The paper considers the valuation for solvency purposes of traditional long-term insurance business. It concentrates on without-profit business, and discusses the reserves that are required to protect against the contingency of sudden adverse changes in asset values (the ‘mismatching’ or ‘resilience’ test). The details of a suitable test, and a method of applying it in practice using a ‘matching rectangle’, are described. Investigations into the effectiveness of such a test, using both deterministic and stochastic methods, are followed by concluding remarks on the underlying philosophical issues raised.

Full numerical results are presented in the Appendices.

The paper describes the philosophy of with-profits business which has been developed in the authors' office, as a practical illustration of the running of such business in modern conditions. A description is given of how the philosophy is implemented in the main areas of actuarial management, including valuation methods, bonus distribution, product design and expense control. The discussion is extended to address a number of topics which are the subject of current debate including the financial strength of offices, future bonus prospects and disclosure of expenses.

The aim of this paper is to use a model office to examine the potential impact of AIDS on non-linked life assurance business in the UK.

The subject of AIDS continues to stimulate a large amount of research. The UK actuarial profession has been kept informed by the regular Bulletins [1-5] from the Institute of Actuaries AIDS Working Party (the “IAWP”). Using a model developed by A. D. Wilkie [6], the IAWP examined the possible spread of the infection amongst male homosexuals and produced tables of additional mortality. The most recent Bulletin (No. 4), published in March 1989, updated these projections in the light of new data, and we have based our investigations principally upon these more recent projections.