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The Actuary The magazine of the Institute & Faculty of Actuaries
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Final update from Discount Rate Steering Committee

The Management Board of the Actuarial Profession commissioned a research project to develop a framework for considering and analysing discount rates. This project resulted in the production of a research paper last year — ‘Actuaries and Discount Rates’ by Chris Daykin and Chinu Patel, and earlier this year the publication of a Sessional Meeting paper ‘Developing a Framework for the use of Discount Rates in Actuarial Work’ from the Discount Rate Steering Committee (DRSC) set up to oversee the project. This paper was discussed at sessional meetings in Edinburgh and London in January of this year, and subsequently at many other meetings around the country.

As well as meetings held with actuaries, Management Board also commissioned Chris Daykin and Chinu Patel to conduct a consultation process with users of actuarial advice. Following this period of consultation, the DRSC reviewed the recommendations and proposed a way forward to Management Board. Management Board has accepted many of the recommendations from the DRSC and supported the framework in that it provides a clarity of communication and a more disciplined way of thinking, in addition to providing actuaries with a framework which they could use to present their work.

Next steps

1. The Discount Rate Steering Committee has produced a more detailed note 
setting out its final recommendations and the way forward that were agreed by Management Board entitled ‘Developing a Framework for the use of Discount Rates in Actuarial Work: summary, final recommendations and the way forward’ (http://tinyurl.com/3d8uw4t).

2. A layman’s note will be drafted on the proposed discount rate framework for the benefit of users of actuarial advice.

3. The Actuarial Profession will consider further research in the following areas:

- In the preparation of accounts, the adjustment, if any, for sponsor default linked to the nature of the accounts being prepared and the requirement to hold assets against liabilities

-  Sovereign risk and illiquidity premium

-  Stochastic frameworks and risk.

The full note summarising the discussions and commentary on the 
DRSC’s January 2011 Discussion Paper 
can be found on the Prfoession's website at 
http://tinyurl.com/3zt5qeo