The paper addresses some of the practical and theoretical issues raised by the move to a market consistent calculation of realistic liabilities and solvency capital for with-profits business. It also proposes some changes to the presentation of the realistic balance sheet, which the authors believe will provide greater transparancy, and more closely reflect the way in which with-profits business should be managed in future.

This paper was written at the request of the Life Research Committee of the United Kingdom Actuarial Profession's Life Board. It concerns the valuation of U.K. with-profits business, with particular attention to the market-consistent ‘realistic reporting’ basis currently being used in the U.K. by the regulator, the Financial Services Authority (FSA). The paper surveys recent regulatory activity concerning the development and introduction of the new valuation approach, and puts it into the context of a survey of alternative methodologies, both deterministic and stochastic. The particular issues arising when considering prudential solvency are discussed, and various approaches are reviewed and compared with market consistent methods. Numerical examples are given, which demonstrate potential issues (regarding comparability and consistency) with the FSA's proposed approach — in particular the sensitivity of results to model calibration. The authors support the FSA's move to a stochastically-based framework for solvency measurement, but highlight some issues which need to be taken into account.

The paper outlines some background thinking to current pensions issues. In particular it addresses areas where the profession requires to articulate clearer views or reasoning about its position.

The purpose of this paper is to investigate the role that fixed income securities should play in pension scheme investment. In this paper I look at the investment characteristics of the various bond asset classes, including the nature of the income streams produced. I also look at the relationships between the various asset classes and their stability over time. I then look at the usefulness of the asset classes in the context of a pensioner portfolio, considering both capital values and income streams. I look at skew and excess kurtosis in the distributions of asset returns and consider the effect of their existence on the decision making process. Given that most asset models are calibrated using historical data, I do not carry out any modelling and instead analyse past data. Finally, I discuss practical issues that need to be considered, particularly in a United Kingdom context.