On the Role of the Actuary in a Changing World E-Book

John Gordon

• Herausgeber: Dolman Scott Publishing
• Kategorie: Ratgeber
• Sprache: Englisch
• Veröffentlichungsjahr: 2015

Seitenzahl: 314

Beschreibung

The 2008 financial crisis was a reminder to people both inside and outside the Actuarial Profession of just how complex the Financial Services industry has become, and just how tied the World economy presently is to its fortunes.
This wide-ranging, non-technical book examines our present economic model, the industry’s present function and the appropriateness of the Actuarial Profession’s present strategy and direction in the aftermath of that crisis, and in the context of the challenges that lie ahead.
The book’s central premise is that, far from being a one-off, the 2008 crash is merely a portent of things to come, and that the Profession, the industry it serves, and even the political and economic models under which both presently operate are in need of fundamental reform if they are to equip our society to withstand the challenges that are going to be visited upon it. This book seeks to explore the reasons why, and to open the debate about what shape that reform ought to take. As such it should be of interest not just to actuaries, but to anyone who has an interest in our collective future.

Leseprobe

On the Role of the Actuaryin a Changing World

John R Gordon Bsc FIA

Published by Dolman Scott Ltd

Copyright © John Gordon 2009

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopy, recording or otherwise, without prior written permission of the copyright owner. Nor can it be circulated in any form of binding or cover other than that in which it is published and without similar condition including this condition being imposed on a subsequent purchaser.

ISBN: 978-0-9564307-0-0

For my Father, whose wisdom has never sought Professional qualification but has always been a source of inspiration

CONTENTS

1. Background and Scope

2. The Wider Context

3. The Merger Process: A Case Study

4. A Historical Perspective

5. Actuaries and the Modern Economy

6. The Growth Delusion

7. Actuaries and the Public Interest

8. The Trials of Corporate Life

9. Of Governance and Government

10. Capitalism and the Corruption of Moral Sentiments

11. Actuaries and the Media

12. Actuaries and the Future

In Conclusion

PRECIS

Notes & References

APPENDIX

1. Background and Scope

This paper is my first foray into actuarial authorship, and I anticipate it will be my last.

Choosing to write a paper such as this about the role of my Profession is not a decision I have taken lightly, and it is no coincidence that I chose to do so in the midst of the biggest economic crisis the World has faced in my lifetime. For while there are few views expressed in this paper that I would not have proffered before the crisis broke, the scale of events we have witnessed has undoubtedly lent greater urgency, if not greater credibility, to some of its principal arguments.

The paper’s objective is to critique the purpose and direction of the Profession in the context of a world whose priorities are changing. As such the paper has two interwoven narratives.

The first is a critique of the wider socio-economic situation and the role of the Financial Services industry in the aftermath of the financial crisis and in the context of challenges that lie ahead and the changes that are likely to ensue.

The second is a critique of the Profession’s present vision, strategy and efficacy in the context of those changes, and an examination of what the Profession could be doing to improve its profile, better support its public interest obligations, expand its influence and, more pertinently, better orient itself to navigate the stormy seas that lie ahead.

As a critique, if the paper is to be of value it must inevitably contain some degree of criticism: if I thought the Profession did have a clear sense of purpose and direction, did understand the implications of the changes we are now beginning to witness and was striking an appropriate balance between the commercial interests of its members and the long term public interest, I would not be writing this.

Instead, I look around and I see too much complacency, both inside and outside the Profession, at the scale of the challenges we face. I see beliefs that too many otherwise intelligent people have allowed themselves to accept as truths, and I see many issues that should be being given greater priority.

This paper is essentially a wide-ranging assault on the thinking and practice that has brought us to the present point. As such it may seem less like a ramble through the actuarial countryside and more like a trip to the actuarial dentists, as I seek to poke, prod and scrape into the deep, dark corners that lie behind the Profession’s public smile.

I am under no illusion as to how this may be viewed by some of my Professional colleagues. The result will, I expect, leave me accused of many things - arrogance, temerity, precociousness, presumptuousness, insolence or disloyalty all seem possible - but at least a lack of ambition should not be among them.

