No life has been written of the original projector of the Equitable Society, except in a column of the Biographie Universelle by M. Nicollet. Dodson's name was, and even still is, so familiar to the actuary, chiefly through the Mathematical Repository, and the impulse he gave to life-contingency problems, that this Journal is the proper place of deposit for what can be collected concerning him. The article above mentioned tells very little. He succeeded Hodgson [which should have been Robertson] in the chair of mathematics at Christchurch Hospital in 1756 [1755] and died November 23, 1757. He published the Antilogarithmic Canon, which others had contemplated [and executed too, but the manuscript was lost] and which he had the courage to execute up to a certain point [his table is the counterpart of Vlacq's largest direct table: five figures of argument and eleven of tabular result]. He could not balance the success of the ordinary tables: the writer doubts whether the table was ever used on the continent [he might have added, England: who uses either Vlacq or Dodson? Their tables are for help to other table-makers, and always were, though both of them intended more]. He published, the Calculator in 1747, a collection of tables at the end of which [say in the proper place in the middle] is an abridgment of the antilogarithmic table. But he is best known in England by his Mathematical Repository, and by his zeal for benevolent institutions [say his determination to found an assurance office to which himself should be admissible].

1.1. Profits are essential to the economic viability and indeed the survival of any enterprise. Life assurance companies are no exception whether they be mutual or proprietary, Unless profit—or as it is often termed, surplus—is available for distribution to shareholders and/or policyholders, the reasonable expectations of shareholders or policyholders will not be met: nor will the office be able to accumulate and maintain adequate contingency funds.

1.2. The word profit will be used synonymously with surplus throughout this paper. Profit is defined as the excess during any period of income over outgo, where outgo includes the necessary increase in valuation reserves.

I have on various occasions stated that, in my opinion, the graphic method is the best one to employ in graduating a mortality table; and I have more than once had it in contemplation to explain fully the grounds for this opinion, describing the advantages of the graphic method, and the objections I see to the use of some other methods which are commonly employed. In order to do this satisfactorily, it is clearly essential to give a graduation of some mortality observations; and my attention having been again drawn to the subject by reading Mr. Higham's brief, but extremely interesting and suggestive paper, On the Graduation of Mortality Tables (J.I.A. xxv, 15), in which he speaks unfavourably of the graphic method, I think that an examination of his reasoning and results will furnish me with the most suitable opportunity I could have for stating my views on the whole subject.

It is proposed to discuss the actuarial problems associated with the management of long-term sickness and invalidity benefits. The emphasis is on benefits provided by social security schemes (with particular reference to National Insurance benefit in the UK), but the main points are relevant to private sector benefits including permanent health insurance (PHI).

The plan of the paper is as follows. We describe in Section 2 the nature of long-term invalidity benefit provided by the British social security system and then consider in Section 3 the problems associated with defining disability. A discussion of the differences between the incidence of morbidity and the making of an insurance claim leads to consideration of selection and moral hazard (Section 4). We then examine in Section 5 the methodology for analysing costs and estimating future costs with particular reference to the development within the Government Actuary's Department (GAD) of a model based on an incidence and survivorship approach to invalidity benefit and the debate aroused by CMI Report No. 7 on the same topic5. The paper then presents an analysis of recent trends in disability claim rates (Section 6) and incidence and termination rates (Sections 7 and 8) based on invalidity benefit within the British social security system, as well as PHI and the experience of other countries. Attempts are then made in Section 9 to explain these trends and the upward trend in financial costs for disability benefits experienced by many social security systems. The paper concludes with an examination of two areas of current interest, viz. sex differences in morbidity rates and claim rates (Section 10) and the relationship between claim rates and the prevailing level of unemployment (Section 11).

The intention of this paper is to describe, by way of example, how profit testing is carried on in practice and how by making it central to the company's operation the company may be controlled. The mechanism of control is to test the company's results against the results of profit tests built into a model of the company. We shall also describe how the results of these tests of the company's results are fed back into the profit tests to establish the basis for future tests of the company's results.

The motivation for this paper arose from the need to communicate to shareholders the links between profit testing and the company's actual results. It is all very well to say to shareholders that the products satisfy a certain profitability standard but how does that show itself and how real is that profitability paticularly for a new or expanding company which displays nothing but statutory losses or, at best, break even? This communication also led to the need to explain variations from the original projections and finally to answer the question: what happens to profitability if these variances continue?

