The theme of this paper is that life office valuation can be based on an analysis of the characteristics of the individual cash flows which form the net cash flow of an office. These cash flows may be compared with the income and gains derived from traded securities such as equities and gilts in order to assess their values. Standard asset pricing models of modern portfolio theory enable one to allow for lapse, mortality and other risks.

The methodology outlined in the paper is illustrated by reference to the very different types of revenue generated by non-profit, unit-linked and with-profits products. It is also used, in the valuation of future new business, to allow for the risks that expected sales volumes and profitability levels will not be achieved.

The paper provides a rationale for the choice of discount rates used in the valuation of a life office and facilitates the comparison of life office and alternative investment opportunities.

A FIMAG Working Party was set up in 1989 to consider the stochastic investment model proposed by A. D. Wilkie, which had been used by a number of actuaries for various purposes, but had not itself been discussed at the Institute. This is the Report of that Working Party. First, the Wilkie model is described. Then the model is reviewed, and alternative types of model are discussed. Possible applications of the model are considered, and the important question of ‘actuarial judgement’ is introduced. Finally the Report looks at possible future developments. In appendices, Clarkson describes a specific alternative model for inflation, and Wilkie describes some experiments with ARCH models. In further appendices possible applications of stochastic investment models to pension funds, to life assurance and to investment management are discussed.

The aim of this paper is to extend the analyses of our earlier work (Haberman & Bloomfield, 1988)by incorporating mortality rates of male children categorised by age and social class. Data recently made available in an annex to the Decennial Occupational Mortality Investigation are utilised to produce graduated mortality rates specific for age and social class and to extend the social class specific life tables down to cover the full age range.

Recent developments which affect the financing of occupational pension schemes in the U.K. arc reviewed. These point to the need for realistic bases, and an approach to finding a ‘best estimate’ is described. It is suggested that typical bases contain significant margins and the long-term dangers of using bases which contain margins are illustrated using a model fund. A review of funding methods suggests that the projected unit and entry age methods should be used for normal purposes in conjunction with a discounted income approach to the valuation of assets. Suggestions are made as to the degree of prudence appropriate for funding purposes.

Following a brief outline of the origins of the actuarial profession in the United Kingdom, the paper traces the involvement of actuaries in the supervision of insurance in the U.K., and recalls the origins and early development of actuaries in government. In 1919, the Government Actuary's Department (GAD) was formed, and the paper explores the developing role of GAD in the supervision of insurance and how insurance supervision has evolved into a close partnership between the actuarial profession and the supervisors.

This note continues a regular series on mortality rates in Great Britain, showing the mortality experienced in each age-group in 1990 and comparing this for broad age-groups, on a standardised basis, with mortality in earlier years.

The paper gives details of statistical modelling techniques which can be used to estimate risk and office premiums from past claims data. The methods described allow premiums to be estimated for any combinaton of rating factors, and produce standard errors of the risk premium. The statistical package GLIM is used for analysing claims experience, and GLIM terminology is used and explained thoughout the paper.

Arguments are put forward for modelling frequency and severity separately for different claim types. Pitted values can be used to estimate risk premiums, and the incorporation of expenses allows for the estimation of office premiums. Particular attention is given to the treatment of no claim discount.

The paper also discusses possible uses of the modelled premiums. These include the construction of ‘standardised’ one way tables and the analysis of experience by postal code and model of vehicle. Also discussed is the possibility of using the results for assessing the impact of competition, and for finding ‘niche’ markets in which an insurer can operate both competitively and profitably.

The paper presents an application of the Markov chain as a tool for the calculation of life contingencies functions (e.g. assurance, annuity, net premium, policy value functions) arising from a multi-state model which represents the transmission and development of HIV and AIDS. The transmission model advocated by the Institute of Actuaries AIDS Working Party is modified and simplified and then applied to derive explicit formulae for these standard life contingencies functions. This investigation allows a thorough review of the properties of these functions to be conducted and assists with the calculation of premiums and reserves in the presence of HIV and AIDS.

The Report begins by discussing the origins of the actuarial profession in the United Kingdom and the recent growth in its size.

The aim of the Report is to describe the more significant recent developments which affect the actuarial profession in the U.K. These developments are discussed under the following headings:

Planning,

Education,

Life assurance,

Pensions,

General insurance,

Relationships with actuaries overseas,

Groupe Consultatif,

Mortality and sickness insurance statistics,

Investment indices.

Within each heading there is a discussion of current topics and, where appropriate, of possible future developments.

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.

This paper sets out a framework, based on option pricing theory, that can be used to assess the value of deferred unrealised capital gains tax. In the U.K. and Australia, capital gains tax is paid on realisation of assets and the basis for determining the tax allows for inflation indexation of the cost base of the asset. Capital gains tax payments under these circumstances are shown to resemble those of a complex option. A number of theoretical approaches to the valuation of this option are discussed in the paper.