Ambition, however, comes in many forms. I haven’t written this paper to advance my career (it won’t), I haven’t written it for personal pleasure (it wasn’t), and I haven’t written it because my employer thought it a good idea (as no employer would, and I am self-employed).

That I have written it at all is largely as a matter of Professional and humanitarian conscience. As the dentist always tells us, check-ups are worthwhile even when they don’t lead to any remedial work, and after much merger chewing it could be argued that the Profession is now ripe for one. In which respect while my credentials as a dentist have yet to be tested, the check-up is at least free and the advice can readily be ignored.

As such, I hope that the paper will be received in the spirit in which it is offered. By that I mean a) that I hope the Profession will be prepared to credit the paper’s subject matter with enough legitimacy to find it worthy of discussion, and b) that if, as I expect, the conclusions from that discussion broadly follow the 80/20 rule, that the Profession will not let a desire to discredit the bulk of the paper’s proposals detract from a focus on what it proposes to do about the remaining 20% to which it might struggle not to attribute some merit*.

Few will agree with all that I write, just as few will disagree with all that I write. Between those poles views expressed span the spectrum, from those that are contentious to those that might readily find consensus. In all cases, where I express an opinion it is because I believe it to be in the public interest or the Profession’s interests for me to do so.

As a point of principle, in any instance where the Profession’s interests and the public interest could be construed to be in conflict I give precedence to the latter. For while I agree with the sentiment, drummed into me on the day I first enrolled, that every man is a debtor to his Profession, it is equally true that every Profession is also a debtor to society – and in that respect, I regret to say, my Profession’s debt is presently running at levels that I find morally compromising.

In consequence, I do not doubt that some will regard this paper to be detrimental to the Profession’s interests. My alternative position is that the Profession has a history of avoiding discussing subjects that it fears may prove detrimental to its interests, that this fear is paralysing its discourse, and that this is in itself acting to the detriment of both the Profession’s interests and the long term public interest.

My premise is that it is better to confront contentious subjects than to avoid discussing them. In doing so I am less passionate about my conclusions being endorsed than I am about the Profession conquering its reticence and actually engaging on the issues.

In the aftermath of the protracted merger debate and a failed merger vote, I struggle to maintain my optimism that the Profession has the capacity to adapt. In some respects the challenges the Profession faces have never looked greater. If there is another organisation that has talked more about change and delivered less, it is not one with which I am familiar. Yet, on the principle that it is better to have tried and failed than not to have tried at all, here I am writing a paper that has the need for change as its central theme.

Radical change, too. In the last section in particular I explore a number of more esoteric areas in which our actuarial skills and way of thinking could be deployed to greater public benefit. While accepting that many will find such proposals a stretch too far, by including them I invite reflection on their relative worth in comparison with some of the activities that presently occupy much of our time. I also invite consideration of the extent to which the pursuit of short term objectives may be compromising the Profession’s long term vision, and of the extent to which the pursuit of commercial interests may be limiting the Profession’s collective investment in matters of long term public interest.

I strongly endorse the view that the World needs actuaries, or to be more precise the view that the World needs people who have the kind of skills that actuaries’ typically possess. But whether those skills are presently being utilised to best effect is another matter. I believe that as a Profession we need to invest our skills, training and intellectual capital rather more wisely than we presently do if we are ever to convince a sceptical public that it needs us – and objective which, to judge by the rhetoric of successive leaders over the years, the Profession attaches some importance to.

As papers on matters actuarial go, there are few conventions that this one does not break. Technical content is minimal, which will doubtless be a disappointment to some. In similar vein philosophy, psychology and general reasoning may seem like poor substitutes for rigorous actuarial analysis to some. To which my only riposte would be that rigorous actuarial analysis didn’t stop us getting into the present mess, and it will not get us out of it.

One benefit of this approach will I hope be to make the paper accessible to non-actuaries as well as to actuaries. Indeed, given that a substantial part of the paper’s subject matter is of relevance to a wider audience this was one of my main aims in writing it. A popular criticism of our Profession over the years has been that its members often speak in terms that others do not understand. If this paper is perceived as a small step towards redressing that balance then all to the good.

