Actuarial Principles Research Articles

A Co-Ordinated System of Calculations for Altered Policies

SynopsisThis paper describes a practical co-ordinated system of calculating financial terms for policy alterations and calculating surrender and paid-up values of policies which have been altered. The system is primarily designed to produce numerical results which are consistent, equitable and capable of evaluation without the need for special actuarial experience. The calculation formulae make use of the tabular rates of surrender values and paid-up values currently granted for unaltered policies and the current premium rates charged for new policies; the often difficult selection of suitable actuarial functions is thereby avoided automatically without departing from general actuarial principles. Since the actuarial bases inherent in these tabular rates are not used explicitly the rates can be changed independently at any time without affecting the use of the formulae. The system is equally suitable for operation by clerical staff or for computer application and should produce economies in the valuable time of skilled staff.At the end of the paper, examples are given comparing results with those calculated by conventional methods.

An actuarial-experimental model of personality assessment.

Summary A proposal has been made for a new, more powerful approach to personality assessment. The model is an integration of the characteristics of the actuarial principles of test construction with the experimental method. The experimental method should prove to be effective in controlling the error variance arising out of the accidental influences on the responses, and the actuarial paradigm should reduce the error stemming from both a possible low construct validity and the subjectivity of the clinician's judgment. The resultant increase in the clinician's power to differentiate between responses indicative of enduring traits and those which are the outcome of accidental influences should thus help in breaking the impasse currently restricting the usefulness of projective techniques.

Magnitude control of technical reserves in Finland

This paper deals with some requirements put forward by the Finnish Supervisory Service on technical reserves mainly for solvency reasons. Consequently only one but nevertheless an important aspect of solvency problem is touched upon. The solvency question in its entirety is discussed in a paper of Dr. Pentikainen at this same colloquium.According to the instructions of the Supervisory Service, given by virtue of the Insurance Companies Act, insurance companies are obliged to calculate a so-called equalisation reserve in a specific way. Simplifying slightly, this equalisation reserve is that part of the technical reserves which exceeds the premium reserve and the claims reserve calculated according to classical actuarial principles; that is to say, the present value of the expectation value of the net insurance liabilities. The Insurance Companies Act calls for this reserve because conventional technical reserves do not take into account the random feature of claims amount.

Some Legal Points Affecting Investments

Members of this Society and of the parent Institute have considered, from time to time, questions affecting the investment of life insurance funds. In the early days ‘Bailey's Canons’ were propounded, and comparatively recently J. B. H. Pegler's ‘Actuarial Principles of Investment’ and H. G. Clarke's ‘Broad Analysis of the Problem’ have been discussed. Also, the more practical aspects of the subject have received due consideration: notably Stock Exchange Investments by A. S. Holness, Loans and Mortgages by W. Murray Simpson and Real Property by G. B. Lane, F.S.I., and W. A. Leach, F.S.I., in 1944, and further by A. C. Wheeler and K. A. C. Wheeler in 1953.My purpose is to present certain legal points affecting these investments. I hope my remarks may to some extent be supplementary to these previous contributions on the subject of investments, and I shall try to avoid covering the same ground.

Practical Aspects of the Industrial Branch Valuation.

In the opening sentence of his paper on the valuation of industrial assurance policies given to the Institute in February 1937, W. J. Fulford said that his subject was essentially a practical one. Certainly the underlying actuarial principles are in no way different from those of the ordinary branch. In fact, the use of continuous functions gives the various valuation formulae a deceptive appearance of simplicity. There are none of the adjustments to allow for incidence of premium income, the formulae for which are the bane of the student grappling with the valuation of ordinary branch policies. The practical aspects, however, are very different. Reference to the published accounts of the Ordinary Offices shows that the new business, even for the largest, amounts only to a few hundred policies each week. In contrast in one large Industrial Office no fewer than 6000 new proposals are received each week while the total ‘offs’ in 1952 amounted to nearly 400,000. Since the Industrial Offices have a pre-disposition to hold their annual general meetings in late March or early April the actuary responsible for the annual valuation is faced with a formidable task if his figures are to relate to business on the books the previous 31st December, bearing in mind that the final results with recommendations have to be considered by the Board, decisions taken, and accounts published all before the Annual Meeting.

Aspects of Overseas Life Assurance legislation.

