1. FOR FAVOUR OF POSTING
Public Lecture
Value of Actuary for Management:
Effective Communication &
Investment Know-how
by Mr. C.F. YAM, B.Sc. M.Sc. FSA CFPCM
Regional General Manager, Insurance
Commonwealth Bank Group, IFS North Asia
October 21, 2010 (Thursday)
7:00 p.m. - 8:00 p.m.
Rayson Huang Theatre(黃麗松講堂), HKU
Tea Reception at 6:30 p.m.
About the speaker
C.F. Yam is Regional General Manager, Insurance of CommBank Management Consulting, a member of
the Commonwealth Bank of Australia Group (CBA). C.F. is a qualified actuary with extensive experience in
life, health and general insurance, as well as investment and pension practices. C.F. has held positions as
chief financial officer and appointed actuary for both traditional life insurer and bancassurers; and has
structured asset strategies for life and pension funds. Apart from financial and actuarial roles, C.F. has also
run operations, group insurance and pension businesses, including third party pension administration
business for major financial institutions in Hong Kong.
C.F. was President of the Actuarial Society of Hong Kong in 1997 and has spoken in various actuarial confer-
ences organized by the world professional bodies.
Graduated with a First Class Honour degree in Bachelor of Science from the University of Hong Kong, C.F.
was awarded a Master of Science degree with Distinction by the University of Lancaster in England. He is
also a Fellow of the Society of Actuaries of the U.S., as well as a Certified Financial Planner.
Abstract
In this talk, C.F. Yam will give a brief summary on the financial management regime for the life insurance
industry. He will share his views on how actuaries may add value in this operating environment. With the
effects of ageing population and customer needs for financial guarantees, actuaries may need to further
their practical skills to serve the potentially huge annuity market. Use of influential power will become
critical for the success of actuaries.
For online registration, please go to http://www.hku.hk/statistics/seminar/20101021.html
Attendance certificates available to registered participants upon request
for the Continuing Professional Development (CPD) Requirements.
Visitors please note that the University has limited parking space.
If you are driving, please call the Department at 2859 2466 for parking arrangement.
Department of Statistics & Actuarial Science
All interested are welcome
The University of Hong Kong 統 計 及 精 算 學 系
ENQUIRY: 2857 8312, saas@hku.hk

2. Value of Actuary for Management :
Effective Communication Investment Know-how
University of Hong Kong
21 October 2010
C. F. Yam
Regional General Manager, Insurance
Commonwealth Bank Group, IFS North Asia

3. Discussions
 Actuarial Education
 Developments in Life Insurance
 Business Value Added
 Financial Markets
 Delivery of End Products
 Art of Communication
 Actuarial Leadership
 Implications on Professional Development
 Closing Remarks
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4. Actuarial Education
Life
Life Principles ;
Insurance Pricing
Pricing
Insurance
Commutation Laws Regulations ;
Commutation
Factor
Factor
Tax
Annuities Financial
Financial
Annuities
Reporting
Reporting
Life
Actuarial
Actuarial Life
Contingency
Contingency
Pensions
Pensions Investment
Investment
Survival
Survival
Model
Model
General
General Risk
Risk
Insurance
Insurance Management
Management
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5. Developments in Life Insurance
Traditional Current Trend
Term Insurance Annuities
Products Whole of Life Variable Annuities
Distribution Agency Bancassurance
Local GAAPs IFRS4 (Phase 2)
Formulae-based Solvency II
Financial Reporting
Traditional Market Consistent
Embedded Value Embedded Value
Modeling Approach Deterministic Stochastic
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6. Business Value Added
 Actuarial Challenge : Management often regards
Actuaries as Theoretical not Practical
 For Actuaries, what the word “Practical” could easily mean:-
 Actuarial Pricing;
 Sophisticated Financial Modeling;
 Producing financial figures reconciling financial reports to
comply with Laws Standards;
 Risk Management (or/ Risk avoidance in what form?)
 For Management, “Practical” has the connotation of Business Value
Added
 Business Value Added : Delivery of End Products by Actuaries ??
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7. Financial Markets
Insurance Bank/Investment Bank
Whole of Life Bonds
Variable Annuities Put/Call Options
Solvency I/II Basel II/III
Dollar Averaging Hedging
Risk Management Focus :
Financial Risks (ALM, Asset Risks)
Reputation Risk
Operational Risk
Insurance Risks
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8. Delivery of End Products (e.g. Variable Annuity)
 Typical Financial Risk Management for the product, if VA management
not outsourced :-
Asset Liability
Security Investment   Risk Management
Static Hedging  Trading  Pricing
Financial
Desks / Asset ALM
Dynamic Hedging  Models  Valuation
Management
Static Dynamic Hedging  Arm   Financial Reporting
Capital Management (Naked)   Capital Planning
 Writing a VA is equivalent to a Short Put. Short Put creates Negative
Gamma for the non-linear exposure of the underlying security.
 Dynamic hedging for a Negative Gamma position leads to Gamma
Loss.
 The sum of Gamma Losses, till Expiration, is the actual cost of the
option (before transaction costs).
 Volatility, however, is not constant (per Black-Scholes). Delta hedging
will be off without incorporating the effect of Volatility Surface.
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9. Delivery of End Products (e.g. Variable Annuity)
 Technically, we can use (e.g.)
• Jump-Diffusion Models
• Regime-Switching Models
• Stochastic Volatility Models
for modeling purposes to value the implications.
 If Delta-Gamma hedging, plus Vega hedging, what are the product price
implications!
 Continuous dynamic hedging (including use of static or higher degree
hedges) will incur transaction costs.
 Presence of transaction costs and market being incomplete (as
relevant hedge vehicles may not be available even we can model them
out), which leads to many possible views for proper product
management.
 What is the role of actuaries in VA products!
 Where Actuarial leadership lies!
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10. Art of Communication
Actuarial Communication
Science Art
Logical No Right or Wrong
Mathematical Wordy or Pictorial
Complex Simple
Conditional (Assumptions based) Direct Clear
Deal with Numbers Deal with People
Objective Subjective
(depending on Communicator’s
background, position, thinking, etc)
Professional Layman
(maybe with different background)
Analytical May involve Feeling
Brain Quadrant : Blue Brain Quadrant : Red
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11. Art of Communication
(1) Business Value
=
Max (  Different Skills Covariance of Skill Interactions)
(2) Effective Communication