The paper poses more questions than it answers, for the simple reason that I don’t have all the answers. Where I feel in a position to make recommendations I do so, but I don’t regard the lack of an answer to be a good enough reason for not asking a question. The paper is intended to provoke thought and discussion. It is not a mandate for either a new Actuarial Profession or a New World Order, though I admit to passionate advocacy of both.

Other departures from tradition are in the paper’s scope, and in its style. Scope is wide, commensurate with the paper’s ambition, and its style is commensurate with what I perceive to be the gravity of our present situation: it is not evident to me that the Profession’s penchant for tact and diplomacy has served it well in recent years, and I adopt neither here.

That the paper has certain recurring themes, and makes certain recurring points, is intentional. Some points bear repeating. Please accept my apologies in advance for any offence to Professional sensibilities that doing so may cause. Those of traditional outlook or sensitive disposition should perhaps look away now. Alternatively, you might wish to spare yourself a good deal of plain English and simply refer to the paper’s précis.

I make no great claim of originality or insight in respect of the paper’s content or the credentials of its author. I do, however, have faith in the relevance of its subject matter. It is my belief that the Profession has allowed itself to be distracted from what is important at a time when it can least afford the luxury. Change is upon us, whether we like it or not. Will the Profession look to the future and help lead that change, or will cling to the past and instead find itself dragged along in change’s wake?

If it is to be the former, open minds, new ideas and a fresh strategy are the least that is needed. If it is to be the latter, the Profession had better prepare itself for a rough ride down the road to obsolescence.

For those who persevere, it is my hope that this paper will give cause for reflection, perhaps from a different perspective to that normally afforded by the day job, on what we do as individuals, what we do as a Profession, and why. It is my hope that from such reflection the change in attitude and direction that I believe our Profession so badly needs might yet still emerge.

* It is not that I think only 20% of my ideas will find any currency. I simply note that, as the merger process has shown, the Profession’s present mode of governance supports inertia even when a majority are in favour of change. In which respect I am crudely estimating that around 20% of what I propose might have resonance among enough members for there to at least be a constructive debate about it. .

2. The Wider Context

It may not be good politic to note it, but we live in a dysfunctional society.

If this was a sociology paper – interestingly enough, a box into which one of the initial Institute reviewers categorised it – I would explore the subject in rather more detail. However, as it isn’t, and at the risk of doing a disservice to years of more learned research, I instead offer this brief synopsis of the malaise that I believe sits at the heart of our modern society: too many of its members, beyond the bare essentials of their existence, have a connection with the World that is exercised largely through their bank account and a flat screen monitor.

It is a measure of our society’s dysfunction that so many of its members view the World primarily as a marketplace in which to acquire things. So ingrained has this notion become that possessions, and the means to acquire them, seem to have become our principal – and for many people only - benchmark of social status.

Moreover the dynamic by which society empowers the agents that govern it ensures that the scale of dysfunction isn’t just perpetuated, but accentuated. A socio-economic model whose definition of success knows only one measure will of course tend to promote those it believes are best placed to deliver against that benchmark. It is no coincidence that those who captain our industries and form our Government often tend to be even more driven to accumulate wealth than many of those they lead.

The social trends that have brought us to the present point (globalisation, the preeminence of greed, the fragmentation of communities, increased focus on self, the rising cult of celebrity and the growth of cyber-society) are all well-documented elsewhere so I won’t dwell on them here. What is of relevance going forwards is what consequence might flow from the increasing stress to which the society they’ve delivered is going to be subjected.

One consequence of these trends is that many people have become increasingly disaffected by, and disengaged from, what one might colloquially call ‘real world’ problems. Even among those who are still engaged, there is a tendency to regard the big challenges we all face as someone else’s responsibility to resolve. Such complacency is further fuelled by the faith that many still hold in the power of innovation and technology to address those problems without the need for any personal sacrifice or infringement of their own lifestyle choices, a belief that is as misplaced as it is convenient.

