This paper addresses the process of estimating loss reserves for a company or syndicate writing in the London Market. Particular emphasis is placed on insurers maximising the value of the process, and ensuring that the process is not simply a series of mathematical calculations. The use of sophisticated mathematical techniques should not distract from the importance of understanding the business and ensuring that data are correct. Sophisticated mathematical techniques can give rise to misleading impressions of confidence and accuracy to estimates, which are often subject to considerable uncertainty. The principles (rather than the detailed techniques) are illustrated by a case study based on a hypothetical London Market writer. Many of these principles are relevant to other markets.

This abstract relates to the following paper:

DempsterM.A.H. & MedovaE.A.Asset liability management for individual households ‐ Abstract of the London Discussion. British Actuarial Journal, doi:10.1017/S135732171100016X

In the last three decades the life insurance industry was rocked by a series of mis-selling scandals such as endowment mortgage, personal pension and payment protection insurance mis-selling. Regulators have stepped in to try to address the underlying causes and improve customer protection by introducing more stringent regulation targeted at sales practices and remuneration, product design, disclosure and ongoing monitoring together with significantly larger financial penalties for non-compliance. Against this background, the paper considers whether customers understanding of risks and outcomes associated with life insurance products can be further improved and how poor customer outcomes can be avoided in the future. We acknowledge the complexity of these issues, which involve many stakeholders, covering all stages of the product lifecycle and customer journey and being impacted by a constantly changing regulatory landscape. We first review the current regulatory landscape across both the United Kingdom and other jurisdictions, concluding that whilst regulators have acted to improve customer protection, gaps still remain, particularly around the areas of disclosure and consideration of changing customers’ needs throughout product lifetimes. The paper then considers how the current situation could be improved for customers in a cost effective manner. We focus on improvements in disclosure, needs-based selling, ongoing assessment and communication as a means of ensuring that products continue to meet the customers’ needs and risk profile, and on introducing a duty of care which would force financial services firms to act in the best interests of their customers. In this paper we present our preliminary thoughts and recommendations. Some of the recommendations will cost something to implement, and should therefore be supported by cost-benefit analyses that would weigh these costs against the potentially larger benefits to both customers and the insurance industry.

This paper illustrates the potential impacts of climate change on financial markets, focusing on their long-term significance. It uses a top-down modelling tool developed by Ortec Finance in partnership with Cambridge Econometrics that combines climate science with macro-economic and financial effects to examine the possible impacts of three plausible (not extreme) climate pathways. The paper first considers the impact on gross domestic product (GDP), finding that GDP is lower in all three pathways, with the most severe reduction in the Failed Transition Pathway where the Paris Agreement climate targets are not met. The model then translates these GDP impacts into financial market effects. In the Failed Transition Pathway, cumulative global equity returns are approximately 50% lower over the period 2020–2060 than in the climate-uninformed base case. For the other two pathways where the Paris Agreement targets are met, the corresponding figures are 15% and 25% lower returns than in the base case. Results are provided for other asset classes too. These demonstrate that climate change represents a significant market risk, with implications for financial planning, modelling and regulation.

This paper has been written to provoke discussion and will be used as background to the debate on 18 November 2002. An earlier version was produced by the Faculty of Actuaries Pension Research Group and presented as a paper to the Faculty of Actuaries Students' Society.

Our principal focus in this paper is on ways that a Fast Close process (or indeed any reserving process) can be structured to maximise the value added within the process given the time and resource available. This builds on the use of actual vs. expected techniques investigated in our previous paper, and also looks at forces external to the reserving function that may derail smooth progress. We highlight a number of practical ways that the balance can be restored in favour of adding value rather than crunching numbers. This paper forms the second in the TORP series.