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Looking Back...
On the Future
Have we learnt from life’s mistakes?
he year is 2049 and Mervin wakes to his final day as Chief
T Actuary of ATM Life (formed in 2035 through the merger
of three large life insurers in the Australian market). By
no coincidence, today is also Merv’s 75th birthday. In response
to the failure of successive Governments’ policies to address the
ageing of Australia’s population, by lifting the qualifying age for the
aged pension, it is now compulsory for all white collar self-funded
retirees to work until the age of 75.
Merv smiles as he turns on his computer and runs his daily
valuation report. He sets his model point programs running
and contemplates his 50 year career. As the program starts its
extractions from the mainframe, Merv curses the fact that despite
them being over 40 years old, ATM Life never managed to upgrade
its systems, never mind the umpteen legacy products crying out to
be upgraded. Over his time within the life insurance industry, Merv
has noticed that product development comes in waves and cycles,
with three separate blocks of participating business of differing
styles, decades apart, causing endless headaches.
Merv thinks back to the global financial crisis of 2008-2013 which
created a deep global recession, the effects of which were still
seen decades later. The reluctance of US banks to deleverage their
toxic assets led to a more protracted recession there than in other
parts of the developed world. This, coupled with escalating levels
of US Government debt on the back of multiple fiscal stimulus
packages; a failure to address spiralling public health expenditure;
and a lack of willingness to increase taxes, led to the US being
ejected from the G20 in 2023 and assured China’s ascendance to
dominate the global economy.
In Australia, unemployment rocketed past 15% in 2013, with GDP
growth bottoming out at negative 3% in 2011. Off the back of this,
the equity markets continued to tumble until the ASX200 dipped
just below 1,000. It took another 10 years before the index would
reach a new high.
A C TU A RY ! 5 3 4 2 ! , ) ! s July 2009
Regulation around the world changed significantly as a result of
the credit crunch. This was complemented by the establishment of
the international Body for the Oversight of Systemically Significant
Institutions (BOSSI) in 2015.
Unfortunately, over time the industry forgot about its mistakes of
the beginning of the century. This, coupled with a preoccupation
amongst policymakers on issues relating to systemic risk over
issues relating to moral hazard, meant that in 2026 the world’s
largest bank collapsed under the strain of trillions of dollars of toxic
assets, leading to a global downturn that became known as GFC2.
Having reached highs of 20,000, the ASX200 found itself heading
dramatically south and by the middle of 2027 had dropped back
below 6,000, wiping out the superannuation savings of millions of
people.
In the life insurance industry, changes over the period had also
been significant. The year 2013 saw the abolition of commissions
following major mis-selling scandals that hit the industry hard
in 2011. A number of life companies went out of business as a
result. ATM Life refused to pay commission and only worked with
advisers who charged a fee for their advice. This initially caused
problems, but their extensive “Get the Right Advice!” advertising
campaign paid dividends for them in the end. It took just a few
more years before commissions were abolished globally.
ATM Life also made the brave decision in 2015 to introduce
variable annuities with a number of in-built guarantees. Merv
spent a large amount of time, and ATM Life’s money, in building a
complex hedging program to cover these guarantees. A number
of other companies followed until they became the most popular
investment product in the market. Disaster struck as a result of
GFC2, when the hedging programs failed and many companies
made large losses due to a sudden sharp increase in the volatility
of the investment markets. Soon after, sales of variable annuities
were phased out, joining the long list of tried and failed legacy
 5

products in Australia. If only the Australian industry had taken note

of the lessons learnt overseas.

Reflecting the numerous operational risk debacles over the 2040s,

the risk team at ATM Life is the largest in the country with 150
people, including 50 actuaries.

Over the past 50 years, the actuarial profession has moved on

“ in 2026 the world’s largest bank
collapsed under the strain of
trillions of dollars of toxic assets,
leading to a global downturn that

considerably. Having spent decades promoting themselves as the
experts in all areas of risk management, in 2049 actuaries found
themselves with a key role in all corporations across Australia. All
companies must now have an Appointed Risk Actuary to certify
that all aspects of risk are being addressed and well managed by
the company. Looking back, Merv is not so sure that this is a good
thing, especially with regard to the numerous charges laid by the
corporate regulator in 2030 against actuaries who failed to foresee
the impacts of GFC2.
The underinsurance problem was deemed to be solved in the late
2030s thanks largely to a major communications crusade led by
the actuarial profession to educate the general public about the
need to have adequate insurance cover. There were a number of
sometimes shocking advertisements which played upon people’s
fears about the possibility of the family breadwinner dying, leaving
the family with a financial and emotional burden. Product design
had to be changed, and yearly renewable term products were
replaced by guaranteed regular premium products. ATM Life led
the way in this area. Regular surveys now reveal that more than
95% of the Australian population have sufficient cover.
”
became known as GFC2
company would have survived. ATM Life, thanks to its prudent risk
management policies, was one of the lucky ones.
Five hours later, as the results of today’s valuation are finally in,
Merv turns his mind back to the present day. Looking at the output,
Merv wished he was policy owner number 63111798, ATM’s one
remaining participating traditional (phase 2) policyholder. Due to
vastly understating the policy owner retained profits over the last
20 years, this policy owner is left with a bonus pool of $500 million,
and his guaranteed benefits are only $500,000. While ATM Life
fought with BOSSI to get this released to the shareholders, their
request was ultimately denied.
Thanks to the re-introduction of annuities in the Australian market,
Merv has been able to purchase an index-linked lifetime annuity
with his $20 million retirement package. He is looking forward to
a long and healthy retirement – expecting to live to at least 120,
thanks to the major genetic medical advances of the 2020s. ▲

Actuarial education is now truly global and has a much stronger Matthew Wood
focus on risk management and communication skills. In fact, an matthewwood50@yahoo.co.uk
intensive one year university course devoted to communication
skills is now mandatory for all those wishing to call themselves Disclaimer: Opinions expressed in this
actuaries. Complete Risk Management (CRM) comprises most of article do not necessarily represent those of
the rest of the training. his employer, The Institute of Actuaries of
Australia, its officers, employees and agents,
Actuaries got heavily involved in the climate change debate and or the Actuary Australia Editorial Committee.
for many years did a lot of work in this area.
Nevertheless, around 2019 it became evident
that the scientists had got it wrong and that
the earth was actually cooling slightly. Soon,
few actuaries would admit to having been
involved at all.

The bovine flu pandemic of 2033-2034 wiped

out a quarter of the world’s population. It
came in a number of waves, each one worse
than the last. 90% of life companies and all
but one reinsurer survived the huge strain.
Thankfully, the regulators had strengthened
the solvency requirements to contain a
large margin for pandemics, otherwise no

AC TU ARY ! 5 3 4 2 ! , ) ! s July 2009