bluuebunny/crossref_metadata_2025_split huggingface dataset:
Credit Derivatives. Prepared by the Derivatives Working Party of the Faculty and Institute of Actuaries
Authors: Muir M. J. , Chase A. , Coleman P. S. , Cooper P. , Finkelstein G. S. , Fulcher P. , Harvey C. , Pereira F. R. , Shamash A. , Wilkins T. J. D. 
Published: June 2011

ABSTRACTThis paper was written by the Derivatives Working Party, a permanent working party of the Life Research Committee of the Institute and Faculty of Actuaries. Our aim is to consider how life assurers may use, or may wish to use, derivatives, and if their use is unduly constrained, e.g. by regulation. This paper focuses on credit derivatives. We provide an overview of the credit derivatives market, and the strong growth in this market over recent years. We then focus on the two main traded credit derivative instruments — Credit Default Swaps (CDSs) and Collateralised Debt Obligations (CDOs). We explain how these instruments work and are priced, and clarify some of the more complex topics involved, such as the settlement of CDSs, basis risk and the relevance of implied correlation in pricing CDOs. We then consider how life insurers could make use of credit derivatives, for example to provide more efficient investment management in taking exposure to credit risk, or to hedge credit exposures, and consider the regulatory implications of so doing. Finally, in the Appendix, we discuss the credit spread puzzle, and the existence or otherwise of a liquidity premium in corporate bond spreads, with implications for the valuation of illiquid liabilities.
The Challenge of Solvency II. Lecture to the Faculty of Actuaries
Authors: Van Hulle K. 
Published: June 2011

INTRODUCTIONThe third Lecturer to the Faculty of Actuaries is Mr Karel Van Hulle. He is a lawyer by training, and is Head of Unit at the European Commission (Directorate-General ‘Internal Market and Services’), which he joined in 1984, after having served for eight years with the Belgian Banking Commission.He was subsequently Head of Unit for Accounting Standards, Head of Unit for Financial Reporting and Company Law and Head of Unit for Accounting and Auditing. In that capacity he was closely involved with harmonisation in the fields of accounting, auditing and company law, both at European Union level and internationally, and served as the Commission's observer with the International Accounting Standards Committee. He was Secretary of the High Level Group of Experts on Company Law, which prepared the Commission's 2003 Action Plan on Company Law.Since November 2004 he has been Head of the Insurance and Pensions Unit. In this function, his main responsibility is the preparation of the new solvency regime for insurance and reinsurance companies (Solvency II).
Pricing and Risk Capital in the Equity Release Market
Authors: Hosty G. M. , Groves S. J. , Murray C. A. , Shah M. 
Published: June 2011

ABSTRACTAlthough equity release market sales have been flat since 2003, the market has seen significant developments in terms of product flexibility, with greater levels of guarantees and drawdown schemes, in particular, leading to the reduction in average case sizes. All things being equal, products should have become more expensive for consumers, but the competitive environment which has driven product innovation has also resulted in lower product margins. This is all good for the consumer, but it is increasingly difficult for providers to reach target returns on capital, and this is deterring some prospective new entrants. One of the purposes of this paper is to investigate the profitability of typical schemes in the market at present, and so to address the question of whether competition has forced the market to function at non-profitable levels. In doing this, the paper also provides a benchmark for existing providers and potential new entrants, against which they can check the reasonableness of their own assumptions. We will aim to provide a rational pricing methodology, which can be adopted by any organisation active in the market, and we hope that this can support the market as it expands over the coming years. In order to produce a set of cohesive results, we have modelled a range of potential outcomes using a pricing basis which we consider to be broadly ‘average’. While we would encourage providers to compare our results with their own pricing assumptions, and to ensure that they are satisfied as to the reasons for any differences, there is a health warning, as our results should only be used as a check in this regard. If our ‘averages’ are suitable for use by some providers, then this is just co-incidence. In practice providers should adapt the assumptions made to suit their own product features, target market, expense profile and appetite for risk.
Enterprise Risk Management from the General Insurance Actuarial Perspective
Authors: Tripp M. H. , Chan C. , Haria S. , Hilary N. , Morgan K. , Orros G. C. , Perry G. R. , Tahir-Thomson K. 
Published: June 2011

