The President (Mr R. S. Bowie, F.F.A.): Tonight's topic is ‘100 years of state pension: — learning from the past’. I am reminded of the expression: why are the bankers so keen to find new ways of losing money when the old ways seem to have worked perfectly well!

The state pension has been going in a recognisable form for only 100 years and only for the last 60 as a universal pension; and only for the last 30 years in the form that we all might recognise today.

If the Actuarial Profession can bring value to something from the past, it is to bring a perspective and a context to it so that we can learn from it. In this way, the Profession can create an informed climate within which public debate on matters of public interest can take place. As you will all know, the Financial Reporting Council are pressing the Profession hard to give tangible evidence of its commitment to the public interest, and this book falls into that category, creating an informed background for debate on a matter of huge public interest.

Against a background of globalisation, regulatory change and the prospect of a merger with the Faculty of Actuaries, the profession is in a state of renewal. Traditional areas of actuarial expertise are likely to see employment reductions. However, our skills in risk and finance should be in demand. To ensure this we need to maintain the relevance of our examination system, develop the appropriate research resources and CPD offerings, give members the support that they need throughout their careers whilst working with employers to produce the skilled professionals that they require.

This presidential address looks at the current state of affairs, the opportunities and threats to our traditional areas of interest and the importance of developing in wider fields. It pays tribute to all the volunteers who help make it the organisation that it is whilst highlighting the need for all Fellows and students to be engaged with its future.

For some while there has been a growing awareness from both internal and external stakeholders that the governance and risk management in United Kingdom (U.K.) insurance companies needed to be enhanced. The proposed European Union Solvency II Directive makes this very explicit and the current economic turmoil has put a much stronger emphasis on the whole process: it is being seen as the right thing to do, rather than simply a regulatory requirement. In this paper, we set out the background to and recent history of governance for U.K. insurance companies, and consider how enterprise risk management can bring together the various control frameworks needed to support that governance. Whilst no two companies are the same, and hence the solutions to these issues will vary, there are several common themes linked to successful implementation. Similarly, various barriers to success are identified, together with solutions to resolve them.

It was agreed that this meeting would be partially held under Chatham House rules in order that there could be open discussion. Accordingly this is a summary of the meeting and, any speaker who did not wish his or her name to appear, has had those wishes respected.

The panel consisted of four speakers each with a particular point of view. The session was opened with comments about the use of models, regulation and what we might learn from the current crisis. In particular the comments highlighted the gap that appears to have existed and may still exist between those doing the modelling and those overseeing the various financial institutions.

The management of a fund requires a number of decisions as to the fair treatment of policyholders. This paper first considers the difference between the regulatory requirement to treat customers fairly and the longstanding concept within the profession of policyholders' reasonable expectations. The paper then goes on to consider the bearing of risks within the fund, and thus the interactions between the inherited estate and the asset share so often used to guide payouts to customers. Management actions are discussed in normal, and abnormal, times. Lastly, the considerations of distribution of the inherited estate are considered.

Mr M. R. Kipling, F.I.A.: This paper is entitled Governance and Risk Management in United Kingdom Insurance Companies. It is a very timely paper in light of the recent publication of the Turner review which, among other things, covers the governance of UK financial institutions.

Mr S. P. Deighton, F.I.A. (introducing the paper): The paper is the first formal output from the Research and Thought Leadership subcommittee of the Enterprise Risk Management (ERM) Practice Executive Committee (PEC). It may seem odd, therefore, that it contains no original research. There is not an equation in sight, and there is only one token diagram. This is because the most important of its key themes is that there is much more to ERM than complex models and fancy mathematics.

There are a number of areas associated with ERM. One of them is understanding the wider governance framework within which an insurance company must operate, and hence the introduction to that subject at the beginning of the paper. The second is how to run the very detailed identification and mitigation of the myriad of small risks across a wide group which is at the other end of the spectrum to the multi-million pound derivative transactions that manage equity risk. Our paper sees this as indistinguishable from the internal control framework that a company needs in order to comply on the governance front.

This review was undertaken for the Faculty and Institute of Actuaries as part of their programme to encourage research collaborations between health researchers and actuaries in order to understand better the factors influencing mortality and longevity. The authors presented their findings in a number of linked sessions at the Edinburgh conference (Joining Forces on Mortality and Longevity) in October 2009 and contributed to this overview. The purpose is to review evidence for the impact on adult mortality of characteristics of the individual's lifetime socioeconomic or psychosocial environment or phenotype at the behavioural; multi-system (e.g. cognitive and physical function); or body system level (e.g. vascular and metabolic traits) that may be common risk factors for a number of major causes of death. This review shows there is growing evidence from large studies and systematic reviews that these individual characteristics, measured in pre-adult as well as the adult life, are associated with later mortality risk. The relative contribution of lifetime environment, genetic factors and chance, whether these contributions change with age, and the underlying social and biological pathways are still to be clarified. This review identifies areas where further life course research is warranted.

In 1900 life expectancy at birth in the UK was only 46 years for men and 53 years for women. Just over a century later life expectancy at birth has increased by around 30 years and by 2007 had reached 77.5 years for men and 81.7 years for women. The population aged 85 years and over, often termed the ‘oldest old’, are now the fastest growing section of our population. For the 1921 cohort only 18% of men and a third of women reached the age of 85 years but for the 1951 birth cohort it is expected that almost half of men and 60% of women will achieve that age. The important question for health care planners and society is whether the large number of those who will reach 85 years in the future are similar in health characteristics to those attaining 85 years now.

