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QUARTERLY MAGAZINE OF THE ACTUARIAL ASSOCIATION OF EUROPE
2 5 9
GOOD POLICY STARTS HOW TO PRIORITISE DECISION-MAKING
WITH GOOD DATA VACCINATION IN UNCERTAINTY
12 18
THEME:
HEALTH
EIOPA OPINION ON SOLVENCY II
REVIEW: CONCERNS OF AAE
15 16
COLUMN:
SOLVENCY II REVIEW
N O 25 XIII ITALIAN THE 2020 AAE
ACTUARIAL CONGRESS PRESIDENTS' MEETING
MAR 2021
INTERVIEW
GOOD POLICY
STARTS WITH
GOOD DATA INTERVIEW BY
ANDRÉ DE VOS
The Dutch handling of the
corona pandemic is driving
Maurice de Hond crazy.
According to this Dutch
political pollster, medical
professionals wield far too
much power when it comes to
curbing the virus. ‘We need
to make decisions based on
good data, not on the medical
opinions of a small group of
specialists.’
MAURICE DE HOND has
a background in market
research and runs his own
polling agency View/Ture.
He started publishing MAURICE DE HOND
blogs and scientific
publications on corona on
his website Maurice.nl in
March 2020.
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THE EUROPEAN ACTUARY NO 25 - MAR 2021 GOOD POLICY STARTS WITH GOOD DATA
‘F
irst they ignore you, then De Hond had his ‘Eureka in the lead. It’s virologists
they ridicule you and in the moment’ at the beginning of and epidemiologists who are
end they say they knew all April 2020 when he saw a video determing Dutch policy. They
along.’ Maurice de Hond is not by a Japanese professor that have become very powerful
the person to shy away from a showed how aerosols move because the government chooses
public quarrel. De Hond became around in a closed space. ‘That to heed their advice exclusively.
well-known in the Netherlands video explained most convincingly The dominant view in the medical
with his method for predicting how the virus is spread and why profession is that every Covid-
the outcome of general elections. all these ‘superspreader events’ death is one too many. Hence the
Since then he has been in the always occur indoors. And lock-down, the closing of schools
Dutch media with an array of why good ventilation systems and shops, the 1.5 metre rule.
topics ranging from proposals are essential. In Japan and Even though we don’t know how
for the improvement of the many other countries this was effective each measure is.’
educational system to trying to the dominant theory from the
revoke a conviction in a murder beginning. In the Netherlands we
case. stuck to the droplet-theory, and ‘Virologists and epidemiologists
based all corona measures on it. are scaring people, the media
Mistakenly so.’ are making it worse, the general
His interest in corona started public gets scared and politicians
when news of the outbreak in feel forced to react with even
Wuhan first hit the headlines. It took a while before mouth starker measures. The medical
By the end of January 2020 he masks were accepted in approach hardly leaves room for a
included a question about the the Netherlands to prevent different view. The mass hysteria
novel virus in his own periodic spreading. In the beginning they is fuelled by doctors. They’ve
poll amongst Dutch citizens. ‘Is were regarded as useless by RIVM become part of the problem.’
this going to be as bad as the and the government. Instead the
Spanish flu?’ focus was on hand washing and
keeping a distance of 1.5 metres. A good illustration is a recent
Only recently and not quite interview with a prominent
He decided to dive into wholeheartedly has RIVM, and Dutch health official who cited
international scientific research the Dutch government, admitted the death of a 17-year-old to
on viruses and even launched that aerosols might play a role demonstrate that Covid-19
a website where he publishes in spreading the virus. And that doesn’t only affect the elderly.
his views and that of scientists good ventilation is important. ‘I checked the statistics in that
from around the world. From the period and there was only one
beginning De Hond has been a death under 25 in the whole of
strong defender of the theory ‘ The mass hysteria is the Netherlands: exactly the
that the coronavirus is spread person that was mentioned by the
through the air by aerosols rather
fuelled by doctors. official. You can’t use that as an
than by small droplets that hit They’ve become part example! Unless your goal is to
nose or mouth. The latter theory of the problem.’ scare people. I might counter with
is the one that is embraced by the case of the 90-year-old that
the national Dutch institute jumped from a balcony because
for public health (RIVM) and De Hond explains the he couldn’t stand the isolation
the World Health Organisation stubbornness of the government anymore.’
