Welcome to the first issue of Life & Pensions

Editor's letter

The life and pensions industry is reinventing itself. The old days when the business of long-term saving was driven by marketing, and liabilities didn't count, are gone forever. The now-notorious combination of low inflation, falling equity returns and increasing longevity over the past five years has shown the cost of risk management failure.

Providers have responded to this, using capital market solutions to repair and optimise their balance sheets, and changing their offerings from a marketing-driven to a capital-driven product mix. Regulators have also responded, attempting to restore confidence by moving towards realistic capital requirements. Sometimes the regulators are a step ahead of the industry they supervise, sometimes several steps behind.

The variation in skill and experience is enormous. On one extreme are the emerging tribe of chief risk officers at multinational life companies whose risk and capital modelling skills are arguably equal or superior to that of leading investment banks. At the other extreme are the part-time trustees of defined benefit pension schemes, many of whom are only beginning to appreciate their risk management responsibilities.

While the intellectual arguments are on the side of realistic, economic value approaches, one can partially sympathise with opposing views. Far more than banking, life and pensions provision in Europe is rooted in the social identity of nation states. Rapid change can be destabilising, such as forcing UK pension schemes to sell equities or German life companies to mark to market. Breaking the log jam are governments which realise that generous state retirement guarantees - made either explicitly or by default - are demographically and fiscally unsustainable.

Addressing these problems will require both analysis and argument, and will take time. There will have to be a breaking-down of historical barriers, not only between life and pensions practitioners, but also the silos between actuarial, insurance, quantitative finance, banking and investment knowledge. Even when solutions are found, they are seldom straightforward because they have to be implemented within far-from-perfect regulatory, accounting and taxation frameworks.

In this confusing and fast-changing world, the industry needs an international forum to share experiences, discuss the issues and learn about the new business environment. In the same way that our sister publication, Risk, fostered the development of over-the-counter derivatives markets and bank risk management, now enshrined by regulators in Basel II, we hope that Life & Pensions will perform a similar service for the life and pensions industry.

In the magazine you will find news on important regulatory, industry and intellectual developments. In our feature articles, there will be in-depth analysis of key issues such as capital models or supervisory frameworks, and of financial market or technology solutions. Where possible we will base much of our analysis of these solutions on the experience of life and pensions practitioners as well as vendors. Every month we will profile specific practitioners from across Europe.

At the back of the magazine you will find one or more peer-reviewed technical articles, as well as educational articles. Here, our aim is to create a body of knowledge and best practice that can become a recognised industry resource. To achieve its aims, Life & Pensions needs your support. We invite submissions of technical papers (see page 19 for submission guidelines), and we ask that experts make themselves available as anonymous referees. We invite suggestions and feedback on all aspects of the magazine, and look forward to serving our readership.

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