Reserving for catastrophe reinsurance

The paper sets out the method required to be followed when estimating reserves for a Company or a Lloyd's Syndicate which has accepted reinsurance treaties that have given rise to catastrophe losses, sufficiently large to upset the normal development pattern and to affect the gross account quite differently from the net account. The losses may be caused by single factors such as aircraft crashes or oil rig disasters, or by the aggregation of claims resulting from a windstorm or an earthquake. The paper discusses two possible approaches to estimation of the gross losses; via exposure totals or via statistical modelling techniques.

The recent trend of mortality in United Kingdom

This note continues a regular series on mortality rates, previously relating to Great Britain, but now to the whole of the United Kingdom. Mortality experienced in the years 1990 to 1992 is shown by five-year age groups, and comparisons are made for broad age groups, on a standardised basis, with mortality in earlier years.

On the choice of bandwidth for kernel graduation

This paper considers cross-validation as an objective and risk-based method for selecting the smoothing parameter in a non-parametric graduation. In addition, the relative merits of two kernel estimators are compared in the context of mortality graduation. Finally, it is well known in the statistical literature that the use of theoretically superior kernels is not as important as the choice of bandwidth. Our results support this conclusion, suggesting that the focus on such weights is misguided in the actuarial textbooks on moving weighted averages.

Some thoughts on the development and structure of the New Zealand life insurance industry

This paper seeks to explain key characteristics of the New Zealand life insurance industry, in particular the important role played by overseas-controlled mutual companies, and the dearth of regulation relative to other countries. It proposes that the dominance of mutual companies reflects the historical development of the New Zealand life insurance market. It also examines how agency theory may help to explain how the market has come to be dominated by mutual companies, and suggests that the unregulated nature of the life insurance industry may reflect the New Zealand government's historical role of direct intervention in the market through the Government Life Office. Further light on this issue is shed by the economic theory of regulation. This theory suggests that cartelisation and reinsurance may help to explain the existence of the unregulated insurance market in New Zealand. The paper concludes that many socio-economic and historical reasons may account for the distinctive features of the New Zealand life insurance industry. The possibilities are presented in this paper as a stimulus for further insurance markets-based research.

Realistic reporting of life insurance company policy liabilities and profits: developments in Anglo-American countries

This paper examines international developments in life insurance generally accepted accounting practice (GAAP) for policy valuation and profit recognition in four major Anglo-American markets—the U.K., Australia, the U.S.A. and Canada. Each valuation method examined has its advantages and disadvantages with respect to the needs of preparers and users of the annual corporate reports of life insurance companies. The paper documents that the statutory basis and U.S. GAAP are considered to have substantive deficiencies. In contrast, the U.K. accruals method, the Australian margin on services method and Canadian GAAP have much to commend them, particularly with regard to their flexibility to accommodate valuation adjustments for unexpected events. Nevertheless, from the preparers' point of view, the systems which would have to be developed to facilitate the U.K. accruals and Australian margin on services methods would be difficult and costly to implement. Profit reporting under Canadian GAAP is also sensitive to changes in actuarial reserving assumptions. The authors conclude that, since national preferences in actuarial and accounting practices are inevitable and because the product-market structures of life insurance markets are so distinctive, international harmonisation of life office GAAP is unlikely to occur for a very long time.