Adding to the dysfunctional fray is the central role that our present financial system plays in influencing socio-economic policy. Despite mounting evidence of the folly in so doing, our present generation of policymakers continues to dance to the tune of volatile financial markets, still apparently unaware that to serve the long term public interest - as is supposed to be their obligation - they need first to quit the dance floor and invest in some better music.

Thus has modern society created its own virtual reality, a reality that has thus far allowed the issues and risks considered later in this paper to be largely downplayed, and an illusion that has thus far managed to keep our society firmly on the path towards its own destruction.

It is to the discredit of our present generation of political leaders that they have failed to acknowledge or engage with people on the true reality of our present situation.

It is also to the discredit of the Actuarial Profession that it continues to acquiesce when confronted by such short-term thinking. The Profession, it seems, out of either a misguided sense of its own interest, deference to commercial interests or a conveniently blinkered view of what constitutes the public interest, feels compelled to dance to the same discordant tune. Whatever the reason, this is an abdication of leadership that I believe undermines the Profession’s risk management aspirations and amounts to a betrayal of the Profession’s own public interest mandate.

Financial markets should be a servant of the people, not their master, but any objective review of the experience of recent years would struggle to conclude as much. This matters, because if our society and its economy are to stand any chance of surviving the scale of change that is to be visited upon them, reform of financial markets is essential.

Our industry appears to have become a caricature of our economic system’s worst excesses (more on which later). Those who think its ills can be cured by better governance alone should take a closer look at the profile of the financial transactions that characterise today’s financial markets, scratch beneath the glossy surface of incremental tax revenues and take a look at what real value those transactions are adding. If they do, they will find little that is contributing to the greater good and much that is serving to undermine it.

Few voices inside the industry have thus far been bold enough to call the bluff of those who tell us that a booming City is vital to the well-being of our economy, and few voices have thus far been bold enough to say that it needs to be cut down to size. It is telling, though, that the present FSA Chairman’s voice is among them. When even the FSA is proffering the view that some parts of the City have grown too big for society’s good, financial sector profits are too high and that a number of its activities are socially useless, one begins to believe that change may be afoot.

Such views are easier to express, perhaps, when you are a gamekeeper not a poacher - as Lord Turner would know, having successfully played both – and while he only speaks the truth, at a time when so many others still seem to be choking on it he is to be commended for doing so. It is a small step in the right direction. No surprise that all the usual suspects have lined up to offer their criticism, but the point has been made, and many outside the industry would agree with him.

The Need For Change

I will make a prediction. Not a particularly bold one, in the circumstances, but nevertheless one I hold with some conviction: without a fundamental change in economic thinking, fundamental reform of financial markets and a fundamental reappraisal of social priorities, and at the hands of one or more of the influences I touch upon in section 5, at some point over the next few decades our present socio-economic system is going to collapse.

When it does, while both past precedent and human nature suggest that hopes of an orderly transition to a new socio-economic system may be optimistic, that is not to say that our degree of preparedness does not matter. Prospects for a less destructive transition could at least be enhanced if, instead of refusing to countenance that the present model is unsustainable right up until the event that proves it, Government and policymakers would engage with people of vision, on a global scale, to map out the alternatives.

The difficulty is that human nature has bestowed upon most of us an instinctive resistance to countenancing that we may have got things wrong, or to accepting unpalatable truths that run contrary to our own beliefs. Gaps in the evidence are sought and exaggerated, alternative explanations are offered. Thus, for example, can otherwise bright people see cold snaps as evidence against climate change, otherwise bright clergymen choose creationism over evolution, otherwise bright CEOs blame the failures of their companies on anyone other than themselves, and otherwise bright politicians continue to insist that we are winning wars that many others without a vested interest can see that we are losing.

Only when all other avenues have been exhausted is truth finally confronted, and even then some politicians, business executives and religious leaders seem capable of maintaining an impressively resilient state of denial.

Nowhere is this more manifest than in the attitudes of some of those who lead our own industry. Ex-CEO Dick Fuld may have collected $40 million a year for the privilege of being at the Lehmans helm, but he still couldn’t bring himself to accept any responsibility for the ship having sunk. His defence? He considered he’d acted properly on the basis of what he had been told.

