There is currently no international standard for profit reporting in life insurance companies. The paper sets out the issues which an international standard for life companies will need to address, bearing in mind compatibility with existing International Accounting Standards, in particular IAS 32 Financial Instruments: disclosure and presentation, IAS Exposure Draft E62 (now IAS 39); Financial instruments; recognition and measurement and the discussion paper of March 1997 prepared by the Steering Committee on Financial Instruments entitled ‘Accounting for Financial Assets and Financial Liabilities’. The paper discusses possible approaches to the issues which arise and comments on each, ending with some final conclusions.

Four papers were available for discussion at the meeting:

(1) ‘Continuing Care Retirement Communities — Attractive to Members, but what about Sponsors?’ by R. A. Humble and D. G. Ryan, was previously presented to the Institute of Actuaries on 26 January 1998, and the paper and the discussion of it appear in British Actuarial Journal, 4, 547-614.

(2) ‘A Model for Projecting the Number of People who will Require Long-Term Care’, by R. R. Ainslie, C. O. Daly, S. P. Laurie, B. D. Rickhayzen, M. A. E. Thraves and D. E. P. Walsh; and

(3) ‘The Actuarial Modelling of NHS Data’, by C. G. Orros, M. Iqbal, I. W. Lane, I. P. McKeever and M. R. Moliver, were both presented at the 1998 Health Care Conference, held at the University of Warwick. These papers are available in the Faculty and the Institute Libraries.

(4) ‘The Elderly and Continuing Care’, by Dr R. G. Smith, Chairman of the Geriatricians Committee of the Royal College of Physicians, commences on the next page.

Presidential Addresses are an opportunity to survey the actuarial landscape, and this one is no exception. The pace of change and scope of work undertaken by actuaries since the President qualified is commented upon. Many of the current and future issues are also aired, from bonus rates and pensions mis-selling to stakeholder pensions and long-term care. Regulation, in a number of areas, is also reviewed. The regular topics of education, examinations and continuous professional development also feature.

This document, consisting of several papers, sets out to provide a basis for discussion among actuaries of the Vision and Values of the United Kingdom actuarial profession. The profession realises that a clear vision and a strong sense of shared values are important attributes of a successful organisation. Following on from the work that has been done already in recent years on the mission and strategic aims of the Faculty and the Institute, several issues have been highlighted and need to be resolved so that the profession can move forward into the future.

In this document the Councils have stated what they consider to be the key elements of their vision for the profession in 2020 and of the values that they think the profession should have. These and the issues that arise from them are expanded in this document to give a focus for discussion.

This paper reviews some principles surrounding the reporting of realistic profits for life assurance companies and reports on the methods used in the United States of America and in Australia. Mention is also made of the valuation method adopted in South Africa.

The Presidential Address celebrates the 150th anniversary of the Institute of Actuaries by recalling speeches and press comments from the time of its foundation in 1848, and goes on to draw parallels between the issues of the day and those facing the profession in 1998. Foremost of these, there is a continuing emphasis on the public interest; it remains important for the Institute to be a learned society, and educational requirements have continued to be a central part of the profession's activities. The need for the profession to become more deeply involved in investment research is identified. A particular issue highlighted in the address is the constraint placed on the profession's growth and breadth by heavy reliance on self-study; much greater involvement of the universities is recommended.

In 1848, as in 1998, the potential for actuaries to use their skills in fields beyond life assurance was recognised, but the address notes that the opportunity to become involved in banking has never been properly grasped.

The leading role of the United Kingdom in the international development of the actuarial profession has continued throughout the history of the Institute, and recent developments in the International Actuarial Association are noted.

The need to educate clients and the wider public in what it is that actuaries do and how they go about it is the remaining major theme.

The final section identifies some current issues needing urgent attention, including the need to influence the shape of national and international accounting standards.

Closure of the fund to new business is a strategic option that is not usually considered as a part of the day-to-day running of a life assurance company. The paper explores certain circumstances in which it can be appropriate to consider it, though in the Working Party's view consideration of the closed fund alternative normally arises as a matter of course only in the context of demutualisations, and then as an indicator of the potential value of membership rights.

The topic is discussed in terms of legal, regulatory and professional aspects, and the profession is invited to consider providing more specific guidance for Appointed Actuaries whose companies are faced with demutualisation proposals. A number of practical aspects of operating a closed fund are outlined. The high-level financial considerations are illustrated by reference to a hypothetical case, and the perspectives of directors, independent and Appointed Actuaries and others are considered.

Several recent examples of demutualisations where the closed fund alternative was considered are summarised in appendices, and some examples of closed or virtually closed funds are cited.

