The Working Party has produced this report in order to prompt readers to engage at an early stage in InsurTech projects, through considering (i) the full range of risks associated with InsurTech developments, (ii) the lifecycle of an InsurTech venture and how any risk considerations may vary over this lifecycle and (iii) the extent to which InsurTech ventures align with risk strategy and risk appetite.

The report contains practical guidance for actuaries, risk professionals, insurance companies and their Boards on these considerations, and can be used to facilitate appropriate questioning, to help ensure that InsurTech-related business decisions are fully cognisant of the risk management issues and to help ensure the success of projects.

The Working Party developed this guidance having carried out an industry survey on a number of risk management topics relating to InsurTech, as well as having carried out interviews with a number of relevant senior stakeholders across the insurance industry, in order to better understand current sentiment and how risk management plays a part when considering opportunities in InsurTech. The Working Party views on the findings from these activities are summarised in the report.

Effective management of uncertainty can lead to better, more informed decisions. However, many decision makers and their advisers do not always face up to uncertainty, in part because there is little constructive guidance or tools available to help. This paper outlines six Uncertainty Principles to manage uncertainty.

• Face up to uncertainty

• Deconstruct the problem

• Don’t be fooled (un/intentional biases)

• Models can be helpful, but also dangerous

• Think about adaptability and resilience

• Bring people with you

1.1 This paper owes its existence on two counts to the late Jim Souness whose term of office as President of the Faculty coincided with the bulk of our research. Firstly, as President, he encouraged Faculty research groups to be active and to produce material worthy of sessional papers. More directly it was the late President who funnelled our general investigations of life office management (which had continued after the Group's 1987 sessional paper) towards the issue of demutualisation.

There have been several notable demutualisations of life offices in recent years, yet there is little published research in the UK other than case studies into the actuarial issues which these restructurings raise for the profession. Furthermore much of what has been published pertains to overseas regimes not subject to UK-style regulation. However at the time of writing we are aware that another paper (reference 20) was being written concurrently, and it relates specifically to the UK.

1.1. This paper is intended as a tribute to a man who died at the age of 49 just over 200 years ago having made material contributions to what is now regarded as actuarial science, as well as to many other branches of science, but whose work has largely been overlooked.

1.2. Johann Heinrich Lambert was born in Mulhouse, Alsace on 26 August 1728 and died in Berlin on 25 September 1777. He was largely self-taught, having had to leave school at the age of 12 to help his father in his tailor's shop. At the age of 20 he became tutor to the children of a noble Swiss family; this ended 10 years later when he had taken the children on an educational tour of Europe during which he was able to meet eminent scientists of the time and go to lectures at universities and learned societies. Eventually, in 1765, he obtained a post at the Royal Academy of Sciences in Berlin where he stayed until his death.

The question of the effect of duplicate policies on the variance of the number of deaths in a mortality experience based on policies (not lives) has been discussed in two recent papers (Seal [1947] and Beard and Perks [1949]). The second of these papers shows that this variance depends on the sampling process envisaged and gives formulae for the variance under four such processes. It is the purpose of this paper to consider some practical aspects of the treatment of duplicates in a mortality experience.

Investment strategy is often static, punctuated by infrequent reviews. For most long-term investors, this practice results in large risks being taken that could otherwise be managed with a more dynamic investment policy. The bulk of this paper is aimed at analysing and describing two multi-period investment strategy problems — in order to derive potential dynamic strategies. Along the way, we show how static investment strategies can fail to deliver an investor's long-term objectives and describe the relationship of our work to other areas of the finance literature. This paper does not cover trading strategies such as Tactical Asset Allocation.

This paper sets out two main approaches to the multi-period problem. The first approach optimises a utility function. The second approach uses partial differential equation (PDE) technology to optimise a target statistic (in this case, TailVaR) subject to return and long-only constraints.

This paper reviews some principles surrounding the reporting of realistic profits for life assurance companies and reports on the methods used in the United States of America and in Australia. Mention is also made of the valuation method adopted in South Africa.

