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Sessional Research Programme 2015/2016

  • Information for actuaries valuing periodical payment orders. 27 June 2016

    Sessional Research Meeting, 27 June 2016, at Staple Inn Hall, London. Paper by the Periodical Payment Orders Working Party

    Abstract:
    Periodical Payment Orders (PPOs) have challenged actuarial professionals as they rose to prominence as a new means of settling third-party liability claims, consisting of regular payments in the future, usually for a claimant’s lifetime.

    This paper explores how this new settlement method has brought about new risks to consider for actuarial professionals working in Motor and Casualty insurance, or any other line where a claim for future periodical payments may arise. Life contingencies have entered the space of general insurance in a new way. In addition, actuarial professionals have investment risk to consider, and for PPOs the inflation risk is unusual, significant and not currently fully hedgeable.

    The paper highlights methods that could be considered for setting important assumptions, including mortality, indexation, investment return and PPO settlement propensity.

    For reserving actuaries, the paper explains that the nature of the liabilities does not lend itself to triangulation. Cash flow techniques are needed and actual versus expected results can be analysed for discount-rate unwinding and mortality profit for example. Scenario testing will be important to understand the sensitivity of the results and to explain them to senior management.

    Stochastic modelling is considered in the Capital Modelling section, amongst other significant considerations for actuarial practitioners working with PPOs in this field.

    Pricing is also affected, as PPOs are a proportion of large loss loadings.

    The paper also touches briefly on reporting requirements. This is to help provide some basic background for actuaries interacting with those undertaking financial reporting.

    Keywords:
    PPO, Periodical Payment Order, variation order, valuation, reserving, pricing, capital modelling, risk, mortality, propensity, inflation, indexation, investment return, discounting, cash flow, scenario testing, stochastic modelling, IFRS, Solvency II, reinsurance, reporting.

     

  • Simulation Based Capital Models: Testing, justifying and communicating choices. 27 June 2016

    Sessional Research Meeting, 27 June 2016, at the Royal College of Physicians, Edinburgh

    Abstract:
    The development of an economic capital model requires a decision to be made regarding how to aggregate capital requirements for the individual risk factors while taking into account the effects of diversification. Under the Individual Capital Adequacy Standards (ICAS) framework, UK life insurers have commonly adopted a correlation matrix approach due to its simplicity and ease in communication to the stakeholders involved, adjusting the result, where appropriate, to allow for non-linear interactions. The regulatory requirements of Solvency II have been one of the principal drivers leading to an increased use of more sophisticated aggregation techniques in economic capital models. This paper focuses on a simulation based approach to the aggregation of capital requirements using copulas and proxy models. It describes the practical challenges in parameterising a copula including how allowance may be made for tail dependence. It also covers the challenges associated with fitting and validating a proxy model. In particular, the paper outlines how insurers could test, communicate and justify the choices made through the use of some examples.

    Keywords:
    Copula; Tail Dependence; Proxy Model; Validation; Communication

  • Spring Lecture 2016. Communicating risk and uncertainty, by David Spiegelhalter.  22 June 2016

    Thought Leadership Lecture given on 22 June 2016, in London.

  • Resource and Environment Sessional Debate. 20 June 2016

    Sessional Research Meeting, 20 June 2016, at Staple Inn Hall, London

  • Designing successful post retirement solutions. 23 May 2016

    Sessional Research Meeting, 23 May 2016, Edinburgh. Paper presented by Lesley-Ann Morgan and Scott Lothian

  • Incentives facing UK listed companies to adopt risk reporting requirements. 16 May 2016

    Sessional Research Meeting, 16 May 2016, London

    Abstract:
    Recent changes made to the UK Corporate Governance Code require UK firms to report new or enhanced narrative information concerning their principal risks, their risk management processes and their future viability. This paper analyses whether the level and nature of voluntary compliance with these new requirements is consistent with alternative economic and political visibility incentives. We analyse relevant sections of financial reports produced by industry matched samples of large-, mid- and small-cap UK listed firms during the transitional 2013-14 financial reporting years. Both specific and generic readability attributes of the reports are measured. We find that virtually no firm in our sample has provided any viability statement. Empirical analysis of disclosures concerning principal risk assessment and review processes appear to be primarily motivated by political visibility reasons. Examples of particularly good and cases of poor corporate risk reporting practices are also discussed. Possible implications for the actuarial profession are discussed.

