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The 3 rd Younger Members Convention. 29-30 November 2004, The Chesford Grange Hotel, Kenilworth. Can Actuaries Save the World?. Keith Lawrence Nautilus Consultants www.nautilus-consultants.co.uk. Laurie campbell photography. The solution?. “University offers \'Swampy\' degrees

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The 3rd Younger Members Convention

29-30 November 2004, The Chesford Grange Hotel, Kenilworth

Can Actuaries Save the World?

Keith Lawrence

Nautilus Consultants

www.nautilus-consultants.co.uk

the solution
The solution?

“University offers \'Swampy\' degrees

A Scottish university is offering courses in how to be an eco-warrior.

Students will learn the arts of environmental activism such as chaining themselves to trees, digging tunnels and launching campaigns.”

www.ananova.com

what s it all got to do with actuaries
What’s it all got to do with actuaries?

… many environmental issues occur over the long-term, and are highly uncertain in nature

1. Impacts on insurance companies & pension funds

… e.g. climate change affects general insurance claims

2. Actuarial skills and tools are relevant

1 impacts on life insurance co s pension funds
1. Impacts on life insurance co.s & pension funds
  • CSR and brand
  • Ethical investment trend
    • Do greener companies perform better?
  • Climate change
  • Environmental liability insurance
  • The image of the profession
case study climate change
Case study: Climate Change
  • Average global temperature is already rising
    • 20th century was probably the warmest in the last 1,000 years
  • Rainfall patterns are changing
  • Sea levels are rising
  • Glaciers are retreating
  • Arctic sea-ice is thinning
  • Extreme weather is more common in some areas
climate change it s not all bad news
Climate Change: It’s not all bad news
  • Varies by sector
    • e.g. warmer summers means more tourists???
  • Some studies indicate overall economic benefit for USA
  • Opportunities for those who adapt first
    • Includes financial services sector
    • The Carbon Trust
  • Uncertain
  • Possibility of extreme climate change?
2 actuarial skills and tools are relevant
2. Actuarial skills and tools are relevant

My experience of moving from conventional actuarial work into the environmental field

Long-term issues

Uncertainty

a) Risk management

b) Option value

c) Portfolio management

a risk analysis management for projects ramp
a) Risk analysis & management for projects (RAMP)

identify risks

Flood defences?

Climate change?

analyse the likely consequences

identify mitigation strategies

control residual risks

b option value

Giant redwood forest

Timber

Tourism

b) Option Value

The value of having an option open to you

  • Cutting it down isirreversible … you lose the tourism option
  • Uncertaintyover future value of timber / tourism
  • Can modify the Black-Scholes model
b portfolio management
b) Portfolio Management

How to manage a portfolio of investments over time, to meet an objective.

Objective: Sustainable Development:

“Economic and social development that meets the needs of the current generation without undermining the ability of future generations to meet their own needs”The Brundtland Commission, 1987

Can think of 3 types of capital to manage:

  • Produced (conventional economic goods e.g. roads & buildings)
  • Natural (landscapes, ecosystems, habitats & species)
  • Human (a population who are healthy, educated, happy, …)
what can you do
What can YOU do?
  • Recycling
  • Efficient energy use
  • Be a thoughtful consumer
  • Lobby for better environmental practices in the workplace
  • IoA’s Environmental Research Group(Chairman Nick Silver … see IoA website)
  • Think:
    • How do environmental issues affect my industry?
    • Can we pre-empt these - first mover advantage?
    • Have brilliant ideas that will save the world!
conclusions
The world faces serious environmental issues: climate change, pollution, unsustainable use of natural resources ...
  • These issues impact on your industry:
    • Climate change general insurance claims
    • Environmental liability insurance
    • Ethical investment
    • Image
Conclusions
  • Actuarial skills and tools could be valuable:
    • Long-term issues, uncertainty
conclusion can actuaries save the world
CAN take the lead in adapting to change

… and in assessing the impacts on your industry

CAN apply actuarial skills and tools to some environmental issues

Conclusion: Can actuaries save the world?

NO

thank you
Thank you
  • Keith Lawrence
  • Nautilus Consultants
  • www.nautilus-consultants.co.uk
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