THl INSTITUTl Of ACTUARUS Of AUSTRALIA A.C.N. 000 423 656 TRANSACTIONS 1990 ISSN 1033-0763 © 1992 The Institute of Actuaries of Australia John Findlay Morton Ross, FFA. AlA, FIAA President of the Institute of Actuaries of Australia THE I~STITUTE OF ACTUARIES OF AUSTRALIA Suite 1, 8th Floor, 49 market Street, Sydney. ~.s.w. 2000 (Tel: 02 264 2411) FOUNDED 1897 INCORPORATED 1963 COUNCIL & OFFICERS 1989-90 President JOHN FINDLAY MORTON ROSS, FFA, AIA (1987) Senior Vice President Vice President CATHERINE MARY PRIME, RODNEY JOHN ATFIELD, BSc, FIA (1988) FIA (1988) IMMEDIATE PAST PRESIDENT JOHN RONALD HUNTER, FFA, ASA (1985) Council ( 1989) GEOFFREY MICHAEL ATKINS, BA, FIA ( 1987) KENNETH ALFRED BOAG, FIA ( 1987) RONALD WILLIAM CHAMPION, FFA ( 1987) GEOFFREY ALAN DUNSFORD, FIA ( 1989) ROBERT GEORGE GLADING, FIA (1988) COLIN ROYCE GRENFELL, FIA ( 1989) JOHN KENT, FIA,ASA ( 1989) STEPHEN PAUL MILES, BA,FIA ( 1988) IAN ALFRED POLLARD, BA, MA, FIA ( 1987) DAVID JOHN SOLOMON, MA, FIA, ASA (1988) PETER LAURENCE VINSON, FIA ( 1989) CHRISTOPHER JOHN WHITE, FIA, ASA Secretary & Treasurer ALEXANDER CRAIG GINNANE, AAII, AFAIM, MAGS The year in brackets is the year of election to Council. CONTENTS Page Bulletin Index 1 Presidential Address - J.F.M. Ross, FFA,FIAA 3 Treatment of Tax on Investment Gains - G.A. Dunsford, FIAA,FIA,AAII 47 Buying and Selling Life Insurance Corripanies - S. Miles, BA,FIA,FIAA & T. Fraser 134 A Residential Property Index - M.D. Dwonczyk, BA,FIAA,ASA 231 Health Care in Australia - P.M. Carroll, BA,FIAA 277 Geronth Insurance - B.W. Walker, FIA,FSS,ASA,FIAA 326 Review of Life Insurance Act - Discussion Draft prepared by The Life Insurance Committee 418 The Actuarial Management of Conventional Life Insurance - D. Kerr, BA,FIA,FIAA,ASA Computer Systems for the Life Office Actuary - S. McGing, FIA,ASA,FIAA 528 Sex Differences in Morbidity in Australia - P.M. Carroll, BA,FIAA 656 BULLETIN 1990 701 COURT DECISIONS 701 ADMINISTRATIVE APPEALS TRIBUNAL DECISIONS 703 STATUTES 705 AUSTRALIAN PUBLICATIONS 1990 705 Aids Report No. 5 706 Review of Life Insurance Act - Submission to the Treasurer 719 Managing Volatility in Superannuation Funding - D. Balson, BSc,FIAA 782 Portfolio Control : Risk and Performance - D.A. Begg, BSc,FFA,FIAA 814 lltility, Benchmarks and Investment Objectives R ..~ . Lipman, FIA,FIAA 842 Behaviour of Various Funding Methods under Changing Conditions - cteL. Worthington, BA,FIAA 870 1990 Examinations 915 PRESIDENTIAL ADDRESS 3 PRESIDENT'S ADDRESS 1. INTRODUCTION 2. THE ACTUARY AND THE INSTITUTE 3. INSTITUTE COMMITTEE STRUCTURES 4. SUPERANNUATION STRUCTURES 5. LIGHT RELIEF - ALICE IN SUPERLAND 6. CONCLUSION John F.M. Ross, F.F.A., F.I.A.A. 4 PRESIDENTIAL ADDRESS 1. INTRODUCTION 1.1 As we move towards the nineties, this address is primarily forward looking - it points towards objectives for the Institute, proposes methods of reaching some of them and thus provides a vehicle for members of the profession to comment on, and thus to influence, both the objectives and the structures through which they might be attained. Before that, like any self-respecting actuary, I look back to consider briefly our sojourn in the eighties, to see what might be learned from that experience. 1.2 It is not unusual to find that two actuaries disagree on a matter of professional judgement, but it is disquieting to find that our Presidents of 1980 and 1981 could not even agree on the beginning of the decade. Allan Geddes, in 1980, said •• ••• Institute •• enters a decade in which it is destined to make some exciting advances." David Kimber found exhilaration in 1981 at the beginning of a new decade- "I •• subscribe to the view that the present decade began on 1st January, 1981 ••• " As I have no wish to arbitrate between two such eminent predecessors, I chose the first six words of paragraph 1.1 above with great care. 1.3 They were, of course, both correct in anticipating that the Institute would make giant strides in the eighties. In that time our examinations have become well-established, actuarial involvement in general insurance has become more and more significant, our new Code of Conduct has been introduced and has been well accepted, Professional standards have been issued for reports on life offices and on defined benefit superannuation schemes, as well as a note on professional practice in general insurance, submissions have been made to governments and commissions on actuarial matters, a compulsory professionalism course has been introduced and the standards of professional competence and behaviour of the Institute have been well maintained. We can reasonably take pride in the work that the profession has handled in the rapidly changing circumstances of the eighties. 