The following notes deal with methods which, although they have been used in various forms for some time, derive special interest from the consideration of the Assurance Companies Act by a Committee appointed by the Board of Trade. In view of the appointment of this Committee, the Council of the Institute felt that a general study of the Act should be made from the point of view of the Actuary, and, in due course, it put forward, among other recommendations, suggestions for improving and simplifying the Schedules. With trifling exceptions, of which, we understand, the particular point under review was not one, there was unanimity among the members of the Council present on the occasions when the Schedules were discussed.

There has been some discussion in recent years of how best to distribute to with-profit policyholders the benefits which have been derived from investment in equity shares. Normally the practical problem which confronts an office is how to adapt its existing bonus system to distribute these benefits fairly and most of the discussion has been on this problem (as, for example, in the paper by Benz, ‘Some Notes on Bonus Distributions by Life Offices,’ J.I.A. 86, 1).

This paper contains an update to the first international comparative study of mortality tables carried out in 2006. It examines the mortality assumptions used in the valuation of pension liabilities in a number of different countries. The results are considered in relation to the underlying population mortality rates, in order to isolate the strength of the mortality assumptions being applied. It is found that there is evidence of a lack of consistency between countries, and that this has not changed since the previous study.

Edmond Halley, who was born in 1656 and died in 1742, is well known generally because of the Comet which bears his name. He is not, however, associated to any great extent with other activities and if it were not for the Comet it is likely that most people today would never even have heard of him. Outside the actuarial profession, and perhaps to some extent even within it, it is not generally known that in 1693 he constructed a life table from the bills of mortality in the German city of Breslau and then went on to calculate from that table annuity rates on one, two and three lives. Reference to this was formerly included in the introduction to the Year Book, but this has now been shortened and the reference to Halley has disappeared.

1.1. This paper is based on the report of a working party set up by the Institute Research Committee and which met for two years from December 1972. The original objectives of the working party were:

(a) to identify current philosophies of bonus distribution in a fund with a high equity content.

(b) to review the methods used for valuing assets and liabilities and the inter-relationship between the respective methods; and to consider the effect of the current philosophies of bonus distribution on those methods.

(c) to investigate methods of valuing assets and liabilities and to carry out research into methods appropriate to modern conditions.

1.2. The working party was not satisfied that it had satisfactorily achieved its objectives but, nevertheless, felt that it should report the progress it had made. The full report is available from the Institute Library together with synopses of some forty papers that were considered relevant. This paper omits the two sections of the report which reviewed current methods of valuation for publication of assets and liabilities and expands other sections in the light of recent events.

Several methods of graduation depend on linear operators–that is, operators of the type …+λ−nE−n+‥+λ0+…+λnEn+… Few attempts have been made to compare these methods, and there is no general theory. There is need for such a theory, for it is easy to show that unless some relation is assumed to hold between neighbouring graduated rates, there is no justification for graduating at all. Any such theory must explain this relation, which cannot be of the simple type that leads to curve fitting.

The paper has two objects : to compare and judge these methods, and to devise a general theory applying to them all.

The first approach is by the classical method–separate examination of fidelity and smoothness.

1.1.1 The Bonus and Valuation Research Group of the Faculty of Actuaries began the work which eventually led to this paper towards the end of 1991. About this time there was considerable speculation that levels of maturity payouts on with profits policies might be significantly in excess of the level that could be justified by the actual investment earnings underlying the policies. The initial aims of the research group were to:

(a) examine this claim;

(b) consider to what extent overpayment, if any, could be explained by the smoothing methods that might have been used by offices; and

(c) examine the practical consequences of continuing to adopt those smoothing methods.

The Presidential Address gives a broad overview of the development of the actuarial profession's role in its principle areas of activity. Actuaries play important roles in life insurance and pensions, but there are some major new challenges facing the profession in these areas. General insurance has been slow to develop, but is now likely to be the fastest growing part of the profession with a steadily expanding role. Finance and investment also offer major fields where actuaries could be more influential. With continuing growth expected in the number of qualified actuaries, it will also be important to move into wider fields. The new President challenges the profession to give proper priority to the public interest and to ensure that actuaries are worthy of the trust which is placed in them.

A major outcome of ERM activities in insurance companies has been the bringing together of all of the key risks in the company, to be managed collectively in a holistic fashion. The authors of this paper believe that an ERM framework also needs to look beyond the company, and have regard to the risk management needs of investors, from the point of view of the contribution of the insurance company to the overall risk and reward of their total investment portfolios. To meet these needs, the ERM framework needs to provide sufficient information on topics such as systematic risk, potential correlations of earnings from future new business with macroeconomic trends, other risks to franchise value, and sources of model risk within the company. The paper does not provide solutions for the issues described above; but limits itself to describing and discussing the direction for some important new initiatives in ERM activities.