The insight offered by Fuld’s observation is particularly pertinent, because some people in the higher echelons of Business and Government are not inclined to listen much even when they are told. Indeed it seems some people who lead our industry can react quite badly to being told, because they have grown rather used to doing the telling. The result, among other things, is that many of our companies have become rather dysfunctional places to work, a subject I explore in more detail in section 8.

Those who subscribe to the Fuld school of management are products of a flawed system, having evolved vestigial ears that are receptive only to certain types of message. They think not of long term sustainability but of short term profit. They talk outwardly of employees, but think inwardly of headcount. They don’t build teams, they build empires, and they reign over them like emperors. They are very accomplished at justifying their rewards, reinforcing their self-image and promoting their own interests. And as Fuld himself has shown, they are very adept at finding others to blame when things go wrong.

In a wider sense, their cause is aided by another very human trait: the greater our collective investment in a particular perceived truth, the more reluctant we tend to be to relinquish it. In which respect, there has scarcely been a greater human investment in anything than the investment made by successive Western governments in the doctrine of Capitalism and in the centrality to our society of the principles of wealth creation and economic growth.

This helps to explain why some of those who drive our industry have been allowed to perpetuate their ideology for so long. Despite the growing list of industry failures piling up in their wake (some are considered elsewhere in this paper, but for a good flavour see the list of public interest provocations included as an Appendix to this paper), we continue to place faith in their ability to govern, continue to subscribe to their tired arguments about the need for big financial incentives and continue to allow ourselves to be convinced that we are at risk from a flight of their talent.

Thanks in no small part to the present financial crisis, however, the general public now have a rather better grasp of reality than most of those who lead Government, industry and perhaps even our own Profession give them credit for. Yet like addicts who have knowledge of their problem but see no solution, what they lack is a coherent vision of a better future. In its place grow recrimination and cynicism. If the root causes are not addressed both will continue to grow, to destructive effect.

In the meantime, we find ourselves in a curious situation where many realise that our present socio-economic system is flawed to the point of being unsustainable, yet nobody in any position of authority dare say as much for fear of the consequence.

While the Profession has been contemplating its merger navel, our wider society has continued inching closer to its tipping point. Assuming that democracy itself is not a casualty of the coming collapse, our present socio-economic model will only be sustainable for as long at least half of the voting populace believe that the continuing quest for prosperity upon which it is built is in their own interests as individuals. In which respect it is becoming increasingly difficult for people to maintain that belief. As worldly constraints begin to bite further in the years ahead, this trend looks likely to continue.

In this context, perhaps the proponents of Capitalism’s greatest success has been to convince so many for so long that it is a system that will indeed bring benefit to all. Yet the financial crisis and its aftermath has created many more losers than winners, and there is no disguising the fact that the model itself is on collision course with the rather more tangible but less tractable realities of global population growth and increasingly scarce resources.

Cosmetically at least, little thus far appears to have changed by way of adaptation to the consequences of this new reality. Talk of green shoots is back, share prices are up, the property market seems to be bottoming out and banks are making large profits again. Traditionalists could be forgiven for thinking that they have weathered the worst. Yet the underlying realities are changing. There is a growing understanding that technology and innovation cannot provide all the answers, that growth cannot continue untrammelled, that politicians are being economical with the truth, and that we are about to enter an age of enforced austerity. And when the full implications of that come home to roost, a large amount of resentment is going to be looking for an outlet.

This will have a fundamental impact on Government, on industry and on society as a whole. Modern society, aided by the economic doctrine that supports it, has created a culture that has traditionally seen affluence as a measure of success. The switch to a culture where affluence is seen instead as a symbol of excess will be subtle in its means but profound in its effect.

It is subtle in that it has already started, but is being misread by many as just the usual disaffection that comes with downturns in the economic cycle. It will be profound in that, while today it is mainly bankers and politicians who are loathed, in the age of austerity that awaits us those who flaunt profligacy, in all its guises, are likely to join them.

The fabric of society is being stretched as never before. While politicians may never have been held in particularly high esteem, they have surely never been less respected than they are presently. What should worry us is that while ‘detached from reality’, ‘lacking in vision’, ‘resistant to change’ and ‘serving their own interests, not the public interest’ are routine labels for today’s generation of political leaders, they apply just as readily to many of our industry leaders, and for that matter on present form could in some respects just as easily be used to describe our own Profession.

This should be more than just a matter of mild concern. Revolutions have been built on less.

Ultimately, from the wreckage of our failing system a new, rather less destructive socioeconomic vision will emerge, though quite what pain society will go through before it does remains to be seen. In the interests of minimising that pain we should be planning for the transition now. It is a transition that will require unprecedented levels of global co-operation if it is to be successfully managed.

The principal agent of change will be the encroachment of a new reality, one that no amount of Government obfuscation or industry denial will alter. Alistair Darling, Win Bischoff and friends may still talk of growth, but the planet is kicking back and the growth game is almost up, a subject I explore in more detail in section 6. Any further growth Britain achieves will largely be at the expense of less developed nations, in the guise of either supporting them or exploiting them, depending on your point of view (the title of Bischoff’s recent report (1) on the future of our industry, sponsored by the Treasury - “UK International Financial Services – The Future” – in effect concedes as much).

At the level of nation states such tribal tendencies, and the pursuit of self-interest that characterises them, sit at the heart of much that is wrong with the World. The simple truth is that when the chips are down people – and the Governments that represent them – tend to think local, not global. Recent evidence of that extends well beyond Bischoff’s report. The Government’s recent use of anti-terror legislation to freeze Icelandic assets and the ‘British jobs for British workers’ mantra that recently resurfaced again are good examples, while the Profession’s merger preoccupations show that it isn’t only Governments that can become myopic in times of crisis.

In today’s increasingly globalised World with its increasingly globalised problems, tribal thinking is not progressive thinking. It has much destructive potential, because it greatly enhances the risk of wider catastrophe at the hands of one or more of the threats noted in section 5. Global co-operation is the only answer, yet it is becoming increasingly clear that we cannot rely solely on either Governments or industry to provide global leadership.

The Future of UK Financial Services

What does all this mean for the future of our industry?

Your view of that will probably depend on your view of many other things. If you subscribe to the Win Bischoff view of reality, there is little wrong with our industry that being more competitive cannot cure.

In many respects, Bischoff’s report – endorsed by the Treasury - is a shocking document. Not least, it is shocking in its degree of detachment from so many other people’s reality, shocking in its confirmation that industry bubbles can be just as delusional as property bubbles (and far more resilient), and shocking for the fact that it mentions competition over 50 times, growth 36 times, but fairness only once and the need for more global cooperation hardly at all.

Before the financial crisis broke – in no small part because people like Mr Bischoff have been telling them for years - many people believed that we already had a competitive UK Financial Services industry.

And in a way, indeed we did. Competitive salaries; competitive bonuses; a competitive tax system; a competitive regulatory environment. The market also had more players than it has today, which as the free marketeers will tell us is in itself good for competition.

In short, competition was apparently rife. Yet still our financial system came close to collapse. Is this not telling us, in the clearest possible terms, that competition is not the issue?

What people like Mr Bischoff do not appear to recognise is that competition comes in many forms, not all of them good. The real reason for the expansion in UK Financial services in recent decades, as has now been laid bare to a far bigger audience, has nothing to do, as Bischoff’s report suggests, with the UK’s reputation for ‘competence, responsibility and trustworthiness’, and everything to do with having made the UK environment ‘competitive’ - for which read making the UK a home for easy credit, big bonuses and low tax rates. In an age of free-flowing capital, labour and information, and at a time when we talk global in so many other ways it is really an affront to people’s intelligence for representatives of our industry to claim otherwise.

Here, in simple terms, is an example of how Bischoff-style competition works in today’s Financial Services industry:

1) In each of the World’s financial centres, promote the notion that to attract the best people you need to pay them large salaries and incentivise them with large bonuses

2) Hope that at least one of them subscribes to that view

3) When they do, use the fact to convince the others that they risk a flight of talent if they do not follow suit

Quite what degree of fairness this brand of competition might deliver ought to be apparent even without the knowledge that some of its greatest proponents have just brought our industry - and with it the World economy - to its knees.

