Actuarial practitioners have traditionally utilised conventional economic theory to identify the approach to adopt in economic and financial issues. For example, using the Black-Scholes formula to value options held by their client companies, or relying upon the Efficient Markets Hypothesis to explain and validate the valuation of shareholdings.
The experience of the 2008 economic and financial crisis challenged conventional economic tools, with other schools of economic thought brought into sharp focus. This has opened up a number of questions that the IFoA would like to explore through a research programme focused on economic modelling.
Project Summary
Dr Iain Clacher of Leeds University Business School was engaged in June 2017 to undertake the first phase of the research; a survey of the economic theories used, both explicitly and implicitly, by firms which employ actuaries in the UK. Dr Clacher undertook a series of detailed interviews with a range of experts, both internal and external to the Profession, looking at economic theories in common use in actuarial practice. Dr Clacher's initial findings were discussed at an Actuarial Research Centre (ARC) event, held in May 2018 with senior actuaries and experts, looking at how the Profession could improve economic understanding in areas that inform actuarial work. Following these thought-provoking discussions, the ARC and IFoA actuarial volunteers will be progressing further research and stakeholder discussion to ensure the profession is contributing to, and learning from, this important debate. Dr Clacher's report - summarising his research findings - has been published. Download the report.
Research Methodology (Qualitative)
Face to face interviews with relevant individuals working in firms including, but not limited to, insurance companies, consultancies, banks and pension funds. The research was carried out in two phases to allow for a round table event at which preliminary results were discussed and used to guide the second phase of research.
Research Outputs
The initial output of this research was a report summarising Dr Clacher's findings as well as presentations at relevant IFoA events.
Dr Clacher's initial report, June 2019: The report provides a picture of the current opinions of a range of actuaries and economic experts on the subject of economic thought, how the traditional concept of economic thought is changing and the likely impact this change could make on approaches towards long-term investment and risk.
ARC Launch Event, May 2018: The ARC hosted a round table launch event on 29 May 2018 at Staple Inn Hall, to share thinking so far, following a series of confidential interviews of leading actuarial thinkers in a wide range of roles. An introduction to the ARC's Economic Modelling programme was given by Professor Mark Cross, chair of the IFoA's Research and Thought Leadership Board (RTLB), 2015-18. Dr Iain Clacher and Professor Steve Keen also presented at this event. View Dr Iain Clacher's presentation. View Professor Steve Keen's presentation.
IFoA Life Conference, November 2017: Dr Iain Clacher (Leeds University Business School) delivered a workshop on "Economic Theory and Actuarial Practice". Following this, the economic modelling programme will host a round table event to share thinking and look at how the Profession could improve economic thought in actuarial practice. View Dr Iain Clacher's presentation
In the News
Diversity of economic thoughts - why it matters. An article in The Actuary highlights key areas for consideration by the actuarial profession, following Dr Iain Clacher's report on 'Economic Thinking and Actuarial Practice'. Erik Vynckier's response to the report is also included in the article. Erik is the chair of RTLB, 2018 - present.
'Animal spirits' vs the efficient market hypothesis. Alex Waite asks whether actuaries are evolving to remain relevant in their economic predictions. Read the full article in The Actuary.
In a letter to The Actuary Mr W John Bishop, FIA responds to the article.
Contact Details
If you want more information about our research programmes please contact the IFoA Actuarial Research Centre:
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Events calendar
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ARC Webinar Series 2021 - Use of Primary Health Care Records Data in Actuarial Research
Webinar9 March 2021
As part of the ARC Webinar Series 2021, this webinar will review the work of the UEA/Aviva research team over the last four years on a major research programme funded by the IFoA’s Actuarial Research Centre. -
Implications of Climate Change for Life Insurer's Risk Modelling and Strategic Asset Allocation
12 March 2021
Climate change poses a significant threat across many regions and sectors, and businesses. Insurers and asset managers, must play a role in ensuring transparency around climate related risks and opportunities. -
Whilst insurers have been performing stress and scenario testing for many years, in the last 12 months the PRA has increased its focus on the ability to identify, measure and increase financial and operational resilience.
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Finance in the Public Interest Series
16 March 2021 - 23 March 2021
There is widening debate that many of our social, financial and regulatory institutions need to be rethought so that we can create more sustainable futures, particularly in light of the Covid-19 pandemic, the policy/macro-economic response to the pandemic and how it affects consumers, as well as the impending climate crisis. This multi-day series of three keynote webinars, individually presented by leading economist John Kay, Sir Paul Collier, Professor of Economics and Public Policy at the Blavatnik School of Government, Ashok Gupta, Chair at Mercer Ltd, and Nico Aspinall, Chief Investment Officer at B&CE, will open up discussion on these essential topics. The series will culminate in a panel session with Chief Economist of the Bank of England, Andy Haldane.
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The price is righter
16 March 2021This webinar provides an overview of the state of the UK protection market, and how different insurers are using different levels of sophistication to price (such as using customer demand models). It considers how insurers have implemented these sophisticated pricing techniques, and the practical challenges they have faced. -
This discussion will revolve around the latest industry developments including and introduction to Part VII transfers and Schemes of Arrangement (process, parties involved and recent events), insights and lessons from recent with-profits transactions and restructurings (including Equitable Life and Pru-Rothesay), how firms can apply these learnings to future arrangements, and the outlook for future with-profits transactions and restructurings (including the impacts of Covid-19 and Brexit)
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The role of stewardship in creating long term value
25 March 2021
What is stewardship and how has the landscape changed under the 2020 UK Stewardship Code? How does effective stewardship create long term value for beneficiaries and what roles do asset owners and asset managers play in active stewardship. This webinar will offer answers to these questions in a practical approach to stewardship reporting. -
Dr Catherine Donnelly will present the basics of the structures for pooling longevity risks and summarise recent research results in this area in addition to outlinging future research around this topic. This is work under a research programme funded by the IFoA's Actuarial Research Centre, called 'Minimizing longevity and investment risk while optimising future pension plans'.
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Mis-estimation risk is a key element of demographic risk, and past work has focused on mis-estimation risk on a run-off basis. However, this does not meet the requirements of regulatory regimes like Solvency II, which demands that capital requirements are set through the prism of a finite horizon like one year. This paper presents a value-at-risk approach to mis-estimation risk suitable for Solvency II work.
As part of the ARC Webinar Series 2021, this webinar will review the work of the UEA/Aviva research team over the last four years on a major research programme funded by the IFoA’s Actuarial Research Centre.
Climate change poses a significant threat across many regions and sectors, and businesses. Insurers and asset managers, must play a role in ensuring transparency around climate related risks and opportunities.
What is stewardship and how has the landscape changed under the 2020 UK Stewardship Code? How does effective stewardship create long term value for beneficiaries and what roles do asset owners and asset managers play in active stewardship. This webinar will offer answers to these questions in a practical approach to stewardship reporting.