A FIMAG Working Party was set up in 1989 to consider the stochastic investment model proposed by A. D. Wilkie, which had been used by a number of actuaries for various purposes, but had not itself been discussed at the Institute. This is the Report of that Working Party. First, the Wilkie model is described. Then the model is reviewed, and alternative types of model are discussed. Possible applications of the model are considered, and the important question of ‘actuarial judgement’ is introduced. Finally the Report looks at possible future developments. In appendices, Clarkson describes a specific alternative model for inflation, and Wilkie describes some experiments with ARCH models. In further appendices possible applications of stochastic investment models to pension funds, to life assurance and to investment management are discussed.

Recent developments which affect the financing of occupational pension schemes in the U.K. arc reviewed. These point to the need for realistic bases, and an approach to finding a ‘best estimate’ is described. It is suggested that typical bases contain significant margins and the long-term dangers of using bases which contain margins are illustrated using a model fund. A review of funding methods suggests that the projected unit and entry age methods should be used for normal purposes in conjunction with a discounted income approach to the valuation of assets. Suggestions are made as to the degree of prudence appropriate for funding purposes.

Following a brief outline of the origins of the actuarial profession in the United Kingdom, the paper traces the involvement of actuaries in the supervision of insurance in the U.K., and recalls the origins and early development of actuaries in government. In 1919, the Government Actuary's Department (GAD) was formed, and the paper explores the developing role of GAD in the supervision of insurance and how insurance supervision has evolved into a close partnership between the actuarial profession and the supervisors.

The paper presents an application of the Markov chain as a tool for the calculation of life contingencies functions (e.g. assurance, annuity, net premium, policy value functions) arising from a multi-state model which represents the transmission and development of HIV and AIDS. The transmission model advocated by the Institute of Actuaries AIDS Working Party is modified and simplified and then applied to derive explicit formulae for these standard life contingencies functions. This investigation allows a thorough review of the properties of these functions to be conducted and assists with the calculation of premiums and reserves in the presence of HIV and AIDS.