The International Accounting Standards Board is undertaking a project to develop an Accounting Standard for Insurance. The basis for these proposals is that assets and liabilities should be shown at fair values (market values for quoted instruments). This is an updated version of a paper, prepared by a Working Party established by the General Insurance Research Organisation (GIRO) of the General Insurance Board of the actuarial profession of the United Kingdom, which was first presented to the GIRO Conference in October 2002. This paper summarises and comments upon the principal features of the proposals as they have emerged up to February 2003. The paper considers the implications for general insurance companies of these proposals. In particular, it examines the concept of market value margins, and the practical issues that insurance companies are likely to encounter in implementing them. The emphasis of the paper is on reporting for general insurance business, although many of the principles apply equally to life assurance.

The paper highlights the role of risk budgeting — how risk is ‘spent’ — in the investment management process and some of the practical issues encountered. Risk budgeting has received a great deal of interest from the investment management community recently, but no clear consensus has emerged on how it should be implemented. In this paper we outline a pragmatic risk budgeting method that can be applied at the portfolio level, and show that it can produce superior results when used in conjunction with cluster analysis techniques. There are practical implications for chief investment officers and chief executive officers on how they allocate human resources and capital in the investment management process.

A statistical factor model for stock returns is used to build a risk model of the market that separates the factor components (representing the market, investment themes and styles) and the stock specific component. Then cluster analysis techniques provide a visualisation of the changing risk structure of the market. Natural groupings of stocks emerge within the market often different to the classical industrial classification systems widely used today. These natural groupings clearly change over time reflecting the changing nature of equity markets, e.g. these techniques show very clearly the emergence of the telecommunications, media, technology phenomenon in the late 1990s and its subsequent demise in early 2001.

Using the framework of a statistical factor model, risk budgets can be aggregated or dis-aggregated. Aggregation can be to country, sector or any other group. Dis-aggregation will be to common factors (e.g. the market, growth, value and other styles) and stock specific factors, derived from a multi-factor model.

The text of this paper, together with the abstract of the discussion held by the Faculty of Actuaries on 17 February 2003, are printed in British Actuarial Journal, 9, IV, 725-786.

The lecturer discusses the subject of professional integrity, and considers the themes of: the particular space within which the professional operates; the independence and integrity of the professional, including regulation and competition; and how integrity is measured. The two professions on which he concentrates are the actuarial profession and the legal profession, particularly barristers.

During 2002, which was the sixteenth year of publication of the FTSE All-World Index series — previously successively known as the Financial Times-Actuaries World Index, and the FT/S&P Actuaries World Index — there were no changes in the methodology of the construction of the series, and the main development in 2002 was probably the consolidation of the long promised adjustments to reflect the available free floats of each constituent company's shares on 18 June 2001.