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The Actuary The magazine of the Institute & Faculty of Actuaries
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British Actuarial Journal (BAJ) Vol 8 Part IV

In Part IV of BAJ Vol 8, Professor Paul Embrechts, in his guest editorial ‘Insurance analytics’, welcomes the two-way flow of thinking between actuaries and other financial professionals, citing several examples such as incomplete markets and risk measures where actuaries should be making a contribution. He also makes some sobering points about the need for professional rigour, indeed courage, during boom times: as he has been asked: ‘Where were you actuaries during the bull period? Why didn’t you warn us more forcefully?’

Guijarro and Hare present ‘Corporate diversity and the provision of financial services’, leading to a panel discussion at the Faculty. The panellists included experts in finance, law, and economics, and introduced a wide range of views. The subtext, of course, was whether mutuality still has a place (and where better to discuss this than in Edinburgh?). Major issues were the impact of external factors like regulation and the need for capital, the costs of widespread ownership, and transparency.

‘A review of policyholders’ reasonable expectations’ (PRE) (and its Institute discussion) by Shelley, Arnold, and Needleman is timely, since recent court decisions have at last begun to give form to this concept that was introduced, but not defined, two decades ago. It is both interesting and disconcerting to realise the extent to which actuaries (and regulators) may discuss and debate and agree and implement and grow familiar with assumptions and practices based on latent law that may, at any moment, be crystallised by being interpreted in a court. In the case of PRE, the long period of latency perhaps allowed a lot to change between its conception and its eventual interpretation.

Felipe, Guillen, and Perez-Marin present ‘Recent mortality trends in the Spanish population’. The title is rather modest, as it is not just a report of the data but sets out a modelling framework leading to possible projections of future mortality. (Those who attended the 1998 international congress in Birmingham may recall an early version of this work.) The idea is to fit a parametric model to mortality rates at different epochs, and then model each series of parameter values using time-series techniques. Forecasts of these time series then give forecasts of mortality rates, which surprisingly suggest that mortality will get worse at higher ages in future.

The last paper nicely illustrates one theme of the guest editorial, being ‘On valuation and risk management at the interface of insurance and finance’, by Thomas Moeller. For anyone familiar with Subject 109 or CiD, this gives an excellent survey of pricing and hedging in incomplete markets, including those found by combining mortality or catastrophe risks with financial markets. This material has, so far, been mostly confined to the research literature, so this more accessible treatment is to be welcomed.

Finally, there is a report of abstract of recent articles in Australian Actuarial Journal and Insurance: Mathematics and Economics.