Actuarial practice has been changing rapidly over recent decades, and this speed of change is likely to continue. The actuary of the future will face challenges from many quarters, including the need to communicate with multi-disciplinary teams of competing professionals, and to live in an increasingly multi-national and cross-border environment. The discussion paper reviews such trends and challenges, both national and international, and seeks to stimulate a discussion of key issues, including supply and demand, expanding the scope of actuarial work, the role of the consultant, training implications and the development of a more international profession.

The main object of my paper on the Error introduced into Mortality Tables by Summation Formulas of Graduation, published at page 54 of the present volume of the Journal, has already been to a large extent fulfilled; and the admirable papers which it has called forth from Messrs. Lidstone and Spencer are a liberal reward for my labours. That object was, to show that the theoretical error in question is so small as to be quite insignificant; and thereby to bring summation formulas up again for discussion, with a view to ascertain which of them are the best as means of graduation pure and simple, and how they can be used most effectively.

In the concluding sentences of the paper I spoke of a graduation by summation, to be followed, in order to gain smoothness, by one by the graphic method; and in the reply to the discussion I casually threw out the idea of correcting the theoretical error by means of the fourth central difference; but these suggestions were only concessions to the misgivings of weaker brethren, and were not put forward seriously as being in my own opinion either necessary or desirable. I am convinced that we have now summation formulas which give as smooth graduations as need be desired, and the results of which conform with close accuracy to the original facts; and, emphasizing what has already been said, my own view is that the theoretical error they introduce is so minute as to be unworthy of consideration for a moment.

The climate of any place is the result of the various phenomena regulating the natural order of the universe, as these are modified by circumstances affecting the particular locality. Climate has been concisely defined by Humboldt to signify all those states and changes of the atmosphere which sensibly affect our organs,—temperature, humidity, weight, agitation, electric tension, purity, and transparency. If we would correctly consider the climate of any place, it is accordingly necessary to give some consideration to every one of these phenomena. Temperature alone, if that be held to signify the mean annual temperature, gives a very imperfect idea of climate. It no doubt forms a most important element, but it must be considered with reference to its range, and that not only the minimum and maximum temperatures of the year, or the average daily temperature of the various months of the year, but it is also essentially necessary to know the daily range of the thermometer throughout the year, and during a series of years. The suddenness of the variations of the temperature is a most important element in judging of climate, and it is also important to understand the causes of the daily extremes of heat and cold, and the accompanying force and direction of wind during these extremes. Very intense heat and very severe cold may be borne without uneasiness, or even without much discomfort, provided these are unaccompanied by wind.

This paper focuses on Enterprise Risk Management (ERM) and strategic business management for health insurance companies in our world of ‘unknown unknowns’ and the emergence of unexpected risks over time. It illustrates how Chief Risk Officers (CROs) can focus on ‘risk and opportunity management’ through an ERM framework, and thereby balance risks against opportunities, whilst being resilient against ‘unknown unknowns’ and their emergence over time as ‘known unknowns’ and ‘known knowns’. The paper has been designed to meet the broad requirements of health insurers that would like to implement an ERM framework for the effective risk management of their health insurance lines of business. Risk management for health insurers in the context of Solvency II and broader European Commission regulatory requirements is also discussed. The authors discuss how insurers can develop and apply risk management to build resilience in the face of the storms and shocks that may lie ahead.

1.1. As every actuarial student is taught:

“Pay-as-you-go is acceptable for a State pension scheme because the State is, for practical purposes, assured of a continuing existence”.

However:

“The position is quite different in the case of an occupational scheme, since an employer's business may cease to exist”.

This paper takes a broad look at tax in general and some of the tax issues peculiar to life offices. A theoretical model for the taxation of life offices and their policyholders is then developed. Moving from theory to practice, the paper then offers its own solution to the ‘puzzle’. Appended by way of background reading are brief histories and summaries of life office tax in the UK, New Zealand, USA and Canada.

The first life table was a brilliant ‘guesstimate’ by John Graunt (1662) based on mortality data analysed by cause of death but not by age or sex. It was over thirty years before Halley (1693) constructed a table to show “the odds that there is, that a Person of that [any] Age does not die in a Year”. In the meantime several writers tried to use Graunt's figures to make deductions about probabilities of death. This note is a description of these efforts.

