Saturday, October 24, 2009

Society of Actuaries 2009 Annual Meeting (Boston)

I'm leaving for Boston this morning; I'll be attending the Society of Actuaries Annual Meeting starting Monday. Below is a list of the concurrent sessions I plan to attend. If you see me, please come by and say hello.

Monday 26 October
Session 17: Why We Need to Transform Our View of Risk
Session 27: Impact of the Financial Crisis on Pensions and Investments
Session 38: Basic and Continuing Education Update

Tuesday 27 October
Session 43: Management & Personal Development Section Continental Breakfast
Session 59: Perspectives on the Financial Crisis and Enterprise Risk Management
Session 62: Using Corporate Bond Spot Yield Curves for Pension Discounting
Session 79: Market-Consistent Valuation of Pension Plans

Wednesday 28 October
Session 98: Education & Research Section Continental Breakfast
Session 111: Revised Qualification Standards and Continuing Professional Development (*)
Session 116: What's New in Employee Benefits Accounting Standards

(*) I will be one of the presenters at session 111; come hear about the new SOA CPD rules.

Monday, September 28, 2009

Xerox to buy ACS for $6.4B

I wonder what this will mean for ACS's Buck Consultants actuarial consulting subsidiary.

Friday, August 14, 2009

Joint Announcement on Future Education Methods

The presidents of the CIA/CAS/SOA have issued a joint letter to share news of and request member feedback on a proposal for developing future education methods.

I encourage anyone who cares about the actuarial profession to write the Society of Actuaries before the end of the comment period on September 10.

ETA 8/16: For the record, I am most strenuously opposed to handing ASAs to college graduates without external validation through the existing exam system. My letter to the board can be found at

Saturday, July 18, 2009

So I'm studying for the PRM4 Exam

One of the case studies concerns WorldCom. When I finished reading it, I was left wondering if this was a WorldCom that operated in some other country with which I am not familiar. The case study is by Dennis Moberg of Santa Clara University and Edward Romar of University of Massachusetts at Boston (yes, I'm calling them out; willful blindness this blatant goes beyond the pale and needs to be exposed publicly). Here are some of the highlights...

WorldCom is just another case of failed corporate governance, accounting abuses, and outright greed. But none of these other companies had senior executives as colorful and likable as Bernie Ebbers.

No palace in a gated community, no stable of racehorses or multi-million dollar yacht to show for the telecommunications giant he created; only debts and red ink - results some consider inevitable given his unflagging enthusiasm and entrepreneurial flair.

Personally, Bernie is a hard guy not to like.

All this would be just another story of a successful growth strategy if it weren't for one significant business reality - mergers and acquisitions, especially large ones, present significant managerial challenges.

All this was put in jeopardy when, in 2000, the government refused to allow WorldCom's acquisition of Sprint.

I'm sorry. I'm really confused. According to wikipedia, the story of WorldCom and Bernie Ebbers includes the following facts, not one of which is mentioned in the PRM case study.

Beginning in 1999 and continuing through May 2002, the company used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of WorldCom’s stock.

It was estimated that the company's total assets had been inflated by around $11 billion.

Bernie Ebbers was found guilty of all charges and convicted of fraud, conspiracy and filing false documents with regulators.

Shame on PRMIA. This case study is a disgrace and should be pulled from their syllabus.

Monday, July 06, 2009

Public Pensions Cook the Books (Andrew Biggs, WSJ)

Here's a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don't want to raise contributions. Cutting benefits is out of the question. To be honest, you'd really rather not even admit there's a problem, lest taxpayers get upset.

What to do? For the administrators of two Montana pension plans, the answer is obvious: Get a new actuary. Or at least that's the essence of the managers' recent solicitations for actuarial services, which warn that actuaries who favor reporting the full market value of pension liabilities probably shouldn't bother applying.

Public employee pension plans are plagued by overgenerous benefits, chronic underfunding, and now trillion dollar stock-market losses. Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion.

