Over the last 10 years, in centres surrounding the United Kingdom, a cross-border insurance industry has been developing — an industry which is exporting British expertise in life assurance and investment products on a large scale to a world-wide market.

The industry is offshore life assurance. The purpose of this paper is principally to outline what this industry is and why it exists.

The particular financial management and operational management issues resulting from this activity are highlighted and explored in subsequent sections. The paper concludes with an assessment of market trends and future development in what is a very young, dynamic and highly competitive market.

The theoretical basis for, and practical application of, the discounted income method for valuing UK pension fund assets is discussed, with particular reference to the widely adopted application to variable income (equity type) assets, as proposed by Day & McKelvey (1964), in the context of both the management and compliance objectives of pension fund valuation. An alternative methodology is proposed in which consistency with assets, liabilities, and market values is demanded, with smoothing of the valuation result achieved on an explicit rather than implicit basis. It is then demonstrated that the explicit smoothing parameter can be set so as to achieve the historic smoothness framework for establishing pension fund investment policy.

In conclusion the paper suggests greater emphasis on market-related methodologies for compliance valuations and leaves open the choice of methodology for management valuations and monitoring purposes, on the grounds that there is a large subjective element in any realistic basis. However, it is demonstrated that while smoother than unadjusted market-related methods, other aspects of the dynamics of the funding level under the method of Day & McKelvey can be perverse and it is suggested that this method should not be allowed to dictate investment decisions.

1 This short paper has been prepared to draw the attention of members to the more actuarial aspects of the Pensions Bill, and, it is hoped, it will assist in focusing and stimulating discussion on these issues.

2 Although the Bill runs to over 150 pages, it is largely a paving document, giving powers to the Secretary of State for Social Security to regulate, in detail, as he sees fit. It, therefore, represents another step in the development of policy, rather than a fully definitive statement.