(WHO). It’s also the theory upon in ignoring alternative
which official Dutch corona explanations looking at the
policy is based. Dutch approach to controlling De Hond would rather see a
the pandemic. ‘Doctors are broad range of professionals
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THE EUROPEAN ACTUARY NO 25 - MAR 2021 GOOD POLICY STARTS WITH GOOD DATA
advising the Dutch government all kinds of relevant questions. De Hond suggests the use of
how to address the pandemic. We would’ve had a gold mine of open data that are accessible
Not just virus specialists, information by now, a database to everybody. ‘Good data can
but economists, behavioural with 8 million responses, for good be gathered. Good analysis is
scientists, psychologists, data- policy building. But even now we difficult. We’re spending billions
specialists, you name it. ‘The are installing new regulations on corona. I would surely spend
problem with the current medical without knowing how they will a few millions more on data
monopoly is that they don’t get work out, and without knowing analysts in every hospital. Make
to see the drawbacks of the how to get back to normal, data accessible. You would be
policy they are defending. Shops because we haven’t got the right surprised by the smart models
and cafes that go under, the data. When the contaminations that even interested civilians can
increasing number of children go down, are we going to open up come up with. Why not use that
facing psychological and learning the hairdressers, or the schools? intellectual power?’
problems because they can’t go to Nobody knows.’
school.’
The vaccination in the
‘ I would surely spend Netherlands – which only started
‘The medical focus on avoiding in the beginning of January – is
every single Covid-death doesn’t
a few millions more just as clumsily organized as
make sense. Hundreds of traffic on data analysts in the corona measures, says De
deaths can be avoided every every hospital. Make Hond. ‘At the beginning of the
year if we start driving 30 km per pandemic in 2020 we should have
data accessible.’
hour on our inter-city highways. nationalised and centralized
But nobody in his right mind health organisations. We would
would suggest such a thing. Why have been prepared for a second
not have the same approach The problem according to De wave and vaccination. Now we
to corona? The risks for under Hond is that neither medical make the same mistakes all over.
60-year-olds aren’t that much professionals nor their We have discussions on who
bigger than those of a common organisations are very good to vaccinate first. It’s all very
flu. There’s no need to keep all with statistical data. ‘That makes bureaucratic.’
those people in lock-down. It’s you miss out on a lot of relevant
the over 60’s you want to protect. information. Data are my job, my
Base your policy on that.’ life, it’s what I do. It’s a different De Hond didn’t contract corona
angle altogether. At the beginning himself. He keeps himself safe by
of the pandemic you could see avoiding badly ventilated and dry
Good policy starts with good the pattern that the regions spaces. He carries a CO2-meter
data, according to De Hond. And most affected all had the same that tells him if enough fresh
that’s where he thinks it all went climatic conditions: temperature air is circulating. He agrees that
wrong in the Netherlands. ‘Good between 4 and 12 degrees, low western countries can’t battle
data have been lacking from the humidity. That’s no coincidence. Covid-19 the way China does. So
beginning. The Covid-data in It had been affirmed by a group it will have to be done in a clever
the Netherlands are still horrific. of scientists that these are perfect way. With the acknowledgment
Only now do we get reliable daily circumstances for the spread of that it’s impossible to avoid all
figures on the number of positive corona. Based on these data I corona deaths. ‘We need to learn
tests per day. Ten months into predicted that New York would to cope with the risks of this virus.
the pandemic! When we started become the new Bergamo. The As we do with traffic risk, or all
testing in the spring, we could data also explained why there kind of other risks in daily life.’
have asked each positive tested were no extra deaths in Rome in
person to fill out a survey with March and April.’
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THE EUROPEAN ACTUARY NO 25 - MAR 2021 GOOD POLICY STARTS WITH GOOD DATA
HOW TO PRIORITISE
VACCINATION
Remarkably, mankind has developed a range of vaccines in little more than 12
months since the identification of the novel coronavirus in late 2019. The big
issue as we enter 2021 is how should those vaccines most responsibly be rolled
out? Stuart McDonald, Yifei Gong and John Roberts, three actuaries working on
demographic and epidemiological data, have been to the fore of analysis of the
benefits of the strategic distribution of early vaccines to the most vulnerable
categories of the population. We set out here a summary of their recent work.