  • The future of social care funding - Who pays? 18 April 2016

    Sessional Research Meeting, 18 April 2016, London. Paper by the Products Research Group of the Pensions and Long Term Care Working Party.

    Abstract:
    With the UK population ageing, deciding upon a satisfactory and sustainable system for the funding of people’s long term care (LTC) needs has long been a topic of political debate. Phase 1 of the Care Act 2014 (‘the Act’) brought in some of the reforms recommended by the Dilnot Commission in 2011. However, the Government announced during 2015 that Phase 2 of ‘the Act’ such as the introduction of a £72,000 cap on Local Authority care costs and a change in the means testing thresholds1 would be deferred until 2020. In addition to this delay, the ‘freedom and choice’ agenda for pensions has come into force. It is therefore timely that the potential market responses to help people pay for their care within the new pensions environment should be considered.

    In this paper, we analyse whether the proposed reforms meet the policy intention of protecting people from catastrophic care costs, whilst facilitating individual understanding of their potential care funding requirements. In particular, we review a number of financial products and ascertain the extent to which such products might help individuals to fund the LTC costs for which they would be responsible for meeting. We also produce case studies to demonstrate the complexities of the care funding system. Finally, we review the potential impact on incentives for individuals to save for care costs under the proposed new means testing thresholds and compare these with the current thresholds.

    We conclude that:

     

    • Although it is still too early to understand exactly how individuals will respond to the pensions freedom and choice agenda, there are a number of financial products that might complement the new flexibilities and help people make provision for care costs
    • The new care funding system is complex making it difficult for people to understand their potential care costs
    • The current means testing system causes a disincentive to save. The new means testing thresholds provide a greater level of reward for savers than the existing thresholds and therefore may increase the level of saving for care; however, the new thresholds could still act as a barrier since disincentives still exist.
  • Good practice guide to setting inputs for operational risk models. 21 March 2016

    Sessional Research Meeting, 21 March 2016.

    Abstract:
    This paper seeks to establish good practice in setting in inputs for operational risk models for banks, insurers and other financial services firms. It reviews Basel, Solvency II and other regulatory requirements as well as publicly available literature on operational risk modelling. It recommends a combination of historic loss data and scenario analysis for modelling of individual risks, setting out issues with these data and outlining good practice for loss data collection and scenario analysis. It recommends the use of expert judgement for setting correlations, and addresses information requirements for risk mitigation allowances and capital allocation, before briefly covering Bayesian Network methods for modelling operational risks.

    Keywords:
    Internal loss data, External loss data, Scenario analysis, Business environment and internal control factors (BEICFs), Correlations.

  • Mis-estimation risk: measurement and impact. 29 February 2016

    Sessional Research Meeting, 29 February 2016, Edinburgh. Paper presented by Stephen Richards of Longevitas

    Abstract:
    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 European Union, 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 U.K. 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.

    Keyword:
    Mis-estimation risk, parameter risk, Solvency II, mortality risk, longevity risk, survival model, annuities.

  • Bias, guess and expert judgement in actuarial work. 18 January 2016

    Sessional Research Meeting, 18 January 2016. Paper by the Getting Better Judgement Working Party

    Abstract:
    Expert judgement is frequently used within general insurance. It tends to be a method of last resort and used where data is sparse, non-existent or non-applicable to the problem under consideration. Whilst such judgements can significantly influence the end results, their quality is highly variable. The use of the term 'expert judgement' itself can lend a generous impression of credibility to what may be a little more than a guess. Despite the increased emphasis placed on the importance of robust expert judgements in regulation, actuarial research to date has focused on the more technical or data driven methods, with less emphasis on how to use and incorporate softer information or how best to elicit judgements from others in a way that reduces cognitive biases. This paper highlights the research that the Getting Better Judgement Working Party has conducted into this area. Specifically it covers the variable quality of expert judgement, both within and outside the regulatory context, and presents methods that may be applied to improve its formation. The aim of this paper is to arm the insurance practitioner with tools to distinguish between low quality and high quality judgements and improve the robustness of judgements accordingly, particularly for highly material circumstances.

