With-profits business has flourished for over a century as a means of providing access to equity-type investment whilst smoothing the volatility risk. Today's world demands greater transparency, and with-profits has come under increasing criticism in this regard. The Working Party concludes that it remains good value as an investment vehicle and suggests how its transparency can be significantly improved.

The paper first analyses the characteristics of with-profits, which it notes has been permitted for stakeholder pensions. It then analyses the various criticisms of with-profits and considers how they can be rebutted without destroying its essential nature, pre-supposing the implementation of the Association of British Insurers' (ABI) Raising Standards scheme.

The paper concludes that greater transparency is both necessary for rebuttal and also achievable without destroying the with-profits concept, to this end proposing a model for the internal analysis of identified classes of with-profits business and the inclusion of specified additional information in the statutory returns to the regulators. It also proposes that policyholders be given slightly more information than is specified under Raising Standards. Finally the paper analyses the implications for the life assurance industry, which it considers acceptable.

The authors discuss the investment of pension and other institutional funds. stressing a theme of investing to meet liabilities. Their aim is to stimulate debate by actuaries and the investment community, leading to the development of better approaches to pension fund investment and its monitoring.

The first part of the paper considers the matching of assets to liabilities, concentrating on a major principle applicable to actuarial valuations where assets and liabilities are mismatched.

The paper goes on to consider principles of institutional investment and includes discussions of the meaning and measurement of risk, the setting of investment objectives, decision-making, asset allocation and investment performance monitoring.

It may be useful to begin with some introductory comments on the nature of graduation and its uses with particular reference to the distinction between graduation by parametric methods, as described in traditional actuarial textbooks, and graduation by non-parametric methods.

Some of the comments have appeared in the early sections of Copas and Haberman's paper which first described the kernel method of non-parametric graduation.

Graduation may be regarded as the principles by which a set of data is adjusted in order to provide a basis suitable for inferences to be drawn and further practical calculations to be made. In actuarial terminology, graduation usually refers to a set of decremental rates, and one of the principal actuarial examples of its use is the construction of a life table from a set of age-specific, observed death rates.

Patterns and trends in late-life mortality are of growing financial importance. The growth in pension liabilities, both public and private, are of crucial interest to governments, insurers and companies with defined benefit pension schemes. This paper explores the patterns in international mortality data, and draws important lessons for actuaries in the United Kingdom.

In November 1927 I submitted to this Institute a paper on the place of ordinary stocks and shares in the investment of life assurance funds. The conclusions were drawn from an investigation of hypothetical investments made in 1912 of uniform amount in the equities of nine groups of companies and followed out during a period of fifteen years. A comparison was made with similar investments made in the fixed interest securities of the same groups of companies. The records showed clearly in favour of the equities both as to income during the fifteen years and as to capital values at the end of the term. It has been on my conscience for some time that the record is incomplete without the inclusion of the period of the world depression in industry and trade which followed soon after the close of the period selected.

The theoretical basis for, and practical application of, the discounted income method for valuing UK pension fund assets is discussed, with particular reference to the widely adopted application to variable income (equity type) assets, as proposed by Day & McKelvey (1964), in the context of both the management and compliance objectives of pension fund valuation. An alternative methodology is proposed in which consistency with assets, liabilities, and market values is demanded, with smoothing of the valuation result achieved on an explicit rather than implicit basis. It is then demonstrated that the explicit smoothing parameter can be set so as to achieve the historic smoothness framework for establishing pension fund investment policy.

In conclusion the paper suggests greater emphasis on market-related methodologies for compliance valuations and leaves open the choice of methodology for management valuations and monitoring purposes, on the grounds that there is a large subjective element in any realistic basis. However, it is demonstrated that while smoother than unadjusted market-related methods, other aspects of the dynamics of the funding level under the method of Day & McKelvey can be perverse and it is suggested that this method should not be allowed to dictate investment decisions.