IN THE UK, THERE WERE 9 PRIORITY
GROUPS IDENTIFIED. BROADLY SPEAKING
THEY WERE:
1 residents in care homes, together with
care home workers
2 over 80s, together with health care staff
3 over 75s
4 over 70s and clinically vulnerable
5 over 65s
6 people under 65 with health issues
7 over 60s
8 over 55s
9 over 50s
10 the rest
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THE EUROPEAN ACTUARY NO 25 - MAR 2021 HOW TO PRIORITISE VACCINATION
Using actuarial techniques, the groups were The population of England was analysed to
analysed to see what proportion of COVID-19 categorise the population by group and to
deaths had occurred in each segment of analyse the death data into the same groups.
the population and what proportion of the Some approximations were needed but the
population fell into each category. Acquiring majority of the age-related categories were easily
suitable data in an emerging pandemic is extracted. A table was then built up to show the
difficult but Governments have collected proportion of deaths that might have been saved
copious material to enable them to monitor the with an effective vaccine having been delivered
situation. The modelling was done on the basis to that category. Clearly, the vaccine might not
of COVID-19 attribution featuring on certificates be totally effective and vaccination not carried
of death as a reasonably objective piece of out to the full, but the relative impact of each
information. category is clearly seen in the data.
At its simplest, how many vaccinations are
required to prevent one death:
Priority Group Percentage Number of vaccines Percentage of Lives
of Population required to save a Saved (Cumulative)
(Cumulative) life
1 2% 10 32%
2 15% 90 67%
3 19% 180 78%
4 28% 360 88%
5 33% 570 93%
6 47% 2000 96%
7 50% 900 97%
8 55% 1800 98%
9 60% 3500 99%
The rest 100% 23000 100%
FIGURE 1. DEATHS PREVENTED VS POPULATION VACCINATED BY PRIORITY GROUP
rest
100%
90%
80%
70%
60%
50%
40%
Death Averted
30%
20%
10%
0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Population Vaccinated
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THE EUROPEAN ACTUARY NO 25 - MAR 2021 HOW TO PRIORITISE VACCINATION
It can be seen that the first four priority groups There is a logical order to studying the impact of
(targeted by mid-February 2021 in the UK) cover the virus. Cases precede hospitalisations (and in
28% of the population but 88% of the probable some cases intensive care), with deaths following.
deaths. We also needed to build in the period before the
vaccine becomes effective in preventing illness
It is also important to note that there are good – we know from the medical trial data that it is
reasons to get vaccinated beyond reducing our possible to be infected up to two weeks after the
own risk. We get vaccinated to protect others, by first shot. The impact of this additional period will
breaking chains of transmission, as much as to be important to understand, as an anxious public
protect ourselves. is waiting to see the first positive effects of the
vaccination programme.
This work also uses a simple analysis of death
counts rather than an alternative such as Quality
Adjusted Life Years (QALYs), which would place INFLUENCING FACTORS
more value on younger lives. Whilst a QALY The overriding influence is the prevalence of
approach would have merit, a simple analysis the virus. For simplicity, the analysis assumed
seems appropriate here, given the relatively constant prevalence, and so recent falls since
short time interval expected between the the latest lockdown started will add to the
different priority groups becoming eligible for the benefit shown. The vaccination will not be
vaccine and the likelihood that full population 100% effective, and neither will we see a
vaccination will not be long delayed in any case. 100% take-up from those offered the vaccine.
Vaccine effectiveness will also affect measures
A further public debate has concluded in the UK in different ways. For instance, an effectiveness
with the decision to prioritise the first dose of a of 70% may only reduce cases by that amount,
two-dose vaccination programme on the basis but would hopefully reduce serious illness and
that it is likely (though not demonstrably certain) death by a much greater percentage. In contrast,
that most of the life-saving and hospital-saving the take-up rate will affect each measure in a
impact will arise with the first dose and that it is consistent and intuitive way. However, as the
better to administer one dose to twice as many early phases are concentrated on the most
people as two doses to the first groups. Clearly vulnerable, and those who are caring for them,
it is possible that the second dose to the highest it is reasonable to assume that there will be a
categories just might save more than the first relatively high take-up rate – certainly greater
dose to the accelerated lower categories but than would typically be seen with the annual flu
the data to demonstrate this does not exist and vaccination programme.
a political decision was taken in the UK unlike
most other states.
Cases
The analysis considered how long it is likely to
HOSPITAL ADMISSIONS be before we start to see an effect in the various
The public debate is further coloured by reported statistics. It should be noted that
discussion about whether the focus should these are estimated average delay periods. In
be on the avoidance of preventable deaths or reality there is a spread of actual delays around
hospitalisations and consequent pressures on the mean. Allowing for the two-week period
the health system, with the ensuing impact on after vaccination before protection kicks in, a
the conduct of non-urgent normal healthcare. further three to four days is typical for the first
Fortunately, the data does lend itself to further symptoms to occur, and we should allow another
analysis of the impact of vaccination on reducing two to three days for a test to be taken and the
hospital admissions. results to be reported in the data published.
Overall 20 days was assumed.
