The 3 rd Younger Members Convention November 2004, The Chesford Grange Hotel, Kenilworth Can Actuaries Save the World? Keith Lawrence Nautilus Consultants

1 Laurie campbell photography

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3 “University offers 'Swampy' degrees A Scottish university is offering courses in how to be an eco-warrior. Students will learn the arts of environmental activism such as chaining themselves to trees, digging tunnels and launching campaigns.” The solution?

4 What’s it all got to do with actuaries? … many environmental issues occur over the long-term, and are highly uncertain in nature 2. Actuarial skills and tools are relevant … e.g. climate change affects general insurance claims 1. Impacts on insurance companies & pension funds

5 1. Impacts on life insurance co.s & pension funds  CSR and brand  Ethical investment trend  Do greener companies perform better?  Climate change  Environmental liability insurance  The image of the profession

6 Case study: Climate Change  Average global temperature is already rising  20th century was probably the warmest in the last 1,000 years  Rainfall patterns are changing  Sea levels are rising  Glaciers are retreating  Arctic sea-ice is thinning  Extreme weather is more common in some areas

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8 Climate Change: It’s not all bad news  Varies by sector  e.g. warmer summers means more tourists???  Some studies indicate overall economic benefit for USA  Opportunities for those who adapt first  Includes financial services sector  The Carbon Trust  Uncertain  Possibility of extreme climate change?

9 2. Actuarial skills and tools are relevant My experience of moving from conventional actuarial work into the environmental field Long-term issues Uncertainty a) Risk management b) Option value c) Portfolio management

10 a) Risk analysis & management for projects (RAMP) identify risks control residual risks identify mitigation strategies analyse the likely consequences Flood defences? Climate change?

11 b) Option Value The value of having an option open to you  Cutting it down is irreversible … you lose the tourism option  Uncertainty over future value of timber / tourism  Can modify the Black-Scholes model Giant redwood forest Tourism Timber

12 b) Portfolio Management How to manage a portfolio of investments over time, to meet an objective. Objective: Sustainable Development: “Economic and social development that meets the needs of the current generation without undermining the ability of future generations to meet their own needs” The Brundtland Commission, 1987 Can think of 3 types of capital to manage:  Produced (conventional economic goods e.g. roads & buildings)  Natural (landscapes, ecosystems, habitats & species)  Human (a population who are healthy, educated, happy, …)

13 What can YOU do?  Recycling  Efficient energy use  Be a thoughtful consumer  Lobby for better environmental practices in the workplace  IoA’s Environmental Research Group (Chairman Nick Silver … see IoA website)  Think:  How do environmental issues affect my industry?  Can we pre-empt these - first mover advantage?  Have brilliant ideas that will save the world!

14 Conclusions " The world faces serious environmental issues: climate change, pollution, unsustainable use of natural resources... " These issues impact on your industry: " Climate change general insurance claims " Environmental liability insurance " Ethical investment " Image " Actuarial skills and tools could be valuable: " Long-term issues, uncertainty

15 Conclusion: Can actuaries save the world? NO CAN take the lead in adapting to change … and in assessing the impacts on your industry CAN apply actuarial skills and tools to some environmental issues

16 Thank you Keith Lawrence Nautilus Consultants