Expert judgement is frequently used within general insurance. It tends to be a method of last resort and used where data is sparse, non-existent or non-applicable to the problem under consideration. Whilst such judgements can significantly influence the end results, their quality is highly variable. The use of the term “expert judgement” itself can lend a generous impression of credibility to what may be a little more than a guess. Despite the increased emphasis placed on the importance of robust expert judgements in regulation, actuarial research to date has focussed on the more technical or data-driven methods, with less emphasis on how to use and incorporate softer information or how best to elicit judgements from others in a way that reduces cognitive biases. This paper highlights the research that the Getting Better Judgement Working Party has conducted in this area. Specifically, it covers the variable quality of expert judgement, both within and outside the regulatory context, and presents methods that may be applied to improve its formation. The aim of this paper is to arm the insurance practitioner with tools to distinguish between low-quality and high-quality judgements and improve the robustness of judgements accordingly, particularly for highly material circumstances.

Several methods of forecasting mortality have from time to time been suggested. Some of them have, however, only been applied to the statistics of one or two countries and, while they have been found to be satisfactory in these cases, we cannot justifiably say that the assumptions on which they are based are universally valid. In §§ 3–7 these standard methods of mortality forecasting will, with necessary modifications, be applied to Australian data. These sections do not, therefore, involve anything in the way of new principle, but, being applications of old methods to new data, they should make a further contribution to our knowledge of the validity of the assumptions on which these standard methods are based. In § 9 a further method of forecasting will be described, and in § 10 the results obtained by the several methods will be compared.

1.1. This paper has its origins in practical work carried out over the last 6 years on behalf of a number of pension funds whose trustees wished to obtain an independent assessment of their investment performance. Annual investigations have been made with two main objectives; first, to compare each fund's performance with that of the other funds under investigation and with investors in general; secondly, to analyse the factors which affected performance in the year and to explain differences between the results obtained by the participating funds. It was hoped that, in addition to providing a historical record, the investigations would reveal strengths and weaknesses in past practice, leading to suggestions for improving performance in the future. As the results for successive years became known it was possible to make statistical analyses over lengthening periods, to reach some tentative conclusions about longer-term performance and to attempt an assessment of the value of investment performance analysis in the practical world where trustees, investment managers and advisers have to operate.

In recent years there has been increasing interest in clarifying the respective interests of shareholders and participating policyholders in the inherited estate of the proprietary life offices. This paper defines the inherited estate, considers the sources of surplus contributing to it and suggests an approach for quantifying it. Views are expressed on the attribution of the inherited estate to the parties involved with a view to a consensus emerging from a discussion of the underlying factors. The role of the supervisory authorities and of the Appointed Actuary and the independent actuary are considered and methods of accessing the inherited estate attributed to shareholders are examined.

Most of the methods of mortality forecasting have been assessed using performance on overall mortality, and few studies address the issue of identifying the appropriate forecasting models for specific causes of deaths. This study analyses trends and forecasts mortality rates for three major causes of death — lung cancer, influenza-pneumonia-bronchitis, and motor vehicle accidents — using Lee–Carter, Booth–Maindonald–Smith, Age-Period-Cohort, and Bayesian models, to assess how far different causes of death need different forecasting methods. Using data from the Twentieth and Twenty-First Century Mortality databases for England and Wales, results show major differences among the different forecasting techniques. In particular, when linearity is the main driver of past trends, Lee–Carter-based approaches are preferred due to their straightforward assumptions and limited need for subjective judgment. When a clear cohort pattern is detectable, such as with lung cancer, the Age-Period-Cohort model shows the best outcome. When complete and reliable historical trends are available the Bayesian model does not produce better results than the other models.

Counting processes and their compensators are introduced at a heuristic level. The martingale property of stochastic integrals with respect to a compensated counting process leads to moment estimates and asymptotic normal distributions for statistics arising in multiple state, non-parametric and semi-parametric models. The place of survival models in actuarial education is discussed.