This paper was written by the Derivatives Working Party, a permanent working party of the Life Research Committee of the Institute and Faculty of Actuaries. Our aim is to consider how life assurers may use, or may wish to use, derivatives, and if their use is unduly constrained, e.g. by regulation. This paper focuses on credit derivatives. We provide an overview of the credit derivatives market, and the strong growth in this market over recent years. We then focus on the two main traded credit derivative instruments — Credit Default Swaps (CDSs) and Collateralised Debt Obligations (CDOs). We explain how these instruments work and are priced, and clarify some of the more complex topics involved, such as the settlement of CDSs, basis risk and the relevance of implied correlation in pricing CDOs. We then consider how life insurers could make use of credit derivatives, for example to provide more efficient investment management in taking exposure to credit risk, or to hedge credit exposures, and consider the regulatory implications of so doing. Finally, in the Appendix, we discuss the credit spread puzzle, and the existence or otherwise of a liquidity premium in corporate bond spreads, with implications for the valuation of illiquid liabilities.

This Presidential Address highlights the national problem of inadequate savings for retirement by the current working population. It examines what can be done to restore confidence in long-term savings and, in particular, looks at the contribution that individual actuaries and the Actuarial Profession can make. The Address also examines the origins in the current shortfalls in final salary pension schemes and the lessons to be learned from recent events, before going on to comment on the lessons from the report on Equitable Life by Lord Penrose.

The paper takes as its basis the mortality aspect of population projections with particular reference to this aspect of the report by the Royal Commission on Population (Cmd. 7695), and the Reports and Selected Papers of the Statistics Committee published as Volume II of the Papers of the Royal Commission.

The alternative assumptions regarding future mortality adopted by the Statistics Committee for use in their published population projections and the effects of the assumptions on those projections are discussed. The paper considers also the generation approach, the ultimate irreducible level of mortality approach, and remarks are made on the analysis of mortality according to cause of death. Further, general consideration is given to a number of factors the precise extent of the influence of which on future mortality is unknown, to demonstrate the insufficiency of a single forecast of mortality when dealing with the problem of population projections.

The conclusion is arrived at that neither of the mortality assumptions adopted by the Statistics Committee was at the time an extreme assumption, but that from considerations of the mortality aspect alone this Committee extended their projections too far into the future. The opinion is reached also that a method which makes some allowance for a generational influence would have been a suitable alternative to the declining mortality method adopted, for obtaining a not extremely light estimate of future mortality. The ultimate irreducible level of mortality approach is concluded to be impracticable at the present time, although the view is formed that the results of analyses of deaths according to cause of death should be of value when considering future population mortality.

Although detailed proofs of certain of the more elegant fundamental properties of splines are sometimes non-trivial, the basic underlying ideas are very simple indeed. With a modern computer it is easy to implement the methods described in this paper. Many computer libraries will include optimisation and spline subroutines which can be combined conveniently for this purpose. (For example, several of the calculations in this paper were carried out with the aid of NAG library facilities.)

Perhaps I owe to the Institute an apology for bringing forward so late in the day this second part of my paper. When first I resolved to enter on the investigation of which I have now the honor to submit a second series of results, the ground, at least in so far as the experience of the 20 Offices was concerned, was practically unoccupied; for although Mr. Sprague had written on the mortality prevailing among assured lives, yet, as he had not touched on financial matters, I conceived that there remained ample room for another worker. It was only when I was on the point of sending in the part of my paper which has already been printed in the Journal, that I heard of Mr. Berridge's labours; and not till the other day, when the calculations for this second part were all but finished, did I become aware that Mr. Sprague intended to deal with the question of the premiums for the insurance of recently selected lives. Had I known that these gentlemen were engaged very similarly to myself, I should probably have been deterred from my task: but seeing that in ignorance of their movements it has been completed, perhaps the results will not be considered valueless.