The transaction by British offices of life assurance business outside the United Kingdom brings with it problems which have been discussed by W. F. Gardner in his paper to the Institute on ‘Some considerations affecting the transaction of overseas life business’ (J.I.A. 66, 198) and by C. D. Sharp in his paper on ‘British life assurance overseas’ (J.S.S. 9, 2). These papers dealt with the principles to be observed and the practice to be followed in writing life business overseas having regard, inter alia, to local insurance laws. My intention is to consider the laws themselves, to point out some of the differences between them, and to consider to what extent they are consistent with actuarial principles. To keep the subject within practical limits I shall confine myself to Ordinary branch business in the Commonwealth and Egypt. Furthermore, I shall not consider laws which directly control the relationship between insurer and insured, and between insurer and field staff.

The Consulting actuary and pension funds

During the course of a discussion on Mr R. C. B. Lane's paper, ‘The Dissolution of a Superannuation Society’, presented to the Institute on 24 January 1949, Mr V. A. Burrows enunciated the dictum that a consulting actuary's function, in connexion with friendly societies and pension funds, was primarily an educative one. In his view, it was the actuary's duty to explain and expound the mysteries of his craft so that the laymen who formed committees of management, trustees, local authority finance committees—whoever his clients were—should obtain some grasp of the actuarial principles of their particular funds.Most consulting actuaries would probably agree with this definition of their task. Their clients can generally give only superficial and spasmodic thought to their own funds, since their primary attention will be devoted to their own trades or businesses. The consulting actuary, on the other hand, meets a succession of technical and administrative problems bearing on friendly societies and pension funds, and in course of time he should be able to exercise wide judgment in these matters. Trustees and committees of management of pension funds should come to feel that they can turn to their actuary for guidance on all points of difficulty whether these are of principle, policy or administration.

The Actuarial Principles of Investment

The purpose of this paper is to discuss the actuarial principles on which the investment policy of life assurance offices should be founded. The policy considered relates, firstly, to the principles on which the selection of investments should be made and secondly, to the basis of their subsequent valuation.

The Old-Age Reserve Account and Its Economic Implications

The Old-Age Reserve Account created by Title II the Act is one the most interesting and significant features the social security program. Commencing in I937 Congress is authorized to make yearly appropriations to the account of an amount sufficient as an annual premium to provide for the payments required under this title, such amount to be determined on a reserve basis in accordance with accepted actuarial principles. . . .1 No mention is made in this title as to the source these appropriations, but Title VIII the Act provides for two new taxes which take effect January I937, and the proceeds these taxes are to be paid directly into the general funds the Treasury. One tax is levied upon the wages all the employees covered under Title 11,2 and the other, equal in amount, is imposed upon their employers.3 The annual appropriations that Congress is authorized to make to the Reserve Account presumably will tend to correspond to the receipts from these two taxes. Constitutional considerations made it inexpedient to provide a more direct relationship between contributions and appropriations to the Account. As payment old-age benefits will not begin until January I942, the appropriations to the Account will accumulate for five years with no disbursements from it, except relatively small amounts for death benefits. Moreover, it is estimated that not until about i980 will annual disbursements equal the annual receipts from both appropriations and interest on the funds invested in the Reserve Account. It is believed the Account at that time will amount to about 47 billion dollars, and that thereafter it will remain at approximately this figure. The estimates the growth the Account on the page following appear in the Senate Report on the bill.4 The investment the funds in the Reserve Account, as provided in Title II the Act, must be made by the Secretary the Treasury only in interest-bearing obligations the United States or in obligations guaranteed as to both principal

Some Financial and Statistical Considerations of the Old Age Pension Scheme

There are many references in the pages of the Journal to Old Age Pensions, and in view of the Act of last year the subject—from a financial and statistical aspect—may be discussed without transgressing on questions of State policy. I therefore venture to submit the following notes of some of the financial and statistical questions involved, stimulated in so doing by Mr. G. F. Hardy's statement in his Presidential Address, that he believed our most important work lies in the proper application of actuarial principles to the many practical questions which arise from time to time.Old age pensions ranging from 1s. to 5s. a week according to the yearly means of the pensioners are granted to British subjects resident in the United Kingdom who have attained the age of seventy years, provided their yearly means do not exceed ￡31 10s., and provided they are not disqualified on the ground of Poor Law Relief, imprisonment, or the other reasons set forth in Section 3 of the Act.