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THE EUROPEAN ACTUARY NO 25 - MAR 2021 HOW TO PRIORITISE VACCINATION
FIGURE 2. VACCINE EFFECT (GROUPS 1 TO 4 ONLY)
100%
Proportionate Effect on Key Metrics
80%
60%
Cases
Admissions
40%
ICU
PHE Reported Deaths
20%
ONS Reported Deaths
0%
01 Jan 15 Jan 29 Jan 12 Feb 26 Feb 12 Mar 26 Mar
Hospitalisations in some instances. However, and an even smaller impact on
Added to the two-week given that the majority of deaths intensive care (ICU) admissions,
effectiveness delay, following are recorded within a week, where very few of the oldest
infection there is typically a the analysis assumed a further patients will be considered
10-day period before admission delay of 3 days. Adding this to clinically to benefit from the
to hospital, plus two days for the 31 days from the hospital treatment available.
reporting which translated to an deaths estimate above gives a
assumption of 26 days. total period of nearly nine weeks This is a moving subject and one
produced an assumption of 47 where actuaries have been able
days. to produce information of critical
Hospital deaths (PHE) importance to public policy
These are on average 6 to 8 days The modelling then took these decision-making, particularly
after hospitalization plus around periods of time and identified by elected politicians making
3 days for reporting delays which these with the schedule for a balance of judgments. There
resulted in an assumption of 34 vaccination drawn up by the will be more decisions to take on
days. authorities for these priority the way and the speed at which
groups in order to show the likely society’s normal behaviour
impact on the reported data can commence again and
ONS Deaths and the implied pressures on professional actuarial modelling
(National Statistics) hospitals and their Intensive care of this kind should enable better
With a focus on excess deaths, as facilities. judgments to be made.
reported by ONS, it is also useful
to understand the additional The graph above shows the
delay period before these begin currently estimated timescale
to be impacted. Registrations impact from vaccinating the first
are reported weekly, with a 10 four priority groups on the likely
to 16 (average 13) day lag from reduction both in deaths and in
registration, to which the period hospitalisations. It shows clearly
between death and registration that whilst we should expect a
should be added. This latter rapid fall in deaths, the first four
delay can be very variable, priority groups will have a lesser
and extend into many weeks impact on hospital admissions,
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THE EUROPEAN ACTUARY NO 25 - MAR 2021 HOW TO PRIORITISE VACCINATION
DECISION-MAKING
IN UNCERTAINTY
BY PETER KINGSLEY The finance, pensions and insurance sectors have long relied
on data and mathematical models to justify decisions, many
backed by the authority of actuarial practice. Everything
from projecting life expectancy to aligning long-term pension
obligations and capital allocation decisions are measured,
creating a shared set of norms. Risk is traded. Value exchanged.
T
he problem is that these based assessments of possible
models are cultural —distinct from probable—
constructs rooted in outcomes.
historical experience. They
rely on collective confidence. This challenges tradition and
In ‘edge of chaos’ conditions convention. After all, one of the
dominated by high levels of assumptions in financial markets
interdependence, complexity is that history-based modelling
and uncertainty, this confidence has predictive authority. This
is under growing threat. may work in the short-term,
but when it matters most—in
If actuarial and risk modelling political, market or financial
is to remain relevant, crisis—models fail. History is a
anticipation is paramount. poor guide to possible futures
Above all, practices shared by when shocks begin to cascade
actuaries, financial analysts and through tightly coupled systems.
investors are necessary but no Models fail to capture real-world
longer sufficient to meet the complexity, particularly in crisis
challenges facing leadership when base-level assumptions
teams in government, financial break down.
institutions and corporations.
DATA ARE OFTEN INCOMPLETE
THE CLIMATE CRISIS AND and inaccurate, giving little help
COVID-19 show that if strategic to decision-makers in preventing
advice is to be relevant to policy system failures. This can be a
and board-level decision-makers, matter of life and death.
it must both anticipate potential In extreme conditions, options
shocks and make intelligence- narrow at exponential rates and
9
THE EUROPEAN ACTUARY NO 25 - MAR 2021 DECISION-MAKING IN UNCERTAINTY
‘
These realities cannot be modelled
or forecast in conventional, logical,
rational, statistical, or probabilistic
terms.
wait for definitive evidence and
certainty, they are destined to
deliver ‘too little, too late’. Faced
with radical uncertainty, they
have to make imaginative, pre-
emptive judgments.
