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The Actuary The magazine of the Institute & Faculty of Actuaries

Announcement of 2008–2009 research grants

Purpose of awards

The Actuarial Profession invites applications for grantsto fund research projects in actuarial and relatedareas. The research may be original in nature or mayinvolve a review of existing techniques and a demonstrationof their application to new problems.

Who can apply?

Any individuals or groups proposing to undertakeresearch aimed at the development or application ofactuarial techniques may apply for a grant. Applicantsdo not have to be members of the professionor of academic institutions. Graduate and undergraduatestudents are not eligible to apply individually,and owing to the timescale involved grants willalso not be made in respect of entire PhD projects.

Selection criteria

The main criterion is that the research is expected tobe of practical relevance and value to the actuarialprofession and preference will be given to those thathave the support of the relevant practice area of theprofession. Particular emphasis will additionally beplaced on the application of actuarial techniques tonew areas and those of current social concern.

The Research Steering Committee, in conjunctionwith the Practice Boards, has identified seven majorresearch themes, which it would encourageresearchers to consider in framing their grant applicationsfor this session. These research themes reflectthe current major priorities identified for the profession.Some topical examples have also been includedfor each theme, to illustrate the issues that might fallwithin these themes.

Theme 1 Risk management

  • Research which pushes back the boundaries anddevelops new ideas in quantitative risk managementrelevant to actuarial careers.
  • Research which provides data and context onfinancial markets and which will help employersof actuaries decide on the business opportunitiesin quantitative risk management.
  • Research which focuses on summarising, pullingtogether and giving a current market context toexisting research and thinking on quantitative riskmanagement.
  • Financial meltdown: a study of the possibility of asudden and widespread financial meltdown andthe circumstances which could precipitate it. Cansystems be developed which give an early warningif the risk of such a meltdown increases?
  • Research into if and how accounting standardsand actuarial funding approaches are adapting tothe increased use of swaps and derivatives, and of‘skill-based’ sources of return.
  • Research into what factors have influencedhistoric real and nominal rates of interest andmodels for the future.
  • Further research on the efficacy of liability matchingusing financial instruments in the presence ofnon-financial uncertainties.

    Theme 2 The actuary’s toolkit

  • Quantifying and communicating (process,parameter and model) uncertainty.
  • Practical applications of extreme value theory andtechniques for the accurate computation of rareevent probabilities.
  • Derivative pricing and model calibration.
  • Applications of behavioural finance theories.
  • On ICAs; whether correlations change in extremestresses, how to model ‘non-linearity’, how tocombine risks such as the failure of a major supplierwith similar risks in a diversified corporatebond portfolio, etc. The need for a theoreticalmodel to underpin FSA rule making and to helpavert under or over capitalisation.

    Theme 3 Mortality and morbidity developments

  • Understanding the past, including cohort effects.
  • Projection methodologies, including by cause ofdeath and correlations between mortality (andmorbidity) and economic conditions.
  • Projecting future mortality and morbidity, includingassessment of the implications for future mortalityof obesity and emerging diseases.
  • Building on the work of the Ageing PopulationGroup and the Actuaries Panel on MedicalAdvances, including consideration of the financialand social effects of ageing on individuals, institutionsand government.

    Theme 4 Life-specific issues

  • Management service agreements – consider argumentsfor and against the surplus or loss onexpenses accruing to shareholders as opposed towith-profits policyholders.
  • Surplus allocation in the context of risk – considerarguments for and against a reduced allocationto shareholders where the company has reducedits exposure to risk.
  • Differences between target payouts on maturityand surrender values.
  • Company investment strategies – including therationale for asset mixes and different ways offunding guarantees.
  • Variations in with-profits payouts.
  • Securitisation of risks.

    Theme 5 Pensions-specific issues

  • Sponsor covenant issues, especially the impactson actuarial advice and/or trustee and corporatedecisions.
  • The design of defined contribution schemes, possiblyto include identification of different modelsdepending on whether the design is from theemployer or the employee point of view.
  • Research into if and how defined benefit plansponsors can hedge their exposures to pensionfund risks tax-efficiently and without having tochange the pension fund investment strategy.This should include both past service and accruingcosts.

    Theme 6 General insurance-specific issues

  • Quantifying uncertainty in reserves.
  • Understanding and modelling the reserving cycle.
  • Catastrophe modelling techniques:

    —Use interpretation and challenge of catastrophemodelling in portfolio and aggregate exposuremanagement.

    —Quantification and explanation of parameteruncertainty within the models.

    —Allowance for trends (such as climate change,and natural cycles) on model output.

    —Consideration of perils that are currently notmodelled; quantification of economic andinsured loss.

  • Pricing and rating methodologies.
  • Securitisation of risks.

    Theme 7 Social Policy Board issues

  • Impacts of climate change on the financialservices industry.
  • Pandemics.
  • Financial capability.
  • The risks of relying on residential property as a keyretirement asset when faced with wealth decumulationfor a flexible retirement.
  • To build on existing work on developing a retailprice index for the pensioner population, bettersuited to needs than the RPI (whether or not ILGand pensions should be linked to something otherthan current RPI).
  • Research into the implications for financial securityprogrammes of longer-term social and environmentalchange.

    Researchers may, if they wish, submit proposals thatdo not fall within the above themes, although theyshould seek to demonstrate in their applications howthe proposed research might contribute towards thefuture activities of the Actuarial Profession.

    Previously successful grants

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

    Size of grants

    Grants can be awarded up to a maximum of£25,000. Applications above that amount would beunlikely to be supported. We would also welcomeapplications for significantly smaller grants, either in respect of identifiable parts of larger projects or forsmall projects which still fulfil the above criteria. Thecommittee is particularly interested in applications forsmaller amounts that will have a disproportionateimpact, say through enabling a larger programme ofresearch or addressing a specific, targeted issue.

    Research contract

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

    Publication of research

    The Actuarial Profession’s aim is that the results ofthe research are published in such a way as to beaccessible to most actuaries. The profession wouldwish to be involved in the publicity surrounding anyoutputs from a project. We will require advancenotice of press releases and output. Such an undertakingwill be required from researchers before agrant is awarded and suitable credit must be givento the Actuarial Profession at the time of publication.Wherever possible the published work should containclear demonstrations of how the results couldbe applied in practice.

    Duration of research

    In normal circumstances the duration of the researchis expected to be a maximum of one year from thedate of commencement to receipt of the final results.In the case of applications from academic researchersthis means that applications accepted in 2008 willbe in respect of research to be completed ideally nolater than the end of the 2008–2009 academic year.

    Monitoring of projects

    The Actuarial Profession will monitor and whereappropriate provide input to the progress of researchprojects. Researchers will be expected to producereports at specified intervals for the Research SteeringCommittee. They will also be expected to liaisewith an appointed contact from the ActuarialProfession. The final report from the research projectwould be placed on the profession’s website withappropriate links to other sites if required.

    Application deadline and process

    The deadline for applications to be received byPauline Simpson (email only, details below) isThursday 31 January 2008. Applicants will beinformed of the success or otherwise of their applicationduring April/May 2008. For details of how toapply please see the ‘Guidelines and applicationform’ on the profession’s website under ‘Researchand Prizes – Applying for funding’.If further information is required, please contactPauline Simpson, email pauline.simpson@actuaries.org.uk, tel 01865-268237.