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Date for your diary

This will apply to a limited number of our readers, but here it is anyway. Just Group are having a general meeting on Wednesday 16 March, to seek authority from its members to issue restricted tier 1 bonds convertible into ordinary shares on the occurrence of ‘trigger events’.

The first resolution is to provide the directors with power to allot up to £42m or about 45% of the nominal value of existing share capital in connection with the issue. Remember the nominal value relates to 10p shares whose market value (last time I looked) is is about 95p, so this amounts to a considerable dilution. The second is that the new shares will not be offered to existing shareholders.

Now convertible bonds are nothing new, the interesting factor is the trigger event upon which conversion occurs.

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The Red Queen effect

“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

According to Wikipedia, the Red Queen effect, i.e. the need to run in order to stand still, has been used to explain all sorts of scientific and philosophical ideas.  No one, as far as I know, has used it to explain equity release mortgage valuation.

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Rebel rebel

There is a very fine article in InsuranceERM just published. Behind a paywall I am afraid, but it explains the idea of Eumaeus very well, although I would say that. For those without a subscription, an interesting part is here

As InsuranceERM went to press in December, the PRA published its policy statement (PS31/18), which Buckner largely welcomed. “For the first time it settles, with great authority and a wealth of cogent reasoning, how life insurers should correctly value a portfolio of simple European put options,” he says.

But he is scathing of the PRA’s change of heart on applying the rules for valuing guarantees to business written before Solvency II came into effect. Insurers can now apply different treatment to the same type of loans, depending on whether they were written before or after 1 January 2016. “It makes no sense to me,” he says.

Indeed it made so little sense to me that I queried it with the PRA after the interview.

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Kingman

The Kingman report on the Financial Reporting Council is out this morning. Much to discuss, but the findings on the regulation of the Institute are telling.

Briefly:

The Memorandum of Understanding between the FRC and the Institute, set up in the aftermath of the Morris review, ‘is not in practice proving an altogether effective arrangement’, specifically the FRC ‘has no powers with which to enforce any meaningful oversight of the IFoA’ (my emphasis).

HMT and the Government Actuary told the Review that it wishes to see effective regulatory oversight of the actuarial profession.  If stakeholders wish to see effective independent oversight of regulation of the actuarial profession, suitable legal powers must be put in place to make this possible, and the review questions whether the FRC is the best body to do this.

The review recommends

  • The Government, working with the PRA and The Pensions Regulator (TPR), should review what powers are required effectively to oversee regulation of the actuarial profession.
  • Neither the FRC, nor its successor body, is best-placed to be the oversight body. The PRA (which employs around 80 actuaries) is a much larger repository of regulatory actuarial expertise than the FRC and would be best-placed to take on all the actuarial responsibilities currently vested in the FRC.

 

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For your diary

The Institute has turned down our request to speak on the subject of equity release mortgage valuation. However I will be speaking in January on the same subject at the network of consulting actuaries. See below.

Date: Fri 25th January 2019, 12:00 pm

‘The Valuation of Equity Release Mortgages’, Dean Buckner (The Eumaeus Project)

Anyone can join and dial into the network’s events for free, if they are interested. Their membership is mostly qualified actuaries as they get 1 hour of CPD. To register, follow the link below.

Network of Consulting Actuaries

 

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Links

I have updated the links page as follows.

Stress Tests – links mostly to Kevin Dowd’s work on the failures of the Bank’s stress testing regime, which seem to be manifold. There will be more to come as ‘No Stress IV’ approaches publication.

Equity release and the actuarial profession – links forming the source for our work on  Equity Release: A New Equitable in the Making.

Treasury Committee – links to the work of the Treasury Committee’s Solvency II investigation, including its report The Solvency II Directive and its impact on the UK Insurance Industry, October 2017.