October 2024 edition of The Edit

In this month’s edition of The Edit, we consider some critical themes shaping the future of pensions, investments, and insurance. From the rising concerns of retirement readiness in the UK to the complexities of fiduciary reporting post-gilts crisis, we explore how both traditional methods and emerging technologies are influencing decision-making.

We also highlight the profitability surge in the UK insurance sector and its potential long-term impact, alongside an evolving approach to ESG investing that considers broader environmental and social factors.

Finally, we investigate the role of AI in actuarial science, weighing its capabilities against human intuition and expertise.

The At Retirement Reckoning

The retirement crisis is a looming reality for many UK workers. Our comprehensive report, The At Retirement Reckoning, sheds light on the alarming state of retirement preparedness and offers actionable insights for individuals, employers, and policymakers.

Our report highlights a widespread retirement preparedness crisis, with many workers ill-equipped to meet their financial goals for retirement.

The report also explores how pension freedoms and recent reforms have created both opportunities and challenges.

It outlines a key role for employers in improving retirement outcomes for their employees.

Key statistics from our research include:

• 41% of workers aren't confident they'll retire comfortably
• 17% of 55-64-year-olds have clear financial goals for retirement
• 28% of 55-64-year-olds don't know how to access their pension

By understanding the current state of retirement savings, workers, employers, the pensions industry and government can take proactive steps to address the challenges and help ensure a more secure future for UK employees.

PREPARE FOR A RECKONING

Is your Fiduciary Manager’s client reporting doing what it should?

Our research reveals significant disparities in client reporting among Fiduciary Managers (FMs). Key findings include:

• Post-2022 gilts crisis, only 27% of FMs provide adequate detail on LDI risks.
• ESG reporting is improving, but mainly for larger clients (>￡1bn in assets).
• 73% of FMs don't disclose management fees in regular reporting.
• Report timeliness varies widely, from two weeks to four months after quarter-end.
• Online reporting is becoming more prevalent, with potential AI integration.

The blog emphasises the importance of clear, timely, and comprehensive reporting that aligns with client needs. It suggests that independent oversight can help trustees assess their FM's performance and improve reporting quality.

As the industry evolves, clients should critically evaluate their FM's reporting to ensure it meets their specific requirements and provides transparent, actionable insights.

IMPROVE FM OVERSIGHT

Profitable times: What now for UK insurers?

The UK insurance market has entered a period of profitability after years of struggling with underwriting losses. Recent data reveals that the non-life insurance sector is making underwriting profit for the first time in recent history, with the Lloyd's market reporting a combined ratio of 84% in 2023 and even stronger performance in the first half of 2024.

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As insurers find themselves in this favourable position, they face crucial decisions on how to utilise these profits effectively. Our article explores four key areas for consideration: reinvesting profits to streamline operations and drive sustainable growth, preparing for future competition by expanding market share or enhancing existing operations, optimising capital and equity allocation to maximise shareholder value, and navigating profitability while adhering to Consumer Duty regulations.

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While insurers have reason to celebrate their hard-earned success, the blog advises against complacency. Instead, it encourages them to use this profitable period strategically, investing in their future to maintain long-term sustainability in an ever-changing market landscape. The choices made now could significantly shape the industry's trajectory in the coming years.

OPTIMISE INSURER GAINS

?Testing the boundaries of ESG

As ESG considerations continue to evolve, investors are increasingly adopting a system-led approach, looking beyond just climate issues to address broader environmental and social challenges. This perspective, driven by frameworks like the UN Sustainable Development Goals (SDGs) and the Planetary Boundaries concept, highlights the interconnection between sustainability factors.

Read our new blog for further insights. Key takeaways include:

• The Planetary Boundaries framework identifies nine critical limits, including biodiversity loss, land degradation, and novel entities like plastics, which are all crucial for sustainable global economic growth.
• Opportunities for investors lie in innovation across materials, land use, and technology, addressing both environmental risks and societal impacts.
• Long-term, systems-wide thinking is essential for capturing investment opportunities that contribute to sustainability.

Explore how these ESG trends can shape your investment strategy and create positive impacts for both the planet and your portfolio.?

Learn more and get in touch with our experts to align your investments with sustainability goals

ACCESS IN-DEPTH RESEARCH

The reserving actuary: natural vs artificial intelligence

While AI holds great potential, human actuaries still maintain an edge when it comes to the complex art of reserving in insurance. A neural network was tested against human graduates, using extensive data to model reserves, but it couldn't outperform traditional human methods.

Our blog outlines these key points:

• AI achieved about 40% accuracy, compared to the 50% expected from a graduate.
• Human actuaries consider soft factors like market conditions, economic context, and instinct, which are challenging for AI to replicate.
• Simpler models, like the chain ladder, often outperformed more complex neural networks, showing that complexity isn’t always better.

Training future actuaries remains essential, especially in understanding nuanced, contextual factors that AI struggles to handle.

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