Discount rates project
The Management Board of the Actuarial Profession has undertaken a thought leadership cross-practice research project on discount rates. Part of that project has been the commissioning of objective research on current practice in this area. The timing for this research is particularly appropriate as there is a convergence of interest in discount rates from within and outside of the Profession.
Final reports from the Discount Rates Steering Committee
The DRSC has now published its final recommendations and the way forward together with a final update on the project including feedback from the consultation process following the publication of the sessional research discussion paper.
The Profession has also published a Press Release.
Discount Rates Sessional Research Meetings, January 2011
The events in Edinburgh on 17 January and London on 31 January saw the presentation of the report of the Discount Rates Steering Committee, Developing a framework for the use of discount rates in actuarial work. The report aims to enable the Profession to continue to speak clearly and with authority in future debates about discount rates and to support actuaries in communicating impartially and effectively. The report builds on the initial research undertaken by Chinu Patel and Chris Daykin which was commissioned by the Management Board and looks at developing a common language and framework for using discount rates in actuarial work.
The Discount Rates Steering Committee would like to thank all those who shared their views on the report in the first quarter of 2011. A report setting out the final conclusions is being worked on by the Steering Committee and will be available shortly.
Background
Discount rates are the heart of most actuarial calculations and therefore are also of significant public interest. In order to be able to continue to speak clearly and with authority in future debates about discount rates, the Profession needs to have a clear and common understanding of the issues surrounding the different discount rates used today across practice areas and to help in the development of frameworks for the future that will support actuaries in communicating impartially and effectively.
The Management Board has set up a small cross-practice steering committee chaired by Charles Cowling to drive the project. The Discount Rate Steering Committee identified five packets of research that needed to be undertaken to achieve the projects overall objectives:
- A survey of current practices
- A survey of existing research and debate
- Developing a common language for communicating discount rates and risk
- Developing a common framework for the future where appropriate
- Considering the impact of any changes
A call for research to undertake the first three packets went out in early December with a closing date for proposals in early January. The successful proposal was led by Chinu Patel and Chris Daykin with a team of more junior researchers associated with Cass Business School, Imperial College and Dublin City University. Chris was, until September 2007, the UK Government Actuary and Chinu was a partner/senior consultant in a leading global pension consultancy. Both are now sole practitioners.
The preliminary output was presented at a forum of thought leaders across the Profession and externally on 23 March 2010. The final version of the report by Chinu and Chris, Actuaries and discount rates, was presented to the Discount Rate Steering Committee in May 2010. It covers their initial research into past and current practice in the setting of discount rates in the UK, and a survey of existing research and debate. The report covers some initial steps towards developing a common language whilst acknowledging further work is needed on the most appropriate classification and ways of describing the concepts involved. The report was gratefully received by the Discount Rate Steering Committee.
Discount rates forum, 23 March 2010
Background and call for proposals, issued December 2009
Membership of the Discount Rates Steering Committee 2009/2010
- Charles Cowling (Chairman)
- Alastair Clarkson
- Robert Hails
- Malcolm Kemp
- James Orr
- Andrew Smith
- James Tuley
- Ruth Loseby (Secretary)
Terms of reference
The Management Board has set up a small cross-practice steering committee of practitioner volunteers to drive the discount rates project and to ensure that it remains practically focussed.
The purpose of the committee is:
- To agree the scope of the research and which elements are best dealt with by an external researcher and which by the steering committee
- To agree the initial call for proposals to external researchers
- To review the proposals and recommend the successful applicant to the Management Board
- To assess how the objectives of the project can be achieved and what is realistic
- To provide support on the direction of the project to the lead researcher and their research team
- To provide support to the Actuarial Professions Research Manager in running the project
- To provide a link with the practice areas of the Actuarial Profession
- To provide a link with the IAA
- To develop a plan for communicating with and gaining input from members in the Actuarial Profession
- Developing the external communications strategy in collaboration with the Actuarial Professions Chief Executive and Communications Division
- To review the initial report for the Profession
- Planning the forum setting date, booking venue, publicity
- Deciding on the format of the forum what it is intended to achieve, who should be invited
- To take a lead in the forum
- To discuss dissemination and exploitation strategies including outside the Profession and internationally.