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.

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.

Parametric mortality models permit detailed analysis of risk factors for actuarial work. However, finite data volumes lead to uncertainty over parameter estimates, which in turn gives rise to mis-estimation risk of financial liabilities. Mis-estimation risk can be assessed on a run-off basis by valuing the liabilities with alternative parameter vectors consistent with the covariance matrix. This run-off approach is especially suitable for tasks like pricing portfolio transactions, such as bulk annuities, longevity swaps or reinsurance treaties. However, a run-off approach does not fully meet the requirements of regulatory regimes that view capital requirements through the prism of a finite horizon, such as Solvency II’s one-year approach. This paper presents a methodology for viewing mis-estimation risk over a fixed time frame, and results are given for a specimen portfolio. As expected, we find that time-limited mis-estimation capital requirements increase as the horizon is lengthened or the discount rate is reduced. However, we find that much of the so-called mis-estimation risk in a one-year value-at-risk assessment can actually be driven by idiosyncratic variation, rather than parameter uncertainty. This counter-intuitive result stems from trying to view a long-term risk through a short-term window. As a result, value-at-risk mis-estimation reserves are strongly correlated with idiosyncratic risk. We also find that parsimonious models tend to produce lower mis-estimation risk than less-parsimonious ones.

Recent changes made to the UK Corporate Governance Code require UK firms to report new or enhanced narrative information concerning their principal risks, their risk management processes and their future viability. This paper analyses whether the level and nature of voluntary compliance with these new requirements is consistent with alternative economic and political visibility incentives. We analyse relevant sections of financial reports produced by industry-matched samples of large-, mid- and small-cap UK-listed firms during the transitional 2013–2014 financial reporting years. Both specific and generic readability attributes of the reports are measured. We find that virtually no firm in our sample has provided any viability statement. Empirical analysis of disclosures concerning principal risk assessment and review processes appear to be primarily motivated by political visibility reasons. Examples of particularly good and cases of poor corporate risk reporting practices are also discussed. Possible implications for the actuarial profession are discussed.

The UK Pension Protection Fund (PPF) was established in April 2005 to protect the pensions of members of UK private sector defined benefit pension schemes which have insufficient assets and whose corporate sponsor fails. The Fund takes over the pension scheme assets and assumes responsibility for the payment of compensation to the former members of the scheme. The PPF is funded by a levy on the population of eligible schemes. This paper discusses the application of Enterprise Risk Management principles and techniques to the unique situation of the PPF. The elements of the financial management of the Fund have been developed by reference to practice within proprietary insurance institutions and within pension funds. The paper will be of interest and, we hope, of some value to students, researchers and analysts and also to the PPF's own stakeholder groups that have a stake in an effective pension protection regime.

For the last thirty years the teaching of statistics in universities in this country has been dominated by the relative frequency theory of probability, exemplified in Richard von Mises's book, Probability, Statistics and Truth. This statistical definition along the lines of the long run frequency concept of probability can be illustrated by asking what meaning is to be given to the statement ‘the probability of getting a head on a single toss of a penny is one half.’ The relative frequency adherent would answer something like ‘in a long sequence of repeated tosses, the proportion of outcomes that are heads is one half’. In the last ten years, however, an alternative approach has come to the fore, under the general title of the Bayesian Approach to Statistics. A Bayesian adherent would answer something along the lines that he would be ‘prepared to offer even money on getting a head on a single toss’.

1. The finances of life offices have been discussed by actuaries for more than a century and it seems entirely safe to predict that these discussions will continue into the future, with no diminution either of enthusiasm or of topics of general interest. The developing nature of many of these topics needs no emphasis, either from the viewpoint of changing external circumstances, or of the length of time which has elapsed since the first mention; for example, bonus reserve valuations were referred to in an Institute discussion nearly a century ago, investments in ordinary shares were mentioned before the close of the last century and variable assurances were touched upon over 30 years ago.

The Working Party has developed some practical hints and tips for those developing integrated risk management (IRM) plans for UK defined benefit pension schemes in the context of the requirements of the Pensions Regulator. Four case studies are presented to illustrate its conclusions, which are encapsulated in the ten commandments for effective IRM. IRM is the consideration of investment, funding and covenant issues, and how these interact. Its purpose should be to aid decision making and so should have a clear outcome in mind. It should be a continuous process and should form part of everyday trustee governance – it is not simply a one-off exercise. Whilst most Trustees and advisors consider funding issues when setting their investment strategy and vice versa, fewer fully integrate covenant into their decision-making process. However, covenant underpins all risk taken in a pension scheme and so needs to form a regular part of trustee discussions and analysis by advisors.

