The paper reports the results and conclusions of a project which provided a statistical analysis of survival after stroke (or cerebrovascular disease) and derived appropriate life assurance underwriting ratings. The methodology used has been described elsewhere and will be referenced as needed.

The project forms a pilot study set up to consider the feasibility of collecting and analysing in detail the considerable medical and actuarial literature that has accumulated on the prognostic experience of impaired lives over the last 30 years.

The past session of Parliament has witnessed the passing of an Act for the regulation of Life Assurance Companies in the United Kingdom, which, while introducing great changes in the law, still stops very far short of the system of legislation which has been for several years in operation in a few of the United States of America, and which is warmly approved of and urgently recommended for adoption by some persons in this country. The present may therefore be considered a fitting time for reviewing what has been done and considering whether any further legislation is desirable, and if any, of what nature it should be.

In many respects, this paper may be regarded as a logical sequel to an earlier one presented to the Institute nearly seven years ago. In that paper the assessment of industrial ordinary shares was discussed in considerable detail and methods were suggested which could be used both to make projections of future dividends and earnings for different companies and to utilize these estimates in making investment decisions. Much of the discussion on the earlier paper centred on the latter problem and the present paper is concerned entirely with this aspect of share assessment. The making of future projections will not be considered again; suffice it to say that our methods have remained largely unchanged. The principle on which the technique that we have now developed rests is closely linked with the previous concept of a ‘capitalization rate’ but in passing we would mention that we have made a brief experiment with what we term ‘growth yields’, i.e. the compound interest return to be expected from a particular share at a given price on the basis of the forecast future dividends. Our results utilizing this method were in fact significantly better than those obtained using the more familiar concept of relative yields (see §8) but, as the figures presented later in this paper show, they were not as good as those obtained using the method which forms the basis of this paper.

By courtesy of Robin Michaelson, data derived from a United States of America life insurance experience (1970–75) for individually insured lives was made available. The data consisted of the proportions of smokers in the population and the ratio of smokers' mortality to that of non-smokers. In both cases separate data was collected for males and females and at integral ages from 15 to 84. From these data it was possible to construct separate life tables for smokers and non-smokers, which were subdivided for males and females. These tables are shown as Tables A–D at the end of this note.

A common method of measuring relative mortality experience in actuarial, demographic and epidemiological studies is by way of comparison of the actual number of deaths and the number expected if a given standard experience were applicable. The properties of this method are discussed. Further ways of making such a comparison are described, one of which (the widely used Cumulative Mortality Ratio) has a serious bias in application to follow-up mortality studies. The properties of an alternative approach, the Ratio of Geometric Average Death Rates (RAD), are also discussed. This extends the analysis published in 1982 by the author, although attention is focused here on ratios that measure relative mortality experience.

When I agreed to prepare a paper for the consideration of the Institute of Actuaries, on the Life Assurance Companies Acts, 1870–72, I did not do so with a light heart. The task in any case would have been onerous, and events which have since transpired have not tended to increase my confidence. It has become a matter of public knowledge that the Council of the Institute had under consideration the laws relating to life offices, and that it was intended to take an early opportunity to debate the question. Moreover, it has been surmised that Government had in contemplation to take action in the matter, and, possibly in next session of Parliament, to bring in a Bill for the amendment of the law. I, therefore, cannot help feeling that a great responsibility rests upon me in opening a discussion of such importance, but I am emboldened to proceed, because, even if I fail to produce anything new or important, there are many here of far riper experience than myself, and a debate in such an assembly cannot but be instructive and useful.

This paper is devoted mainly to the extension of the ‘n-ages method’ of approximation for product-sums to summations in respect of two variables; some uses in valuation work of the formulae developed are indicated and illustrated arithmetically. Hitherto, apart from a special formula devised for the particular purpose of illustrating the possibilities of valuing whole-life assurances by limited payments grouped by years of entry (J.I.A. Vol. LXIV, p. 325), the n-ages method has been confined to one variable.