With the UK population ageing, deciding upon a satisfactory and sustainable system for the funding of people’s long-term care (LTC) needs has long been a topic of political debate. Phase 1 of the Care Act 2014 (“the Act”) brought in some of the reforms recommended by the Dilnot Commission in 2011. However, the Government announced during 2015 that Phase 2 of “the Act” such as the introduction of a £72,000 cap on Local Authority care costs and a change in the means testing thresholds1 would be deferred until 2020. In addition to this delay, the “freedom and choice” agenda for pensions has come into force. It is therefore timely that the potential market responses to help people pay for their care within the new pensions environment should be considered. In this paper, we analyse whether the proposed reforms meet the policy intention of protecting people from catastrophic care costs, whilst facilitating individual understanding of their potential care funding requirements. In particular, we review a number of financial products and ascertain the extent to which such products might help individuals to fund the LTC costs for which they would be responsible for meeting. We also produce case studies to demonstrate the complexities of the care funding system. Finally, we review the potential impact on incentives for individuals to save for care costs under the proposed new means testing thresholds and compare these with the current thresholds. We conclude that:

• ∙ Although it is still too early to understand exactly how individuals will respond to the pensions freedom and choice agenda, there are a number of financial products that might complement the new flexibilities and help people make provision for care costs.

• ∙ The new care funding system is complex making it difficult for people to understand their potential care costs.

• ∙ The current means testing system causes a disincentive to save. The new means testing thresholds provide a greater level of reward for savers than the existing thresholds and therefore may increase the level of saving for care; however, the new thresholds could still act as a barrier since disincentives still exist.

In this paper an asset/liability model is used to compare the quality of information available from a set of stochastic simulations with a traditional deterministic sensitivity test approach.

The traditional approach applied to a range of variants of the basic model office fails to distinguish adequately very risky strategies from relatively secure strategies. The stochastic simulation method succeeds in ranking the various strategies considered into an intuitively satisfactory order of insolvency risk, as well as giving quantitative information on the relative probabilities of insolvency of different strategies and on the timing of potential solvency problems.

The Human Genetics Commission intends to study the use of family history in underwriting, regarding it as genetic information in a broad sense. We survey the developments in genetics and insurance that led up to this decision. We propose a model for studying the possible costs of adverse selection in the mortgage-related life insurance market (which is important in the United Kingdom) with and without moratoria on the use of family history. We consider both level and decreasing term assurances, finding that the cost of adverse selection is slightly higher for the latter. Several assumptions about mutation penetrance, incidence of additional mortality, prevalence of genetic testing and insurance-buying behaviour are considered. Overall we conclude that: (a) a moratorium on genetic test results alone will lead to negligible adverse selection costs; while (b) a moratorium extended to family history will lead to premium increases just by redefining underwriting classes, with adverse selection being possible as well, but only in extreme circumstances would all premium increases be likely to exceed about 10%. However, we give examples in a model of a smaller life insurance market that show that our benign conclusions might not apply more generally.

State Pension Age (SPA) is an issue of topical interest in the United Kingdom at the time of writing owing to the Government’s plans to link SPA at future dates to estimates of the projected longevity of the population. This paper considers the background to the current position, how the linkage is proposed to work, other factors that may need to be considered and some changes in the proposed State pension regime that could be alternatives to, or complementary with, a changing SPA.

This paper brings together the work of the GI Solvency II Technical Provisions working party. The working party was formed in 2009 for the primary purpose of raising awareness of Solvency II and the impact it would have on the work that reserving actuaries do. Over the years, the working party’s focus has shifted to exploring and promoting discussion of the many practical issues raised by the requirements and to promoting best practice. To this end, we have developed, presented and discussed many of the ideas contained in this paper at events and forums. However, the size of the subject means that at no one event have we managed to cover all of the areas that the reserving actuary needs to be aware of. This paper brings together our thinking in one place for the first time. We hope experienced practitioners will find it thought provoking, and a useful reference tool. For new practitioners, we hope it helps to get you up-to-speed quickly. Good luck!

In this paper it is demonstrated how recently developed statistical techniques designed to facilitate the joint modelling of the mean and dispersion are well suited to model the presence of duplicate policies in graduation.