This paper is about financial products which meet the healthcare costs of the elderly. It covers products that include elements of housing and healthcare provision, as well as insurance products with financial benefits that meet or reduce the cost of healthcare. It is hoped that the paper will be of interest to property developers and managers of retirement housing and nursing homes, as well as to the actuarial profession and the financial services community.

The paper introduces some of the areas that the author has researched and worked in over the past three years. During the same period, many insurance companies and developers are known to have researched the market for financial products which cover the cost of healthcare for the elderly. Demographic changes, coupled with more widespread home ownership and occupational pensions, have created a major opportunity for new products. Continuation of these trends, and political and cultural changes away from State provision, suggest that the need for new products will grow. In the U.S.A., similar trends have led to a rapidly growing market for many products combining finance and healthcare for the elderly. In the U.K., the market has been slower to respond to the opportunities.

Digital technology is starting to enable new and improved modes of healthcare delivery. The healthcare and disability claims spaces are closely intertwined. Disability claimants certainly have healthcare needs but disability claims management has the added dimension of supporting return to work.

In this paper, we explain what is meant by the term “Digital Health.” We then compare the challenges in the healthcare and disability claims management spaces where digital technology may improve outcomes. We touch briefly on how the efficacy of digital technology may be evaluated. The later parts of the paper focus on Digital Health technology providers who have engaged with the insurance industry and we conclude with some learnings around the challenges of implementing these technology-based opportunities.

This paper focuses on interventions once a policyholder’s health has failed to the extent that they need to claim. There are many opportunities to improve wellness and prevent claim using digital technology, as noted by the IFoA Wearables and Internet of Things Working Party,1 and we do not discuss these further this paper.

Under the European Union’s Solvency II regulations, insurance firms are required to use a one-year VaR (Value at Risk) approach. This involves a one-year projection of the balance sheet and requires sufficient capital to be solvent in 99.5% of outcomes. The Solvency II Internal Model risk calibrations require annual changes in market indices/term structure/transitions for the estimation of the risk distribution for each of the Internal Model risk drivers.

Transition and default risk are typically modelled using transition matrices. To model this risk requires a model of transition matrices and how these can change from year to year. In this paper, four such models have been investigated and compared to the raw data they are calibrated to. The models investigated are:

• A bootstrapping approach – sampling from an historical data set with replacement.

• The Vašíček model was calibrated using the Belkin approach.

• The K-means model – a new non-parametric model produced using the K-means clustering algorithm.

• A two-factor model – a new parametric model, using two factors (instead of a single factor with the Vašíček) to represent each matrix.

The models are compared in several ways:

1. 1. A principal components analysis (PCA) approach that compares how closely the models move compared to the raw data.

2. 2. A backtesting approach that compares how each model’s extreme percentile compares to regulatory backtesting requirements.

3. 3. A commentary on the amount of expert judgement in each model.

4. 4. Model simplicity and breadth of uses are also commented on.

This paper sets out the working party’s view that for a defined benefit pension scheme’s commutation rate the appropriate starting point should be to set it in line with the scheme’s cash equivalent transfer value basis. We recognise that there may be several reasons why an actuary in their advice may deviate from that starting point and we explore these in detail, giving our views on when deviation is and is not justified, noting that many common reasons used such as selection risk are often used without (in our view) adequate justification. We also cover frequency of review – our view is that commutation rates should be reviewed at least every 3 years and actuaries should consider performing a high-level review of commutation rates annually. We suggest that actuaries should consider proposing market-related commutation rates especially in periods of volatile market conditions. In terms of timing, there are good arguments to review commutation terms either following or during a valuation. Finally, we set out some considerations on how actuaries should present their advice, such as clearly setting out all the information required to take key decisions, following up with any actuarial certification in writing (if necessary) and illustrating the impact on members for changing commutation rates.

