How could the credit crisis technically happen?
    Not an official, but a more outside kind of whistleblower, businessman Warren Buffet, warns in a 2003 BBC article that “Derivatives are financial weapons of mass destruction and contracts devised by madmen". The financial world isn't listening.

    Derivatives like Collateralised Debt Obligations (CDO's,) were developed to (re)fund the subprime loans. CDO's are packaged portfolios of credit risk, made up from different sliced and diced loans and bonds. They were hard to uncover without a whistleblower. At last an anonymous banker e-mails journalist Gillian Tett of the Financial Times about the situation. Only after she publices early 2007 what's wrong, the dices start rolling. This case also stresses the important role of journalism and whistleblowers in our aim for a healthy transparent financial market.

  • The Greed Game
    One can argue about the roots of the credit crisis. However, essential in the 2008 credit crisis were, or still are, the excessive remuneration practices at private equity companies, hedge funds and banks. They encouraged unhealthy and excessive risk-taking. Key is the lack of balance between possible earnings and possible losses of board members.

    To prevent unhealthy pressure management (with groupthink effects), board members' total rewards should always be in line with the long term realized added value of the company and not be based on yearly P&L profits or short term added value.

Manage the unknown risks
Risk Management is not a static, but a dynamic process.

To gain and behold control of the unknown risks, it's necessary to create a transparent organization and company-process that guarantees whistleblowers' and whisperers' (= whistleblowers, that wish to stay anonymous) safety and encourages and even rewards compliance reports from employees, clients or any other stakeholders.

Because of GROUPTHINK and - on the other hand - possible negative employee outcomes (demotion, dismissal, etc) in case a reported compliance issue turns out to be compliant after all, it's important that whistleblowers are always given the opportunity to report directly, anonymously and safely to the independent federal Supervisor. Employees must have the choice to report internal within their company (small compliance matters) or to report directly to the federal Supervisory board.

  • Separate the Supervisory and Financial Services functions of the central banks (FED)

  • Redesign whistleblowers management
    Whistleblowers should have the opportunity to report compliance issues directly and anonimously to an independent federal Supervisory board.

    Whistleblowers that choose to report within a company, should always directly reporte to the compliance officer, the executive board and the supervisory board. On top of this they should always, especially in case of discharge, dismissal or demotion, have the right to escalate to the federal Supervisor.

  • Change supervisory procedures and criteria
    Approval of (company) board members by the federal Supervisor should als be based upon:
    1. The 'ethical track record' of a candidate
    2. The feasibility of, in macro economic perspective, "realistic and balanced" board member performance parameters.

      The federal Supervisor should audit and approve the existence of a consistent 'company reward plan' that guarantees a sound and measurable balance between long term company results and board member rewards.

      CEO's that haven't established measurable long term added value for their company, shouldn't receive any bonus or golden parachute at all.

Nov 12, 2008

The Actuarial Black Eye

In his blog David Merkel gives a fabulous book review of the book:

The book and blog show that actuaries (and accountants as well) were not disciplined enough to resist politicians pressure and large companies board (and shareholder) short-term result demands. As a direct consequence those companies got into serious trouble.

Stick to one's guns, and keeping a save eye on the future, is one of the essentials of the actuarial profession.

Training (not just study alone) in giving the right push back on board level, should therefore be an obligate part of the education (and accreditation) of actuaries and accounts.

As (UK) Sir Derek Morris stated in his "review of the actuarial profession: interim assessment" (2004):

Too much has been expected of actuaries and, explicitly or otherwise, too much has been promised by them.

Clients have looked to actuaries to provide certainty, and actuaries have often appeared to provide it.

For Dutch actuaries, see also Willemse and Wolthuis in: "On the practical meaning of probability based solvency".

Actuaries are almost just like real human beings: after a few years successful studying and modeling, they gain confidence. They start to believe that reality will also act according their models. Moreover, they might get overconfident and think that their view and expertise on reasonably well predictable issues like life, death and disability are - with the same amount of certainty - also applicable on other issues like 'inflation' and the development of the 'stock market'.

This it typically a case of :

That what develops you, eventually might kill you

Practice hasn't shown that good actuaries are,by definition, also good weatherman.

The book also shows that self-regulating without clear targets and constraints is a fairy tale.

Keep in mind the Mongolian Proverb:

Of the good we have an understanding,
for fools we keep a stick upstairs

Success in being a PBA (Push Back Actuary)!

Nov 10, 2008


Bloomberg's Fred Pals reports on Oct. 29 that Rijkman Groenink, the former chief executive officer who earned about $33 million from the sale of ABN Amro Holding NV, said he regrets the takeover and wants to work again for the Dutch lender.

Groenink stated:

  • he would really like' to become a supervisory-board member at ABN Amro
  • "There is no one else in the Netherlands with as much banking experience and specific knowledge of ABN Amro as me,''
  • "I'd be more than willing to put my knowledge and experience at the bank and my management experience in the service of the new bank and therefore of the Dutch people.''
  • "My reality is one of loathing, sadness, I didn't need the money, I didn't want it. But the reality of public opinion is that I'm a money-grubber and I bargained away the bank.''


Nov 5, 2008

Value for Money!

Now that Obama will be the next (44th) US president, confidence will rise and we'll get value for money......

That leads to the question of how you measure the Purchasing Power of Money?

