Presentation Summaries

Arranged alphabetically by first author’s last name.

A STRUCTURED FINANCE APPROACH TO GUARANTEED LIABILITIES – ELIMINATING SHORTFALL RISK

Edwin Afitile

Paper with presentation

Wednesday, 23 November | 10:40 AM | Ballroom East

Relevant practice area(s): Life Insurance

Suggested audience knowledge level: All

Expected outcomes:

  • Discussion of guaranteed liabilities.
  • Traditional ALM methods.
  • Replicating strategies.
  • Structured finance products, e.g. equity linked notes.
  • Comparison of solution versus others.
  • Back-testing of solution.
  • Implications for pricing and reserving (APN110).
  • Treatment under SAM.

Abstract:

Historically, the need to effectively manage the risk of a shortfall arising in guaranteed products has been tackled using different approaches. In this work, we propose a Structured Finance solution to this problem and show that it eliminates shortfall risk. We also consider the effects of Put-Call parity in product development within a Life Insurance company. Finally, we compare our solution to the more conventional default approach of using Put Options to hedge shortfall risk. We show that our solution is more attractive in that it; eliminates shortfall risk, requires less Capital, can lead to higher returns and has positive effects for pricing and reserving (APN110).

In conclusion we use the International Financial Reporting Standards 9 (IFRS 9) as a basis to propose a methodology for assessing the Effectiveness of the Hedge. We propose that this exercise should be increasingly incorporated into the ORSA framework at Life Insurance companies.

FINTECH SPOTLIGHT

Nana Opoku Ware Ofori Agyeman-Prempeh, Waweru Kuria, Lilian Charles Makoi, Faith Adesemowo, Bradley Hornby

Presentation only (audio clip)

Thursday, 24 November | 09:20 AM | Ballroom West (TED Venue)

Relevant practice area(s): Wider Fields

Suggested audience knowledge level: All levels

Abstract:

The world is changing rapidly, things are happening fast, and small companies can be significant very fast (look at Uber which is only 6 years old and how it is changing industries!). New technologies and products can’t be ignored. Leverage the change they bring: there are opportunities too big to miss out on, and risks too big not to mitigate. In this session five financial technology start-up companies will present their products:

  • Asoriba is a web and mobile management and donation platform that facilitates effective church administration and seamless member engagement. The church economy in Africa is worth USD 25 billion per year. Asoriba has more than 400 churches currently signed up on the platform, with an estimated 40,000 church members.
  • iNuka Pap is a mobile platform that partners with savings and credit co-operatives (SAACOs) in Africa to provide members access to instant loans. It can integrate with any banking platform, as well as work independently without any integration required.
  • Jamii is a mobile micro-health insurance company aimed at providing low-cost health insurance to the low-income and informal sector from USD 1 per month. Premium payments and hospital claims are administered through mobile money. Only 3% of Africans have medical insurance, but 70% have mobile access.
  • Social Lender is a lending solution based on social reputation on mobile, online and social media platforms. It is bridging the gap of immediate funds access for people with limited access to formal credit. Social Leader currently has more than 10,000 registered users with less than a USD 4 default rate.
  • WizzPass is a revolutionary new parking access control system used at office parks and shopping centres across South Africa: it collects data and is does big things with it! The technology can be applied in a variety of alternative industries.

THE RETIREMENT INCOME FRONTIER AND ITS APPLICATION IN CONSTRUCTING INVESTMENT STRATEGIES AT RETIREMENT

John Anderson, Steven Empedocles

Paper with presentation (audio clip)

Wednesday, 23 November | 10:40 AM | Ballroom West

Relevant practice area(s): Retirement Matters

Suggested audience knowledge level: Intermediate level

Expected outcomes:

  • A new framework applied to South Africa for the evaluation of post-retirement strategies.
  • Testing various post-retirement income strategies for different profiles.
  • Application of the model to assist in designing default investment strategies for retirement funds.
  • Application of the model to assist individuals in evaluating the post-retirement income strategies and arriving at the most optimal solution based on their circumstances and preference between providing a financial legacy and providing a sustainable income in retirement.