In forming mortality tables from the experience of assurance or annuity societies or analogous institutions, we deal with individual lives, tracing each throughout his recorded history, from the moment he comes under observation, until he is removed either by death or withdrawal,—and here the word “withdrawal” includes not only lapse or surrender, but the termination of the contract in any other way, as also the closing of the observations at some determined point of time. We therefore have something approaching to accuracy, and the deaths take place among the lives actually observed, there being close relationship between those who are exposed to risk and those who die. With tables of this class the mortality function which first presents itself is the rate of mortality, qx.

With mortality tables formed from census returns and death registers the case is different. We know nothing of individuals, but deal solely with fluctuating groups, and take the lives in the aggregate; and many of the recorded deaths are not those of persons included in the enumerations. For instance, the English Life Table No. 2 was based on the population of England and Wales enumerated at the census of 6 June 1841, and the deaths recorded in the seven years 1838 to 1844; so that many of the deaths took place before the date of the census, and could not have been deaths among the population counted.

In submitting to the Institute the results of our investigation into the subject of masculinity, we are aware that this theme is somewhat outside the ordinary discussions of the Institute, and we only propose to deal with certain aspects of the question. It may therefore be well to begin by defining the term masculinity, which is simply a convenient expression for stating in one word the proportion of the sexes at birth. The choice of this word has been determined by the fact that male births generally predominate in number over female births. According to the extent of this predominance, masculinity may be described as high or low. The usual practice is to state the number of male births to 1,000 females. When the male births are fewer than the female births the masculinity is said to be negative, the representative figure being then below 1,000.

As the published facts concerning the rate of mortality in tropical Africa are very scanty, and Insurance Offices are therefore often compelled to fix the extra premiums for African risks in an almost purely arbitrary manner, I venture to lay the following investigation before the members of the Institute as a contribution to our knowledge of the subject. So far as I am aware, the only publications dealing with the subject are a note by my father, Dr. T. B. Sprague, on the Rate of Mortality on the Congo (J.I.A. xxv, 437); a note read by myself before the Actuarial Society of Edinburgh on the Rate of Mortality in Sierra Leone (Transactions, iii, 365); a paper by Mr. J. R. Hart on the Mortality on the West Coast of Africa, which appeared in the Insurance Record of 2 October 1896; and a paper by Dr. T. Glover Lyon on the Mortality amongst Europeans in certain Unhealthy Districts (J.I.A., xxix, 541).

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.

The actuary has played a role in regulation in the United Kingdom since 1819. More recently, in 1974, the Appointed Actuary system was introduced for life insurance companies, backed by strong professional guidance. Derivatives of the Appointed Actuary concept have been implemented in a number of other countries. Meanwhile, in the UK, defined benefit occupational pension schemes are now required to appoint a Scheme Actuary, who has a statutory whistle-blowing role under the Pensions Act 1995. A number of statutory roles for pension actuaries were in place prior to this. In general insurance, Lloyd's syndicates are now required to obtain an actuarial opinion on the end of year provisions, as part of the Lloyd's market regulatory structure, and friendly societies must obtain an actuarial opinion on their technical provisions once every three years. This paper reviews some of the different regulatory roles of the actuary in the UK, draws some comparisons with the situation in other countries, considers the strengths and weaknesses of the present situation and invites debate and discussion on the way forward in order to optimise the contribution which the profession can make to the public interest in the field of regulation.

The paper, which was written at the invitation of the Council of the Faculty for submission on the occasion of the Centenary celebrations, deals with the broad trend of mortality rates in the hundred years 1850-1950.

The paper is in five main parts :—

• 1. The political and social background of the period, in so far as it might affect mortality rates, is briefly discussed.

• 2. The trend of mortality rates during the hundred years is discussed principally with reference to the following six countries which, besides being relatively stable politically during the period, have recorded mortality rates throughout—

  • England & Wales

  • Denmark

  • France

  • Netherlands

  • Norway

  • Sweden.