    Keywords:
    Expert judgement; Elicitation; Cognitive biases; Heuristics; Bayesian statistics

  • Actuarial Function Working Party. 16 November 2015

    Sessional Research Meeting, 16 November 2015, Staple Inn Hall, London. Working Party paper presented by Jahan Anzsar and Matthew Byrne

     

    Abstract:
    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 (EIOPA) 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, other 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.

    Keywords:
    Solvency II; General insurance; Actuarial function; Regulation.

  • Autumn Lecture 2015. Exploring the role of banking and business in society. Lady Susan Rice.  9 November 2015

    Thought Leadership Lecture given on 9 November 2015, in Edinburgh

Contact Details

If you have any questions or wish to discuss any aspect of our funding for member-led research please contact the Research and Knowledge Team:

arc@actuaries.org.uk

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Events calendar

  • Pensions Conference 2019

    Bristol Marriott Hotel City Centre, 2 Lower Castle Street, Old Market, Bristol, BS1 3AD
    18-19 June 2019
    Spaces available

    Five plenaries and 13 workshops cover current topics and industry trends in the Pension sector with the opportunity to develop your network at the pre-conference evening dinner (18 June).  There is also a day ticket option available for the 19 June. 

  • KSS event – FinTech and The Actuarial Profession

    EY, Atria One, 144 Morrison Street, Edinburgh
    19 June 2019

    Spaces available

    This KSS talk from FinTech Scotland's CEO will explore the mission to create an integrated Fintech ecosystem through provision of funding, support, infrastructure and talent that recognises and responds to the needs of all stakeholders - and the overarching aim for Scotland to be one of the top 5 Fintech global leaders by 2020.

    To book your place, please email Barry_Shannon@standardlife.com 

  • Current Issues in General Insurance (CIGI) 2019

    Inmarsat, 99 City Road, London, EC1Y 1BJ
    19 June 2019

    Fully booked.

    CIGI is a well-established one-day seminar designed to increase awareness and encourage discussion on a variety of topical issues across the general insurance industry. 

    There will be an excellent and diverse line-up of speakers to provide a variety of perspectives and challenge covering technical and professional areas. 

  • Cass Event – New Thinking about Deferred Annuities

    Cass Business School, Executive Education Facilities 200 Aldersgate St, London EC1A 4HD
    25 June 2019

    Spaces available

    Our motivation for discussing this important subject comes from some exciting recent research which has analysed the impact of behavioural factors on the decision to purchase an annuity. This work has shown that behavioural factors can explain the well-known low demand for immediate annuities but this research also identifies an important opportunity in relation to deferred annuities (DA). The research suggests that these factors lead to positive incentives to purchase a DA and that, for longer deferred periods, a DA could be an attractive product for both consumers and insurers.

  • IFoA/SAS Joint Professional Skills Training – Singapore

    Room 903, NTUC Centre, Level 9, One Marina Boulevard, Singapore 018989
    25 June 2019

    Spaces available

    The Institute and Faculty of Actuaries (IFoA) and Singapore Actuarial Society (SAS) are organising a joint Professional Skills Training (PST) in Singapore. This session is suitable for actuaries working in any area (i.e. it is not specifically aimed at Life, GI or any other technical discipline) and is interactive, so you should come along prepared to take part in the discussions.

  • Webinar Series: Risk and Investment Conference 2019, 26 June

    These are online webinar events.
    26 June 2019

    Spaces available

    The IFoA’s Risk Management and Finance and Investment Boards are delighted to host a series of webinars covering a range of topical and trending topics ranging from climate related risks to Brexit.

  • AGM and Presidential Address 2019 + Volunteer and Member Drinks Reception

    The Hub  Castlehill Edinburgh EH1 2NE
    26 June 2019

    Spaces available

    Notice is hereby given that the ANNUAL GENERAL MEETING of the INSTITUTE AND FACULTY OF ACTUARIES will be held at The Hub, Edinburgh on Wednesday 26 June 2019 at 16.30 (Preceded by tea from 16.00) and followed by a PRESIDENTIAL ADDRESS given by John Taylor.

