David Kirk is a partner at KPMG running the national actuarial consulting practice. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, Solvency II and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation. Apart from his work in South Africa, he has been involved in significant insurance projects in the Middle East and China.
David began his career at Tillinghast – Towers Perrin in 2002 where his work experience included embedded value work in life insurance and reinsurance, life insurance appraisal value calculations, stochastic guarantee pricing, and building and reviewing economic scenario generators. He worked in both the London and Cape Town offices, gaining exposure to the insurance markets, products and regulatory environments in South Africa, the UK and Europe.
David then headed up the Johannesburg actuarial practice for PricewaterhouseCoopers as a partner with core responsibilities around life insurance, general insurance, financial and risk management and business development.
David is an active member of the ASSA’s Life Assurance Committee and Embedded Value subcommittee, chairs the Micro-insurance Committee and chairs the Technical Provisions Task Group as part of the Financial Services Board’s Solvency Assessment and Management (SAM) Project. He has lectured parts of undergraduate and postgraduate courses at the University of Cape Town, the University of Stellenbosch and the Lebanese University. He is an assessor and instructor for the Institute of Actuaries Business Awareness Module.
David is a Fellow of the Institute of Actuaries (FIA) and a Fellow of the Actuarial Society of South Africa. He holds a B.Bus.Sci degree in actuarial science and finance from the University of Cape Town, is CFA Charterholder, a Chartered Alternative Investment Analyst (CAIA) and a Certified Professional Risk Manager (PRM).
URL shorteners are handy when space is limited, but each one adds another fatal point of failure. To make the point, if I want you to read about New Business Margin on Revenue. And by the way you should because it’s an important newish concept, the link will work provided your internet connection is working, the relevant DNS is working and my server is running.
Let’s look at an extreme alternative:
First shorten link at http://goo.gl/ gets to http://goo.gl/TpJHG
Then take http://goo.gl/TpJHG and shorten at https://bitly.com to get http://bit.ly/17zpwir
Then http://tr.im/ gets http://tr.im/42hfd
Then TinyURL gets http://tinyurl.com/bnqfylu
Interestingly, is.gd didn’t want to shorten the link. TinyURL has a longish URK, but does have the awesome ability to provide your own shortened URL like http://tinyurl.com/NBMR-shorten
I’m not provide embedded links for all of those because it’s a bit silly. But you can see when you click on the last link as it backtracks through each of the shorteners before arriving at the destination. Each step is the chance for catastrophic failure.
So please don’t use link shorteners in ordinary web content. It’s not necessary and makes the internet increasingly fragile.
KPMG has been awarded the FSB SAM Economic Impact Assessment project. This is a perfect opportunity to combine our insurance, actuarial, capital market and economics skills to deliver on a critical project for the insurance industry and FSB.
We still need to fine-tune scope with the FSB and the Economic Impact Task Team, but we’ll be covering some of these issues:
Expected impact on capital requirements, capital ratios and free capital for insurerrs
Resultant scenarios around capital raising, consolidation and what this means for new entrants
The once-off and BAU expenses of SAM compliance, what this does to returns to policyholders and shareholders.
Impact on capital markets (especially equity investments, government bonds, swaps, corporate paper, sources of capital issued by insurers) and interaction with banks in this space.
Impacts on reinsurers, then extending to interactions with other service providers and competing industries
Likely responses and actions by insures in response to this changed environment
Potential broader economic impacts on employment and economic activity arising from these changes to an important part of the financial services industry.
There’s fairly obviously a fair amount of subjectivity in all of this and we don’t expect to have everyone happy with the conclusions, but we are going to perform a rigorous analysis of the possibilities and will be engaging with a wide range of stakeholders in forming our views.
So I may need to revisit my prediction about Bitcoin irrelevance. While they’re still an awful idea as a currency, they’ve had more attention this year than last.
To reiterate the point about how awful they are as a currency, let’s take the price movement over the last few days.