NOR ARE EMERGING SOLUTIONS
to these challenges necessarily
the answer. The most recent
artificial intelligence applications
have great value and potential,
but the machine learning
paradigm is narrow, brittle and
limited to specialised tasks
that cannot adapt to changing
system dynamics. Even the
most advanced models are
fragile in chaotic environments,
as some quantitative funds
have discovered. They are
typically based on ‘small world’
perspectives that focus on
what can be measured, rather
than what is essential. They
often fail to capture, to take
one example, how weak signals
gain momentum, or how social
interaction shapes behaviour.
PETER KINGSLEY MACHINES DO NOT YET REASON,
or model cause and effect. There
is not even a consensus about
leave little room for manoeuvre. THE VIRUS HAS SPREAD by what ‘reason’ means. A growing
COVID-19 has illustrated that the time signals are picked up, body of research suggests that
data are too often lagging data validated, and models human reason is not about how
indicators. developed. If policymakers to deal with abstract logical
10
THE EUROPEAN ACTUARY NO 25 - MAR 2021 DECISION-MAKING IN UNCERTAINTY‘
The underlying challenge for financial
professionals is that, to recap,
anticipation, not measurement,
is paramount for leadership teams.
problems but rather to meet the markets depend ‘nearly entirely THE UNDERLYING CHALLENGE
challenges of living in collaborate on human imagination and for financial analysts, fund
social groups. emotion.’ We act in the present managers and actuaries is
In other words, decision-making on imagined futures. Or fail to. that, to recap, anticipation, not
leadership teams are embedded Asset values in low lying cities measurement, is paramount for
in social environments and like Miami will collapse long leadership teams.
shaped by cultural forces. before rising sea levels make Decision-makers are searching
To compound the problems, them uninhabitable. for answers to the problem of
decisions are influenced by how how to deliver resilience in a
individuals and groups imagine world of well forecast ‘wild card’
the future. These are primary—if TAKE ANOTHER EXAMPLE, in shocks such as COVID-19 and
not dominant—cultural realities. December 2016, the first signs the momentum of weak signals
Imagined futures shape political that major energy companies suggesting runaway climate
decisions, policy, corporate would come under sustained change is underway. They are
stewardship, sustainability and investor pressure emerged asking how they can imagine,
set innovation agendas. These when they were asked to explain navigate and make stewardship-
realities cannot be modelled their long-term strategies in based judgments about the long-
or forecast in conventional, the context of climate change. term and hedge against worst-
logical, rational, statistical, or Primary asset owners began case scenarios.
probabilistic terms. to project transitions to
autonomous electric vehicles, If the actuarial profession is
solar and wind power five, ten to meet these challenges and
DECISIONS ARE MADE NOT and more years ahead. The remain relevant at the highest
SIMPLY by careful cost-benefit pressure was rooted in imagined levels, it has to think about how
analysis, but by leadership teams futures and the narratives that to combine imaginative foresight
looking for stories that make described them. The future with traditional strengths. After
sense of volatility, particularly once again showed it can deliver all, professional services firms
in times of crisis and when the shocks in the here and now. have to re-invent themselves,
future is deeply uncertain. When leading, not following, their
the stories change and new ones Too much attention focuses on clients. If they cannot picture the
gain momentum, financial and fine-tuning data, measurements long-term, they will struggle to
economic shocks emerge. and models, rather than on how offer strategic advice.
real-world decision-makers use
To illustrate, we might assume them. Models can act as anchors
that financial analysts are but are often ignored or used PETER KINGSLEY is
interested only in data, even to give legitimacy to intuitive Chairman of The Oracle
in low volatility conditions. judgments. More often, they are Partnership.
The reality, as David Tuckett challenged, poorly understood, https://
points out, is that financial or deliberately distorted. oraclepartnership.com/
11
THE EUROPEAN ACTUARY NO 25 - MAR 2021 DECISION-MAKING IN UNCERTAINTYEIOPA OPINION ON
SOLVENCY II REVIEW:
CONCERNS OF AAE
BY JENNIFER BAKER
I
This article is a summary of n February 2021, the However, the primary demand
the official AAE Position Paper Actuarial Association of for the insurance sector to better
Europe (AAE) set out its serve the long-term needs for
main positions regarding European citizens and to act
the Solvency II 2020 review. as long-term investors requires
an appropriate valuation of
long-term business and a
While acknowledging that risk-adequate treatment of
Solvency II is intrinsically a long-term investments as well.
well-functioning, risk-based It is a requirement that such
framework, the AAE believes that a valuation aims at reducing
the experience of the past five volatility and thus prevents
years of application, along with procyclical behaviour. An
the low interest environment, appropriate valuation of the
reveal a need to change parts of obligations resulting from
the current framework. the contracts in a portfolio is
indispensable.