The measure most often used, is the Consumer Price Index (CPI).

Other comparison series might be preferable, depending on the context of the question.

In fact there are:

Calculate the actual value of a original year 1900 Dollar, Euro, Guilder or Pound and see how you get value for money.

Nov 3, 2008

Shareholder or Stakeholder model?

Does the corporation exist for the benefit of shareholders, or does it have other, equally important stakeholders, such as employees, customers and suppliers?

In a study titled, "Stakeholder Capitalism, Corporate Governance and Firm Value" (2007), finance professor Franklin Allen (e.a.) tackles this issue. In showing the various benefits of the stakeholder approach, he demonstrates that the issue is not as settled as some researchers and business people in the US or the UK might think.

Several conclusions emerge from the study, which uses a mathematical model to explore the advantages and disadvantages of stakeholder-oriented firms. First, stakeholder-oriented companies have lower output and higher prices, and can have greater firm value than shareholder-oriented firms. Second, firms may voluntarily choose to be stakeholder-oriented because it will increase their value, according to the study.

In a recent study (2008) called, "Rhineland Exit", Dutch (CPB) researchers Bovenberg and Teulings defend the victory of the Shareholder model over the stakeholder model (Rhineland model). They also state that the principle of maximization of shareholder value, being the ultimate goal of the firm, is at odds with the Rhineland philosophy of a balanced treatment of the interests of all stakeholders.

Why arguing so much about share or steak? By choosing the "stakeholdermodel with weights" it's simple to accomodate and optimize the final model to the company goals.


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.

Sep 30, 2008

Simple Banking Basics

A good way to understand how banks work is to imagine starting your own bank.

The first thing you need to do is put up some of your own money.

You won’t receive a banking license unless you have your own capital at risk.

After a while your balance sheet and erarnings will look like.

Look HERE to learn more on banking basics!

Sep 28, 2008

Lessons from the Credit Crisis

Which car can travel faster around a race track, one with brakes or one without?

A car will face many obstacles, let alone many bends in the track before it reaches the finish line. The ability to brake allows the race car driver to slow down to meet these challenges and to accelerate only when there is the most gain to be had.

Similarly, companies want to be resilient in the face of risk and also to be able to exploit it should opportunities for gain arise. Especially in the financial community, an enterprise risk management system that is quick and responsive to change is central to ensuring success.

More at:
Actuaries Abroad: ERM Lessons from the Credit Crisis

However, if you think everything is under control, remember Andretti's one liner:

Even in risk management: Think twice.....

Ageing and the Sustainability of Dutch Public Finances

In a 2006 (but still actual) research called, "Ageing and the Sustainability of Dutch Public Finances", it's stated that the ageing of the population jeopardises the sustainability of public finances in the Netherlands.

The doubling of the ratio between the number of retirees and the number of workers destroys the balance between future public expenditure and tax revenues. Indeed, the increase in expenditure on public pensions and health and long-term care will outweigh the increase in tax revenues.

Budgetary reforms are therefore necessary in order to avoid that future generations will have to raise taxes or economize on public expenditure.

Reforms in the field of social security of the last few years are a step in the right direction, but are insufficient. In particular, the decline of interest rates and the reduced wealth of pension funds have worsened the sustainability of public finances. The effects of reforms on the intergenerational balance are important for the question which further reforms are most attractive.

Aug 13, 2008

Netherlands: Rapid increase life expectancy

Last year, female life expectancy at birth was 82.3 years, as against 78.0 years for men. Life expectancy has risen dramatically since 2002.

Life expectancy at birth

Life expectancy at birth

Mortality down since 2002

Female life expectancy at birth was 82.3 years in 2007, i.e. 4.3 years more than for men who have a life expectancy of 78.0 years at birth. Since 1980, the gender gap has narrowed. Male and female life expectancy increased by 5.5 and 3.1 years respectively. The situation has improved considerably after 2002. Despite the ageing population mortality has annually declined since 2002. Such a long period of declining mortality is unprecedented in the Netherlands. In 2007, mortality was over 9 thousand (nearly 7 percent) down on 2002.

Declining mortality by age, 2007 relative to 2002

Declining mortality by age, 2007 relative to 2002

Situation favourable for people in their seventies

The decline in mortality was quite evenly spread across all age groups, but was particularly noticeable among people in their seventies. In 2007, mortality in the age group 70-80 declined by over 5 thousand (nearly 13 percent) relative to 2002. This decline is largely the result of the reduced risk of dying from cardiovascular diseases.

Lower risk of dying by age, 2002-2007

Lower risk of dying by age, 2002-2007

Lower mortality risk for 50 to 80-year-old men

In recent years, the mortality risk declined significantly for both genders. For men aged between 50 and 80, the risk of dying dropped more than for women in the same age bracket. Among the very old, the situation is more favourable for women.

Female life expectancy at birth, 2006

Female life expectancy at birth, 2006

Netherlands not in leading position

Dutch women marginally improved their position on the European record list, but in countries like France and Spain female life expectancy is considerably higher. Belgian and German women also had a somewhat higher life expectancy in 2006. In relative terms, the position of Dutch men on the European life expectancy list is better and comparable to the position French and Spanish men. Swiss, Swedish and Norwegian men, however, enjoy a considerably higher life expectancy.

Source : CBS , by Joop Garssen and Koos van der Togt