In this paper the ‘Wilkie investment model’ is discussed, updated and extended. The original model covered price inflation, share dividends, share dividend yields (and hence share prices) and long-term interest rates, and was based on data for the United Kingdom from 1919 to 1982, taken at annual intervals. The additional aspects now covered include: the extension of the data period to 1994 (with omission of the period from 1919 to 1923); the inclusion of models for a wages (earnings) index, short-term interest rates, property rentals and yields (and hence property prices) and yields on index-linked stock; consideration of data for observations more frequently than yearly, in particular monthly data; extension of the U.K. model to certain other countries; introduction of a model for currency exchange rates; extension of certain aspects of the model to a larger number of other countries; and consideration of more elaborate forms of time-series modelling, in particular cointegrated models and ARCH models.

The launch of a new journal is an exciting event for the promoters, fraught with uncertainty. Will the readers like it? Will there be enough readers? Will authors write for it? Will it last? Will the promoters achieve their ends?

This paper describes current asset share techniques, examines alternative asset share philosophies and discusses practical issues associated with the calculations. Alternative approaches to smoothing payouts using asset shares are examined. A financial management framework is described which provides information on the financial position of a with-profits fund. A central part of the framework is the concept of risk-based capital. The factors to be considered in determining risk-based capital are described and examples given of the possible capital needs of with-profits business.

Over the last 10 years, in centres surrounding the United Kingdom, a cross-border insurance industry has been developing — an industry which is exporting British expertise in life assurance and investment products on a large scale to a world-wide market.

The industry is offshore life assurance. The purpose of this paper is principally to outline what this industry is and why it exists.

The particular financial management and operational management issues resulting from this activity are highlighted and explored in subsequent sections. The paper concludes with an assessment of market trends and future development in what is a very young, dynamic and highly competitive market.

The paper surveys the present state of knowledge about the appraisal and control of capital projects, and identifies the useful contribution which actuaries can make to the process.

Relevant theoretical considerations are discussed, including the choice of appropriate discount rates for use by companies when screening proposals. It is recommended that discount rates should be lower than those commonly used. Some practical working methods are summarised and examples are given of how risk analysis can be carried out, for both simple and complex appraisals. Attention is drawn to the special ‘social’ considerations which may apply in the case of Government projects. The opportunities now opening up for joint ventures between the UK Government and private sector partners are examined, and it is concluded that proper sharing of costs and risks can facilitate arrangements which are acceptable to both sides.

The paper concludes with a discussion of the procedures which companies can use to identify, appraise, control and monitor projects.

The Presidential Address gives a broad overview of the development of the actuarial profession's role in its principle areas of activity. Actuaries play important roles in life insurance and pensions, but there are some major new challenges facing the profession in these areas. General insurance has been slow to develop, but is now likely to be the fastest growing part of the profession with a steadily expanding role. Finance and investment also offer major fields where actuaries could be more influential. With continuing growth expected in the number of qualified actuaries, it will also be important to move into wider fields. The new President challenges the profession to give proper priority to the public interest and to ensure that actuaries are worthy of the trust which is placed in them.

The risk premium on ordinary shares is investigated, by studying the total returns on ordinary shares, and on both long-term and short-term fixed-interest investments over the period 1919 to 1994, and by analysing the various components of that return. The total returns on ordinary shares exceeded those on fixed-interest investments by over 5% p.a. on a geometric mean basis and by over 7% p.a. on an arithmetic mean basis, but it is argued that these figures are misleading, because most of the difference can be accounted for by the fact that price inflation turned out to be about 4.5% p.a. over the period, whereas investors had been expecting zero inflation.

Quotations from contemporary authors are brought forward to demonstrate what contemporary attitudes were. Simulations are used along with the Wilkie stochastic asset model to show what the results would be if investors make various assumptions about the future, but the true model turns out to be different from what they expected. The differences between geometric means of the data and arithmetic means are shown to correspond to differences between using medians or means of the distribution of future returns, and it is suggested that, for discounting purposes, medians are the better measure.

The text of this paper, together with the abstract of the discussion held at Staple Inn Hall, London, on 23 January 1995, are printed in British Actuarial Journal, 1, III, pages 471-557.

The theoretical basis for, and practical application of, the discounted income method for valuing UK pension fund assets is discussed, with particular reference to the widely adopted application to variable income (equity type) assets, as proposed by Day & McKelvey (1964), in the context of both the management and compliance objectives of pension fund valuation. An alternative methodology is proposed in which consistency with assets, liabilities, and market values is demanded, with smoothing of the valuation result achieved on an explicit rather than implicit basis. It is then demonstrated that the explicit smoothing parameter can be set so as to achieve the historic smoothness framework for establishing pension fund investment policy.

In conclusion the paper suggests greater emphasis on market-related methodologies for compliance valuations and leaves open the choice of methodology for management valuations and monitoring purposes, on the grounds that there is a large subjective element in any realistic basis. However, it is demonstrated that while smoother than unadjusted market-related methods, other aspects of the dynamics of the funding level under the method of Day & McKelvey can be perverse and it is suggested that this method should not be allowed to dictate investment decisions.

This paper addresses the process of estimating loss reserves for a company or syndicate writing in the London Market. Particular emphasis is placed on insurers maximising the value of the process, and ensuring that the process is not simply a series of mathematical calculations. The use of sophisticated mathematical techniques should not distract from the importance of understanding the business and ensuring that data are correct. Sophisticated mathematical techniques can give rise to misleading impressions of confidence and accuracy to estimates, which are often subject to considerable uncertainty. The principles (rather than the detailed techniques) are illustrated by a case study based on a hypothetical London Market writer. Many of these principles are relevant to other markets.

1 This short paper has been prepared to draw the attention of members to the more actuarial aspects of the Pensions Bill, and, it is hoped, it will assist in focusing and stimulating discussion on these issues.

2 Although the Bill runs to over 150 pages, it is largely a paving document, giving powers to the Secretary of State for Social Security to regulate, in detail, as he sees fit. It, therefore, represents another step in the development of policy, rather than a fully definitive statement.

Forecasts of mortality are included in official population projections. The methodology and performance of British mortality forecasts is reviewed and compared with those of the United States of America in the quarter century up to 1989. The results are found to have been surprisingly poor when compared, for example, with the more widely-criticised fertility component; similar conclusions hold for other developed countries. Although the methodology has become more sophisticated over the years by using detailed information on cause of death and cohort-based approaches, this has not led to obviously better forecasts, and the time period at which the forecasts are made is more important than the method used. The particular importance of mortality assumptions in determining projected numbers of elderly people discussed.

The Presidential Address covers various aspects of the actuarial profession; past, present and into the future. It considers mutual life companies and their current situation. There needs to be improved education in investment and more actuaries should be involved in this area. The codes of conduct and disciplinary procedures of the profession have to be kept under constant review. The international actuarial scene is of great importance, with mutual recognition of qualifications, the various groupings of actuaries and of actuarial associations world wide and the expansion of the profession into further countries all part of current activities. Various alternative options for the future of the profession in the U.K. are suggested.