The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized. Using that method, University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion. That's nearly $87,000 per plan participant. With employee benefits guaranteed by law and sometimes even by state constitutions, it's likely these gargantuan shortfalls will have to be borne by unsuspecting taxpayers.

Some public pension administrators have a strategy, though: Keep taxpayers unsuspecting. The Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System declare in a recent solicitation for actuarial services that "If the Primary Actuary or the Actuarial Firm supports [market valuation] for public pension plans, their proposal may be disqualified from further consideration."

Monday, June 29, 2009

Towers Perrin and Watson Wyatt will merge

This will creat the world's largest employee-benefits consultancy, surpassing current leader Mercer.

Wednesday, June 17, 2009

Bang it goes again?

In the thunderous collapse of GM, one detail seems to have gone almost unnoticed. The old GM's US pension fund, with its near-$100bn of liabilities, is being transferred lock, stock and barrel to the new entity. As a direct result, the new GM could be bankrupt again in a very few years. GM's US fund is, of course, in deficit, but the company has made no contributions since 2003. Back then, it put in $18.5bn, which it raised through a bond issue. Since this counted as a pre-payment, GM is not obliged to pay any more for the next year or two. However, it will then have to start plugging the gap, under the new rules set down by the Pension Protection Act of 2006. This, Mr Ralfe calculates, would involve diverting $1bn to $2bn annually from operating cash flows. If GM cannot do that, bang it goes again. [Source: Financial Times]

Friday, May 15, 2009

Federal Regulation of Insurance?

At a hearing of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, US lawmakers discussed what kind of role the federal government should have in regulating the insurance industry. "The events of the last year have demonstrated that insurance is an important part of our financial markets," said Rep. Paul E. Kanjorski, D-Pa., chairman of the subcommittee. "The federal government, therefore, should have a role in regulating the industry." [Source: InvestmentNews]

Monday, May 11, 2009

Wells Fargo Freezes Pensions

From their most recent 10Q

On April 28, 2009, the Board of Directors approved amendments to freeze the Wells Fargo
qualified and supplemental Cash Balance Plans and the Wachovia Pension Plan.

Friday, April 17, 2009

Potential PBGC problem: $13.5 billion GM liability

Pension & Investments:

A GM bankruptcy could become the PBGC's biggest nightmare because the automaker could dump as much as $13.5 billion in unfunded pension liabilities onto the PBGC — the largest ever from a single company — if GM were unable to fund its US defined benefit plans and terminated them. The claim would be almost twice as large as the current record of $7.5 billion from the 2005 termination of United Airlines pension plans.


Decisions that the government will make soon on the future of GM and Chrysler could accelerate the decline of traditional pension plans. “If one of these companies solves its pension problem by shunting it off to the federal government, then for competitive reasons the others have to do the same thing,” said Zvi Bodie, a professor of finance at the Boston University School of Management and longtime observer of the government’s pension insurance system. “That is the death spiral.” For years, traditional pensions have been in a slow decline, with troubled sectors like aviation and steel shedding their plans in bankruptcy court as 401(k) plans have taken hold. But big sectors, particularly manufacturing and financial services, have clung to the old plans. The PBGC has roughly $67 billion in assets to cover the benefits of nearly 4,000 failed pension plans; GM has $84 billion just to cover promises to its own workers. For traditional pension plans, “maybe this is their last stand,” said Jeffrey Cohen, a partner with the law firm Ivins, Phillips & Barker in Washington who was chief counsel for the PBGC from 2005 to 2007. If the automakers’ plans fail, he added, “the biggest domino will have fallen for the PBGC.”

YRC aims to fund pensions with real estate

YRC Worldwide, the biggest trucking company in the US, is negotiating with its unions to allow it to suspend cash payments to its defined-benefit pension plan and to pledge real estate instead. It would be the first major US company to use its real estate to help meet its pension obligations.

