This paper shows how the powerful and flexible tool of stochastic modelling can be applied to a range of business decisions extending far beyond the asset allocation solutions that are common to many asset/liability modelling studies. The example used to demonstrate these techniques is a general insurance case study, but similar principles can be extended to many different business situations. At each stage of the analysis we consider the implications of modern financial theory on the management decision process together with a practical perspective on observed behaviour in the real world. Opportunities are taken to suggest directions in which further research may be of benefit to the actuarial profession.

This paper considers the impact of the recent minimum funding legislation on UK Pension Funds and how this may change the way in which property investment is regarded. The principles of investment diversification are re‐examined in the light of the MFR “matching” asset classes and the historic relationships between UK property and other asset classes are considered in some detail. Finally, the traditional “peer” approach to strategy adopted by many UK Pension Funds is critically examined to determine its continuing validity in the new minimum funding environment. These results are then extended to see what types of fund may find it appropriate to increase their property weightings.