From the peak (yes, I am taking the worst case scenario to illustrate the point) of $236 closing 6 days ago to a recent trade today of $57, taking that as 7 days of change in price, that means the prices of everything measured in Bitcoins has increased by an annualised 15707854302953800000000000000000000%
So yes, not great for a currency. Although the real risk is of a currency destined to be ongoing deflation. Deflation will encourage hoarding, which will encourage price spikes (massive deflation) then profit-taking (crashg implying hyperinflation). So it looks like not only is ongoing deflation a problem, but massive intrinsic instability.
The exchange is insolvent. It seems like the operator didn’t separate member money from its own money and then spent it. This basically makes it a ponzi scheme. It can keep operating as long as it keeps operating. There are sufficient member balances that it still has positive cash. As soon as it accounts for these liabilities to members, it is insolvent.
So, members are offered the chance to agree to a voluntary reduction in their claim and/or conversion to long-term investment. If nobody agrees, the exchange will be liquidated and everyone loses out and any inherent value in the exchange disappears. If enough agree, then those who don’t agree get to withdraw their full funds.
Under this argument, the incentive is for each member to be selfish. Let’s see why.
There are two scenarios – enough accept the terms, too few accept the terms.
If too few accept the terms, the payout is the same whether you agreed to accept the terms or not. So that won’t affect the decision. If there are enough who accept the terms, those who declined will get paid out in full. The only way it makes sense or an individual to accept the terms is if the value of accepting the terms is greater than 100% of their account balance. This might be the case if they were converted to an equity value in the business and believed in its ongoing sustainability, but seems pretty unlikely.
The equity value has been massively damaged by the damage to brand value of the exchange. Outside parties or existing members wishing to take an equity stake need to consider carefully the extent of brand damage already and the $700,000 shortfall needed to restore solvency let alone any capital for future operations and investment.
Statistics and sampling are fundamental to almost all of our understanding of the world. The world is too big to measure directly. Measuring representative samples is a way to understand the entire picture.
Popular and academic literature are both full of examples of poor sample selection resulting in flawed conclusions about the population. Some of the most famous examples relied on sampling from telephone books (in the days when phone books still mattered and only relatively wealthy people had telephones) resulting in skewed samples.
This post is not about bias in sample selection but rather the simpler matter of sample sizes.
Population size is usually irrelevant to sample size
I’ve read too often the quote: “Your sample was only 60 people from a population of 100,000. That’s not statistically relevant.” Which is of course plain wrong and frustratingly wide-spread.
Required Sample Size is dictated by:
How accurate one needs the estimate to be
The standard deviation of the population
The homogeneity of the population
Only in exceptional circumstances does population size matter at all. To demonstrate this, consider the graph of the standard error of the mean estimate as the sample size increases for a population of 1,000 with a standard deviation of the members of the population of 25.
Standard Error as Sample Size increases for population of 1,000
The standard error drops very quickly at first, then decreases very gradually thereafter even for a large sample of 100. Let’s see how this compares to a larger population of 10,000. Continue reading →
Bitcoins are an awful idea as a currency. The 21m fixed limitation on bitcoins in a hopefully growing economy requires deflationary prices. Deflationary prices in turn discourage consumption and encourage hoarding. Low consumption and hoarding lead to low economic growth, a decreased velocity of money and more deflation.
But what about Bitcoins as an interesting speculative investment? With prices surges recently some could have made serious money. With the inevitable crash, brave souls may make money shorting Bitcoins. (but “markets can remain irrational longer than you can remain solveny” etc.)
But, the Bitcoin supporters say, if there is a 21m ultimate final supply, won’t increasing demand lead to increasing prices? Won’t this become a type of collectors’ item?
Here we run firmly into the absolute lack of intrinsic value for Bitcoins. Gold is a limited, non-corroding, shiny, vaguely useful in electronics element. It also barely has intrinsic value but at least it is truly unique.
What’s to stop someone investing Bacon Flavoured Bitcoins with a maximum supply of 21m (or any other number). A new version of Bitcoins for when the original or “Classic Bitcoins” are so tightly in demand that there is obviously demand for more of the same or similar. We could also have cheese flavoured, bubble-gum flavoured or, my personal favourite, Dutch Tulip flavoured Bitcoins.
Artificial scarcity is not true scarcity and near substitutes can be created at will.
Bitcoins will not remain above USD100 by end 2013.