The paper reviews the mathematical models of transmission of infection that have been put forward for representing the spread of HIV infection and AIDS. It describes and compares the main models that have been proposed and thereby provides some guidance on how such models might be constructed and utilised. There is also discussion of the importance of constructing such mathematical models of transmission of infection which further our understanding of the transmission dynamics of the epidemic and help to identify important epidemiological parameters and their likely influence on the epidemic's course.

The two-fold purpose of this paper is:

(i) To hypothesize the existence of a Basic Curve of Deaths, a curve to which it is suggested all curves of deaths are, as it were, striving to attain—the ‘idea’ of a curve of deaths, almost in a Platonic sense, a curve applicable not only to humanity, but equally to all forms of life.

(ii) To seek a representation of that curve by a function containing as few parameters as possible, on the principle that while there are other functions which fit the observations more exactly, we here prefer a simple function which fits them well enough.

Unit-Linked life insurance can be simply defined as the application of unit trust principles to the ‘savings element’ of each premium paid and the application of insurance principles to the remaining ‘insurance element’ only. It has been appearing in various forms for some time now. In North America, it has been mainly of the variable annuity variety, commencing with CREF in approximately 1952. In the U.K. it has been mainly of the endowment assurance variety, commencing in approximately 1957 but not really making a big impact until 1962–63 when the unit trust groups first came on the scene. In Australia it has so far been limited to superannuation schemes with the so-called (by one life office) ‘E.F.G.’ approach the prime example, commencing in approximately 1965. In each country the position is the same—a remarkably favourable response from the public, particularly in the last few years, causing an urgent reassessment of previously held views, sometimes, unfortunately, most widely and eloquently recorded! There have also been legislative difficulties of varying degrees, most pronounced in North America, least pronounced in the U.K., with the position in Australia not clear.

Having read with much pleasure and profit the several articles upon this subject, chiefly in the Assurance Magazine, from such able contributors as Messrs. De Morgan, Jellicoe, Brown, Sprague, Pattison and others, whose names are known and honoured on this side the Atlantic as well as at home, I have thought that, in return, a brief account of the method adopted in the recent distribution of the surplus of our largest American Life Company might be acceptable to the members of the Institute of Actuaries.

An important part of the work of an actuary consists in making and testing graduations of mortality statistics. Much space has been devoted in the Journal to methods of graduation, but for many years, apart from the recent paper by H. L. Seal (J.I.A. Vol. lxxi, p. 5), little attention seems to have been paid to the testing of graduations. Although statistical methods are usually employed in making the tests, consideration has not often been given to ascertaining whether mortality statistics fulfil the conditions necessary for the tests to be strictly applicable. It is the purpose of this paper to set out some investigations into this question. Such matters may be thought to be of only theoretical interest, since, in practice, the tests work satisfactorily as a general rule; but actuaries should not employ their tools in a mechanical fashion without realizing fully their limitations and implications, and the question therefore takes on a practical as well as a theoretical aspect. It is hoped that this paper will show how far the tests of a graduation are satisfactory in theory and practice and indicate where modifications are required.

1.1 Medical expenses insurance, as we know it today, has been available in the United Kingdom since the late 1940s. In recent years the market has increased significantly to a point where we estimate approximately 6m people are now covered by medical expenses insurance, which represents over 10% of the population. Furthermore, there is evidence that the market is continuing to expand.

The records of the Colony of Victoria afford a field for scientific enquiry in many directions, and questions of interest to the physician, the economist, or the actuary, are to be found therein. Its separate existence is but of thirty years' duration, as it was on 1 July 1851 that the Queen's proclamation was issued erecting it into a separate colony, to be called after her Majesty's name.

Many social and economic questions concerning the colony have already been considered; and no longer ago than 1879, the present Government Statist, Mr. Henry Heylyn Hayter, read an exhaustive paper before the Statistical Society. The object of the present enquiry, however, has, so far as I am aware, not received previous attention; and as it is one of strictly professional and scientific interest, it is hoped that it may be appropriately considered by the members of this Institute.

That object is to deduce from the registered vital statistics of the colony a mortality table exhibiting the actual rate of mortality which has been experienced ; and to compare that table with other standard tables, in order to note the effect of the different conditions of life prevalent in Victoria. For it is to be expected that a colony, whose geographical extent is only slightly inferior to that of Great Britain, whose difference of temperature between summer and winter varies less than that of Lisbon or the favoured Riviera, and whose population is far greater than any other Australasian colony, would possess special characteristics calculated to mark their effect on the rate of mortality of the people.