ABSTRACTThe authors have reviewed over 60 texts on the subject of Enterprise Risk Management (ERM). In this paper they set out a summary of ERM based on three of those sources, selected for their relevance and breadth of view. The paper observes that the approaches described vary widely in nature. A separate ‘on-line” source is provided, which summarises key readings from the 60 texts. Combining findings from these texts with the authors' own experiences, the paper suggests some best practice checklists, designed to enable organisations to take stock of their current ERM frameworks. It discusses other aspects of ERM for practitioners, including extreme events, opportunity management and the link with corporate strategy. The paper looks at immediate and longer-term implications for actuaries in the United Kingdom, and then poses questions about future professional development and education. It suggests an emerging role for the ‘ERM actuary’, and, finally, it suggests future work to progress the development of ERM and the actuaries' role.
The Concept of Investment Efficiency and its Application to Investment Management Structures
Authors: Hodgson T.M. , Breban S.J. , Ford C.L. , Streatfield M.P. , Urwin R.C. 
Published: June 2011

ABSTRACTInvestment efficiency is a function of the risk, return and total cost of an investment management structure, subject to the fiduciary and other constraints within which investors must operate. Institutional investors implement their investment policies through investment management structures. In this paper the aim is to enhance the investment management structure by broadening the financial objectives, by recognising the effect of behavioural issues and by incorporating governance constraints. We therefore suggest that investment efficiency should be considered as a combination of financial efficiency and non-financial efficiency.Modern portfolio theory had a revolutionary effect on portfolio construction. In the same way, we believe that investment management structures should be constructed in a more disciplined and quantitative manner. In this paper we outline the quantitative and qualitative methods by which these structures can be developed. The proposed new framework for designing investment management structures seeks to optimise net information ratios while simultaneously recognising the level of regret risk facing fiduciaries, minimising non-financially-productive behavioural biases and taking account of the resources available to the fiduciary to monitor these structures.
Securitisation and Other Financing Options Available to Life Companies
Authors: Sanders A.J. 
Published: June 2011

ABSTRACTUntil relatively recently life companies generally met their capital needs either from internal resources or by means of equity capital provided by shareholders. However, the financial pressures on life operations have led to more innovative alternatives being used. In response to these pressures different forms of capital support from reinsurers, banks or other group funds or companies have been developed. In April 1998 National Provident Institution (NPI) became the first life company to issue bonds to investors secured on the future profits expected to arise from part of its existing life business. This paper discusses: financing options available to life companies; the terms of NPI's securitisation; the relative merits of different financing and capital management alternatives; alternative forms of capital support; the implications for policyholders and their interests; and actuarial issues arising from the different forms of financing.
The Actuary and the Law (Staple Inn Reading 2000)
Authors: Brennan L. 
Published: June 2011

ABSTRACTThe lecture discusses the issue of actuarial evidence in personal injury cases, and how the courts have been diffident towards actuarial evidence and the utility and importance of actuarial expertise. Until recently lawyers have not understood the ways in which actuaries work with probabilities. The lecture then shows that now the law has adopted actuarial thinking in several significant ways, and in particular in damages and personal injury cases. The discount rate for calculating the multiplier for future loss is discussed, as is the new area of risk assessment and conditional fees. Lawyers need actuarial help where appropriate, and both face the daily problem of applying the laws of probability to human activity.
Notes on the FTSE World Index Series: 1999 Constituent Changes
Authors: Brumwell J.C.H. 
Published: June 2011

ABSTRACT1999 was the thirteenth year of publication of the World Index series. A change of name reflects the purchase by FTSE International of the stakes owned by Goldman Sachs & Co. and Standard & Poor's. No changes were made in the range of countries covered during the year, but it was agreed that from mid-2001 the series would be adjusted to reflect the available free floats of constituents' shares.
Address by the President of the Institute of Actuaries: Communication, Culture and Companionship
Authors: Clark Peter Nigel Stuckey 
Published: June 2011

ABSTRACTThe Presidential Address relates events which occurred during significant years in the life of the President with matters relevant to the Institute, past, present and still to come, and with what was written by previous Presidents. It considers actuarial education, and specially its links with universities, and then comments on the President's career as a life actuary.The role of the Appointed Actuary is discussed, and also what an actuary is and does. The international actuarial perspective is covered through a description of the Groupe Consultatif and of the President's other international involvement, especially with Africa. Other subjects covered include with-profits contracts, the dispersion of actuaries throughout England and Wales, the role of the actuary in today's changing world, the relationship between the Institute and the Faculty, and the role of the President. Finally, the President looks forward to what actuaries might be and do in the future.
The Realistic Reporting of With-Profits Business. Reference Paper for the Discussion
Authors: Hare D. J. P. , Craske G. , Crispin J. R. , Desai A. J. , Dullaway D. W. , Earnshaw M. A. , Frankland R. , Jordan G. A. , Kerr M. G. , Manley G. M. , McKenzie J. L. , Rae R. A. , Saker M. C. 
Published: June 2011

ABSTRACTThis paper was written at the request of the Life Research Committee of the United Kingdom Actuarial Profession's Life Board. It concerns the valuation of U.K. with-profits business, with particular attention to the market-consistent ‘realistic reporting’ basis currently being used in the U.K. by the regulator, the Financial Services Authority (FSA). The paper surveys recent regulatory activity concerning the development and introduction of the new valuation approach, and puts it into the context of a survey of alternative methodologies, both deterministic and stochastic. The particular issues arising when considering prudential solvency are discussed, and various approaches are reviewed and compared with market consistent methods. Numerical examples are given, which demonstrate potential issues (regarding comparability and consistency) with the FSA's proposed approach — in particular the sensitivity of results to model calibration. The authors support the FSA's move to a stochastically-based framework for solvency measurement, but highlight some issues which need to be taken into account.
Funding Defined Benefit Pension Schemes
Authors: Cowling C. A. , Gordon T. J. , Speed C. A. 
Published: June 2011

ABSTRACTThis paper puts the case for the Actuarial Profession revising and tightening its standards on actuarial funding advice in relation to United Kingdom occupational pension schemes. We critique current actuarial practice and advocate principles for measuring solvency and providing funding advice. In particular, we advocate that funding targets should be clearly and unambiguously related to scheme solvency. The paper also covers optimal investment strategy, treatment of the ‘company covenant’ when giving funding advice and governance issues relating to pension schemes.
Risk Management in a Fair Valuation World
Authors: Kemp M. H. D. 
Published: June 2011

ABSTRACTThis paper considers the impact that the current trend towards fair valuation of assets and liabilities is likely to have on risk measurement and management practices within the financial services industry. The paper analyses the different sorts of risks faced by organisations such as asset managers, pension funds, banks and insurers, and seeks to identify how their approach to the measurement and management of these sorts of risks might change as fair valuation becomes more entrenched. It argues that what it describes as traditional ‘time series’ based risk measurement is likely to be progressively displaced over time by a greater emphasis on what the paper refers to as ‘derivative pricing’ (or ‘fair value’ or ‘market consistent’) based risk modelling. It comments on the trend towards liability driven investment. The paper focuses on ‘financial’ risks (market, credit, liquidity and, more generally, asset/liability risk) rather than ‘operational’ risks, whilst noting that the dividing line between the two can be open to interpretation. Insurance risk is seen as in some respects straddling both camps.
Bias in Select Mortality Investigations
Authors: Chadburn R.G. 
Published: June 2011

ABSTRACTThe bias inherent in select mortality investigations where data are grouped by coincident or non-coincident rate intervals is analysed and compared. The key to the bias is shown to be the particular patterns of non-uniform ‘exposure frequency’ inherent in each method. It is shown that the bias using the non-coincident rate intervals is sensitive to a non-uniform distribution of new entrants by age, while the use of coincident rate intervals is sensitive to making appropriate assumptions regarding the distribution of policy anniversaries over life-time, p(s). Under both methods a significant proportion of the bias is retained after graduation. It is shown that non-coincident rate intervals may be preferred where p(s) is unknown, as in the CMI Bureau's investigations, while coincident rate intervals would be preferred where p(s) is known and taken into account in deriving the age for the estimated rates.
An Actuarial Survey of Statistical Models for Decrement and Transition Data, III. Counting Process Models
Authors: Macdonald A.S. 
Published: June 2011

ABSTRACTCounting processes and their compensators are introduced at a heuristic level. The martingale property of stochastic integrals with respect to a compensated counting process leads to moment estimates and asymptotic normal distributions for statistics arising in multiple state, non-parametric and semi-parametric models. The place of survival models in actuarial education is discussed.
Family Fortunes — A Guide to Saving for Retirement
Authors: Cooper D. R. 
Published: June 2011

ABSTRACTThe 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.
Operation of the Capital Market Under Entity Specific Pricing
Authors: Jenkins T. C. 
Published: June 2011

ABSTRACTThe paper introduces a setting in which each business in an economy faces considerable uncertainty about the cost of providing its service and therefore needs risk capital to give consumers confidence in its solvency. The paper then explores the operation of the capital market under conditions where businesses charge for this service dependability by setting an entity specific profit margin.This entity specific profit margin is associated with an optimal, arbitrage-free investment portfolio for investors and, as they optimise their portfolios, generates a market equilibrium. Under these conditions it is shown that the entity specific risk premium for investors is the same as the premium for non-diversifiable risk relative to the market portfolio. This reconciles an entity specific approach with the capital asset pricing model, and in this setting would allow the use of the former without having to explicitly take the latter into consideration.A consequence of this is that entity specific pricing and valuation are fair in such an setting and, for example, the fair value accounting of insurance liabilities can be performed on an entity specific basis.
The Financial Management of Unit Trust and Investment Companies
Authors: Mehta S.J.B. , Abbott M.G. , Addison D.T. , Dodhia M. , Hitchen C.J. , Oddie A.J. , Poulding M.R. , Riddington D.M. 
Published: June 2011

ABSTRACTThe paper describes the application of actuarial techniques to the financial management of unit trusts and other collective investment schemes. The main features of collective investment schemes are described and the financial issues facing managers of these schemes are highlighted. The unit trust industry in particular is facing a number of potentially significant changes and the paper explores the areas in which the actuarial profession can add value to this industry.
An Actuarial Theory of Option Pricing
Authors: Clarkson R.S. 
Published: June 2011

ABSTRACTUsing an empirical approach to capital market returns analogous to that used for mortality rates by Halley more than three centuries ago to establish life assurance on a sound and scientific footing, a theory of option pricing is built up in terms of the same three key components as for life assurance premiums, namely the expected cost of claims, an allowance for expenses, and a contingency margin as a reserve against the risk of insolvency. The dimensionality of the process describing security returns to any future point in time is increased from two to three by the addition of systematic variability around ‘central values’ to the standard descriptors of expected return and variance of return. It is shown that this approach, which involves only common sense principles and elementary mathematics, has important theoretical, practical and regulatory advantages over the Black-Scholes and related methodologies of modern finance theory.
Address by the President of the Faculty of Actuaries. The World Needs Actuaries
Authors: Bowie Ronald Stewart 
Published: June 2011

ABSTRACTThis presidential address looks at the current state of affairs, the opportunities and threats to our traditional areas of interest and the importance of developing in wider fields. It pays tribute to all the volunteers who help make it the organisation that it is whilst highlighting the need for all Fellows and students to be engaged with its future.
Longevity: A ‘Simple’ Stochastic Modelling of Mortality
Authors: Browne B. , Duchassaing J. , Suter F. 
Published: June 2011

ABSTRACTAll UK insurers exposed to longevity risk need to perform stress tests for their Individual Capital Assessment (ICA). Some have put in place deterministic models which are arguably too simple; others have developed stochastic models that can be demanding and complex.This paper presents a simple model to turn any deterministic mortality scenario into a stochastic model. We propose a simple model of stochastic variation that is easy to explain and to implement, which could be an alternative to and/or complete some of the well known models. The model can be applied to any best estimates of future mortality rates, as it aims to describe how longevity behaves around the projected expected values.The paper proposes a possible calibration on the England and Wales population mortality that produces a minimum indication of possible future variation and uses the results to validate the model's assumptions. Using sample portfolios and the stochastic model, we can simulate cash flows to determine the distribution of the net present values (NPV) of annuity outgo.
Time-resolved luminescence spectroscopy of self-trapped excitons in ladder type Br-bridged Pt complexes
Authors: Suemoto T. , Nakao H. , Nakajima M. , Kitagawa H. 
Published: June 2011

The out-of-phase and in-phase ladder type Br-bridged Pt complexes are investigated by time-resolved luminescence spectroscopy in pico- and femtosecond time regions. The observed luminescence spectra have peaks at 0.87 and 0.94 eV in out-of-phase and in-phase materials, respectively, and are assigned to self-trapped excitons. The wave-packet oscillations in self-trapped excitons (STE) are observed in both materials. The time-evolution curves are analyzed in terms of the secondary radiation theory of strongly coupled electron-phonon system. The period and dephasing time of oscillations as well as the lifetime and spectral shape of the STE luminescence are determined. The fast dephasing or cooling of the wave-packet motion observed in the in-phase type complex is ascribed to inter-chain interactions within the ladder.