Pollard and Pollard have considered a stochastic approach to certain actuarial problems. In their notation ãx denotes the random variable whose expected value is ax. The random variable ãx depends on the random variable, time until death and the (assumed constant) rate of interest. The authors show how to calculate the second and higher-order moments of some common actuarial random variables such as ãx and Ãx. The second moments, in particular, are useful in estimating confidence limits for the total liability in respect of a group of contracts.

The paper deals with the development of unitised with-profits business in the United Kingdom. The authors trace the recent history of these products and comment on the main reasons for their development They also deal with corporate issues, including implications for policyholders and shareholders of different fund structures and different types of life office. Pricing and product development issues are also covered. Reserving issues including the range of valuation methods, statutory requirements and policyholders' reasonable expectations are explored. Finally the paper considers the actuary's contribution to the management of unitised with-profits policyholders' expectations.

In this paper we use a case study of a non-life insurance portfolio to demonstrate how recent research in ruin theory can be applied to solvency problems. By approximating the aggregate claims distribution for the portfolio by a translated gamma distribution, we estimate ruin probabilities through a recursive procedure when the insurer earns investment income on its surplus. We also show the results of applying simulation techniques to this problem, and discuss some advantages and disadvantages of simulation as a means of assessing ruin probabilities. Finally we discuss the calculation of the probability of ruin at the end of a specified time period.

The (re)insurance industry is faced with a growing risk related to the development of information technology (IT). This growth is creating an increasingly digitally interconnected world with more and more dependence being placed on IT systems to manage processes. This is generating opportunities for new insurance products and coverages to directly address the risks that companies face. However, it is also changing the risk landscape of existing classes of business within non-life insurance where there is inherent risk of loss as a result of IT events that cannot be or have not been excluded in policy wordings or are changing the risk profile of traditional risks. This risk of losses to non-cyber classes of business resulting from cyber as a peril that has not been intentionally included (often by not clearly excluding it) is defined as non-affirmative cyber risk, and the level of understanding of this issue and the cyber peril exposure from non-cyber policies varies across the market. In contract wordings, the market has remained relatively “silent” across most lines of business about potential losses resulting from IT-related events, either by not addressing the potential issue or excluding via exclusions. Some classes of business recognise the exposure by use of write-backs. Depending on the line of business, the approach will vary as to how best to turn any “silent” exposure into a known quantity either by robust exclusionary language, pricing or exposure monitoring. This paper proposes a framework to help insurance companies address the issue of non-affirmative cyber risk across their portfolios. Whilst the framework is not intended to be an all-encompassing solution to the issue, it has been developed to help those tasked with addressing the issue to be able to perform a structured analysis of the issue. Each company’s analysis will need to tailor the basis of the framework to fit their structure and underwriting procedures. Ultimately, the framework should be used to help analysts engage with management on this issue so that the risk is understood, and any risk mitigation actions can be taken if required. In the appendix, we present a worked example to illustrate how companies could implement the framework. The example is entirely fictional, is focused on non-life specialty insurance, and is intended only to help demonstrate one possible way in which to apply the framework.

The Presidential Address celebrates the 150th anniversary of the Institute of Actuaries by recalling speeches and press comments from the time of its foundation in 1848, and goes on to draw parallels between the issues of the day and those facing the profession in 1998. Foremost of these, there is a continuing emphasis on the public interest; it remains important for the Institute to be a learned society, and educational requirements have continued to be a central part of the profession's activities. The need for the profession to become more deeply involved in investment research is identified. A particular issue highlighted in the address is the constraint placed on the profession's growth and breadth by heavy reliance on self-study; much greater involvement of the universities is recommended.

In 1848, as in 1998, the potential for actuaries to use their skills in fields beyond life assurance was recognised, but the address notes that the opportunity to become involved in banking has never been properly grasped.

The leading role of the United Kingdom in the international development of the actuarial profession has continued throughout the history of the Institute, and recent developments in the International Actuarial Association are noted.

