Search

IFRS 17 Insurance Contracts is a new accounting standard currently expected to come into force on 1 January 2023. It supersedes IFRS 4 Insurance Contracts. IFRS 17 establishes key principles that entities must apply in all aspects of the accounting of insurance contracts. In doing so, the Standard aims to increase the usefulness, comparability, transparency and quality of financial statements. A fundamental concept introduced by IFRS 17 is the contractual service margin (CSM). This represents the unearned profit that an entity expects to earn as it provides services. However, as a principles-based standard, IFRS 17 results in entities having to apply significant judgement when determining the inputs, assumptions and techniques it uses to determine the CSM at each reporting period. In general, the Standard resolves broad categories of mismatches which arise under IFRS 4. Notable examples include mismatches between assets recorded at current market value and liabilities calculated using fixed discount rates as well as inconsistencies in the timing of profit recognition over the duration of an insurance contract. However, there are requirements of IFRS 17 that may create economic or accounting mismatches of its own. For example, new mismatches could arise between the measurement of underlying contracts and the corresponding reinsurance held. Additionally, mismatches can still arise between the measurement of liabilities and the assets that support the liabilities. This paper explores the technical, operational and commercial issues that arise across these and other areas focusing on the CSM. As a standard that is still very much in its infancy, and for which wider consensus on topics is yet to be achieved, this paper aims to provide readers with a deeper understanding of the issues and opportunities that accompany it.

The pensions dashboard has been talked about across the industry for a long time. With the proposed implementation date of 2019 (although it has been questioned by some whether this is achievable or not), it is time to consider the actuarial aspects behind providing individuals with details of their pension benefits. This paper outlines the perspective of the IFoA’s Future Pensions Landscape working party. The paper considers the objectives of the dashboard and the functionality that may be required to deliver on those. It also highlights the difficulties of the necessary consistency between different types of benefits and the need for alignment with other pensions communications. Lastly, it considers what is needed to enhance the dashboard to enable members to understand what their benefits might look like at retirement and the opportunities the dashboard delivers for further modelling and financial planning. Objectives and functionality Much has been made about the difficulty (or otherwise) of delivering on the promise of a pensions dashboard, but ultimately that will depend on what it aims to provide for the individual. The working party has considered the short and longer-term opportunities with a dashboard and what functionality these may require. It is clear that a balance between functionality and deliverability must be struck to ensure that something meaningful is delivered within a reasonable timeframe (2). Different types of benefits The working party has considered the features of occupational and personal pensions, defined benefit (DB) schemes (5.21), defined contribution (DC) schemes (5.25) and the state pension (3). We believe that it is essential to deliver key information around each of them in a way that is consistent but takes account of the differences between them, including the need to: use scheme/benefit-specific pension commencement dates (4); display accrued and prospective benefits at retirement in real terms (5.6, 5.20); display dependants’ benefits when a part of the scheme rules (5.12); display details of benefits in payment or already in drawdown (5.4); ensure that deferred DBs are revalued to a recent date (5.22); be clear about the level of pension increases payable using inflation linking as a default (5.17); and outline any options on a benefit such as tax-free pension commencement lump sum (5.8). Having included the above, the dashboard must then consider how to allow for consistency of projection of benefits to the scheme/benefit-specific pension commencement dates. For DBs, this can be achieved relatively easily in real terms by allowing merely for future accrual based on the current position and benefit structure. For DC benefits, this needs a standardised approach. After consideration of multiple options (5.25), we have recommended a simplified projection approach using a risk-based allowance for real investment growth depending on the assets held (or a risk categorisation) (5.50). This would enable the dashboard to carry out consistent projections across DC pots. In an ideal world, we recommend that benefit statements use projections aligned to this approach, too. In order to build confidence in any dashboard (and in pensions in general), consistency between benefit statements and scheme provision of information is key (8). This includes the need for dates and speed of information provision, the type of information provided and assumptions and projection approaches to be standardised. We have also considered other hybrid benefit structures that exist. Many or all of these can revert to using the approach outlined for DB, DC, or a combination of the two along with the expertise of a provider to achieve the aims of consistent dashboard provision (6). We have also tried to allow for some of the legacy or complex issues within the UK pensions landscape that we consider relevant to the provision of a usable dashboard, such as the need to include Guaranteed Annuity Rates, and the need to explain the various risks and uncertainties with both DB and DC provision (7). Future opportunities for supporting financial planning The working party has considered the longer-term opportunities to use the dashboard to assist individuals with planning for their retirement. We recommend that the dashboard infrastructure be set up with this in mind from the beginning, even if the deployment of this type of support is a long way away (9) or even provided through third parties (10). The working party looks forward to the Department for Work and Pensions feasibility study on the dashboard (which is due for publication) and welcomes the chance to influence the shape of what has the potential to be a huge engagement opportunity for the pensions industry.