Max (  Covariance of Skill Interactions)
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12. Actuarial Leadership
Traditional Current Trend
Rule Based Environment Principle Based Environment
Modeling Skills Influential Skills
Calculator Informative
Conservative Margins Dealing with Uncertainties
Commoditizing Processes Managing Abstracts
Unique Expertise Work with other Financial Experts
Static Risk Management Skills Dynamic Risk Management Skills
Work on Blue Skills Develop with Red Skills
Move from Number Crunching to Effective Communication
Move from Financial Reporting to Selling /Convincing
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13. Actuarial Leadership
 Today’s environment (the margins are pretty thin) often
provides only a tiny space for feasible business solutions.
How to provide real Business Value Added by Actuaries in
today’s complex and competitive environment?
 Business Value Added = Effective Communication
 Financial Risk (Concentrated) Insurance Risk
(Diversified), thus Risk Management naturally leans
towards financial risk management
 How to stay as an expert on Risk Management (The answer
lies on Ownership!)
 Risk Management (by Actuary) with no in-depth knowledge
on investment practices (???) may no longer be relevant in
a dynamic risk management environment
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14. Implications on Professional Development
 Actuarial Training on investment management driven ALM is likely
become crucial for actuaries to maintain the state of the art in Risk
Management
 ALM may mean Liability Driven Asset Strategy (if passive) or
Option management (if active)
 Option management (rho, delta, gamma vega) versus Traditional dollar
averaging or constant proportion concepts (for rho delta management)
 Stochastic (on Stochastic) simulations would reflect that financial risks
are naturally non-linear. So choice of using capital (passive) or hedging
techniques (active) to address Volatility (ALM)?
 Gamma Vega management are key in option management, how to link
them into actuarial work
 Capital markets using Risk Neutral Models (pricing with a risk adjusted
rate) versus Insurers using Real World Models (using empirical data to
simulate). What implications ?
 With further integration between insurance and capital markets, what
implications to actuaries on product pricing and delivery?
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15. Closing Remarks
 What are the Effects of
 Ageing Population (Higher Annuity Needs versus Life Protection)
 Customer Needs (Product Delivery = providing Financial Guarantee/Peace
of Mind)
on the Insurance Industry (where most actuaries housed) (?)
 What Role of “Actuary” should take in Product Cycle/Risk
Management (?)
 Who should be responsible for the proper delivery of the on-going
Product Promises – Product Marketing/Product Actuarial; Appointed
Actuary; CFO; Asset Manager; ALM Risk Manager; Hedging Desk; or
by CEO/Board via Risk Management Framework(?)
 Who has the authority with regards to Ownership/Choices/Delivery of
Risk Parameters (Financial Risks versus Business Risks) in the whole
Risk Management Framework (?)
 The likely answer may fall in the Use of Influential Power by Actuaries
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16. Closing Remarks
Use of Influential Power by Actuaries:-
 Appreciate real life problems are getting much complex than text book
cases
 Critical thinking to tackle ill-defined situations and problems
 Ability to understand wider financial market practices for easy
communication
 Able to communicate using recipient's language
 Listen to feedback and appreciate recipients having different
experiences, thus views beliefs
 Appreciate that Risk is abstract and is in the eyes of beholders
 Leadership skills against odds
 At the end of the day, Influencing is soft selling, so you must need to
know what you sell, why you sell it, what line you will stand for, what
objections you would face, how you would handle them and get the
buy-in
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17. Thank You
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