Letters to the editor - April 2012

The editorial team welcomes readers' letters but reserves the right to edit them for publication. Please email [email protected]. The deadline for receiving letters for the May issue is 16 April.

Weighing up pension options
The 2012 UK budget carried two curiously juxtaposed announcements. The first was the decision that the Royal Mail Pension Plan will be taken over by the government - including both its liabilities and its assets, which will then be disposed of.

Abracadabra, at a stroke this reduces the level of UK public-sector debt by 1.5% of GDP. The liabilities then become unfunded future promises.

Am I missing something? Wasn't it a Conservative government in the 1980s that promoted funded pension schemes and gave incentives to get liabilities off the state's balance sheet?

On the other hand, there is an announcement of a new £2 billion pension infrastructure platform, which will make its first 'wave' of investment by early 2013. Presumably, the kind of pension funds to invest in this might have been expected to be large, diversified plans - such as Royal Mail?

Are we being told that funding and assets are a good thing or a bad thing? I can't see the logic in this, but maybe readers might enlighten me.
Peter Tompkins, 21 March 2012


A bigger perspective
The comment on the proportion of readership outside the UK indicates one aspect of the changing profession. I suspect that there is a growing number of retired actuaries in the readership who thereby maintain an interest in their profession. It seems probable that this number will continue to increase.

However, I fear that the smaller typeface now being used in much of the publication may limit the reading enjoyment of an increasing number. I wonder if this should be reconsidered.
David Meldrum, 12 March 2012


These boots are made for working
The December 2011 edition contained an article in which Jessica Leong asked 'Does the bootstrap model work?'

Although Leong makes some interesting observations, the title of her article is wrong and leads to a misguided argument. The title should more correctly be 'Does the chain ladder model work?' It does not make any sense to talk about a bootstrap model, because there is no such thing.

Bootstrapping is a statistical procedure, whereby the distribution of a statistic of interest can be estimated for any model that is fully specified. The subject of the article should therefore be whether the predictive distribution of the outstanding liabilities estimated using one particular reserving model and a special case of the non-parametric bootstrap method are appropriate in practice.

The answer to this depends largely on the reserving model being used, which, in this case, was a special case of the over-dispersed Poisson model with constant dispersion parameters.

This happens to give the same forecasts as the well-known deterministic chain-ladder model. For a consideration of a range of different models and methods of estimating predictive distributions, we refer readers to the article we published in the Annals of Actuarial Science in 2006 - 'Predictive Distributions of Outstanding Liabilities in General Insurance'.

We would encourage Leong, and others, to consider a wider range of models when using the bootstrapping procedure (as we advocate in this paper).
Prof Richard Verrall and Dr Peter England, 2 March 2012


A challenge from the editor
I cited at the launch event of The Actuary magazine that it has never been a more exciting time to be an actuary. We have had the full range of views from 'it is always exciting to be an actuary' right the way through to the other extreme!

I would like to generate some debate on hot topics and even drive out some of the key issues that face you as actuaries and students. What do you see as the key challenges that you face? Do you see the role of the actuary growing or diminishing over time? What are your views on the ever-increasing regulatory changes - do these add real value? Can we ever expect a zero-failure tolerance in financial stability and, if this is the aim, what is the cost of achieving this?

I look forward to your views on these and other key issues that affect you and your profession.
Deepak Jobanputra, 21 March 2012


The editorial team welcomes readers' letters but reserves the right to edit them for publication. Please email [email protected]. The deadline for receiving letters for the May issue is 16 April.