The overall aim is to ensure
policyholders protection and Solvency II together with the
financial stability in Europe, Long-term guarantee (LTG)-
and as such it is important not measures has worked well
to change the fundamental in terms of safeguarding the
principles of the Solvency II policyholders in the past and
framework, such as confidence should not be jeopardised by
level underlying calibration inappropriate new requirements.
of capital requirements or the Our main concerns are related
market-consistent basis for the to: the treatment of long-term
valuation of the balance sheet. business with guarantees;
12
THE EUROPEAN ACTUARY NO 25 - MAR 2021 EIOPA OPINION ON SOLVENCY II REVIEW: CONCERNS OF AAEthe enabling a well-diversified, An identified last liquid point the role of the UFR caused
sustainable and persistent (LLP) is the starting point for an by waiving the convergence
investment strategy; and the extrapolation. Currently, for the requirements. Convergence
proposed extensions of the Euro, this LLP is 20 years and to the UFR is determined by
Solvency II framework by should not be changed, as that the last liquid forward rate
macroprudential elements. would have a significant market (LLFR) and a mean reversion
impact which needs to be taken factor alpha, which is – without
carefully into account. scientific justification – set to
‘The availability 10%. The LLFR aims to take
of deep, liquid into account information from
Another essential criterion is DLT-markets post-LLP and
and transparent
the requirement to reach the is the starting value for the
(DLT) markets is Ultimate forward rate (UFR) extrapolation. It can be highly
a precondition within a given convergence volatile and affects the entire
for the required period (currently 40 years for RFR. Convergence is modelled
the Euro) with a given tolerance. independent from capital
market-consistent This UFR reflects a long-term markets by applying fixed
valuation in the expectation or a mean-reversion factors depending solely on the
current framework.’ level, annually determined by mean reversion factor. Therefore
EIOPA in accordance with the the method cannot compensate
method published in 2017. short- or mid-term distortions
of capital markets (e.g. resulting
The availability of deep, liquid from ECB-activities, Covid-19).
and transparent (DLT) markets is The alternative extrapolation These are carried forward to the
a precondition for the required method proposed to the entire RFR and thus increase
market-consistent valuation in European Commission leads volatility of undertakings’
the current framework. to a significant weakening of capital position.
13
THE EUROPEAN ACTUARY NO 25 - MAR 2021 EIOPA OPINION ON SOLVENCY II REVIEW: CONCERNS OF AAEParticularly in a low interest rate In terms of interest rate stress, regard to recovery, resolution
environment a more volatile we see the need for corrections, and IGS, different treatments
and significantly lower risk-free as currently no stress is applied across Europe could lead to
rate, might prevent insurers to negative interest rates. flaws in policyholder protection.
from maintaining their long- Considering the one-year Harmonisation should consider
term business model, holding horizon required by Solvency cross-border business, already
long-term investments in a II, risk parameters should only available solutions and
sustainable way and offering be applied to the liquid part of proportionality aspects.
products with guarantees. the extrapolated curve. This
stressed liquid part should be
extrapolated. First stress – then Coherence of the Solvency II
‘ In terms of interest extrapolate! framework should be considered.
rate stress, we Additional burden for the
undertakings resulting from
see the need
We welcome the attempt to macroprudential measures to
for corrections, reduce the risk margin by reduce risk should be assessed
as currently no introducing a factor lambda to together with the existing
stress is applied to attenuate the impact of future prudential framework in order
SCR. The proposed floor should not to go beyond the current
negative interest be omitted as the margin needs 99.5% VaR requirement.
rates.’ further analysis, especially on
the way it works for long-term
insurance liabilities. In short, the Solvency II review,
Volatility adjustment needs should aim for an appropriate
reconsideration. EIOPA’s valuation of long-term liabilities
proposal is still based on a Same risk, same capital is a basic but also offer better possibilities
reference portfolio calibrated principle of Solvency II. Therefore to support a sustainable relaunch
on EU-level. Considering neither green supporting, of the EU economy in the
undertaking specific aspects nor brown penalising factors aftermath of Covid-19. We must
in the ALM and liquidity should be introduced. Capital also ensure that new, emerging
application ratios plus a quicker requirements should consider risks are properly considered.
and smoother activation of the quality of investments and But the focus must remain on
the country component aims the inherent risk. policyholder protection and the
at better consideration of prevention of insolvency risk – it
undertakings risk. It leads to a is important not to overstretch
higher degree of complexity, Solvency II is a risk-based – Solvency II and to preserve it as a
but this will not remedy the although microprudential principle-based framework.
identified deficiencies on over – framework, and EIOPA
or undershooting resulting from acknowledges that risks for
differences between own assets financial stability, liquidity Position papers of the aae can
and the reference portfolio. risk, etc. in insurance are not be found here: https://actuary.
