Social security pension schemes around the world are facing a number of problems, of which demographic ageing is the most commonly discussed. This paper provides an overview of expected future demographic developments in European Union and some other OECD countries, and evaluates some of the range of solutions which have been, or are being, considered to address this and other problems facing social security in the late 1990s, drawing on examples from OECD countries, from Latin America and from central and eastern Europe. Consideration is given to the possibilities for increasing the level of funding in social security pension schemes or developing funded complementary pension schemes.

This paper is largely based on a Ph.D. thesis (Coutts (1983)) and provides an actuarial approach to the technical aspects of motor insurance premium rating, where equal weights are given to both the practical and statistical elements of the problem. The methods described are applicable to the competitive United Kingdom motor insurance premium market. However, it is also contended that in countries where motor rating tariffs are in operation, the analyses proposed are still necessary for management to judge where in the portfolio the business is potentially unprofitable.

This paper has its origins in the authors' thoughts on the paper presented to the Institute by G. Heywood and M. Lander in 1961 under the title Pension Fund Valuations in Modern Conditions (J.I.A. 87, 314). Little claim for originality is made for the present paper: rather is it an attempt to consider in greater detail some of the problems raised by Heywood and Lander. We would also refer to the paper by C. E. Puckridge (J.I.A. 74,1) which, although we would not agree with some of its details, set out for the first time, in our opinion, some of the basic principles.

This paper considers the impact that the current trend towards fair valuation of assets and liabilities is likely to have on risk measurement and management practices within the financial services industry. The paper analyses the different sorts of risks faced by organisations such as asset managers, pension funds, banks and insurers, and seeks to identify how their approach to the measurement and management of these sorts of risks might change as fair valuation becomes more entrenched. It argues that what it describes as traditional ‘time series’ based risk measurement is likely to be progressively displaced over time by a greater emphasis on what the paper refers to as ‘derivative pricing’ (or ‘fair value’ or ‘market consistent’) based risk modelling. It comments on the trend towards liability driven investment. The paper focuses on ‘financial’ risks (market, credit, liquidity and, more generally, asset/liability risk) rather than ‘operational’ risks, whilst noting that the dividing line between the two can be open to interpretation. Insurance risk is seen as in some respects straddling both camps.

1. This paper originated with a sense of irritation at the way in which the graduation of age rates of mortality has become more and more complicated by the apparent determination to assume some underlying law of mortality, a law which could not possibly be deduced from observations in the past or present man-made conditions of dangerous living. It then developed into a consideration of graduation from a less frequently adopted point of view, i.e. a look at the distribution of lengths of life (the so-called curve of deaths). This led inevitably to a review of the long-pursued controversy as to whether or not there is a predetermined biological maximum to the human lifespan under ideal conditions and beyond that to a review of the biological evidence for this maximum and the possibility of extension by environmental or medical intervention. Finally, this led to the likely results of such environmental and medical advances and to some experiments in mortality projection.

In this paper a system for recommending investment channel choices to members of defined contribution retirement funds is proposed. The system is interactive, using a member's answers to a series of questions to derive a utility function. The observed values are interpolated by means of appropriate formulae to produce a smooth utility function over the whole positive range of benefits at retirement. The resulting function, together with stochastic models of the returns on the available channels and of the annuity factor at exit, is then used to recommend an optimum apportionment of the member's investment. The proposed system is applied to the observed values of utility functions of post-retirement income elicited from members of retirement funds. Difficulties in the application are discussed and the results are analysed. The sensitivity of the recommendations to the parameters of the stochastic model is discussed.

This paper puts the case for the Actuarial Profession revising and tightening its standards on actuarial funding advice in relation to United Kingdom occupational pension schemes. We critique current actuarial practice and advocate principles for measuring solvency and providing funding advice. In particular, we advocate that funding targets should be clearly and unambiguously related to scheme solvency. The paper also covers optimal investment strategy, treatment of the ‘company covenant’ when giving funding advice and governance issues relating to pension schemes.

Gompertz's Function for expressing the probability of a person surviving anygiven period, x, is . For thepurpose of adapting this expression to the entire period of adult life Ihave added the factor ∈−ax. The two expressionsbecome identical in form when the factor∈−δx representing the effect of discount is introduced, and both may therefore becorrectly designated by the name of “Gompertz's Function.”

