2008 Annual Meeting ● Assemblée annuelle 2008 Québec

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

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

3. 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 Introduction

4. 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 Topics Covered

5. Overall Schema Request Assistance Donor Recipient Request for Proposal Work Proposal NGO Report Engage Consultant Report Consultant

6. 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 Where Do Actuaries Fit in?

7. 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 Social Security Reform in China

8. 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 Reform in China (continued)

9. 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 Assembléeannuelle 2008 Pension Funding in Egypt

10. 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 Assembléeannuelle 2008 Egyptian Pension (continued)

11. 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 Assembléeannuelle 2008 How did I Get into This Business?

12. 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 Assembléeannuelle 2008 Actuarial Program in Kazakhstan

13. 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 requestedassistance for Kazakhstan actuaries to teach in their country 2008 Annual Meeting Assembléeannuelle 2008 Experience in Kazakhstan

14. 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 Assembléeannuelle 2008 It’s Not All a Bed of Roses

15. 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 Assembléeannuelle 2008 Imperfection in a Small Country

16. 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 Assembléeannuelle 2008 Imperfection in a Large Country

17. 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 Assembléeannuelle 2008 What have I learnt in the Process?

18. 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 Assembléeannuelle 2008 What Rewards can We Expect?

19. 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 Assembléeannuelle 2008 What Qualities are Needed for International Consultation