• The experience in more recent years of a number of other countries is also discussed.

• 3. The relationship between the mortality rates of males and females is examined at various ages for the six countries above mentioned.

• 4. The more recent mortality statistics are analysed according to cause of death in broad groups.

• 5. The paper concludes with a statement on the points which seem to be of special interest, setting out in the form of questions some of the thoughts which spring from them.

In the pages which follow (Appendices 1-18) the statistics referred to in Parts 2 and 3 are illustrated by a series of graphs.

The method of selecting risks has undergone radical changes during the span of one man’s lifetime. In the early days of my experience all proposals for life insurance were submitted to a Board of Directors which consisted mainly of landed proprietors, lawyers and accountants. They were assumed to have sufficient knowledge to determine which lives should be accepted, which should be rejected and which should be charged an extra premium, with the aid of the medical adviser and of the actuary. The former was usually a prominent physician who based his judgment on impressions and observations, and the latter on the meagre statistics then in existence. Contrast that with the method in use in the principal American companies at the present time. The majority of the proposals are not submitted to a medical director, actuary or underwriter, but are passed upon by lay reviewers with or without the use of a numerical rating system. Experience has shown that such a practice is safe, as in one-half or more of the proposals there is nothing of moment against the risk, and, unless the amount of insurance is large, the time of experts can be given with greater advantage to the more difficult types of cases.

The Management Board of the UK Actuarial Profession is undertaking a thought leadership cross-practice research project on the use of discount rates by UK actuaries. The timing for this research is particularly appropriate as there is a convergence of interest in discount rates from within and outside of the Profession. Discount rates are at the heart of most actuarial calculations and are of significant public interest. As part of this project the Management Board wants a full and open debate on the significant issues and this paper is the next step in stimulating that debate, giving another opportunity to influence the future direction of the project.

The Management Board set up a small cross-practice steering committee to drive the project. The Discount Rate Steering Committee identified five areas of work that would be needed to achieve the project's overall objectives:

1. (1) A survey of current practices.

2. (2) A survey of existing research and debate.

3. (3) Developing a common language for communicating discount rates and risk.

4. (4) Developing a common framework for the future where appropriate.

5. (5) Considering the impact of any changes.

Although the Profession does not set standards for technical work it still has a significant role for undertaking research in the public interest which supports the competence of its members and the furtherance of actuarial science.

Chinu Patel and Chris Daykin were commissioned to undertake the first part of this work and they presented their preliminary output at a forum of thought leaders across the Profession and externally on 23 March 2010. Their report “Actuaries and Discount Rates” was subsequently published in May 2010 and presented the results of their initial research into past and current practice in the setting of discount rates in the UK, and a survey of existing research and debate. A summary of that report is included in Section 2 of this paper.

Following consultation both within and outside the Actuarial Profession, this interim paper now takes forward the ideas and initial steps developed by Patel & Daykin and looks at developing a common language and framework for using discount rates in actuarial work. The Discount Rate Steering Committee is making a number of recommendations to the Profession which are intended to help actuaries speak clearly and with authority in future debates about discount rates and to support actuaries in communicating impartially and effectively. The recommendations are set out in Section 6 of the report following the development of the framework in Sections 3–5. As part of further developing the recommendations to the Profession, the Discount Rate Steering Committee is seeking views from stakeholders from inside and outside of the Profession. This will be undertaken throughout January and February 2011 and, as part of this process, the report will be presented at sessional research events in Edinburgh (17 January 2011) and London (31 January 2011). The Discount Rate Steering Committee is committed to seeking feedback on the recommendations and hopes this paper will give those inside and outside the Profession an opportunity to add to the dialogue so that as wide a range of potential views as possible is heard.

In this paper, the steering committee has concentrated on the more technical aspects of developing a framework for communicating discount rates and associated risks and the report is aimed primarily at actuaries. But the committee is mindful of the need to help actuaries communicate more clearly with those outside the Profession. During the first half of 2011, the steering committee will therefore concentrate on producing a document in less technical language to help non-actuaries understand the issues around the selection and use of discount rates and to help actuaries in their communication with stakeholders.