Financial literacy is a core life skill for participating in modern society. But how many of us have been educated about money; the importance of budgeting and saving for a rainy day; how bank accounts and debt work and when it makes sense to save for a pension? Our brief research to date indicates a shockingly low level of financial literacy in the general population. And, it does not look like this will get better soon; regarding improving financial literacy, the Financial Services Authority stated in 2003 that “Never has the need been so great or so urgent”. And yet many children will go through school without an hour spent studying financial literacy. Furthermore, efforts to improve financial literacy at older ages are either non-existent or piecemeal at best.

The consequences of poor financial literacy are especially damaging for vulnerable people. Vulnerable groups of people are most at risk of making poor financial decisions throughout their lives, which has negative consequences for saving, home ownership, debt levels, retirement and financial inclusion. In this paper, we consider various mechanisms to protect such financial customers, whilst recognising that improving financial literacy is not a silver bullet to improve customer outcomes from financial products.

Financial literacy cannot be brought to a point where the public can understand many financial products without support and advice. But surely, awareness of basic financial literacy principles can be raised, including the most important: when to seek support and advice before undertaking important financial decisions. The paper suggests some key principles for financial literacy and will also consider methods and tools to allow the public to access much-needed support and advice.

Solvency II came into force on 1 January 2016 and included a transitional measure on technical provisions (“TMTP”) designed to help smooth in the capital impact of Solvency II over a 16-year period. The working party’s view is that the main intention of the TMTP is to mitigate the impact of the introduction of the risk margin, which significantly increases the technical provisions of firms, relative to their Solvency I Pillar 2 liabilities.

The majority of firms who hold a TMTP have now had at least one recalculation approved by the Prudential Regulation Authority (PRA); or are in the process of applying for a recalculation. Despite this large number of approved recalculations, there remains significant uncertainty in the industry around the approach and triggers for recalculation.

This paper considers aspects of TMTP recalculation for regulated UK life firms, for example practicalities of the calculation, asset and liability considerations, and communications/announcements.

In this paper, we outline the need for pragmatism when considering the approach to recalculation of a measure originally intended to serve as the bridge between two regimes. We call for an allowance for doing what is sensible in a principles-based regime balancing what might be more theoretically correct with what is practical and possible to support effective management of the business.

The important and laborious investigation of which we give the results in the following pages is the last serious contribution to statistical knowledge by Mons. Marco Besso, a Fellow of the Institute of Actuaries of some years' standing, and an insurance expert of wide experience and great repute throughout the continent. The paper was at first published in part in the Bulletin de l'Institute de Statistique, and a translation subsequently appeared in the German Annual Magazine of Herr Ehrensweig.

The great value of quadrature formulæ for the calculation of survivorship and other benefits involving three or more lives has been already illustrated in the pages of the Journal. From certain remarks made by Mr. G. F. Hardy and Mr. George King in the discussion which followed the reading of Mr. King's paper (J.I.A., xxvi, pp. 297, 301), I inferred that it would be of interest to examine the errors involved in these formulæ, and to compare the results yielded by them and by other methods of approximation, such as the substitution of an equivalent life. Mr. Sheppard has shown (Proceedings of the London Mathematical Society, xxxii, p. 258) how most of the best-known quadrature formulæ can be readily derived from the Maclaurin Summation Theorem, with expressions for the errors in terms of differential coefficients. In a recent paper (Proceedings of the London Mathematical Society, xxxiv, p. 335), I have obtained similar formulas by direct integration from Everett's Interpolation Theorem, with expressions for the errors in terms of central differences.

The working party was required to establish what actuarial information is needed by the financial world for the proper evaluation of a bid for a quoted insurance company, and, in the light of these findings, to consider what may be required in the way of guidance to actuaries. The report considers the issuesw hich occur when life insurance companies aresu bject to takeovers and to other changes of ownership. The Takeover Code has many implications in such situations and these are discussed fully, particularly any conflicts of interest and the independence or otherwise of the actuaries involved. The interests of policyholders are considered and advice is proffered to actuaries. A Guidance Note is being issued.

LET EX be the exposed to risk at age x; F (x, 0) be the ordinate at x of a frequency curve used instead of Ex : the frequency curve is not necessarily a graduation of Ex. but may be and in some circumstances will be;