I find this vaguely disturbing. Also, I'm surprised that no US source seems to be carrying this story.

Friday, March 13, 2009


I became an FSA at 3:30 this afternoon. (The picture is from the conferment ceremony this evening.)

Thursday, January 22, 2009

Tuesday, January 20, 2009

Pension & Investments Article

Interest among US pension plan sponsors in Liability Driven Investing will reach a "tipping point'' within five years, with the development of more sophisticated strategies paving the way for near universal acceptance, a new report from Russell Investments predicts. That will happen despite short-term obstacles thrown up by the market trauma of 2008. For example, the severe underfunded status of many pension plans now will make it more difficult to aggressively implement an LDI program over the next year or so. Likewise, market mayhem will temporarily damp demand for essential hedging tools such as swaps, while setting back the development of pension buyout markets that had been picking up steam in countries such as the United Kingdom. In the end, the psychological impact of the market maelstrom that corporate pension sponsors are living through now will outweigh such short-term obstacles to LDI, predicted Robert Collie, director of investment strategy with Russell.

Mr. Collie said 2008 "is going to be one of those years which permanently changes the psyche of the people who lived through it,'' resulting in a generation of pension plan executives who will "see the world differently.'' At present, LDI is the "foundation'' for the investment strategies of perhaps 20% to 25% of US pension plans, and their experience over the past year is shaping the ongoing development of efforts to better match assets and liabilities. Part of the fallout from the past year's market fireworks will be a broadening of the scope of the risks LDI programs are designed to hedge against, moving beyond the preoccupation in recent years on interest-rate risk. For example, the mismatch that occurred between the valuations of the Treasuries anchoring many LDI programs and the high-grade corporate bond yield used to calculate the current value of future pension obligations has led to a much greater awareness of the need to take credit risk into account. Over the past year, investors seeking a safe haven have poured money into Treasuries, leading to higher prices and lower yields, while fleeing corporate bonds, which led to lower prices and higher yields. As a result, pension funds with LDI programs that added to their Treasury holdings have enjoyed an unexpected gain, as the value of their assets jumped while rising corporate rates slashed their liabilities. In effect, while LDI programs have failed to match assets and liabilities, they've done so in a way that has favored those pension plans - a lucky break. Still, the understanding that things could also have moved in an unfavorable direction has hammered home the point that "tactical considerations'' cannot be ignored, and a number of plans have taken steps to lock in the gains they've enjoyed.

Other risks that have come to the fore as a result of the past year include counterparty risk, which has lowered demand for swaps, and immunization schemes, such as pension buyouts. Underlying market demand will ensure that the current setbacks are temporary, even if the exact path for the development of key LDI components can't be sketched out with certainty today. It's clear that 20 years from now, there needs to be a long-term solution for companies that have frozen their pension plans and require a more cost-effective way to manage those assets than retaining an in-house staff, he said. Within three to five years, Russell officials expect depleted pension funding levels to have recovered, either by a rebound in equity markets or the significant contributions required under PPA. At that point, this battle-scarred generation of pension fund executives will begin implementing LDI programs in droves. Then, with 50% or more of pension plans adopting LDI programs, the herd mentality will kick in, and it will be a very short distance "from tipping point to game over."

Monday, January 05, 2009

Friday, January 02, 2009

Passed FETE - My Last Fellowship Exam!

For posterity, here's the very long start-and-stop process that brought me to fellowship:

May 1996: Course 100
(which became Course 1 on 1/1/2000 and subsequently course P in the current system)

May 1996: Course 110
May 1999: Course 141
(these two combined to grant credit on Course 2 on 1/1/2000 and subsequently course FM in the current system)

May 2001: Course 3
(which converted to courses MFE and MLC in the current system)

November 2001: Course 4
(which converted to course C in the current system)

November 2004: Course 5
July 2006: Course 7
(these two converted to FAP in the current system)

May 2008: Course APMV

November 2008: Course FETE