The procyclicality project was a joint venture between the IFoA and the Bank of England, led on our side by Ashok Gupta and Ronnie Bowie

It looked at the policy issues arising from the trend to short term investment behaviour by pension funds and life companies, lower equity holdings reflecting reduced willingness to take on risk, and procyclical investing that exacerbates market cycles.  The IFoA had a successful seminar on the subject in September 2015 which led to potential areas for future IFoA-sponsored research.  It identified three topics: long-term investment mandates, risk measures and countercyclical capital buffers with a Board leading each one.  The RM Board is overseeing the topic of “Risk Measures”.

The three strands coming out of the discussions are:

  • Risk Measures Working Party (RM Board)
  • Procyclicality of Life Insurers’ Capital Requirements – Countercyclical Capital Buffers Working Party (Life Board)
  • Long term investment mandates in insurance and pensions industry Working Party (F&I Board)

Key Objectives

The working party is focusing on:

  • Long term vs short term investors/investing
  • Investment risk vs market risk
  • Approaches to measurement of risk (practical applications)

The short term agenda driven by regulation such as the Solvency II framework does not wholly support the economic objectives of an insurer: to provide appropriate, affordable products which meet customers’ needs and deliver value to its stakeholders, whilst positively contributing to capital formation and growth investment in the real economy.

Working party vacancies

The Institute and Faculty of Actuaries (IFoA) is seeking to appoint a Research Assistant for a short-term project for a six week period from November to end of December 2018. This is suitable for qualified members of the IFoA and for suitably qualified non-members.

Find out more about this volunteer vacancy

Evolution of alternative approaches to risk measurement

The Risk Measures working party aims to help inform discussion of alternative risk measurement approaches and their practical usefulness, considering evolving global standards, economic run-off approaches, short-term market volatility versus investment horizon shortfall risk, and point in time balance sheets versus the ability to meet long-term and illiquid liabilities. Potential long-term shareholder value and policyholder returns are central to the discussion, as are behavioural incentives such as lock-ins, sunk costs, implementation costs and vested interests.

Outputs

 

 

Chair: Belinda Hue
Membership: 5
Established: 2016

 

Related documents

Contact Details

If you want more information about this research working party please contact the Communities Team.

professional.communities@actuaries.org.uk

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