Taking own assets as a basis comparable to those observed in eu/publications/positions-
should still be definitively part banks. Any extension of Solvency discussion-papers/
of the Risk Management System II should be based on a thorough
and ORSA exercise. analysis of current options. With
14
THE EUROPEAN ACTUARY NO 25 - MAR 2021 EIOPA OPINION ON SOLVENCY II REVIEW: CONCERNS OF AAEXIII ITALIAN ACTUARIAL
CONGRESS POSTPONED
T
he XIII Italian Actuarial Congress It is at the same time a step forward
was announced early for June especially for the mentality and a
2020 and postponed due to the confirmation of the Italian strategy, that
Covid situation. We now aim to organize is to consolidate the traditional fields
it for November 2021 (10-12) in Milan. (insurance, pension) and in parallel to
develop the wider fields.
The title will be:
In this context all the sessions are
Technological innovation oriented in this direction. Moreover
and systemic risks: actuary some specific sessions are reserved
as a global assessor of to the international topics with the
uncertainty. participation of IAA, AAE, AFIR-ERM,
ASTIN; another session is dedicated to
the topic of "governance" where the
It is a logical evolution of the Italian Actuary is more and more present. Other
strategy for the actuarial profession's important sessions will concern IFRS17,
development and the congress is a very IORP2, Welfare. We will keep you up to
important moment to take stock of the date on developments.
situation, but also to launch messages
for the future. The message in this case Giampaolo Crenca
will be very ambitious: from Manager
Actuary to the Global Actuary, in order
to enlarge actuarial minds and activities
especially towards systemic risks and the
wider fields.
15
THE EUROPEAN ACTUARY NO 25 - MAR 2021 XIII ITALIAN ACTUARIAL CONGRESS POSTPONEDTHE 2020 AAE
PRESIDENTS' MEETING
BY GIAMPAOLO CRENCA
In 2020 this important meeting was held over two days, in two parts and virtually, due
to the Covid situation. The first meeting was on the 12th of November and the second
on the 4th of December.
T
he AAE Presidents' • climate change, ON THE FIRST DAY three
Meeting is a moment topics were discussed: climate
of confrontation and • communication, change, communication, and
discussion among all the professionalism (particularly
Member Associations (MAs) and • professionalism education). About climate
so it assumes a strategic value. (particularly education), change the answers to the survey
were observed and substantially
• mutual recognition all the countries think that it is
Particularly in this case agreement (MRA), an important and strategic topic
five important topics were for actuaries and AAE. Moreover
introduced by the AAE's Board • the role of the actuary. it is clear that it belongs to the
and discussed during the two wider world of the wider fields
meetings: because it is a systemic risk. Is
this just about measurement
16
THE EUROPEAN ACTUARY NO 25 - MAR 2021 THE 2020 AAE PRESIDENTS' MEETINGor also a model ? This question A VERY IMPORTANT TOPIC to develop the wider fields also
was very deeply debated and was the role of the actuary, with the support of very strong
the conclusion was that if we especially about the legal role, communication work.
develop models we can also because under the AAE there
focus on one or more indices, are different situations from
thus satisfying both. AAE could country to country. The goal is Other interesting discussions
organise a congress about this to find, if possible, a same legal followed with two experiences
topic. role valid for all the MAs and related to Hungary and Denmark.
officially recognized in the whole
of Europe.
THE SECOND TOPIC was THE AAE'S PRESIDENT,
communication, absolutely Wilhelm Schneemeier,
strategic and strictly connected ON THE SECOND DAY of the encouraged everyone to follow
with the Board that set up a meeting there were two this already well-designed path.
specific working group just important discussions, the
for developing this project. first concerning the "Legal
Communication is internal recognition workstream Task
as well as external. External Force Roles of Actuaries" and
concerns many different the second "Wider Fields". Both
stakeholders and we must try were a logical deepening of
to reach everyone with different the topics discussed during the
channels, approaches and first part. The speakers in the
languages. Channels are very first discussion emphasized the
important and the AAE could importance of understanding
use with greater intensity the well the situation in each MA, and
communication tools already so a consultation process was in
available (for instance the course. Afterwards the goal is to
magazine The European Actuary, evaluate the following steps and
Actuview) and, if necessary, to individuate a legal role for the
identify other tools. actuary in Europe valid for each
MA.