This question was addressed by substantive results and by methodological papers in the ‘Cohort’ theme of the Joining Forces on Mortality and Longevity conference in October 2009. Here we provide an overview of the papers, some of which are presented in full in this issue (see Murphy (2009), Di Cesare & Murphy (2009), O'Connell & Dunstan (2009), Forfar (2009)).

Investment strategy is often static, punctuated by infrequent reviews. For most long-term investors, this practice results in large risks being taken that could otherwise be managed with a more dynamic investment policy. The bulk of this paper is aimed at analysing and describing two multi-period investment strategy problems — in order to derive potential dynamic strategies. Along the way, we show how static investment strategies can fail to deliver an investor's long-term objectives and describe the relationship of our work to other areas of the finance literature. This paper does not cover trading strategies such as Tactical Asset Allocation.

This paper sets out two main approaches to the multi-period problem. The first approach optimises a utility function. The second approach uses partial differential equation (PDE) technology to optimise a target statistic (in this case, TailVaR) subject to return and long-only constraints.

The Actuarial Profession is currently undertaking a review of its research strategy, and has decided to focus more resources on researching mortality developments. It is important that the profession is involved in partnerships with researchers from outside of the profession, bringing actuarial expertise into closer contact with other disciplines. We believe that collaboration between these different areas of expertise will provide important new insights in understanding mortality trends. This report represents the first step by the Mortality Developments Scoping Project Steering Group to map current research into mortality developments across a wide range of disciplines. The steering group is aware that the themes and literature discussed in this report are not exhaustive; however it does include areas of research not normally covered by the Actuarial Profession. The steering group welcomes comments on the report and suggestions for any areas which may not yet have been covered.

The main aim of this report is to provide an overview of the key areas of research into mortality developments across a wide range of disciplines, as well as areas of overlap and gaps in the research. The literature described is compiled from recommendations received by the Mortality Developments Scoping Project Steering Group from experts from different disciplines working in the area of mortality.

Key themes identified from recommended literature:

— the role of medicine in mortality reduction;

— the role of lifestyle and environment in mortality reduction, including smoking, socio-economic conditions and obesity;

— causes of death contributing to mortality reduction, in particular coronary heart disease;

— mortality reduction attributable to differing age groups;

— the relationship of active life expectancy to total gains in life expectancy;

— evidence of cohort effects on mortality improvement; and

— future trends in mortality developments.

Areas of overlap identified from recommended literature are:

— the overlap between literature examining the role of medicine in mortality decline and the influences on the decline in mortality from coronary heart disease; and

— the areas of overlap between various disciplines working in the field of mortality developments.

Gaps identified in recommended literature are:

— a lack of recommendations from social policy;

— few papers recommended on the role of lifestyle and behavioural factors on mortality;

— few papers recommended on causes of death other than coronary heart disease; and

— few papers recommended on potential threats to future mortality improvement.

Mr J. B. Orr, F.F.A. (introducing the Steering Group paper): I will take you through some of the background to the scoping study work, the mortality research that was involved, and describe the steering group. Dr Macdonald will talk you through the scoping study. I will talk about the methodology that has been adopted and about an experts' meeting that we held in March. I will provide a brief description of the sessional meeting, and then talk about the October 2009 conference, which we are working towards.

The President (Mr N. B. Masters, F.I.A.): The subject of this evening is a paper by Adrian Lawrence, Stuart Jarvis and Sheng Miao on Dynamic Asset Allocation Techniques, very much a flavour of the day at the moment as we struggle with the gyrations of both the stock market and interest rates. If I may, I will ask Dr Jarvis to introduce the paper.

Dr S. J. Jarvis, F.I.A.: We are acutely aware that the paper has not been finalised yet and so thank you in advance for any help you can give us this evening in improving our paper.

In the absence of the final paper, we are going to spend a bit longer than is normal at these meetings to describe what our paper consists of and why we have written what we have written.

I am going to start off by talking about some of our motivations. The paper is a fairly technical paper. It focuses on investment, but our motivation comes from applications so we will spend a bit of time talking about those first. We will then talk about the formulation of problems, and some of the techniques that we apply to look at them. That is the focus of the paper—the methods that we found useful. Finally we will talk through some of our results.

The mortality data (registered deaths and population size) over the years 1961–2007 for the population of England and Wales and for Scotland were obtained from the Office for National Statistics (ONS) and from the Scottish Registrar General. This paper addresses the following questions:

(i) Is there statistical evidence for a cohort effect (i.e. a generation effect separate from the period effect) being present in the data?

(ii) Do both males and females exhibit similar cohort (generation) effects?

(iii) Are period effects (i.e. the improvement in mortality with time) more significant than cohort effects?

(iv) How should one allow, in forecasts of population mortality, for age, period and cohort effects?

(v) Is it sensible to combine male and female mortality experience to determine the period effect and the cohort effect?

(vi) How do the forecasts for the expectation of life at birth, using the Extended-Lee–Carter-Combined (ELCC) model (described in the paper) differ from the (2008 based) Office of National Statistics (ONS) forecasts of the expectation of life at birth?