This paper considers the impact that the current trend towards fair valuation of assets and liabilities is likely to have on risk measurement and management practices within the financial services industry. The paper analyses the different sorts of risks faced by organisations such as asset managers, pension funds, banks and insurers, and seeks to identify how their approach to the measurement and management of these sorts of risks might change as fair valuation becomes more entrenched. It argues that what it describes as traditional ‘time series’ based risk measurement is likely to be progressively displaced over time by a greater emphasis on what the paper refers to as ‘derivative pricing’ (or ‘fair value’ or ‘market consistent’) based risk modelling. It comments on the trend towards liability driven investment. The paper focuses on ‘financial’ risks (market, credit, liquidity and, more generally, asset/liability risk) rather than ‘operational’ risks, whilst noting that the dividing line between the two can be open to interpretation. Insurance risk is seen as in some respects straddling both camps.

As the national debate hots up, this Sessional Meeting is being devoted to the following important topics, which affect life, pensions and investment actuaries:

— What should be the role of the State as pension provider — safety net or income replacement?

— Should the State Pension Age be raised? If so, when and by how much?

— Should the United Kingdom adopt a Citizen's Pension and scrap the State Second Pension and contracting out?

— Should there be more compulsory savings for retirement? If not, how can a voluntarist system be made to work better?

— What is the role for equity release?

— How can consumers become better educated in financial matters, and what role can actuaries play in helping to achieve improved levels of financial literacy?

These, and many other, challenging questions will be discussed.