May 22, 2009

WolframAlpha Actuary Wages

The new search engine WolframAlpha, is really a big hit for actuaries and mathematicians. Just fill in a formula like x^2 sin(x) and enjoy what WolframAlpha makes of it....

Some typical handy features for actuaries and other finance whizkids are available.
Just click on the next links to see what WolframAlpha makes of the word:

Click this video to learn more about the use of WolframAlpha.

Let's conclude with an interesting example. Here's what WolframAlpha makes of the word "actuary":

May 16, 2009

Actuary Thyl Ulenspiegel?

Anyone with a little mother wit knows one plus one equals exactly two, not more, not less.

Smart people, like the historic Thyl Ulenspiegel, made a profession out of counting. Every time bystanders gave Thyl the choice between a rix-dollar (a 'two and a half dollar' coin) or 2 dollars coins, he opted for the 2 dollars.

"Two is more than one", Thyl - clearly not an actuary - used to say. People felt pity for 'poor Thyl Ulenspiegel'. That someone like him could be that stupid!


Modern Counting
Today (2009) little has changed. Modern gurus made us believe that, through M&A's, synergy, cooperation, in or outsourcing, the whole becomes greater than the sum of the parts. One plus one could easily equal three or even more.

However, research has shown that the majority of mergers and acquisitions fail. Hindsight shows that one plus one doesn't add up to three, but only to one point five, or in some cases even to zero. Cause? Synergy benefits and future market are extremely overestimated and cultural differences, despite continued 'slippery warnings', remain underestimated.

Shareholders and management of an acquired company cash their future notional profit surplus, that -at first - appears in the balance sheet as 'goodwill' and than subsequently, over the years, becomes visible as a loss in the P&L.

However there are other modern counters - not actuaries - that can even do better, as will be illustrated next.

Some youth memories never fade..
As a young boy I discovered an unstamped stamp in the attic of our house.

The stamp was worth 50 billion Deutsche Mark, dated 1923.

Completely overwhelmed I tumbled down the stairs to report my parents we'd become billionaires.

A few minutes later, completely disillusioned, I'd learned a new word: Hyperinflation.


Hyperinflation
The hyperinflation back in the twenties of the the last century is only a trifle of the current (hyper) credit inflation:

U.S. $ 1.000.000.000.000

A trillion dollars, the Fed 'invests' in buying up debt. By coincidence this equals the amount of money that Europe, the G20, will be pumping in the economy.

For all of 2009, the U.S. administration probably needs to borrow about $2 trillion. That money doesn't really exist, but that's no point of concern! The debt crisis is simply solved with more debt. What was not legitimate for the banks, is now legitimate for the 'bankruptcy proof government'. Frankly, my intuition really starts to falter now ...

Russian Credit Roulette
Modern Ulenspiegels, playing a variant of 'Russian Credit Roulette', have now left the roulette tables. With borrowed money, doubling their bet for five consecutive times in a row, they bet and lost on 'credit red'.

Instead of taking their loss, the government has taken their place at the table and decided to double the bet on red for the sixth time in a row, now playing for a trillion dollars.

All of this under enhanced risk management, governance and supervision of course.

To get a really confident feeling: the probability of consecutive six times black seems both rational and intuitive almost impossible, but is in any case less than the "safe" smaller 2.5% ruin probability (2.5% probability of insolvency) of a pension fund. Some people state there's light at the end of the 'financial crisis' tunnel.

Now let's hope this light is no oncoming train and roulette tables turn out to have a memory after all.

Maybe it's time actuaries get involved in government finance....

May 8, 2009

Live Piracy Map

According to IMB Piracy attacks almost doubled in 2009 first quarter.

Pirating in the Gulf of Aden, transit way for a third of the world's commerce, set a record of 120 attacks in 2008. Estimates of ransom payments vary and are estimated at around $40 million last year.

Attacks, and ransoms, in 2009 are on a pace to top those records. In his column "Insurance companies' piracy policies can be a double-edged sword", David Greising -business columnist for the Chicago Tribune - states:

  • In the business world, risks create opportunities, so you shouldn't be surprised to know that the scourge of piracy on the high seas has led to a nifty innovation: pirate insurance.
  • Chicago-based Aon Corp. and other companies have begun offering policies to guard against the loss of ships, cargo or crews to pirates.
  • If shippers become more willing to make ransom payments because they'll have insurance to cover losses, it may only add to the economic booty that tempts Somalis into piracy in the first place.
  • One of the lasting lessons of the piracy epidemic is how some of the world's most powerful naval forces have been almost powerless against speedboat-driving outlaws from one of the world's broken-down states. It will be tough to solve the piracy problem so long as anarchy and economic deprivation persist in Somalia.

Nevertheless piracy insurance business is high profitable for companies like AON. So profitable that according to Workers World there are some pirates who don’t use firearms to seize vessels on the high seas.

Some even go further than that


IMB
The ICC International Maritime Bureau (IMB) is a specialised division of the International Chamber Of Commerce (ICC). The IMB is a non-profit making organisation to act as a focal point in the fight against all types of maritime crime and malpractice. IMB’s main task is to protect the integrity of international trade by seeking out fraud and malpractice.

IMB Live Piracy Map 2009
This map shows all the piracy and armed robbery incidents reported to the IMB Piracy Reporting Centre during 2009.
red-dot = Actual Attack yellow-dot = Attempted Attack purple-dot = Suspicious vessel

Sources: International Maritime Bureau,
Live Piracy Report, Piracy Map 2008, Piracy Map 2007

Any comment on where to find more information about the actuarial modeling of pirate risks (Kidnap and ransom insurance) and/or insurance quoting would be welcome.