This paper considers actuarial science within the context of the framework provided by the formal study of scientific method. A review of key points of recent developments within the methodology (study of method) of science and the methodology of economics is presented. A characterisation of actuarial science and its methods is then developed using as inputs the United Kingdom actuarial education syllabus and recent work of the profession, most notably Bell et al., (1998). The methods of actuarial science are then considered within the framework provided by formal methodology to propose an articulation of the methodology of actuarial science. This methodology is explored in relation to that of other sciences, and some of the implications and opportunities for actuarial science which arise from this investigation are identified. The paper concludes that actuarial science has a distinctive and potentially powerful empirical method of applied approximation. This methodological analysis is intended, in part, to add to the momentum of the programme concerned with furthering the use of actuarial methods within broader spheres (eg Nowell et al., 1996).

Consolidation of the FTSE Actuaries Share Indices in real time. Preparations for the internationalisation of the industry classification system in 1999.

A working party was set up in February 1999 by the Research Committee of the Life Board to consider the impact of a low inflationary environment on the financial services and investment markets with particular emphasis on companies conducting long-term insurance business.

The working party has produced an interim report which reviews the causes of the present expectation of low inflation and discusses evidence from the past and the role of demographics. It considers issues surrounding the composition of the retail price index, appropriate economic assumptions and the impact on investment markets, including the effect of charges on net returns to savers. The position of long-term insurance business is then considered in more detail, looking at HM Treasury return consequences as well as disclosure and product design features. Finally, there are two investigations, the first looking at the effect of low inflation on the achieved profits derived from different product designs, and the second looking at the changes in ruin probability for a with-profits office associated with declining inflation.

Parametric graduation may fail to achieve satisfactory results without overparameterisation. Whittaker-Henderson graduation tends to constrain the graduated values towards a low-order polynomial. Non-parametric methods do not generally make direct use of true likelihood functions. This paper suggests a method of enhancing the likelihood of a parametric graduation by means of non-parametric methods, thus reducing the disadvantages of both methods.

The parametric graduation is taken to be ideally smooth by definition and is adjusted by using constrained maximum likelihood estimation to obtain better fidelity to the experience. The constraint imposes a minimum sacrifice of smoothness, in terms of a quantitative smoothness criterion, from the initial ideal. The method is not entirely objective in that, in some cases, professional judgement is required in order to assess the degree of smoothness that can be imposed. In other cases the method provides an objective optimum. In either case, by quantifying the degrees of departure from perfect fidelity and from ideal smoothness, the suggested method provides useful and theoretically sound criteria for the purposes of the optimisation process. In particular, by inverting the parametric graduation formula for the purposes of defining the smoothness criterion, the method ensures that the smoothness criterion is consistent over the whole age range, thus resolving the main objection to non-parametric graduation.

The method is applied to the 1979-82 experience for life office pensioners in the United Kingdom with positive results.

This is the twelfth year of publication of the FT/S&P Actuaries World Indices. Equity Indices are now given for 29 countries, 15 regional groups and the World. Greece, Portugal (and the Eurobloc) were added in 1998, but Malaysia was ejected.

Company directors play a key role in any company and thus in the contribution which business makes to the economy and to society. Reform of company law is being actively debated. This places under the spotlight such questions as should directors' duties be made clearer? Should directors only owe duties to their shareholders? Are directors adequately monitored, for example in corporate activities, pay and political donations? The object of the lecture is to review areas of current debate and identify areas where changes are occurring or may occur.

The development of stochastic investment models for actuarial and investment applications has become an important area of interest to actuaries. This paper reports the application of some techniques of modern time series and econometric analysis to Australian inflation, share market and interest rate data. It considers unit roots, cointegration and state space models. Some of the results from this analysis are not reflected in the published stochastic investment models.

On the occasion of the forthcoming total eclipse of the sun in Devon and Cornwall on 11 August 1999, the name of Baily is likely to receive much publicity because of the accompanying phenomenon of Baily's Beads. The paper explains Baily's Beads and also summarises the very considerable contribution which he made to actuarial science in the early days.

This paper reviews the stochastic asset model described in Wilkie (1995) and previous work on refining this model. The paper then considers the application on non-linear modelling to investment series, considering both ARCH techniques and threshold modelling. The paper suggests a threshold autoregressive (TAR) system as a useful progression from the Wilkie (1995) model. The authors are making available (on compact disk) a collection of spreadsheets, which they have used to simulate the stochastic asset models which are considered in this paper.

This paper considers the application of discounted cash flow (DCF) techniques to the analysis of the property investment market. The traditional method of property valuation is briefly outlined and its shortcomings highlighted. An alternative DCF procedure is derived to calculate the present value of a property investment. This method will be familiar to actuaries, but is not always used in property disciplines. The sensitivities of this formulation to changes in the force of real interest, force of real rental growth and force of inflation are derived. It is suggested how these formulae may be used for property investment appraisal and risk analysis. We conclude that DCF offers a more flexible and accurate means of estimating the value of a property, and that property valuers, financial economists and actuaries should work jointly to develop practical DCF methods. However, so long as traditional methods of valuation prevail, a rational investor must use both methods to identify mispriced property assets. There have been few property contributions to the actuarial literature in the United Kingdom; this paper is intended to build on the few previous papers and suggests directions for future work.