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The Actuary The magazine of the Institute & Faculty of Actuaries
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British Actuarial Journal (BAJ), Volume 10, Part I

The guest editorial in this issue BAJ is by the distinguished US actuary Jim Hickman. He identifies changing demographics as a major problem for developed countries in the future, and appeals for actuaries to apply their skills to quantifying the consequences and devising novel insurance systems to fund the changes that will be needed.

Booth and Marcato write on ‘The measurement and modelling of commercial real estate performance’. Their aim is to bring actuaries up to date on data, models, and index construction in this field. The first part of the paper is a substantial review based on the finance literature. An interesting detail is the need sometimes to de-smooth a series based on valuation prices; the opposite of the actuary’s usual problem. Later sections extend the Wilkie model for property in various ways. The discussion was notable for the high proportion of visitors who spoke.

Next is the inaugural Faculty Lecture, delivered by Professor Tom Kirkwood, gerontologist and former Reith lecturer, on the topic ‘Expectations of life’. This gives a fascinating account of how we now understand ageing in terms of processes at the molecular level, leading to the conclusion that human ageing is malleable. This is core reading for any actuary concerned with longevity.

In support of the Institute discussion of ‘Reserving, pricing, and hedging for policies with guaranteed annuity options’ by Wilkie, Waters, and Yang (previously discussed at the Faculty) the 1997 working paper ‘Reserving for annuity guarantees’ by Bolton et al is reprinted. It was based on a survey of offices’ practices that, with hindsight, makes interesting reading. The two main threads of the discussion were: ‘hedging, possible or not?’ and ‘capital requirements, VaR or CTE?’.

In November 2003, the Stochastic Accreditation Working Party led a discussion at the Faculty on ‘Asset models in life insurance’, reported in this issue of BAJ. There are many useful insights, including an extensive summary of different types of investment models and their associated jargon. The working party concentrated on the needs of realistic valuation of long-term liabilities, including asset classes, yield curves, liability characteristics (such as mortality), and practical issues (such as run times and calibration). It concluded that accreditation of particular models would serve no purpose, because models have to be chosen and calibrated appropriately for the tasks at hand, which cannot easily be codified. Finally, there are abstracts of papers from actuarial journals worldwide.