This paper surveys some statistical models of survival data. Competing risks models are described; the unidentifiability of net decrements suggests a sceptical approach to the use of underlying single decrement tables. Approaches based on observations of complete lifetimes (with censoring) are surveyed including the Kaplan-Meier and Nelson-Aalen estimates. Regression models for lifetimes depending on covariates are discussed, in particular the Cox model and partial likelihood estimation.

This paper extends the concept of investment efficiency from investment management structures to include strategic asset allocation and liability related issues. The concept of risk budgeting is developed. It represents a valuable way of incorporating risk and return information to produce more efficient investment decisions. Information ratio is a key measurement in the process, and it is concluded that the risk budget should be allocated based upon the marginal contribution to it for different sources of risk. Non-financial risk is also considered in terms of both governance and risk.

In 1970 the Association Royale des Actuaires Belges celebrated the 75th anniversary of its foundation. To mark the occasion, the Association had in the previous year invited papers to be submitted on two subjects, one of which was ‘Determination of the heterogeneity of the classes of risks’, and the paper which follows this introductory note was one of those submitted on this subject. The paper deals exclusively with motor insurance, in which the study of heterogeneity must be regarded as being of major importance, and discusses both the measurement of heterogeneity and the relationship between heterogeneity and methods of experience rating such as the no claim discount (NCD) systems used in the United Kingdom.

1. These notes were written after Scott's Faculty paper “A Reserve Basis for Maturity Guarantees in Unit-Linked Life Assurance”, discussed on 17th January 1977, but before Corby's Institute note “Reserves for Maturity Guarantees Under Unit-Linked Policies”, discussed on 28th March 1977; they are a kind of extended written contribution to the first paper.

The Decennial Supplement on Occupational Mortality published in 1978 commented on mortality differences between the social classes (Chapter 8) using data from the 1971 Census and the deaths in the period 1970–72. The analysis was based on life tables prepared for the individual social classes from which derived indices, for example expectations of life, were calculated. It is proposed here to repeat this exercise using the data for males recently published in microfiche form by the Office of Population Censuses and Surveys—OPCS. This time, the Decennial Supplement has omitted to provide an analysis and commentary and we propose to make some attempt to remedy this deficiency. In our analysis, the Decennial Supplement data have been supplemented by data from the OPCS Longitudinal Study.

The development of sickness insurance of the type dealt with in this paper has been a long process, commencing in a tentative fashion, probably a century ago, in Europe. In 1900, E. Hamza, at that time actuary of a Russian insurance company, contributed to the Third International Congress a paper of interesting historical significance which is clearly based on long experience in Germany. In his paper he developed an approach fundamentally different from the traditional British approach. British methods—which can be described with complete adequacy at this stage as a continuation of Friendly Society actuarial technique—have stood the test of time for at least 150 years and it is the purpose of this paper to analyse the two lines of development; to pose the question of their efficacy in the future; and to outline alternative methods depending on modern mathematical techniques.

1.1 In March 1987 the Futures Committee of the Institute considered a preliminary report (Daykin, 1987) on the possible impact of AIDS in the United Kingdom and the consequences for life insurance. The Committee recommended the setting up of a Working Party to study the problem. The Working Party on AIDS was accordingly established, under the auspices of the Research Committee. The authors of this paper formed the membership of the Working Party, under the chairmanship of C. D. Daykin.

The paper traces the history of the development of a with-profit system for a specialist unit-linked office. The marketing problem, to which this was the chosen solution, is discussed and a number of possible future developments are then considered. The second half of the paper is devoted to discussion of the question of matching assets and liabilities for the range of products developed. Although the paper deals with developments in a particular office the authors' intention is to provide a different perspective on the problems associated with conventional with-profit business which will be of more general interest.

The purpose of this paper is to discuss the actuarial principles on which the investment policy of life assurance offices should be founded. The policy considered relates, firstly, to the principles on which the selection of investments should be made and secondly, to the basis of their subsequent valuation.

A Dread Disease contract pays out a lump sum on the diagnosis of any of a number of specified diseases. Those most commonly covered are heart attack, coronary artery disease requiring surgery, cancer and stroke. The benefit can take either of two main forms—it may provide an acceleration of all or part of any death benefit or it may be an additional benefit. It can be sold in conjunction with many conventional products or as a stand-alone policy.

Dread Disease contracts were originally developed in South Africa in the early 1980's, although cancer riders had previously been sold in the U.S.A., Japan and Israel. To some extent the marketing of these contracts was insensitive and preyed on people's fears in a distasteful way. This may explain some initial reluctance amongst U.K. insurers to enter this market; however with marketing literature now emphasizing more positive aspects, this appears to have been overcome.