The actuary has played a role in regulation in the United Kingdom since 1819. More recently, in 1974, the Appointed Actuary system was introduced for life insurance companies, backed by strong professional guidance. Derivatives of the Appointed Actuary concept have been implemented in a number of other countries. Meanwhile, in the UK, defined benefit occupational pension schemes are now required to appoint a Scheme Actuary, who has a statutory whistle-blowing role under the Pensions Act 1995. A number of statutory roles for pension actuaries were in place prior to this. In general insurance, Lloyd's syndicates are now required to obtain an actuarial opinion on the end of year provisions, as part of the Lloyd's market regulatory structure, and friendly societies must obtain an actuarial opinion on their technical provisions once every three years. This paper reviews some of the different regulatory roles of the actuary in the UK, draws some comparisons with the situation in other countries, considers the strengths and weaknesses of the present situation and invites debate and discussion on the way forward in order to optimise the contribution which the profession can make to the public interest in the field of regulation.

The text of this paper, together with the abstract of the discussion by the Institute of Actuaries and the Society of Actuaries in Ireland on 18 September 1998, are printed in British Actuarial Journal, 5, I, 55-113.

This paper takes an overview of the potential roles and responsibilities of pension scheme actuaries in the United Kingdom in relation to defined contribution (DC) schemes.

First it summarises briefly the background to UK retirement provision and in particular the move to DC arrangements. The paper then compares and contrasts the pension scheme actuary's current role in both defined benefit (DB) and DC schemes. This is then developed to consider what further statutory roles there may be for actuaries in DC schemes.

The paper challenges the profession to champion the public interest by seeking clarity and simplification, and finally considers the impact on actuarial employment.

In this paper we review three algorithms to calculate the probability of ruin/survival in finite time for the classical risk model. We discuss the computational aspects of these algorithms and consider the question of which algorithm should be preferred.

Social security pension schemes around the world are facing a number of problems, of which demographic ageing is the most commonly discussed. This paper provides an overview of expected future demographic developments in European Union and some other OECD countries, and evaluates some of the range of solutions which have been, or are being, considered to address this and other problems facing social security in the late 1990s, drawing on examples from OECD countries, from Latin America and from central and eastern Europe. Consideration is given to the possibilities for increasing the level of funding in social security pension schemes or developing funded complementary pension schemes.

In this paper we investigate the effectiveness of the Minimum Funding Requirement (MFR) (pre-1999 version) under random future investment conditions. In particular, do the various liabilities calculated under the MFR deliver a suitable level of security to pension scheme members?

The paper considers active (and deferred) members and current pensioners separately.

For active members, Monte Carlo simulation is used to compare how the proceeds arising from investment of the pre-1999 MFR liability in an equity-backed personal pension would compare with the deferred pension promised by the scheme. It is found that, while there may be the intended 50% chance that the personal pension has a better outcome, there are very substantial downside risks for younger members. Investment strategies based upon index-linked gilts are shown to result, on average, in lower personal pensions, but they provide an extremely effective means of limiting the downside risks.

For pensioners, Monte Carlo simulation is used to find the distribution of the initial amount of assets required to pay off precisely the pension liabilities as they arise. This investigation considers the effectiveness of the 12-year rule and different investment strategies. The 12-year rule in combination with an equivalent investment strategy is shown to provide reasonable security for a typical group of pensioners. However, if investments are restricted to an appropriate mixture of gilts then the level of security for pensioners is much increased. In particular, we investigate the use of value-at-risk reserves. It is found that 95% value-at-risk reserves are lower for a mixed conventional/index-linked gilts strategy than a mixed gilts/equity strategy.

It is argued, because of the high degree of downside risk, that there is no place in MFR calculations for high, anticipated equity returns. Instead rates of interest should be based solely upon fixed-interest and index-linked gilt yields.

This paper extends and develops the strategy investment approach first described in a paper to the 1997 Investment Conference of the Faculty and Institute of Actuaries. Selected constituents of the FTSE-100 Index are partitioned each month into groups of ten in terms of relative attractiveness as estimated by a utility function involving expected earnings growth over the following twelve months and prospective price-earnings ratio. The relative performances of these monthly cohorts of selections are then calculated at monthly intervals using principles similar to those used in mortality rate investigations. The mean values and the underlying variability of these relative performances suggest that the strategy investment approach provides a very powerful and consistent framework for successful equity share selection. Finally, the outline of a fundamental preferences model for performance relative to an equity market index is put forward as a possible replacement for the Capital Asset Pricing Model as the basic theoretical framework for equity share returns.

This paper addresses the fundamental issues in the construction and use of actuarial economic models, with specific reference to those described in the UK literature. Two approaches are considered: an empirical approach and a theoretical approach using financial economics. Although empirical testing is essential, the difficulties associated with it should not be underestimated. A theoretical framework can be used to limit the impact of these difficulties. However, economic modelling is further complicated by the lack of a reliable and comprehensive theoretical framework. This suggests that economic models are always likely to be inaccurate and consequently actuarial judgement is likely to be indispensable.