1.4 The pace of change in the nineties will not lessen, though the experience of the eighties may provide a lesson through which we may be able to improve the PRESIDENTIAL ADDRESS results of the changes in the nineties, whatever they may be. {a) Nationally, we could concentrate on structure, not on detail. Governments in the eighties have tinkered endlessly with a poorly-built retirement incomes structure, but without attention to the foundations of the system their efforts simply add complexity to an unsound base. There is some hope that the life insurance changes proposed in the budget may lead to a better structure there. As for health insurance and workers' compensation, it is difficult to discern any structure at all. (b) As an Institute, we cannot forecast which areas of our activity will require most attention in the nineties. We can, however, ensure that our structure provides us with the capacity to react quickly and efficiently to the demands placed on it. Both these subjects are considered later in this address. 1.5 I should acknowledge here that I lay no claim to originality - the thoughts here have arisen from discussion with members of this Institute and of other actuarial bodies. It is one of the joys of membership of our close-knit profession that ideas are ·freely given and I am grateful to all those who have allowed me to benefit from their thoughts from the days of my initiation into the actuarial mysteries. 6 PI<ESlDE~TlAL ADDHESS 2. THE ACTUARY AND THE INSTITUTE The Actuary 2.1 Current conservation politics provide an analogy which helps to answer that question with which actuaries wrestle from the earliest days of their involvement in the profession - what is an actuary? 2.2 The definition of "conservation" used by the International Union for Conservation of Nature is:- "The management of human use of the biosphere (that part of the environment in which living organisms occur) so that it may yield the greatest sustainable benefit to present generations while maintaining its potential to meet the needs and aspirations of future generations.~~ 2.3 Clearly, the actuary is a financial greenie. The greenie is concerned with the preservation of our natural heritage of forest and mountain; the actuary is concerned with the preservation of our institutional heritage of financial forest and monetary mountains, represented by the insurance companies and superannuation funds which pass into his care from previous generati~ns. We all have a responsibility to enhance the heritage handed on by our fathers; actuaries have a particular obligation to hand on in their turn the financial institutions for which they have been trustee for a time. 2.4 The conservation of our financial institutions, like the conservation of our natural resources, requires the avoidance of the short term exploitation of assets built up over long periods in the past. It is only too easy to use for short term gain accumulated funds, or natural assets, generated over many years. Of course there are times when it is proper to use reserves to meet adverse circumstances, but it is not always easy to recognise as they occur the difference between temporary market pressures and long term changes in the environment. Whether assets are financial or natural, caution is needed in making major changes which affect them. However, conservation is not a passive process; it requires constant attention to the changes which are occurring with a frequency which is increasing as quickly in the financial environment as it is in the physical