This paper discusses the use of modelling techniques for the purpose of risk management within life insurers. The key theme of the paper is that life insurance is long-term business and carries with it long-term risks, yet much of modern actuarial risk management is focussed on short-term modelling approaches. These typically include the use of copula simulation models within a 1-year Value-at-Risk (VaR) framework. The paper discusses the limitations inherent within the techniques currently used in the UK and discusses how the focus of the next generation of actuarial models may be on long-term stochastic projections. The scope of the paper includes a discussion of how existing techniques, together with new approaches, may be used to develop such models and the benefits this can bring. The paper concludes with a practical example of how a long-term stochastic risk model may be implemented.

This paper introduces and demonstrates the use of quantum computers for asset–liability management (ALM). A summary of historical and current practices in ALM used by actuaries is given showing how the challenges have previously been met. We give an insight into what ALM may be like in the immediate future demonstrating how quantum computers can be used for ALM. A quantum algorithm for optimising ALM calculations is presented and tested using a quantum computer. We conclude that the discovery of the strange world of quantum mechanics has the potential to create investment management efficiencies. This in turn may lead to lower capital requirements for shareholders and lower premiums and higher insured retirement incomes for policyholders.

This paper is motivated by The Pensions Regulator (TPR)’s review of its Code of Practice on funding for defined benefit schemes and aims to suggest how trustees and regulators should monitor the extent to which scheme assets are adequate to cover liabilities. It concludes that current practice is inadequate and needs to change. A review is carried out of papers on not only this subject but also (to collect ideas rather than automatically apply them to pensions solvency valuations) pensions and insurance accounting and regulation. Current practice is “scheme-specific funding” which permits discretion on choice of discount rates and other assumptions; the paper is concerned that this can lead to bias, and that trends in a scheme’s solvency can be obscured by changing assumptions. This also leads to the funding ratio communicated to scheme members having little meaning. The paper suggests that regulators should require a valuation that is based on sound principles, objective, fair, neutral, transparent and feasible. A prescribed methodology would replace discretion. It concludes that the benefits to be valued are those arising on discontinuance of the scheme, without allowing for future salary-related benefit increases, which are felt to no longer be a constructive obligation of employers. The valuation should, it is suggested, use market values of assets, which is largely current practice. Liabilities should reflect the trustees fulfilling their liabilities, rather than transferring them to an insurer (which may introduce artificialities). The discount rate should follow the “matching” approach, being a market-consistent risk-free rate: this is consistent with several papers to the profession in recent years. It avoids the problems of the “budgeting” approach, where the discount rate is based on the expected return on assets – this can be used to help set contribution levels but is not suitable for determining the value of liabilities, which depends on salary, service, longevity, etc and (very largely) not on the assets held. In principle, the liability value can be adjusted for illiquidity. Credit risk of the employer should not be allowed for. Liabilities should reflect the (probability-weighted) expected value of future cash flows and should not be increased by prudent margins or risk margins (which would lead to a non-neutral figure). Risk disclosures are needed to understand and manage risks. The resulting funding ratio is a consistent measure, to be disclosed to members, which can be used to manage the scheme, and by regulators as the basis for requiring action. Scheme-specific management using data such as the employer covenant means that immediate action to ensure 100% solvency on the proposed basis would not necessarily be appropriate. The author encourages the profession to advise TPR on the above lines.

Climate change is one of the biggest challenges facing the world. Scientific research points out that it is predominately driven by human activity. There are three different types of risks that arise from this change. These have been broadly grouped into physical, transition and liability risks. These risks can impact general insurers to different degrees, depending on their business areas and investment strategies. These may pose different strategic, investment, market, operational and reputational risks. This paper provides General Insurance Practitioners with an overview of different aspects of insurance operations that may be affected by climate change. It highlights the impact of these risks on pricing and underwriting, reserving, reinsurance, catastrophe modelling, investment, risk management and capital management processes.

For life insurers in the United Kingdom (UK), the risk margin is one of the most controversial aspects of the Solvency II regime which came into force in 2016. The risk margin is the difference between the technical provisions and the best estimate liabilities. The technical provisions are intended to be market-consistent, and so are defined as the amount required to be paid to transfer the business to another undertaking. In practice, the technical provisions cannot be directly calculated, and so the risk margin must be determined using a proxy method; the method chosen for Solvency II is known as the cost-of-capital method. Following the implementation of Solvency II, the risk margin came under considerable criticism for being too large and too sensitive to interest rate movements. These criticisms are particularly valid for annuity business in the UK – such business is of great significance to the system for retirement provision. A further criticism is that mitigation of the impact of the risk margin has led to an increase in reinsurance of longevity risks, particularly to overseas reinsurers. This criticism has led to political interest, and the risk margin was a major element of the Treasury Committee inquiry into EU Insurance Regulation. The working party was set up in response to this criticism. Our brief is to consider both the overall purpose of the risk margin for life insurers and solutions to the current problems, having regard to the possibility of post-Brexit flexibility. We have concluded that a risk margin in some form is necessary, although its size depends on the level of security desired, and so is primarily a political question. We have reviewed possible alternatives to the current risk margin, both within the existing cost-of-capital methodology and considering a wide range of alternatives. We believe that requirements for the risk margin will depend on future circumstances, in particular relating to Brexit, and we have identified a number of possible changes to methodology which should be considered, depending on circumstances.

A new stream of research proposes how people can increase their income in retirement by pooling their mortality risk. How one of these mortality risk-sharing rules could be implemented in practice, as part of a retirement income scheme, is considered. A potential advantage of the scheme is that a retiree’s housing wealth can be monetised to provide an income stream. This would mean that retirees can continue living in their home, without needing to downsize. It may be most attractive to the millions of single pensioners, particularly those who are “asset-rich and cash-poor”. Other types of assets that could be included and how to mitigate selection risks are assessed. A way of smoothing the raw mortality credits in order to make the scheme more appealing to potential members is proposed. An illustrative premium calculation suggests that the cost of the smoothing is very small compared to the potential attractiveness of an enhanced, smoothed income.

This paper examines the resilience of various retirement solutions in the context of factors that can influence their sustainability. First, by considering the desirable features of retirement solutions within the United Kingdom, the authors outline the key levers available to the architects of retirement vehicles to ensure stability. Second, to measure “resilience” the authors create a failure score to establish a method of determining if a vehicle has “failed”. Third and finally, we look at those external forces that influence the likely longevity of a retirement solution.

The hedging practices survey took place towards the end of 2015 in the final few months prior to Solvency II regulations coming into force. At the point of completing the survey we would expect that companies would have largely transitioned their hedging approaches to work in a Solvency II environment. There may be some cases where further changes were planned but not implemented at the point of completing the survey. Further, as familiarity with working under the new regulations increases, approaches are expected to continue to develop over time. The working party hopes that this report is useful in summarising industry attitudes at this point in time and as a comparator in future years. Before launching the survey we did have several conjectures of what we may expect to see in the results. Some proved true, for some it was difficult to glean any strong conclusion from the data, and there were one or two where results countered what we expected to see.

The move from defined benefit to defined contribution (DC) has transferred the longevity and investment risks from the plan sponsor to the individual plan member. Without the actuarial cross-subsidies implied by pooling these risks, the danger of outliving one’s savings is significant. Much attention has been focussed on pre-retirement investment design but less on post-retirement. In most countries, the post-retirement systems in place are insufficient to solve this challenge for small asset sizes or small proportions of individuals’ retirement accounts. However, a number of DC markets are mature, such as Australia and Chile, and the principles of a solution that works for all must be identified. This paper researches a number of post-retirement systems around the world and identifies ten key factors that contribute to post-retirement solution design. These factors can result in an inconsistency between countries regarding the most appropriate post-retirement solution. Additionally, a disconnect is apparent between what retirees need and want in post-retirement. Successful post-retirement solutions will inevitably blend investment and insurance components in a balanced manner. With lengthening life expectancies, research supports strategies that blend a growth and income account-based approach for the first 15–20 years after retirement with longevity protection in later life.

The term ‘investment risk’ is often used loosely, and frequently confused with the notion of short-term price volatility, particularly for equity instruments. For the long-term investor, however, what is most apposite is the ability to meet future real cash flows as they become due. This paper addresses the concept of economic fundamentals of long-term investment, the objectives of long-term investors (and how these differ from those of short-term investors), the notion of real value shortfall risk, what is meant by an investor’s risk capacity (as opposed to risk appetite) and liquidity management considerations. Subsequently, some of the constraints and barriers to appropriate risk measurement and management are considered, in particular the regulatory and behavioural biases that are overlaid on fundamental asset/liability management. Various alternative approaches to measuring risk, and their appropriateness for purpose, are outlined, in the hope of further informing the discussion and thereby helping to accelerate productive change.

The last 12 years have seen the evolution of a new funding regime under the supervision of the Pensions Regulator. Over this period, there has been significant turbulence in financial markets, including record low interest rates. This paper takes a critical look at the development of funding approaches and methodologies over this period. It analyses the Pensions Regulator guidance and how scheme specific actuarial methods have emerged since the move away from the Minimum Funding Requirement in 2001 and the introduction of the Scheme Specific Funding Requirements in 2005. It asks whether these new methodologies have been successful from the perspective of members, trustees, employers and shareholders. At a time when actuarial valuation methodologies have faced considerable criticism, this paper aims to propose a pension funding methodology which is fit for purpose and also reflects the latest guidance from the Pensions Regulator on integrated risk management.

Some UK insurers have been using real-world economic scenarios for more than 30 years. Popular approaches have included random walks, time series models, arbitrage-free models with added risk premiums or 1-year Value at Risk distribution fits. Based on interviews with experienced practitioners as well as historical documents and meeting minutes, this paper traces historical model evolution in the United Kingdom and abroad. We examine the possible catalysts for changes in modelling practice with a particular emphasis on regulatory and socio-cultural influences. We apply past lessons to provide some guidance to the direction of capital market modelling in future, which has been key for business and strategy decisions.

When deriving a demographic basis from experience data it is useful to know (i) what uncertainty surrounds that basis, and (ii) the financial impact of that uncertainty. Under the Solvency II regime in the EU, insurers must hold capital against a number of risks. One of these is mis-estimation risk, i.e. the uncertainty over the current rates of mortality and other biometric risks experienced by a portfolio. We propose a general method for assessing mis-estimation risk, and by way of illustration we look at how mis-estimation risk can be assessed for a portfolio of pensions in payment from a UK pension scheme. We find that the impact of mis-estimation risk varies according to the risk factors included in a model, and that the inclusion of some necessary risk factors increases the financial impact of mis-estimation risk. In particular, the inclusion of risk factors which improve the model’s fit and financial applicability can lead to an increase in the mis-estimation risk. We also find that a full-portfolio valuation is preferable to using model points when assessing mis-estimation risk.

The Solvency II Directive introduces the idea of a formal Actuarial Function to have responsibility over delivering the requirements of Article 48 of the Directive. Article 48 describes the responsibilities as being concerned with technical provisions, an opinion on reinsurance adequacy, an opinion on underwriting policy and contributing to the risk management system. Considerable documentation has been produced by the Prudential Regulation Authority (PRA), the Institute and Faculty of Actuaries (IFoA) and the European Insurance and Occupational Pensions Authority on the subject, much of it very recent to the publication of this paper. The purpose of this paper is to provide the reader with some practical insights and suggestions around addressing the requirements of Article 48 of the Solvency II Directive in general insurance firms, taking into consideration the publications of the aforementioned regulatory authorities. It is not our intention to give advice, nor to be seen to give advice, but rather to make suggestions and observations that we hope the reader will find useful. The Regulations lay down the tasks of the Actuarial Function, so insurers should consider the need for formal terms of reference, backed up by proportionate governance procedures. The Regulations also require the production of an Actuarial Function Report to document the tasks undertaken by the Actuarial Function and its results. Such a report can be an aggregate report, made up of individual component reports completed at suitable points in the Actuarial Function’s work cycle, so long as it reports on all the required tasks. The technical provisions section should cover at least all the areas laid down in the Delegated Acts. The opinions required covering reinsurance adequacy and underwriting policy are not formal “sign offs”, but contributions to the effective running of the insurer by applying the skills and knowledge of actuaries to areas for which they are not normally responsible. Again, the Delegated Acts mandate the minimum contribution the Actuarial Function should make. The responsibility for delivering the work of the Actuarial Function does not have to be given to a member of the IFoA; however, the PRA is going to require (at least) one person to be designated the “Chief Actuary”, defined as the person responsible for delivering the requirements of Article 48 of the Directive. In response, the IFoA has stated its intention to require its members holding the role of Chief Actuary, as defined by the PRA, to hold a practicing certificate. Any Actuarial Function will need to consider issues of governance, independence and conflicts of interests. The PRA intends to require the Actuarial Function to be independent of an insurer’s revenue-generating functions. In addition, normal good governance requires a degree of separation between those who perform Actuarial Function work and those who review and supervise it. There are numerous stakeholders in the Actuarial Function’s work. Some of these will rely on the output of the Actuarial Function, others will provide inputs to its work. Setting out stakeholder responsibilities clearly and in advance will be of vital importance. Good communication and coordination between these groups will be important to the efficient running of the insurer. Bringing together issues of governance, independence and meeting the Directive and regulators’ requirements will require a suitable organisational structure which will also need to consider practical issues, such as the availability of suitable staff. Many such arrangements may be possible, but all will require trading off advantages and disadvantages. The Actuarial Function is primarily about good practice and getting the most out of the actuarial skills available. For many insurers, meeting the requirements should not be unduly burdensome.

In this paper, four variants of calculating the Solvency Capital Requirement for long-tail liabilities satisfying Solvency II regulations are discussed. The merits of each metric are related to the stated objectives of Solvency II. Assumptions made in the calculations are assessed for suitability for the determination of an appropriate level of Solvency Capital. We show that two methods for calculating Solvency Capital provide insufficient capital to restore the Economic Balance Sheet in the event of distress. The standard formula referencing the Claims Development Result is shown to be too conservative when models are correctly specified.

This abstract relates to the following paper: Gerrard, R., Hiabu, M., Kyriakou, I. and Nielsen, J. P. (2018) Self-selection and risk sharing in a modern world of life-long annuities. British Actuarial Journal. Cambridge University Press, 23. doi: 10.1017/S135732171800020X.

Communicating a pension product well is as important as optimising the financial value. In a recent study, we showed that up to 80% of the value of a pension lump sum could be lost if customer communication failed. In this paper, we extend the simple customer interaction of the earlier contribution to the more challenging lifetime annuity case. Using a simple mobile phone device, the pension customer can select the life-long optimal investment strategy within minutes. The financial risk trade-off is presented as a trade-off between the pension paid and the number of years the life-long annuity is guaranteed. The pension payment decreases when investment security increases. The necessary underlying mathematical financial hedging theory is included in the study.

Critical illness (CI) insurance involves cover that pays out on the diagnosis of an illness which is deemed to be critical. Estimation and graduation of CI insurance claim rates has been challenging, partly because of the diagnosis of the insured event often being unclear or not recorded. This introduces additional uncertainties in the evaluation of claim rates. In this work, which was funded by an Institute and Faculty of Actuaries research grant, we have addressed the issue of model and parameter uncertainty in claim rate estimation, when the date of diagnosis is missing, aiming at obtaining graduated rates that can be applied to estimate the future cash flow of CI policies and determine insurers’ liability more accurately. Better understanding of uncertainty in rate graduation and pricing is important for insurers, not least because of future changes in the interpretation of the “definition” of an illness or advances in medical practice leading to more efficient diagnosis and treatment.Estimation of claim rates was addressed in this project using a parametric Poisson model for the number of claims, which accounts for claims that have not been settled by the end of the observation. This was achieved by considering probabilities of the distribution of the delay period between diagnosis of insured illness and settlement of the corresponding claim. We have developed appropriate generalised-linear-type models (including lognormal, Burr, generalised gamma and generalised beta) to investigate this delay, using data supplied by the Continuous Mortality Investigation (1999–2005). The analysis includes various claim risk factors (e.g. gender, benefit amount, policy duration and so on) and was performed under a Bayesian framework, using Markov chain Monte Carlo estimation techniques.Based on this experience, our analysis suggests that estimates of the claim delay distribution are model sensitive, but claim rates and pricing are not. Under the best claim delay distribution fitting, the following risk factors are considered important for predictive purposes: policy duration, selling office, benefit type, benefit amount, policy type and cause of claim.

State Pension Age (SPA) is an issue of topical interest in the United Kingdom at the time of writing owing to the Government’s plans to link SPA at future dates to estimates of the projected longevity of the population. This paper considers the background to the current position, how the linkage is proposed to work, other factors that may need to be considered and some changes in the proposed State pension regime that could be alternatives to, or complementary with, a changing SPA.

We examine the roles of actuaries in UK life offices, along with trends, challenges to and opportunities for actuaries. We carry out an analysis of senior roles in life offices, a questionnaire survey and interviews with relevant senior personnel. We find that actuaries occupy many important roles in life offices and are regarded as having good industry knowledge and technical skills, especially in financial modelling. There are fewer executive directors and more non-executive directors of life offices who are actuaries compared with the position in 1990. A higher proportion of reserved roles is outsourced to consultants than was the case in 1990. Only a small number of Actuarial Function Holders are directors. Actuaries are more siloed than was the case in the past, although actuaries are well represented in the finance and risk functions of many offices. Although actuarial work in connection with the preparation for Solvency II will decline, there will be important ongoing requirements for actuaries following Solvency II implementation. We also see opportunities for actuaries in four areas: in risk management, in financial analysis and management based on Solvency II and international financial reporting standards, in connection with “big data”, and in product development and the customer proposition. There are implications for the examination syllabus, continuing professional development and research.

This paper brings together the work of the GI Solvency II Technical Provisions working party. The working party was formed in 2009 for the primary purpose of raising awareness of Solvency II and the impact it would have on the work that reserving actuaries do. Over the years, the working party’s focus has shifted to exploring and promoting discussion of the many practical issues raised by the requirements and to promoting best practice. To this end, we have developed, presented and discussed many of the ideas contained in this paper at events and forums. However, the size of the subject means that at no one event have we managed to cover all of the areas that the reserving actuary needs to be aware of. This paper brings together our thinking in one place for the first time. We hope experienced practitioners will find it thought provoking, and a useful reference tool. For new practitioners, we hope it helps to get you up-to-speed quickly. Good luck!

This abstract relates to the following paper: ElliottSLong-term care: a review of global funding. British Actuarial Journal, doi: 10.1017/S1357321714000300

The Working Party has developed some practical hints and tips for those developing integrated risk management (IRM) plans for UK defined benefit pension schemes in the context of the requirements of the Pensions Regulator. Four case studies are presented to illustrate its conclusions, which are encapsulated in the ten commandments for effective IRM. IRM is the consideration of investment, funding and covenant issues, and how these interact. Its purpose should be to aid decision making and so should have a clear outcome in mind. It should be a continuous process and should form part of everyday trustee governance – it is not simply a one-off exercise. Whilst most Trustees and advisors consider funding issues when setting their investment strategy and vice versa, fewer fully integrate covenant into their decision-making process. However, covenant underpins all risk taken in a pension scheme and so needs to form a regular part of trustee discussions and analysis by advisors.

Common to all previous studies assessing the cost of adverse selection associated with genetics has been the assumption of an established market, i.e., the adverse selectors have been buying insurance at that rate for such a period that premiums have already absorbed it. Their analyses involve calculating the percentage difference between premiums in a market with adverse selection and one without adverse selection. They can shed no light on how the premiums would get to this stage over time and what losses might be incurred in the process. We take the modelling further by outlining a multiple state Markov model for a start-up market of long-term care insurance. With this model, we explicitly show the progression of adverse selection costs using the development of information that an insurer would gain from analysing the claims history of its existing business, to reprice premiums for new business. To overcome the complication of insurance benefit amounts, which depend on the value of previous benefit payments, we develop a simulation approach of estimating the expected present values of insurance benefits and premium payments. In applying our modelling to a UK setting, we find genetic testing of the apolipoprotein E gene (whose variants can cause a high risk of developing dementia) to be of a relatively small impact compared with our hypothetical state of intermediate dementia progression. Furthermore, we find that the government’s cap on care costs has little effect on adverse selection costs as it benefits only a small proportion of people.

This paper is a report from the Extreme Events Working Party. The paper considers some of the difficulties in calculating capital buffers to cover potential losses. This paper considers the reasons why a purely mechanical approach to calculating capital buffers may bot be possible or justified. A range of tools and techniques is presented to help address some of the difficulties identified.

This abstract relates to the following paper: FranklandR.EshunS.HewittL.JakhriaP.JarvisS.RoweA.SmithA.D.SharpA.C.SharpeJ. and WilkinsTDifficult risks and capital models: a report from the Extreme Events Working Party ‐ Abstract of the Edinburgh Discussion. British Actuarial Journal, doi: 10.1017/S1357321713000524

This abstract relates to the following paper:RichardsS. J., CurrieI. D. and RitchieG. P.A Value-at-Risk framework for longevity trend risk.British Actuarial Journal, doi:10.1017/S1357321712000342

This abstract relates to the following paper:ParodiP.Triangle free reserving.British Actuarial Journal, doi:10.1017/S1357321713000093

This abstract relates to the following paper:HatchettJ., HurdM. and ClacherI.Meeting defined benefit pension obligations: measurement, risk and flight paths.British Actuarial Journal, doi:10.1017/S1357321712000335

This abstract relates to the following paper:SweetingP. and FotiouF.Calculating and communicating tail association and the risk of extreme loss.British Actuarial Journal, doi:10.1017/S1357321712000347

This abstract relates to the following paper:KelliherP.O.J., WilmotD., VijJ. and KlumpesP.J.M.A common risk classification system for the Actuarial Profession.British Actuarial Journal, doi:10.1017/S1357321712000293

Longevity risk faced by annuity portfolios and defined-benefit pension schemes is typically long-term, i.e. the risk is of an adverse trend which unfolds over a long period of time. However, there are circumstances when it is useful to know by how much expectations of future mortality rates might change over a single year. Such an approach lies at the heart of the one-year, value-at-risk view of reserves, and also for the pending Solvency II regime for insurers in the European Union. This paper describes a framework for determining how much a longevity liability might change based on new information over the course of one year. It is a general framework and can accommodate a wide choice of stochastic projection models, thus allowing the user to explore the importance of model risk. A further benefit of the framework is that it also provides a robustness test for projection models, which is useful in selecting an internal model for management purposes.

The UK defined benefit pension scheme landscape has changed dramatically over the last few decades. During this period of change, conflicting views regarding the measurement of both assets and liabilities has made communication challenging. In turn, this has led to an under appreciation of risk and often suboptimal decision making. This paper seeks to draw together a variety of contrasting views to provide a coherent framework for stakeholders to meet pension scheme obligations over time.The proposed framework encourages agreement between both scheme sponsors and trustees towards a common target through a well articulated plan or “flight path”. In addition, the proposed flight path structure provides a common basis underpinning the measurement of both pension obligations and the risks inherent in any plan to meet those obligations.

Risk terminology varies from organisation to organisation, and actuaries working in different organisations may use different terms to refer to the same risk, or use the same nomenclature for completely different risks. This paper sets out a classification system developed by the Risk Classification Working Party for the Profession that can be used as a common reference point for discussing risk. Actuaries will not be required to use this system, but it is hoped that common terminology will reduce the possibility of confusion in discussing risks.

This abstract relates to the following paper:SitholeT.Z., HabermanS. and VerrallR.J.Second International comparative study of mortality tables for pension fund retirees. British Actuarial Journal, doi:10.1017/S1357321712000207

This abstract relates to the following paper:KempM.H.D., and PatelC.C.Entity-wide risk management for pension funds. British Actuarial Journal, doi:10.1017/S1357321712000086

This abstract relates to the following paper:OrrosG.C., and SmithJ.Enterprise risk management for health insurance from an actuarial perspective. British Actuarial Journal, doi:10.1017/S1357321712000062

This paper considers equity, or fairness, as being based on with-profits life insurers acting in accordance with their contracts. It uses the principles of with-profits business in conjunction with a legal approach to derive implied terms in with-profits contracts. The author examines certain situations of conflict between with-profits policyholders and shareholders. The paper does not regard all concerns put forward on behalf of policyholders’ interests as justified in practice: actuaries and regulators have been alert to issues and in many cases have taken appropriate action. However, it does suggest a number of practices that may be unfair. The paper also suggests that the current process for the reattribution of an inherited estate may favour shareholder interests over policyholder interests.