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Class debate: Should life insurers be allowed to make genetic testing a requirement for underwriting purposes?

Today our class had a debate on whether or not genetic testing as an underwriting requirement should be allowed in the life insurance industry. I was on the team opposing this proposition and great fun was had by all. In fact, I wish we had more time to come up with even more sophisticated arguments. I know that in hindsight, there is always a better way to do things but my team was unable to provide a coherent answer for why asking about family history should be allowed but genetic testing not allowed and I have posted an answer here. Please note that I do this exercise to share what I feel I have learned from this experience, not to be contentious and NTAA provides the perfect platform for me to do this.

Some may ask what is the difference between genetic testing and asking about family history and I put forth the following answer. Both family history and a person’s genetic make-up give an indication to the probability of disease but a family history does not isolate the cause of the disease whereas in some cases, genetic testing can. However, family history does allow for the influence of external factors that affected those specific family members like lifestyle, environment, exposure to risks etc. So then if you’re looking to narrow the genetic root of the disease with no external factors then genetic testing is the way to go. However, our argument is that it is morally unfair to base premiums on personal characteristics that make up who we are out of one’s control. Both family history and the genes we are born with are out of a person’s control but, whereas family history influences who we are, genetic make-up is who are. Siblings share the same family history but we do not say they are the same person. A trivial example is that even even though I inherited my general hair colour from my parents (family history), the subtle textures and shades are inherently my own and form part of my composition. Furthermore, by our arguments, we shouldn’t discriminate by race which we don’t and even though, in South Africa, we discriminate insurance prices by gender I would argue that it is also morally unfair to do so. If we truly strive for gender equality, we cannot pick and choose what to make equal, all men and women must be afforded the same opportunities whether it is regarding salaries earned or premiums paid.


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Investment Strategy: We’re all Active Investors

This article is really just giving an alternative way of thinking about active vs passive. Kinda makes you wonder whether passive really exists.


This is a good piece by Rick Ferri on the myth of passive investing.  In essence, he notes that we’re all active investors.  It’s just that some of us are less active than others.  Rick veers towards the less active side and I mostly agree with him there.   He says:

“Then I realized, it’s not the actual process of portfolio management that determines if a strategy is passive or active; it’s the goal of the strategy that makes the difference.

A passive strategy attempts to track the market(s), even though it’s understood that market indexes are active themselves. It’s a passive strategy when an index mutual fund’s goal is to track the performance of a benchmark. It’s also passive when an investor selects a fixed allocation to low cost index funds and ETFs and trades these funds to closely maintain the target allocation.

In contrast, an active strategy exists when a fund manager knowingly and willingly attempts to beat a pre-designated benchmark. It’s also active management when an investor or adviser attempts to beat a blended benchmark of appropriately selected indexes. The success or failure of active strategy is always measured on a net-of-cost, risk-adjusted basis against its benchmark.

Pure passive investing does not exist, but that shouldn’t matter to passive investors. When the goal is to be the market rather than beat the market, that’s passive in my book.”

I phrase things a bit differently. When I work with clients at Orcam on designing a portfolio I always try to emphasize that they’re not even “investors”.  Technically, they’re savers and when you treat your portfolio as a “savings portfolio” and not an ”investment portfolio” you tend to align yourself with very different goals than the average “investor” who thinks they have to always beat the market or they’re a loser.

I always say that the two primaries goals of portfolio construction are protecting against purchasing power loss and the risk of permanent loss.  This does NOT mean you have to play the “beat the market” game.  It means you have to generate reasonable risk adjusted returns consistent with the two aforementioned goals.  That’s it.

And most importantly, we’re all active to some degree.  We all need to re-balance, dollar cost average, contribute new funds, reduce portfolio size, pay taxes, etc.  These are all active management techniques of some type. The only thing that’s a truly “passive” approach is a lump sum purchase of a broad aggregate and selling it when you die.  Of course, that has no practical application to our actual portfolios.  So the entire concept of “passive” investing is a nebulous concept sold by people who are trying to differentiate their business models from others.

Perhaps more importantly, most “indexing” strategies are really “indices of indices”.  That is, they’re taking slices of broader indexes and applying a specific allocation based on client needs or other models like Modern Portfolio Theory.  The thing is, none of these portfolios actually represent the passive aggregate of global financial assets.  No one can buy the aggregate of the world’s financial assets and hold it in a truly passive form because that index doesn’t exist.  Not to mention it might not be appropriate for everyone to hold such an allocation.  So when we’re buying “index” funds we’re all taking an index of indexes and allocating it in some manner.  This isn’t passive at all.  It’s a form of active investing that involves an implicit forecast, an explicit allocation choice and an explicit choice of certain index funds.  It might be more passive than day trading, but that is obvious to anyone who’s concerned with portfolios frictions, fees and inefficiencies.

The point is, no one owns a truly passive index nor can they nor should they necessarily.  I’m generally in favor of the concepts that stand behind “passive” investing, but it appears to me that this distinction between “active” and “passive” investing is largely a marketing pitch designed to create a misleading distinction.  We can understand the flaws of very active management approaches without portraying them as something they’re not.

The important point is, we are all implementing degrees of active management.  It’s important to understand that foundational point and then work to understand whether some approaches are optimal or not.


This article again by CULLEN ROCHE gives an interesting read once you’ve gotten the gist of his above views: