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The Actuary The magazine of the Institute & Faculty of Actuaries
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Announcement for 2007–2008 research grants

Purpose of awards

The Actuarial Profession invites applications for grants to fund research projects in actuarial and related areas. The research may be original in nature or may involve a review of existing techniques and a demonstration of their application to new problems.

Who can apply?

Any individuals or groups proposing to undertake research aimed at the development or application of actuarial techniques may apply for a grant. Applicants do not have to be members of the profession or of academic institutions. Graduate and undergraduate students are not eligible to apply individually, and owing to the timescale involved grants will also not be made in respect of entire PhD projects.

Selection criteria

The main criterion is that the research is expected to be of practical relevance and value to the actuarial profession and preference will be given to those that have the support of the relevant practice area of the profession. Particular emphasis will additionally be placed on the application of actuarial techniques to new areas and those of current social concern.

The Research Steering Committee, in conjunction with the practice boards, has identified seven major research themes, which it would encourage researchers to consider in framing their grant applications for this session. These research themes reflect the current major priorities identified for the profession. Some topical examples have also been included for each theme, to illustrate the issues that might fall within these themes.

Theme 1 Risk management

  • Research which pushes back the boundaries and develops new ideas in quantitative risk management relevant to actuarial careers.
  • Research which provides data and context on the market and which will help employers of actuaries decide on the business opportunities in quantitative risk management.
  • Research which focuses on summarising, pulling together, and giving a current market context to existing research and thinking on quantitative risk management.
  • Financial meltdown: a study of the possibility of a sudden and widespread financial meltdown at some point of time and the circumstances which could precipitate it. Can systems be developed which would give early warning if the risk of such a meltdown increases?
  • Research into if and how accounting standards and actuarial funding approaches are adapting to the increased prevalence of financial engineering (including swaps and options) and ‘skill-based’ sources of return in pension fund investment arrangements.
  • Financial technical research into risk management and the business management issues involved, say into the outcomes from crisis management.
  • Research into what factors have influenced historic real rates of interest and models for the future.
  • Further research on the efficacy of liability matching using financial instruments in the presence of non-financial uncertainties and risks, including mortality risks.

Theme 2 The actuary’s toolkit

  • Quantifying and communicating (process, parameter and model) uncertainty.
  • Practical applications of extreme value theory and techniques for the accurate computation of rare event probabilities.
  • Derivative pricing and model calibration.
  • Applications of behavioural finance theories.
  • On ICAs; whether correlations differ from normal in extreme stresses, how to model ‘non-linearity’, how to combine risks such as the failure of a major supplier with similar risks in a diversified corporate bond portfolio, etc. The need for a theoretical model to underpin FSA rule-making and to help avert under- or over-capitalisation.

Theme 3 Mortality and morbidity developments

  • Understanding the past, including cohort effects.
  • Projection methodologies, including by cause of death and correlations between mortality (and morbidity) and economic conditions.
  • Projecting future mortality and morbidity, including assessment of the implications for future mortality of obesity and emerging diseases.
  • Building on the work of the Ageing Population Group and the Actuaries Panel on Medical Advances, including consideration of the financial and social effects of ageing on individuals, institutions, and government.

Theme 4 Life-specific issues

  • Management service agreements – consider arguments for and against the surplus or loss on expenses accruing to shareholders as opposed to with-profits policyholders.
  • Surplus allocation in the context of risk – consider arguments for and against a reduced allocation to shareholders where the company has reduced its exposure to risk.
  • Differences between target payouts on maturity and surrender values.
  • Company investment strategies – including the rationale for asset mixes and different ways of funding guarantees.
  • Variations in with-profits payouts.

Theme 5 Pensions-specific issues

  • Sponsor covenant issues, especially how it impacts on actuarial advice and/or trustees’ decisions.
  • Allowing for asset allocation risk in the PPF risk based levy.
  • The optimal design of defined contribution schemes, possibly to include identification of different models depending on for whom it is intended to be optimal.
  • Smoothing pension costs: Allowing for derivatives contracts in the pension fund accounting and funding measures.
  • Research into if and how defined benefit plan sponsors can hedge their exposures to pension fund risks (as expressed in the financial accounts and cash flows) tax efficiently and without having to change the pension fund investment strategy. This should include both past service and accruing costs.

Theme 6 General insurance-specific issues

  • Quantifying uncertainty in reserves.
  • Understanding and modelling the reserving cycle.
  • Catastrophe modelling techniques:
    • Use interpretation and challenge of catastrophe modelling in portfolio and aggregate exposure management.
    • Quantification and explanation of parameter uncertainty within the models.
    • Allowance for trends (such as climate change, and natural cycles) on model output.
    • Consideration of perils that are currently not modelled; quantification of economic and insured loss.
  • Pricing and rating methodologies.

Theme 7 Social Policy Board issues

  • Impacts of climate change on the financial services industry.
  • Pandemics.
  • Financial capability.
  • The risks of relying on residential property as a key retirement asset when faced with wealth de-cumulation for a flexible retirement.
  • To build on existing work on developing a retail price index for the pensioner population, better suited to needs than the RPI (whether or not ILG and pensions should be linked to something other than current RPI).
  • Research into the implications for financial security programmes of longer-term social and environmental change.

Researchers may, if they wish, submit proposals that do not fall within the above themes, although they should seek to demonstrate in their applications how the proposed research might contribute towards the future activities of the Actuarial Profession.

Previously successful grants

Details of grants that have been previously awarded can be found on the profession’s website at:
www.actuaries.org.uk/Display_Page.cgi?url=/research/grants_complete.html
www.actuaries.org.uk/Display_Page.cgi?url=/research/grants_ongoing.html

Size of grants

Grants can be awarded up to a maximum of £25,000. Applications above that amount would be unlikely to be supported. We would also welcome applications for significantly smaller grants, either in respect of identifiable parts of larger projects or for small projects which still fulfil the above criteria. The Committee is particularly interested in applications for smaller amounts that will have a disproportionate impact, say through enabling a larger programme of research or addressing a specific, targeted issue.

Research contract

The selected researcher and the Actuarial Profession will enter into a formal contractual arrangement. Oversight of the project will be co-ordinated by the Actuarial Profession.

Publication of research

The Actuarial Profession’s aim is that the results of the research are published in such a way as to be accessible to most actuaries. The profession would wish to be involved in the publicity surrounding any outputs from a project. We will require advance notice of press releases and output. Such an undertaking will be required from researchers before a grant is awarded and suitable credit must be given to the Actuarial Profession at the time of publication. Wherever possible the published work should contain clear demonstrations of how the results could be applied in practice.

Duration of research

In normal circumstances the duration of the research is expected to be a maximum of one year from the date of commencement to receipt of the final results. In the case of applications from academic researchers this means that applications accepted in 2007 will be in respect of research to be completed ideally no later than the end of the 2007– 2008 academic year.

Monitoring of projects

The Actuarial Profession will monitor and where appropriate provide input to the progress of research projects. Researchers will be expected to produce reports at specified intervals for the Research Steering Committee. They will also be expected to liaise with an appointed contact from the Actuarial Profession. The final report from the research project would be placed on the profession’s website with appropriate links to other sites if required.

Application deadline and process

The deadline for applications to be received (via email) to Pauline Simpson (email below), is Wednesday 31 January 2007. Applicants will be informed of the success or otherwise of their application during April/May 2007. For details of how to apply please see the ‘Guidelines for Applications’ on the profession’s website under ‘Research and Prizes’. If further information is required, please contact Pauline Simpson, email pauline.simpson@actuaries.org.uk, tel 01865-268237.