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Employer Covenants research project

This call for research closed on 15 June 2012 and the content on this page is for information only

Background

The Institute and Faculty of Actuaries is commissioning a research project on the topic of how employer covenants are best taken into account when assessing the capital supporting Institutions of Occupational Retirement Provision (IORPs).

The impetus for this project is provided by the review of the IORP directive and in particular by the Holistic Balance Sheet (HBS) option. This was described in the consultation document issued on 25 November 2011 by the European Insurance and Occupational Pensions Authority (EIOPA) in its draft advice to the European Commission.

Rationale

The rationale for the project is to further the understanding of the issues surrounding, and the practicalities of expressing, 'reliance on employer covenant' as a single figure in a HBS.

The project should also examine what information relating to the assessment of covenant is already accessible to trustees.  This should include information on how intangible assets are valued in balance sheets such as brand, goodwill etc.

We envisage that a member of the Profession will work closely with the successful applicants to facilitate access to relevant information and contacts and to ensure that the questions addressed are relevant to the review of the IORP directive.

Questions to address in the research

  • What are the desirable qualities of a covenant assessment methodology for the purpose of managing and regulating an IORP?
  • How could the frequency of covenant assessments/monitoring be optimised?
  • What are the key features (including pros and cons) of the different approaches that are currently used and that might be adopted in future? In particular:
    • to what extent do they possess the desirable qualities?
    • what are the implications for standard setters?
    • how can they be adapted tobe proportionate for small scheme and small sponsoring entities?
    • what are the potential implications for compliance costs?
  • How do ratings agencies use the publicly available data in company accounts to assess and rate company debt?
  • What additional information do lenders seek and how do they assess how much to lend?
  • What additional information, over and above that used to assess debt, would be needed to assess the security of a company’s pension promise bearing in mind the typical differences in term between these obligations?
  • Are there intrinsic differences between the employer covenant per se, and the value of the covenant that is available to the pension scheme and if so, can they be identified and measured?
  • How do companies assess their own financial strength? (For example how is enterprise value established in merger and acquisition work?) How do analysts assess the impact of a DB pension scheme/liability on the value of i) the equity and ii) the debt of acompany? Does this offer any insights into how an employer covenant could be valued for the purpose of financing pension schemes?
  • What potential areas of conflict with accounting principles are there in valuing the covenant?
  • What extra issues arise in groups of companies and multinationals (i.e. when companies have option to move funds across jurisdictions)?
  • Are there useful lessons to be learned from the work going on for IFRS4 in insurance accounting?
  • Do other countries have data sources and processes that it would be useful to replicate in the UK for the purpose of covenant assessment?

Contact Details

If you have any questions or wish to discuss any aspect of IFoA research please contact the Research and Knowledge Team:

research@actuaries.org.uk

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Events calendar

  • The Growth Mindset for Actuaries

    13 October 2021 - 8 December 2021

    Fully booked.

    This practical course is aimed at actuaries at any stage of their career who want to develop their own growth mindset and apply it to their work setting and personal or professional lifelong learning. The content of the course builds on the lecture given by Dr Helen Wright on Growth Mindset as part of the President’s 2021 Lecture series, and will be delivered over a period of 2 months, from mid-October to early December.

  • Spaces available

    The role of actuaries within the health sector varies considerably from one country to another, due to differences in the local evolution of health systems and the funding models for health services. 

  • Spaces available

    This paper outlines key frameworks for reserving validation and techniques employed. Many companies lack an embedded reserve validation framework and validation is viewed as piecemeal and unstructured.  The paper outlines a case study demonstrating how successful machine learning techniques will become and then goes on to discuss implications.  The paper explores common validation approaches and their role in enhancing governance and confidence.

  • Spaces available

    Content will be aimed at all actuaries looking to understand the issues surrounding mental health in insurance and in particular those looking to ensure products and processes widen access for, and are most useful to, those experiencing periods of poor mental health.
     

  • Spaces available

    The IFoA Policy Briefing 'Can we help consumers avoid running out of money in retirement' examined the benefits of blending a lifetime annuity with income drawdown. Panellists, including providers and advisers, will look at the market practicalities of taking the actuarial theory through into the core advice propositions used by IFAs and Fund Managers. They will share a number of practical issues such as investment consequences before and after retirement and the level of annuity that is appropriate and answer questions from the audience.

  • Speech from the Governor of the Bank of England, Andrew Bailey

    Lincoln's Inn The Treasury Office, London WC2A 3TL
    1 December 2021

    The IFoA is pleased to be hosting the Governor of the Bank of England, Andrew Bailey, to deliver a speech on delivering policyholder protection in insurance regulation.

    The speech will be presented to an in-person audience, and simultaneously live-streamed, at 14.00 on Wednesday 1st December.

  • The Many Faces of Bias

    2 December 2021

    Spaces available

    This webinar looks at the many types of biases, both conscious and unconscious and the impacts they can have in the workplace.  Raising our own awareness and understanding of the issues can help us avoid the pitfalls of unconscious bias in particular.  We’ve all heard the phrase ‘office banter’ but are we sure that’s how those on the receiving end perceive it and is it ok to go along with it?

  • Spaces available

    Actuaries need to take action now - but how?  With a focus on climate change, this session will provide informed insight to enable you to improve your knowledge and understanding of the issues involved, demonstrate how it will impact advice to your clients, and highlight prospective opportunities for actuaries within pensions and wider fields.

  • Spaces available

    Pension scams have become more prevalent as a result of the pandemic, and Trustees have increased responsibilities to protect members, which means that actuaries need to be in a position to provide advice in this area. Our specialist panel will include a professional trustee, an IFA and head administrator, two of whom are members of PASA.

  • Spaces available

    The covid-19 pandemic creates a challenge for actuaries analysing experience data that includes mortality shocks.  To address this we present a methodology for modelling portfolio mortality data that offers local flexibility in the time dimension.  The approach permits the identification of seasonal variation, mortality shocks and late-reported deaths.  The methodology also allows actuaries to measure portfolio-specific mortality improvements.  Results are given for a mature annuity portfolio in the UK

  • Spaces available

    In this webinar, the authors of the 2021 Brian Hey prize winning paper present a new deep learning model called the LocalGLMnet. While deep learning models lead to very competitive regression models, often outperforming classical statistical models such as generalized linear models, the disadvantage is that deep learning solutions are difficult to interpret and explain, and variable selection is not easily possible.

  • Spaces available

    The dominant underwriting approach is a mix between rule-based engines and traditional underwriting. Applications are first assessed by automated rule-based engines which typically are capable of processing only simple applications. The remaining applications are reviewed by underwriters or referred to the reinsurers. This research aims to construct predictive machine learning models for complicated applications that cannot be processed by rule-based engines.

  • Spaces available

    With the Pension Schemes Act 2021 requiring a long term strategy from Trustees and sponsors, choosing a pensions endgame strategy has become even more critical. However, it is important that the endgame options available are adequately assessed before choosing one. With an ever-increasing array of creative and innovative options available, this decision may not be straightforward.