1. 2008 Annual Meeting ● Assemblée annuelle 2008 Québec 2008 Annual Meeting ● Assemblée annuelle 2008 Québec Actuarial Practice in a Global Market L’actuariat dans un marché mondial Michael Sze

2. 2008 Annual Meeting ● Assemblée annuelle 2008 Québec 2008 Annual Meeting ● Assemblée annuelle 2008 Québec International Consulting A Few Anecdotes by Michael Sze June, 2008

3. Introduction Confucius travelled the world to teach his ideas Jesus sent His disciples to teach all nations Consulting in distant land has fancy for many people What is it like for actuaries? 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

4. Topics Covered Overview of the scheme How do actuaries fit in? Some good results Some unfortunate bi-products What does it take to be an international consultant? Compensations and rewards 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

5. Overall Schema DonorRecipient Request Assistance NGO Consultant Request for Proposa l Engage Consultant Proposal Report Work Report

6. Where Do Actuaries Fit in? Actuaries are consultants, with unique expertise in risk management More and more demand for actuarial participation in –Insurance –Pension –Social Security –Healthcare benefits Some examples 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

7. Social Security Reform in China In 2004, I participated in consulting for the Enterprise Annuity (EA) project –Private DC plan with at least 5% contribution each from employer and employees Some difficulties they encountered –Not fully understanding corporate governance –Investment not matching objective Benefits projected based on 7% return, investment in savings account producing 4% return 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

8. Reform in China (continued) More difficulties –Airline company invests entirely in own company stock, getting 19% returns –Vesting: generous contribution scheme for pilots, but only vests on retirement –Provincial social security bureau serving both as regulator and trustee for EA 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

9. Pension Funding in Egypt Defined benefit plans with lump sum payments, mostly based on final average pay Funding method: Prospective Valuation Method Fixed contribution rate C according to plan provisions AL = PVB – C x PVFS By suitable choice of actuarial assumptions –Plan shows surplus, even when grossly underfunded 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

10. Egyptian Pension (continued) We recommend mandatory solvency calculations Full transparency For underfunded plans –Increase funding –Decrease distribution Egyptian actuaries resist the change, saying –You don’t understand how we work –Our plans are open groups: young support the old 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

11. How did I Get into This Business? Word of mouth, personal contact NGO asked me to teach actuarial science in Kazakhstan New Kazakhstan law 2000 –Starting 2001, all insurance reports must be signed by certified actuary Kazakhstan had no actuaries Intensive actuarial training program to create actuarial profession 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

12. Actuarial Program in Kazakhstan Six part program covering International Actuarial Association education syllabus –Part 1: Basic actuarial mathematic (EA 1) –Part 2: Application to different lines of work –Part 3: Loss models, risk theory, P & C insurance –Part 4: Life insurance, health insurance –Part 5: Modeling, pension –Part 6: Investment, financial reporting Candidates passing Parts 1 & 2 get provisional license for 2 years –Can sign actuarial reports Full license when they complete all six parts 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

13. Experience in Kazakhstan Many other international actuaries helped in the training program All felt very gratified in the process Kazakhstan students have strong mathematics background and work very hard 14 students got provisional license in 2001 20 now have full license This year, Azerbaijan requested assistance for Kazakhstan actuaries to teach in their country 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

14. It’s Not All a Bed of Roses Principal Purpose for all Parties –Technical assistance for Recipient country –Transfer of knowledge Different priorities and emphases leading to some imperfections –Donor: Successful completion of project –NGO: Smooth execution; keep everybody happy –Recipient Country: Knowledge, financial aid –Consultant: Difficult job, too many bosses 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

15. Imperfection in a Small Country Pension reform project Donor wants final SS regulation by year end Recipient: Infra-structure not ready to support the required pace Constraint: Do it, or else World Bank loan will not be available Result: Set and promulgate final SS regulations –Amending and improving for many years later 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

16. Imperfection in a Large Country Social Security reform Why does recipient need foreign aid? Why do the donors provide technical assistance? NGOs and consultants play along Recipient wants study tour –Donor says no: it is only for paid travels –Recipient says: no study tour, no project –Result: study tour 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

17. What have I learnt in the Process? Humility –Know so little about the rest of the world –We are so lucky The world is much bigger than I thought Vast majority of the world’s population have a substandard of living Actuarial knowledge is much needed everywhere We can make a difference 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

18. What Rewards can We Expect? Compensation is typically not even half of what an actuary normally makes –Between $400 to $700 / day, depending on donor and job –Plus living allowance and travel expenses Work is very demanding –Much preparation –Long working hours –There are always unexpected additional demands Can make a difference to under-developed countries Some travelling opportunities 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

19. What Qualities are Needed for International Consultation Broad base knowledge Be more risk taking Know your limitations Flexibility –Don’t expect the recipient country to adopt your system –Set system that it is best for them Have respect for people you work with Detachment 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008