Life - Articles - Life Company Year Ends – Then and Now

 My first Year End was in the mid 1970s and I have been reflecting on how the process has changed over the years. It may seem hard to believe in a world of monthly closes and results produced by the fourth or fifth working day of the month, but back in the good old days of Glam Rock and the Three Day Week, valuations were prepared every three years. The timings were more leisurely too. We finished the 1976 triennial valuation in September 1977 and were pretty pleased with ourselves.

 The technology has changed as well. In the 1970s we had policy data held on punched cards (for younger readers, these were computer readable cardboard cards typically containing up to 80 characters of data). We had many trays of these things in two colours - blue for male lives and pink for female. The new century has terabytes of data run through networks of PCs containing computing power that was unimaginable only a few years ago. Nowadays we think nothing of stochastic models running many thousands of different scenarios. In the seventies a valuation run (assuming it all worked first time) would probably take all weekend and a bit more just to do a net premium valuation!

 These days most companies prepare their Year End numbers on several bases - Pillar 1, Pillar 2, IFRS, MCEV would be usual. The more enthusiastic may well do other numbers as well - US GAAP being one example. Back then we did only one set of numbers - a simple net premium valuation.

 The timescales have also altered dramatically - FSA returns have to be in by the end of March (in the olden days it used to be June) and most companies report their results in February or March. Typically this involves quite a bit of late night working.

 However, although the speed and computing techniques used have transformed dramatically; the things that go to make a successful Year End reporting process have changed little over the years. Key components include:

 
•   Meticulous planning. Make sure you have a detailed plan that covers all the Year End processes. Each process should have someone personally responsible for it. Ideally have a project manager to make sure everything is running to time and have daily check points to review progress against plan.
 
•   If you can, have a rehearsal. The more familiar people are with the processes the quicker things will happen and the less likely they are to make mistakes. If you can, do a ‘dry run' in the last quarter of the year.
 
•   Don't forget the housekeeping. Have you talked to IT to schedule the computer runs you'll need? Do you have enough hard disk space to cope with the storage you will need after all of those stochastic runs?
 
•   Think about the unforeseen. What will you do if it snows? Some companies have standing arrangements with local hotels to put up their staff in the event of bad weather.
 
•   Make sure the hygiene factors are right. If you are going to have people working late then make sure a) you can feed them (the phone numbers of the local takeaways are always useful) and b) that office conditions are suitable (nothing is less conducive to a happy bunch of actuaries working late than an office where the air conditioning has closed down for the evening).
 
•   Settle all of the economic and demographic assumptions as early as you can. Demographic assumptions can be settled in advance. Economic assumptions may be impossible to fix in advance, but the earlier you get them fixed the better. Changes to assumptions mid process should be strongly discouraged. Few things can slow things down more effectively than deciding to move to a new mortality table in mid January for example.
 
•   Don't introduce any new processes to the Year End without having trialled them first. Timescales in Year End are typically very tight and untried processes can give you all sorts of unforeseen surprises.

 Timescales may have altered but the basics of preparing a set of Year End numbers have not changed much over the years. Although it can be hard work with some long hours there is still a sense of satisfaction when the job is complete and you can sit down and look at the finished product - be it a set of statutory accounts or a new set of FSA returns.