THE THIRD TOPIC,
professionalism, resulted THE SPEAKER about wider fields
in a discussion concerning emphasized the importance of
education and, in particular, the this topic that is now in its own
contents of the core syllabus right under the AAE's strategy.
and the implementation by the He indicated some of these
Member Associatons (MAs). fields and the need to be very
MRA must be reviewed for prepared to face this challenge
some reasons, Brexit the most especially addressing education GIAMPAOLO CRENCA
important, especially now that needs. So, the strategic proposal is Past President Consiglio
an agreement with the UK was is to consolidate and develop Nazionale Attuari.
found about their staying in the the traditional fields (insurance,
AAE. pension) and at the same time
17
THE EUROPEAN ACTUARY NO 25 - MAR 2021 THE 2020 AAE PRESIDENTS' MEETING18
COLUMN COLOPHON
The European Actuary (TEA) is the
quarterly magazine about international
actuarial developments. TEA is written for
HOW TO PREDICT THE INTEREST RATE European actuaries, financial specialists
IN 2081? and board members. It will be released
primarily as e-mail newsletter.
The Editorial Board welcomes comments
Predicting the market 60 years into the future is extremely and reactions on this edition under
info@theeuropeanactuary.org.
uncertain. There is no market information available that can
be used as a basis for such an estimate. Hence, analysis has to THE EDITORIAL BOARD CONSISTS OF
be based on models and expert judgement and has to consider Pierre Miehe, France
experience of the last 60 years. Without any doubt we have been in (Pierre.Miehe@Milliman.com)
a low interest rate environment for more than 10 years. This was Peter Tompkins, United Kingdom
certainly intensified by ECB’s quantitative easing programme in (PeterDGTompkins@aol.com)
the last years. So the biggest challenge is to compensate this effect Birgit Kaiser, Germany
because it cannot be continued over the next 60 years. (Birgit.Kaiser@aktuar.de)
Robert van Leeuwen, The Netherlands
Looking at Omnibus II, the approach for this crucial estimate is (for (leeuwer@hotmail.com)
currency Euro) to have an extrapolation method starting at year Giampaolo Crenca, Italy
(g.crenca@studio-cea.it)
20 (the last point in time with a market deep and liquid enough to
Gunn Albertsen, Norway
be used as an estimator for the risk-free rate) and being after 40 (gunn.albertsen@storebrand.no)
years near the Ultimate Forward rate (UFR) with a maximum 3bp
difference.
Now EIOPA’s opinion on the Solvency II review has been published.
The AAE agrees with many of the changes proposed (see also
Article on p. 12), like the introduction of negative interest rate Actuarial Association of Europe
stress and not to change year 20 as last liquid point. But it is Maison des Actuaires
certainly not justified to use swap positions (without underlying) 1 Place du Samedi
between years 20 and 50 to propose an extrapolation method B-1000 Brussels, Belgium
which deliberately does not ensure that the UFR will be reached https://actuary.eu/publications/
after 60 years with a predefined difference. This proposal will have the-european-actuary/
extreme consequences for long term life and pension insurance For futher informations contact
business and will increase capital requirements significantly. Monique Schuilenburg
(moniques@actuary.eu)
Overall, the proposals will lead to a weakening of the financial
positions of insurers, as a balancing of the outcome will not Lay-out Manager: Linda van den Akker
Magazine Manager: Frank Thooft
be possible. Another consequence will be a significantly lower
capacity for investment in sustainable assets. Undertakings will
NEXT ISSUE:
refrain from offering products with guarantees and thus shift The next issue will appear 1 June 2021.
higher performance risk to policyholders. This can result in an Suggestions can be e-mailed
increase of the pension gap once these clients retire (and the to info@theeuropeanactuary.org
current gap is already too high). The deadline is 1 May 2021.
The AAE advises not to change the convergence target at year 60 EUROPEAN AGENDA
Please check
and not to implement EIOPA’s extrapolation proposal. A wide and
http://actuary.eu/event-calendar/
deep impact study can help to balance all aspects: Solvency II for the most actual forthcoming events.
should safeguard clients. There is no convincing reason to change
this fundamental element of the Omnibus II Directive shortly after ADVERTISING IN THE
the start of Solvency II. EUROPEAN ACTUARY
The European Actuary (TEA) is sent as an
online magazine to 25,000 actuaries and
Wilhelm Schneemeier financial professionals throughout Europe.
Chairperson Actuarial Association of Europe An advertisement in TEA, size 210 x 145 mm
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