The need to educate clients and the wider public in what it is that actuaries do and how they go about it is the remaining major theme.

The final section identifies some current issues needing urgent attention, including the need to influence the shape of national and international accounting standards.

This paper explores an approach to assessing the adequacy of capital resources for non-life insurance companies. It examines the range of risks faced by these companies and the factors that influence the analysis of their impact on an organisation's financial condition. The paper considers how the actuarial profession may contribute to this process, with particular reference to the regulatory regime envisaged in the United Kingdom.

Capital and cost of capital form a bridge between the insurance firm and the financial markets. The term capital is used in various ways. In current parlance, economic capital is frequently used to mean capital calculated using a risk-based measure which is independent of the regulatory requirements. In this paper we discuss the concept of target capital, where the firm takes account of three different approaches to risk appetite: regulatory capital plus a buffer; rating agency views; and the views of shareholders, where they make commitments to customers and wish to protect franchise value. We describe how, when blending these views, the firm needs to understand the trade-offs between too high and too low amounts of capital, with reference to the double taxation burden, insurance gearing (leverage of premiums to capital ratio), and the impact of the firm's credit rating on maximising franchise value. We then discuss the main drivers of the cost of capital, which we define as the required total return on the market value of the firm, as determined by reference to the opportunity cost of alternative investments of equivalent risk. We explain that, because the stock market value of the firm is not the same as the capital held inside the firm, the cost of capital derived from external studies cannot be directly applied to internal measures of target return such as return on equity (ROE); it is necessary to translate between the two measures. We separate the risk of the firm between the investment risk and the insurance risk. We describe the frictional costs of investing in an insurance firm, and explain the role of parameter and model risk arising from the uncertainty of the future claim costs of the firm. We describe the findings of two studies of the actual historical stock market returns of United States P&C companies. One of them suggests that applying the Fama-French model produces higher and more accurate cost of capital estimates than the capital asset pricing model (CAPM) method. This is explained by linking the price to book ratio to the costs of financial distress, which are particularly important for general insurance firms, given the influence of insurance strength ratings from the rating agencies. Finally, we attempt to estimate the risk load required in premiums to compensate investors for the elements of cost of capital which we have described, in a way that combines the financial economic approaches to insurance target returns with the traditional actuarial approaches to assessing the risks in the insurance business.

This paper considers actuarial science within the context of the framework provided by the formal study of scientific method. A review of key points of recent developments within the methodology (study of method) of science and the methodology of economics is presented. A characterisation of actuarial science and its methods is then developed using as inputs the United Kingdom actuarial education syllabus and recent work of the profession, most notably Bell et al., (1998). The methods of actuarial science are then considered within the framework provided by formal methodology to propose an articulation of the methodology of actuarial science. This methodology is explored in relation to that of other sciences, and some of the implications and opportunities for actuarial science which arise from this investigation are identified. The paper concludes that actuarial science has a distinctive and potentially powerful empirical method of applied approximation. This methodological analysis is intended, in part, to add to the momentum of the programme concerned with furthering the use of actuarial methods within broader spheres (eg Nowell et al., 1996).

At the end of 2013 the real yields that the UK government had to pay on its debt were negative over the whole curve. Several possible explanations are available for this phenomenon – central bank action, regulatory changes, demographic developments and economic conditions. The first two can result from deliberate interaction by the state into the financial markets and can be labelled as financial repression. We explain the historic precedents for Governments to use financial repression to manage their debt, look into the influence of regulation on asset allocation for insurers and pension funds, and introduce the concept of a balance-sheet recession.

1. Like all sciences, actuarial science has been developed piecemeal. From time to time theory has been constructed attempting to systematize and unify practices which had already been adopted by the working actuary. In the case of the general treatment of the derivation of rates of decrement from data, little has been published in the Journal to unify the various methods and techniques since W. J. H. Whittall's well-known paper written in 1893 just prior to the commencement of the investigation into the British Offices experience.