The COVID-19 pandemic creates a challenge for actuaries analysing experience data that include mortality shocks. Without sufficient local flexibility in the time dimension, any analysis based on the most recent data will be biased by the temporarily higher mortality. Also, depending on where the shocks sit in the exposure period, any attempt to identify mortality trends will be distorted. We present a methodology for analysing portfolio mortality data that offer local flexibility in the time dimension. The approach permits the identification of seasonal variation, mortality shocks and occurred-but-not reported deaths (OBNR). The methodology also allows actuaries to measure portfolio-specific mortality improvements. Finally, the method assists actuaries in determining a representative mortality level for long-term applications like reserving and pricing, even in the presence of mortality shocks. Results are given for a mature annuity portfolio in the UK, which suggest that the Bayesian information criterion is better for actuarial model selection in this application than Akaike’s information criterion.

This paper outlines frameworks to use for reserving validation and gives the reader an overview of current techniques being employed. In the experience of the authors, many companies lack an embedded reserve validation framework and reserve validation can appear piecemeal and unstructured. The paper outlines a case study demonstrating how successful machine learning techniques will become and then goes on to discuss the implications of machine learning to the future of reserving departments, processes, data and validation techniques. Reserving validation can take many forms, from simple checks to full independent reviews to add value to the reserving process, enhance governance and increase confidence in and reliability in results. This paper discusses covers common weaknesses and their solutions and suggestions of a framework in which to apply validation tools. The impacts of the COVID-19 pandemic on reserving validation is also covered as are early warning indicators and the topic of IFRS 17 from the standpoint of reserving validation. The paper looks at the future for reserving validation and discusses the data challenges that need overcoming on the path to embedded reserving process validation.

This paper demonstrates how climate scenario analysis can be used for forward-looking assessment of the risks and opportunities for financial institutions, using a case study for a UK defined benefit pension scheme. It uses a top-down modelling tool developed by Ortec Finance in partnership with Cambridge Econometrics to explore the possible impacts of three plausible (not extreme) climate pathways of the scheme’s assets and liabilities. It finds that the funding risks are greater under all three climate pathways than under the climate-uninformed base scenario. In the absence of changes to the investment strategy or recovery plan, the time taken to reach full funding is increased by three to nine years. Given that most models currently used by actuaries do not make explicit adjustments for climate change, these modelled results suggest it is quite likely that pension schemes are systematically underestimating the funding risks they face.

This paper illustrates the potential impacts of climate change on financial markets, focusing on their long-term significance. It uses a top-down modelling tool developed by Ortec Finance in partnership with Cambridge Econometrics that combines climate science with macro-economic and financial effects to examine the possible impacts of three plausible (not extreme) climate pathways. The paper first considers the impact on gross domestic product (GDP), finding that GDP is lower in all three pathways, with the most severe reduction in the Failed Transition Pathway where the Paris Agreement climate targets are not met. The model then translates these GDP impacts into financial market effects. In the Failed Transition Pathway, cumulative global equity returns are approximately 50% lower over the period 2020–2060 than in the climate-uninformed base case. For the other two pathways where the Paris Agreement targets are met, the corresponding figures are 15% and 25% lower returns than in the base case. Results are provided for other asset classes too. These demonstrate that climate change represents a significant market risk, with implications for financial planning, modelling and regulation.

This paper highlights the urgent need for actuaries to take into account the importance, perils and impacts of global biodiversity risks. The Biodiversity and Natural Capital Working Party has been set up to take forward a series of activities including think pieces, webinars and external engagement to ensure our proactive engagement with these risks.

This paper follows on from the initial position paper on “The Importance of Biodiversity Risks”, prepared by the Biodiversity and Natural Capital Working party, a volunteer group working under the Sustainability Board. This paper explores the link between zoonotic disease and biodiversity loss and aims to raise awareness and discussion within the actuarial community on why this should be an important consideration in risk management. This paper focuses on how zoonotic diseases emerge, how they are linked to biodiversity loss, the potential impacts in the future and progress within the financial sector. This paper forms part of a collection of papers prepared by volunteers under the Sustainability Board that focus on different elements of biodiversity risk considerations.

This paper introduces the concept of Natural Capital and explores the implications for actuarial work by way of case studies. It is part of a wider series of IFoA papers focussing on the risks from global biodiversity loss and how these risks can be mitigated.

This paper investigates potential biodiversity valuation tools which actuaries could use in their work. It is an initial research paper into a selection of UK-based biodiversity valuation tools identified by the Department for Environment and Rural Affairs in its publication “Enabling a Natural Capital Approach Guidance”. The “Enabling a Natural Capital Approach Guidance” publication is seen as a comprehensive practical guide to natural capital and therefore is determined a sensible starting point on which to base this research. This research paper is not intended to be an exhaustive exploration of all biodiversity tools available, but rather is intended to identify a selection of tools which may be candidates for further research into their actuarial use case. We conclude that there are tools which merit additional research, and we recommend that these tools be further investigated to understand (i) the specific actuarial use case(s), (ii) whether the tools are applicable to direct infrastructure investments only or a broad range of asset classes, and (iii) whether their scope can be extended beyond the UK.

This paper highlights how actuarial thinking could contribute to the development of a justice perspective relating to biodiversity risks and also the implications for actuarial work. The impact of biodiversity loss as well as the use of ecosystem services is not equally distributed across society (both intra and inter generationally). The Biodiversity and Natural Capital Risk Working Party has been setup to proactively take forward a series of activities including think pieces, webinars and external engagement on these risks.

Decumulation Pathways are proposed to help achieve better retirement outcomes for those with Defined Contribution (DC) pensions. The DC fund is split into two parts, in proportions of the consumer’s choice. Most is allocated to the Pension Fund to provide a lifetime income, while the rest is placed in the Flexible Fund for flexible access and/or to leave as a legacy. The Flexible Fund is invested in flexi-access drawdown. The Pension Fund is invested in a guaranteed annuity, Collective Defined Contribution, or a Pooled Pension Fund which maintains individual DC funds but pools longevity risk between participants. An illustrative standard Decumulation Pathway is intended as a default solution, or can be tailored by the consumer. It uses the Pooled Pension Fund, an automated withdrawal strategy which ensures a lifetime income is provided and one that aims to increase in line with inflation, and a moderate risk investment strategy. The standard approach is evaluated using various metrics, indicating that it has as a strong chance of providing a higher income than could be obtained from an annuity or drawdown, with limited downside risk.

This paper explores data and modelling considerations in the risk assessment and underwriting of mental health conditions in life insurance products. Alongside this, it considers the possibilities that improved data availability could open up in terms of additional underwriting designs that could further improve the accessibility and affordability of life insurance products for those with mental health conditions. Rather than being a prescriptive recommendation, our aim is for the considerations set out in this paper to form a basis of discussion for Members of the Profession and other insurance professionals.

There is a lack of publicly available information covering the practices insurers employ to manage their exposure to reinsurance recapture risk. A working party was set-up to shed light on the different approaches insurers use to mitigate this complicated to manage risk. This report is intended to form part of a publicly available information repository that market practitioners can refer to and reflect on as best practice evolves and develops.