(1) In a paper read before the Institute in November 1933 (J.I.A. Vol. LXV, p. 38), Mr C. D. Rich showed how to calculate the inherent rate of growth of a population by combining in a single index the current data regarding mortality and fertility. Valuable though this index is in showing the true underlying trend at a particular point of time, it cannot be adapted (nor is it intended) to show the actual future populations at any particular time.

(2) It is the purpose of the present paper to make estimates of the population of Great Britain, according to age and sex, for certain future years, and in order to do this an attempt is made to forecast the probable future course of mortality and fertility in Great Britain, in the light of the experience of the past, and such indications as there may be regarding the factors which will influence the future.

1.1 The background to the production of this paper is somewhat involved, but is necessary for an understanding of why it contains what it does. Readers who are familiar with recent developments in the valuation field may proceed straight to Section 2.

1.2 Statutory valuations of long-term insurance business under the Insurance Companies Act 1982 (‘the Act’, which superseded the 1974 and 1981 Acts) and the Insurance Companies Regulations 1981 (‘the current Regulations’) have now been prepared by actuaries for some years. Similarly the guidance issued by the profession to Appointed Actuaries, specifically GN1 and GN8, has also remained substantially unchanged over that period. The time was opportune for valuation practice to be reviewed in the light of recent experience.

The Registrar-General's Decennial Supplement 1921—England and Wales—Part I, recently published, is of more than usual interest. It embodies the Report of the Government Actuary, Sir Alfred Watson, who was invited to undertake the task of preparing National Life Tables in connection with the Census of 1921.

In addition to the preparation of English Life Tables No. 9 for Males and Females separately, the only other tables prepared with similar completeness were those relating to Greater London, being the area comprised within the radius of about fifteen miles measured from Charing Cross. On the other hand, the mortality experience of no fewer than twenty-six sections of the country, differentiated by geographical position and density of population, was examined in considerable detail—a feature which, together with others referred to later, distinguishes this investigation from its predecessors.

IFRS 17 Insurance Contracts is a new accounting standard currently expected to come into force on 1 January 2023. It supersedes IFRS 4 Insurance Contracts. IFRS 17 establishes key principles that entities must apply in all aspects of the accounting of insurance contracts. In doing so, the Standard aims to increase the usefulness, comparability, transparency and quality of financial statements.

A fundamental concept introduced by IFRS 17 is the contractual service margin (CSM). This represents the unearned profit that an entity expects to earn as it provides services. However, as a principles-based standard, IFRS 17 results in entities having to apply significant judgement when determining the inputs, assumptions and techniques it uses to determine the CSM at each reporting period.

In general, the Standard resolves broad categories of mismatches which arise under IFRS 4. Notable examples include mismatches between assets recorded at current market value and liabilities calculated using fixed discount rates as well as inconsistencies in the timing of profit recognition over the duration of an insurance contract. However, there are requirements of IFRS 17 that may create economic or accounting mismatches of its own. For example, new mismatches could arise between the measurement of underlying contracts and the corresponding reinsurance held. Additionally, mismatches can still arise between the measurement of liabilities and the assets that support the liabilities.

This paper explores the technical, operational and commercial issues that arise across these and other areas focusing on the CSM. As a standard that is still very much in its infancy, and for which wider consensus on topics is yet to be achieved, this paper aims to provide readers with a deeper understanding of the issues and opportunities that accompany it.

Common to all previous studies assessing the cost of adverse selection associated with genetics has been the assumption of an established market, i.e., the adverse selectors have been buying insurance at that rate for such a period that premiums have already absorbed it. Their analyses involve calculating the percentage difference between premiums in a market with adverse selection and one without adverse selection. They can shed no light on how the premiums would get to this stage over time and what losses might be incurred in the process. We take the modelling further by outlining a multiple state Markov model for a start-up market of long-term care insurance. With this model, we explicitly show the progression of adverse selection costs using the development of information that an insurer would gain from analysing the claims history of its existing business, to reprice premiums for new business. To overcome the complication of insurance benefit amounts, which depend on the value of previous benefit payments, we develop a simulation approach of estimating the expected present values of insurance benefits and premium payments. In applying our modelling to a UK setting, we find genetic testing of the apolipoprotein E gene (whose variants can cause a high risk of developing dementia) to be of a relatively small impact compared with our hypothetical state of intermediate dementia progression. Furthermore, we find that the government’s cap on care costs has little effect on adverse selection costs as it benefits only a small proportion of people.