Most observers who don’t have a vested interest has long since recognised that some sectors of the Financial Services industry have been transgressing the boundaries of fairness in their over-zealous pursuit of short term profit for years. Yet the Bischoff report offers no proposals for market reform, no initiatives to clip the wings of volatile financial markets and has little to say about the causes of the present crisis.

For Mr Bischoff and his fellow disciples know only one language. Given the contribution it makes to sustainable global development and the greater good, it might as well be Welsh. In fact, outside the bubble of their (and our) own industry it would probably be better for their (and our) reputation if it was Welsh.

It may be a bitter pill for many of us who have spent a good chunk of our working lives supporting it to swallow, but Financial Services will continue to be a pariah industry for as long as those who lead it continue to defend the indefensible. Which in turn will be for as long as people like Mr Bischoff are allowed to run it.

The industry needs a new generation of leaders who talk a language that the rest of the people in a changing world can empathise with. A generation that sees no problem with the principle of wealth creation, but understands that we need a rather more balanced definition of wealth. A definition of wealth that encompasses more than just the acquisition of material things for the simple reason that the World is running out of materials for us to acquire, and a definition of wealth that somehow places value on waking up each morning to survey something other than an environmental wasteland.

This generation will understand that what we need is far more global co-operation, not more global competition. This generation will see the moral vacuum behind big bonuses, because this generation will understand that the big problems of the developed world are not so much being addressed by a corpulent Financial Services industry as being compounded by it. This generation will understand that if people outside the Financial Services industry can do a good job without being paid a big bonus, so can those inside it.

At the heart of the debate about the future of Financial Services sits a basic question: do we want an industry, and thereby and economy, whose fortunes continue to be tied to the whims of people who are forever peddling their assets around the globe in search of the lowest tax rate and the softest opportunity to make a short term profit, or do we want to rebuild it around longer term objectives more closely aligned to pursuit of the common good?

The Bischoff report provides an unambiguous answer to that question - but unfortunately not a progressive one.

In the long run our industry, like our Profession and our society, faces a choice: adapt or die. In which respect the sooner it can rid itself of dogmatic dinosaurs like Mr Bischoff and his ilk, the better.

The Profession’s Role

What questions does this raise about the Profession’s role?

Well, as considering that question forms a large part of the subject matter of this paper I will not explore that in any great detail now. I will, though, make some general observations.

Over the years I have come to appreciate that my own brand of plain English is not particularly well suited to the Profession I chose to join. Having read the opening few pages of this paper you may well have reached the same conclusion rather more quickly. However, notwithstanding my limitations as an exponent, and recognising that diplomacy undoubtedly has its place, when I look at the challenges that now confront us and I reflect on the place to which the Profession’s own brand of discourse has brought us, I remain convinced that a fundamental change in approach is needed. Diplomacy of course has its place, but only in benign times is diplomacy on its own an effective agent of progress, and for the Actuarial Profession benign times are now consigned to its past.

To illustrate the point, here are some observations that you will not hear made by the Profession: the Bischoff report is misguided; a significant fraction of the City’s activity is socially useless; Capitalism is failing us; the increasing degree of polarisation in the distribution of wealth is undermining the stability of our society; without a change in direction our society is heading for a big fall; the reputation of the Financial Services industry is being destroyed by its bonus culture; our present economic model is unsustainable; our financial markets are no longer fit for purpose; as a Profession we should have spotted and highlighted the financial risks that precipitated the banking crisis.

I could go on, but you get the gist. There are a number of such provocations in these pages, which may help to explain the reception this paper received at the Institute (hence its external publication). For ours, it seems, is a Profession whose moral backbone is never more exercised than when being contorted to keep its head below the parapet of contentious debate.

The Profession might also struggle to admit that it was not just banks and the global economy that had a bad year in 2008. That it was also a bad year for the Actuarial Profession may not have registered in the consciousness of many, but that is only because the Profession itself does not register in the consciousness of many.