This paper develops a multiple state model to project the number of people with disabilities in the United Kingdom over the next 35 years, thereby identifying implications for demand for long-term care for the elderly in the future.

The model requires three types of data: prevalence rate data, transition rate data and trends data. Recent trends in healthy life expectancy data are used to frame the assumptions made regarding changes in the disability rates of the U.K. population in the future.

Although there will be a large increase in the number of elderly people in the U.K. over the next 35 years, the projections suggest that the implications for the number of elderly people requiring long-term care could be ameliorated by a reduction in the proportion of older people who are severely disabled.

In this paper we adopt the multiple time-series modelling approach suggested by Tiao & Box (1981) to construct a stochastic investment model for price inflation, share dividends, share dividend yields and long-term interest rates in the United Kingdom. This method has the advantage of being direct and transparent. The sequential and iterative steps of tentative specification, estimation and diagnostic checking parallel those of the well-known Box-Jenkins method in the univariate time-series analysis. It is not required to specify any a priori causality as compared to some other stochastic asset models in the literature.

An Open Meeting was held by the Faculty of Actuaries on 15 October 2001, when Mr Myners addressed his audience on a number of the issues raised in his review, Institutional Investment in the United Kingdom: a Review. This was followed by a discussion. The lecture and an abstract of the discussion are printed after this introduction.

A second meeting on the subject was held on 16 October. This was a joint Seminar, arranged by the Faculty of Actuaries and the Centre for Financial Markets Research, University of Edinburgh. This seminar covered a number of issues raised by the Myners Review. The purpose of the seminar was to open up to discussion a number of the issues raised by the review where there appeared to be differences of opinion amongst practitioners. In particular, the investment process, investment performance and fees, especially commissions, were discussed. Academics, investment, performance measurement and pension specialists attended the seminar.

On 1 July 2002, four individuals were elected as Honorary Fellows of the Institute of Actuaries.

The paper investigates the level and incidence of saving required in order to maintain the standard of living that a household experiences whilst of working age into retirement. In order to do this, a model has been constructed that follows the income and expenditure of a household, allowing for tax and social security, as well as changing family circumstances. The model can be used to explain how a household should save in order to achieve a given standard of living in retirement.

The author concludes that the usual message, to save a fixed proportion of income throughout a working lifetime, is at best not helpful and at worst could lead to a lower standard of living over the household's lifetime. People can and should manage the timing of their saving and borrowing in order to achieve optimum incomes.

This paper considers certain applications of economics to actuarial work, concentrating on three issues of public interest. The background to the first two issues is the Government's encouragement of personal pensions particularly through stakeholder pensions. The paper shows how the use of an economics model enables investigations to be made, firstly on the demand for personal pensions by different income groups and secondly on the likely inequality of benefits between generations due to variations in the rates of return. The conclusion on the first issue is that personal pensions are of little benefit to low-earners, i.e. those the Government most wants to benefit, and recommends a way of rectifying this; the main conclusion on the second issue is that households will take action to mitigate much of the inequality. The third issue, that of estimating future rates of return, is one of key financial importance. The paper reviews relevant economic papers in this area and considers how the actuarial profession may improve communication with the economics discipline and with its members.

Our research deals with the way that calendar time affects mortality patterns in the Spanish population, and how this information can be used to elaborate predictions. A description of the observed mortality evolution has been worked out using data from 1975 to 1993. We have used Heligman-Pollard Law number two to model the evolution of Spanish mortality over the period and using univariate time series analysis, we have obtained a prognosis for years 1994 to 2010.

This paper considers five issues arising from guaranteed annuity options in pension policies issued by United Kingdom life assurance companies. These are the investment strategies for such options, the implications for bonuses on with-profits policies, the measurement of the solvency position and preparation of accounts of the companies concerned, and the policy debate on compulsory annuitisation. In particular, the paper highlights the impact of improving mortality on the value of options, comments on the House of Lords judgment in the Equitable Life case, and suggests additional disclosures in the accounts of life assurance companies.

This paper reviews methods for hedging and valuation of insurance claims with an inherent financial risk, with special emphasis on quadratic hedging approaches and indifference pricing principles and their applications in insurance. It thus addresses aspects of the interplay between finance and insurance, an area which has gained considerable attention during the past years, in practice as well as in theory. Products combining insurance risk and financial risk have gained considerable market shares. Special attention is paid to unit-linked life insurance contracts, and it is demonstrated how these contracts can be valued and hedged by using traditional methods as well as more recent methods from incomplete financial markets such as risk-minimisation, mean-variance hedging, super-replication and indifference pricing with mean-variance utility functions.

The text of this paper, together with the abstract of the discussion held by the Institute of Actuaries on 25 February 2002, are printed in British Actuarial Journal, 8, IV, 705-755.

Consolidation of the FTSE Actuaries Share Indices Series and of the FTSE Global Industry Classification System. Introduction of ‘free float’ weightings (in six bands) on 18 June 2001.

The text of this paper, together with the abstract of the discussion held by the Faculty of Actuaries on 18 February 2002, are printed in British Actuarial Journal, 8, IV, 643-704.