  • IFAM event - Actuarial Teachers’ & Researchers’ Conference 2019

    Institute for Financial and Actuarial Mathematics Department of Mathematical  Sciences The University of Liverpool Mathematical Sciences Building Peach Street Liverpool, L69 7ZL
    27 June 2019 - 29 June 2019

    Spaces available

    The Institute for Financial and Actuarial Mathematics (IFAM) at the University of Liverpool is pleased to host the 2019 Actuarial Teachers’ and Researchers’ Conference from 27-28 June 2019. This annual two-day event has been running annually now for many years, each time hosted by a different university, and provides all those interested in actuarial research and education a great opportunity to share their ideas and catch up on the latest developments.

  • IFoA/ASM Joint Professional Skills Training – Kuala Lumpur

    Menara AIA, Auditorium, 99 Jalan Ampang, 50450, Kuala Lumpur
    28 June 2019

    Spaces available

    The Institute and Faculty of Actuaries (IFoA) and Actuarial Society of Malaysia (ASM) are organising a joint Professional Skills Training (PST) in Kuala Lumpur. This session is suitable for actuaries working in any area (i.e. it is not specifically aimed at Life, GI or any other technical discipline) and is interactive, so you should come along prepared to take part in the discussions.

  • SIAS: The Impact of Air Pollution on Health and Life Expectancy

    Staple Inn Hall, High Holborn, London, WC1V 7QJ
    2 July 2019

    Spaces available

    Air pollution has gained increasing attention lately. Nicola Oliver, head of longevity and mortality research for Medical Intelligence, will discuss not only the impacts of air pollution on health and life expectancy but also how as an industry we should be addressing it.

  • Spaces available

    The actuarial profession has much to offer the world of banking. In this webinar actuaries with experience in various fields of banking will talk about the opportunities there are in banking; describing the actuarial aspects of the work they do as well as other roles within their area of banking.

  • Implications of 2019 IFRS 17 Exposure Draft

    Staple Inn Hall, High Holborn, London, WC1V 7QJ
    24 July 2019

    Spaces available

    Towards the end of June, the International Accounting Standards Board (IASB) is expected to publish an Exposure Draft (ED) of limited changes to its insurance contracts standard IFRS 17, effective date 2022. To help IFoA members, the IFoA’s cross-practice Financial Reporting Group (FRG) is hosting an event at Staple Inn covering these developments. 

    For more information on the FRG please visit this webpage

  • KSS event – The Regulatory Perspective

    Deloitte Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
    5 September 2019

    Spaces available

    This KSS talk, presented by the FCA Head of Department in Scotland, will focus on the following 3 main areas:

    • FCA business plan priorities
    • The future of regulation
    • FCA Engagement in Scotland
  • Sessional Research Event - Risk Margin Working Party

    Staple Inn Hall, High Holborn London, WC1V 7QJ
    9 September 2019

    Spaces available

    For life insurers in the UK, the risk margin is one of the most controversial aspects of the Solvency II regime. Following its implementation, 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 – such business is of great significance to the national system for retirement provision. This criticism has led to political interest, and the risk margin was a major element of the Treasury Committee inquiry into Solvency II.

  • GIRO Conference 2019

    EICC, The Exchange, 150 Morrison St, Edinburgh EH3 8EE
    24-26 September 2019
    Spaces available

    GIRO is attended annually by over 800 delegates and speakers who are keen to discuss key topics such as Pricing, Reserving, Modelling and the future of the insurance industry. GIRO 2018 was a huge success and we have opened bookings early for what we hope will be another brilliant conference at the EICC in Edinburgh this year. 

     

  • Life Conference 2019

    The Convention Centre Dublin, Spencer Dock, North Wall Quay, Dublin 1
    20-22 November 2019
    Spaces available

    The Life Conference is the premier event for professionals interested in life insurance.  Offering a wide range of workshops and plenary sessions it’s the perfect opportunity to discover what’s hot and current in life insurance ensuring you get up to date on the latest thinking and innovation whilst meeting and exchanging ideas with a broad range of professionals.

  • Autumn Lecture 2019, London - Rt Hon Nicky Morgan MP

    Lincoln's Inn The Treasury Office, London WC2A 3TL
    2 December 2019

    Spaces available

    The IFoA is pleased to announce that this year’s Autumn Lecture will feature the Rt Hon Nicky Morgan MP as its guest speaker.  Nicky has previously served as Financial Secretary to the Treasury and Minister for Women. She now chairs the Treasury Select Committee whose remit is to examine the expenditure, administration and policy of HM Treasury, along with all of its agencies and associated bodies.