It must be said at the outset that it is no part of the purpose of this paper to outline a method by which general movements of the gilt-edged market may be forecast. The reason for this is simple, as it requires no great exercise of modesty to disclaim qualification for such a task. The paper's purpose is, rather, to analyse the group's characteristics, to study the components of an individual security, and finally to suggest a policy whereby a life office can obtain a reasonable return on its gilt-edged portfolio.

Our aim in writing this paper is to show the various ways in which a life office can make a profit by varying or “switching“ its investments from time to time. We shall assume for the sake of simplicity that we are dealing with the life fund of a mutual office which has transacted all its business within the U.K. (i.e. all its liabilities are in sterling) and which does not guarantee surrender values; we shall ignore the effect of any new business which may be transacted in the future.

In contributory group pension schemes it has become customary to arrange for the employee's premiums to be returned, without interest, on the death of the employee, or on his withdrawal before reaching his pension date. It will be agreed that this is of secondary importance in the composition of the scheme; nevertheless its presence does introduce complications to the conduct of the business which are possibly out of proportion to its significance. It is with this aspect that this paper is concerned; it represents an attempt to give the death return a simplified place in the administration of the business which is more in keeping with its importance. The complications mentioned arise from the strict adherence to formulas which make theoretically correct allowance for the death return. The simplifications in administration follow from a simple and natural approximation to the death return, and the extent and practical consequences of the approximation are examined in the paper.

The name of Lewis P. Orr is an honoured one in the history of medico-actuarial literature. It may well be claimed that his paper on “The selection of lives”(T.F.A. 8, page 103) and the revised edition (T.F.A. 13, page 181) were for many years the standard British works on the medical aspects of life assurance underwriting. His earlier paper (T.F.A. 6, page 55) on “Research in life assurance”—submitted to the Faculty in 1911—may, in its consequences, have been even more important because it set the actuaries of the time thinking, and from that, years later, arose the Continuous Mortality Investigation of the Institute and Faculty of Actuaries; but it is with the subject of the two later papers that we are now concerned.

In January 1952 the Councils of the Faculty and the Institute, having in mind the widespread feeling that the growth of pension commitments in relation to the national income is a matter of major public policy, decided to invite a small research group to prepare a study of the subject.

(1) Actuaries in their professional life are concerned both with the study of population statistics and with the financial administration of pension schemes of all kinds. Among their responsibilities in relation to pension schemes are the calculation of rates of contribution and benefit, the determination of the funds which it is necessary to accumulate to meet contractual liabilities, and the estimation of the disbursements (or “emerging costs” as they are commonly termed) which may be expected over future years. It follows that the age distribution of the population, the economic effects of changes in that age distribution, and the provision of pensions are all subjects of vital concern to the actuarial profession. Accordingly, in response to an invitation received from the Committee which, under the chairmanship of Sir Thomas Phillips, is considering the economic and financial problems of provision for old age, the Councils of the Institute of Actuaries and of the Faculty of Actuaries in Scotland desire to submit the following evidence.

The capital city of Spain, Madrid, was the venue for the Fourteenth International Congress of Actuaries and intending participants of the Congress eagerly welcomed the opportunity not only of renewing friendships with actuarial colleagues but of visiting the colourful and historic city. There were some fears that the temperature might be uncomfortably high for those from northern lands but Madrid provided delightful weather all the time the Congress lasted.