Professionalism in life and pensions Dov Raphael Tel Aviv, 30 June 2010

Thought for the day… "וְעָשִׂיתָ הַיָּשָׁר וְהַטּוֹב בְּעֵינֵי ה' לְמַעַן יִיטַב לָךְ וּבָאתָ וְיָרַשְׁתָּ אֶת הָאָרֶץ הַטֹּבָה אֲשֶׁר נִשְׁבַּע ה' לַאֲבֹתֶיךָ" (דברים ו', י"ח) Do what is right and good in the Lord's sight, so that it may go well with you and you may go in and take over the good land that the Lord promised on oath to your forefathers (Deut. 6:18) רש"י: זו פשרה, לפנים משורת הדין.... משום כך באה האזהרה "קדושים תהיו" (ויקרא י"ט) לומר, שאין לעמוד רק על הדין בלבד, כי אם כלשונו של הרמב"ם "להיות רודף אחר כוונת התורה". מי שרוצה לקיים את התורה בשלמות אי אפשר לו להסתפק בשמירת הדינים המפורשים, כי אם עליו גם להתעמק במטרה הצפונה בדינים אלה. עליו לא רק לחשוב על מה שטוב וישר בעיניו, כי אם על "הישר והטוב בעיני ה'". (ר' ישעיה שפירא – פרקי חיים, בני עקיבא תל-אביב תש"ו - מצוטט ע"י נחמה ליבוביץ)

Thought for the day… (2) How many of the 613 commandments deal with: Source: Jerusalem Centre for Business Ethics

Professionalism in life and pensions The long-term nature of our business means: 1)We are still trying to sort out errors of judgment from many years ago 2)Our decisions today may haunt us (or our successors) many years in the future 3)Risk = mortality/longevity/morbidity and also investment

The Actuary -Professional integrity -Knowledge & experience -Wants to “do a good job” CLIENT OR EMPLOYER REGULATOR PUBLIC INTEREST ACCOUNTING STANDARDS Conflicts

THE ACTUARY -Professional integrity -Knowledge & experience -Wants to “do a good job” CLIENT OR EMPLOYER Conflicts (2) CEO? Marketing? Finance? Investment? IT? Legal?

Examples from life and pensions: 1 PRODUCT DEVELOPMENT Sales manager wants to develop a new product which appears profitable, but:  Statistics seem unreliable  Might be misleading to the policyholder  Excessive charges  May damage other lines or subsidiaries (e.g. pension, provident funds)

Examples from life and pensions: 2 COSMETIC ACCOUNTING  Management wants the actuary to “be flexible” with the reserves  Or find reinsurance solutions which solve the immediate problem but could be disastrous later  Or not be too explicit in disclosure

Examples from life and pensions: 3 PRICING AND PROFIT TESTING  Fixing assumptions for profit testing and EV (management wants to show maximum EV – do their bonuses depend on it? Does yours?)  Future changes in life expectancy – what risks should the company take?  Investment guarantees – does the actuary have a view or does he delegate responsibility to the investment “experts”?

Examples from life and pensions: 4 PENSION ISSUES  Are changes in the regulations necessary or justified?  Conflict of interest between different groups of members (active, frozen, pensioners)  Management company is concerned to preserve income from fees

והעיקר לא לפחד כלל... Don’t be afraid וָאֲצַוֶּה אֶת-שֹׁפְטֵיכֶם בָּעֵת הַהִוא, לֵאמֹר: שָׁמֹעַ בֵּין-אֲחֵיכֶם וּשְׁפַטְתֶּם צֶדֶק, בֵּין-אִישׁ וּבֵין-אָחִיו וּבֵין גֵּרוֹ. לֹא-תַכִּירוּ פָנִים בַּמִּשְׁפָּט, כַּקָּטֹן כַּגָּדֹל תִּשְׁמָעוּן--לֹא תָגוּרוּ מִפְּנֵי- אִישׁ... (דברים א' ט"ז-י"ז) And I charged your judges at that time, saying: 'Hear the causes between your brethren, and judge righteously between a man and his brother, and the stranger that is with him. Ye shall not respect persons in judgment; ye shall hear the small and the great alike; ye shall not be afraid of any man… (Deut. 1:16-17) Sir, I have some bad news…

We thought we got it right, but… Experience worse than expected: don’t wait to tell the management, it could deteriorate further! Experience may be worse than expected: discuss the possible explanations and scenarios – others may also have an opinion on whether this justifies changes in premiums/reserves – document the discussion!

We thought we got it right, but… You discover a mistake - don’t try to cover it up If your boss is the senior actuary – he has made many more mistakes than you in his career If your boss is not an actuary (e.g. CEO) – even s/he knows actuaries are human (hopefully!) Recommend corrective action Recommend controls to prevent repeat occurrence (next time, make a different mistake) Document the above

What can we do? In addition to all the good advice you have heard or will hear today, I have my own personal tip to share with you…

What can we do? BE ORGANIZED  Try to be clear in verbal communication and follow up in writing  Be your own information-retrieval expert  Set strict standards for spreadsheet and programming work*  Make sure all subordinates follow these rules! *See “The Actuary”, March 2010 issue – much more could be added!

It’s been said before… אִם אֵין אֲנִי לִי, מִי לִי? וּכְשֶׁאֲנִי לְעַצְמִי, מָה אֲנִי? וְאִם לֹא עַכְשָׁיו, אֵימָתַי? (דברי הלל, פרקי אבות א' י"ג) פרוש: אם אני לא אדאג לעצמי – מי יעשה זאת במקומי? אבל כשאני דואג רק לעצמי ולא לטובת אחרים – מה עֶרְכִּי? ואם איני עושה את חובתי עכשיו – מתי אעשה אותה? (אין לדחות דברים.) Hillel says, "If I am not for myself, who will be for me? But if I am only for myself, who am I? If not now, when?" - Hillel the Elder, Ethics of the Fathers, 1:14 Thank you for your attention!

Professionalism Issues for Israeli Actuaries General Insurance Wednesday 30 June 2010 Stewart Coutts Member of the Institute of Actuaries ( UK) Discipline Board

Overview  Conflict of Interest  Second opinion  Employer/client relationship  Competence  Whistle blowing

Conflict of Interest  Small profession (Different partners but limited numbers )  Conflict between commercial and professional interests  Conflict between providing accurate reserve calculations and personal gains ( for example Bonus)  Acting for both sides  Lloyd’s of London  Due diligence ( same actuary)

Second opinions  Respect Actuaries  Make notes of decisions  No correct answer  Transparency of AIA and IFRS ( world not the same)

Competence  Small profession  Small number of independent general insurance actuaries  Israeli actuaries have a lot more responsibility than other EU actuaries hence More ways to fail  Even if one has passed exams, without senior supervision not qualified to pass an professional opinion

Employer /Client THE ACTUARIES’ CODE Members will not act unless :  Members will consider whether advice from other professions and other specialist  Members will take care that the advice or services they deliver are appropriate to the instructions and needs of the client,.  Members will agree with the client the scope and nature of any appointment or instruction.  Members will keep their competence up to date.

Whistle Blowing THE ACTUARIES’ CODE  Members will comply with all relevant legal, regulatory and professional requirements, take reasonable steps to ensure they are not placed in a position where they are unable to comply, and will challenge non-compliance by others.  Members will speak up to their clients or to their employers, or both, if they believe, or reasonably ought to believe, that a course of action is unlawful, unethical or improper.  Members will fulfill any obligations to report information to relevant regulatory authorities.

Whistle Blowing HIH in Australia  Data  Professional position  Management  Regulator  Other professions