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The financial management of a with-profit long term fund — some questions of disclosure

Published online by Cambridge University Press:  20 April 2012

C. S. S. Lyon
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Extract

1.1 There are three starting points for this paper. The first is Marshall Field's challenging Presidential Address to the Institute of Actuaries in 1986 on the subject of ‘Risk and Expectation’. The second is the example, still fresh in our minds, of a medium-sized mutual life office which overstretched itself and found it necessary to merge with a competitor. The third is the impending requirement, stemming from the Financial Services Act 1986, to give an investment client, including the holder or prospective holder of an insurance savings contract, what is described as ‘best advice’.

Type
Research Article
Information
Journal of the Institute of Actuaries , Volume 115 , Issue 3 , September 1988 , pp. 349 - 404
Copyright
Copyright © Institute and Faculty of Actuaries 1988

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References

(1) Field, M. H. (1987). Presidential Address: Risk and Expectation, J.I.A. 114, 1–14.Google Scholar
(2) Jenkins, T. C. & Wilson, A. J. (1975). ‘A study (using projection mathematics) of a change in the minimum valuation basis’, TIAANZ 1975, 45–190, includes at 56–57 the proof of a theorem attributed to J. C. Coss that ‘the yield(s) on transfers to and from the estate determines the rate(s) of expansion which the business will support’.Google Scholar
(3) In his contribution cited in note (9) below, T. C. Jenkins neatly describes as the liability estate ‘that part of the estate which a cautious basis for valuing liabilities forces into existence’.Google Scholar
(4) Redington, F. M. (1986). ‘Prescience & Nescience’, in A Ramble through the Actuarial Countryside, 518–535. ed. Chamberlin, G., Staple Inn.Google Scholar
(5) Skerman, R. S. (1968). The assessment and distribution of profits from life business, J.I.A. 94, 53–100.Google Scholar
(6) Ward, G. C. (1970). ‘A model office study of a terminal bonus system of full return of surplus to ordinary participating policies’, TIAANZ 1970, 21–67 and D1–23.Google Scholar
(7) Jenkins, T. C. & Wilson, A. J. art. cit.Google Scholar
(8) Redington, F. M. (1986). ‘The flock & the sheep & other essays’, in A Ramble through the Actuarial Countryside. 406–428, 411–413. ed. Chamberlin, G., Staple Inn.Google Scholar
(9) Jenkins, T. C. in ibid. 452–458.Google Scholar
(10) Forfar, D. O., Milne, R. J. H., Muirhead, J. R., Paul, D. R. L., Robertson, A. J., Robertson, C. M., Scott, H. J. A. & Spence, H. G., of the Faculty of Actuaries Bonus and Valuation Research Group, ‘Bonus rates, valuation and solvency during the transition between higher and lower investment returns’ (submitted to the Faculty on 16 March 1987) 22–27.Google Scholar
(11) It looks as though the strain on the intermediate basis in the final year has been overstated by about 34. Taking the figure in the paper (1134) produces a negative rate of return to the estate, which is clearly wrong.Google Scholar
(12) Field, M. H. art. cit. 8–9.Google Scholar
(13) Smaller, S. L. (1985). Bonus declarations after a fall in interest rates, J.I.A. 112, 163–204, 167.Google Scholar
(14) Forfar, D. O. et al. , art. cit. 19.Google Scholar
(15) Ward, G. C. ‘Notes on the search for equity in life insurance’ (submitted to the Australian Institute, August/September 1986) 30–31.Google Scholar
(16) See Jenkins, T. C. (1982). ‘Equity and the liability estate’. T.I.A.A. 1982, 316–367, for a Proposal for a reporting system designed to disclose the transactions between the competing interests in a fund while recognizing and preserving its capital base.Google Scholar