DNB report on Credit Crisis

As experienced actuaries you'll probably know that 'De Nederlandsche Bank' (DNB) is the Dutch supervisor on banks, pension funds, insurers and mutual funds.

Recently DNB reported about the effects of the credit crisis.

You may find the report in the recently published:

Statistical Bulletin March 2009

Main articles in this interesting bulletin discuss the following topics:

• Capital market financing more difficult and more expensive in 2008
• Dutch banks scaled down foreign activities
• Dutch pension funds fail in realizing indexation ambitions in 2009

The bulletin also includes a description of the fully revised statistics of investment funds.

Indexation
The Dutch save massively for their pensions. To supplement their future state old age pension, nearly 6 million employees save for a pension at a pension fund. At end-2007, over 2.5 million persons received a pension benefit.

These savings have accumulated into a collective nest egg of around EUR 575 billion, i.e. nearly EUR 80,000 per Dutch household (end-2008).

For many households, pension savings are by far their largest financial asset. As a result of the credit crisis, pension funds saw their financial position deteriorate. In 2008, the pension funds’ average nominal funding ratio dropped from 144% to 95%

Chart: Funding ratio.
Broken down by interest rate effect and return on equities

According to a survey among the largest 25 pension funds, the pension sector, too, is being impacted by the credit crisis.

Following catch-up indexation last year, pension benefits will probably be indexed on average at a mere 0.2% this year. This means a loss of purchasing power for pensioners, even though the price level has fallen since the summer of 2008. Many pension entitlements accrued by employees, too, are not being indexed.

In 2009, pension contributions will rise, especially those of employers with an independent company pension fund. Employees, too, will be paying higher contributions.

Interested? More info at DNB

SOURCE

Hoax Investment Management

You and I always wanted to believe that in banking or investing business, with an overdue of compliance and regulations, we could trust on management, based on highly ethical standards.

Geraint Anderson – a successful star analyst -makes an end to that believe.

Anderson was so outraged by the greed and lust of the Square Mile that he resigned from his immoral job.

After his resign he published a book - Cityboy - about the excesses and wrongdoings within London’s financial market.

Anderson truly believes the credit crunch is a direct result of short-term gambling and the bonus culture.

Investment Technique Examples

Now, as interested actuaries, let's dive a little deeper.

To 'level up your actuarial skills' and to 'open up your eyes', just two simple examples Geraint Anderson gives of the sick making list of secret modern investment techniques:

• Pump & Dump
  Manipulation of shares is chiefly done by small teams of hedge fund operators spreading false rumours. Day in, day out, you see the shares rise slightly. Rumours go round that a certain company will be taken over. These nasty little toerags work in little groups, on mobiles, and it’s very difficult to prove who started the rumour. The shares would go up by 30%. Then they would sell.
  
  
• Trash & Cash
  The opposite of Pump & dump – Trash & Cash – also happened quite a bit. You would spread false rumours that shares were going down. At which point the hedgies would “short” the shares, namely borrow them from, say, a pension fund, sell them, watch the rumour do its work and then buy them back.

The reason why these techniques are so nasty is that they lead to financial instability, according to Anderson.

Hoax marketing
The most frightening aspect is however that no matter how strong the design of a regulation or supervisory system, it can not prohibit the negative effects of the above mentioned hoax marketing techniques.

As our investment models become more and more sophisticated, it looks like 'informal market information' is the only option to get an outperformance and 'make the difference'. At least in case of a a 'short performer'.

Solution
The solution to this problem is therefore very simple:

Set out a long term investing strategy, so you don't have to worry about (short term) volatility and never ever act on rumours or incidental high risk opportunities in the marketplace.

As actuaries - for decades - we proved that we could manage the right side of the balance sheet long term. Now let's apply that same kind of advise and strategy on the left side of the balance sheet. Success!

SOURCE

Job Application Interview

Most actuaries don't have to apply for a job....

This apparent advantage could turn out to be a disadvantage later in our career, when we suffer from an 'application experience gap'.

Anyway... Do you recognize the flabbergasted feeling that occurs when, after a 'splendid' job interview, you come home with a positive feeling and the day after you are rejected?

Although you thought you performed well in the interview, somewhere, somehow, you missed the boat.

What went wrong?

Well, apart from the general pitfalls in a job interview and the trivial explanations of a rejection, most probably things went wrong due to lack of proper communication.

Probably, when you're having an interview, you'll take notes.
Because you're focused on getting the job, you're inclined to (only) write down the positive aspects of the job and the conversation.

This will definitely give you a biased view on the outcome of the interview. You simply miss or underestimate the minor or negative remarks in the interview.

How to solve this?



This is what you can do to get a more realistic idea about the outcome of the interview.

• Listen
  First of all, make sure you listen well.
  
  
• Take Notes
  Be careful not just to write down your personally important or spectacular issues (e.g salary, benefits, car, etc), but especially note (and write down!) small remarks, advices or 'used adjectives' of the interviewer.
  
  
• Split in Negatives and Positives
  Split your note paper in left and right, and put the positive issues (the Positives) on one side and the negative issues (the Negatives) on the other side.
  
  
• Manage the Negatives
  Make sure to write down every single negative issue or negative adjective, no matter how small. Don't ignore these Negatives. By questioning, make sure you understand them right and manage them one by one. If you're not able to get those negatives from the table or to put them in quarantine, they might kill you in the end without you realizing it. So:
  
  
  Manage the Negatives instead of counting the Positives
  
  
  
• Feedback
  At the end of the conversation ask for feedback and check by asking the interviewer to summarize your Positives and Negatives. If any Negatives are left, handle them with care right there.
  
  
• Don't fake
  Don't try to reason away negatives that are clear facts. If that would imply a rejection, be happy, because you are not qualified for this job and therefor wouldn't be happy in this job as well.

Evaluating an interview is not simply balancing Positives with Negatives. Even a single Negative can screw it up.

P/N-Method
Anyway, this Positives/Negatives Method is not only applicable in case of a job interview, but can be used in every "beauty parade", contract negotiation or proposal you try to defend.

Next time, with a positive attitude, keep your 'sixth sense' on the potential Negatives and manage them!