Abstract:

The retirement system in South Africa is dominated by defined contribution provision. At retirement individuals must convert their accumulated savings into an income. In making this decision the individual has to balance between providing a sustainable income and providing a legacy for heirs. A model specific to South Africa was constructed to determine the sustainability and expected financial legacy for different strategies combing living and life annuities. Sustainability is defined as the probability of the chosen income being met over the expected period of retirement. Expected financial legacy is defined as the present value of the remaining retirement assets payable to the dependants of the pensioner on their death. The asset allocation of the chosen living annuity was varied, as was the type of annuity. A retirement income frontier was then derived showing the strategy with the highest expected financial legacy for a given level of sustainable income.

The results imply that in general South Africans are not making sufficient use of life annuities to improve the levels of sustainable income for given levels of expected financial legacy. Introducing life annuities into strategies significantly improved the sustainability of most strategies for given levels of expected financial legacy. In-fund arrangements, with typically lower charges, were found to be more optimal compared to their equivalent, and more costly, retail counterparts. National Treasury is due to release new draft regulations for funds to put in place default annuity strategies. The retirement income frontier and associated model provides a framework that trustees of retirement funds can use when designing and implementing their default annuity strategies.

SUCCESS OF M-PESA IN EAST AFRICA

Cecilia Augustine, Bode Olajumoke, Alna Prinsloo

Presentation only (audio clip)

Wednesday, 23 November | 01:25 PM | Ballroom East

Relevant practice area(s): Banking, Wider Fields

Suggested audience knowledge level: All levels

Expected outcomes:

  • An understanding of the uses of mobile money.
  • The performance of mobile money in East Africa vs. West Africa.
  • Overall impact of mobile money in an economy.
  • Opportunities it provides for microinsurance/insurance/alternatives to banking.

Abstract:

Mobile money revolutionised the way economic transactions are carried out in East Africa. In 2013 over 40% of Kenyan’s GDP flowed through M-Pesa. The growth presented a number of opportunities for life and health insurers. It also opened up micro-lending opportunities for banks.   

Preliminary research suggests regulation support and meeting of the consumer needs played a key role in catapulting the success of M-Pesa in Kenya. Additionally, the growth was facilitated by the size of the mobile provider Safaricom which is the mobile network leader with an extensive network reach throughout Kenya.

However, the same concept of mobile money does not have a similar success story in West Africa. This presentation aims to discuss this disparity.

I’M GONNA LIVE FOREVER

Raymond Bennett

Presentation only (audio clip)

Thursday, 24 November | 11:00 AM | Ballroom West (TED Venue)

Relevant practice area(s): Healthcare, Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Learn about developments which may disrupt the insurance, health and pensions industries.
  • Understand the potential wider applications of analytics to medical research.
  • Develop an appreciation for an alternative view on lifespans beyond that of the modern crises in the news (e.g. obesity, diabetes etc.), one based on a view of prosperity.
  • Understand the potential implications of viruses such as Zika – beyond the newspapers.
  • Discussion of the implications for actuaries and the industries likely to be affected.
  • Discussion of the environmental impacts (e.g. over population potential).

Abstract:

Immortal words from the “Fame” theme song (a blast from the past for those who were around back in the ‘80s!)… With modern advances, could living forever be a possibility? For us, in our lifetimes?

Since the last century has delivered life changing innovations which have changed how we live, work and play, and the pace of change grows exponentially as people develop their ideas and enhance concepts we have taken for granted for years if not longer (think, for example, Uber, e-bikes, sunglasses that change tint electronically, drone delivery systems, driverless cars, robotics, artificial intelligence, smartphones and great coffee served in a chocolate coated cone), I say why not?

As an actuary, I often wonder what innovations (beyond data analytics, fintech and others discussed by other speakers in other sessions) could have an impact on the insurance industry?

I believe that medical research will generate obvious innovations because the volume and pace of discovery continues unabated – and this is an area which we may not follow closely given all of the other changes and challenges we are faced with in our day to day existence. This is an area which could surprise us and could impact actuaries directly through increased lifespans, overall health and wellbeing.

This TED-style session will discuss some examples of current medical research to provide a basis for this possibility, e.g. anti-aging therapy; reversal of brain disorders; cancer treatment; etc.

We will consider what could happen to long term insurance (and indeed the pensions and health insurance spheres) if we did not die? What should we, as actuaries “making financial sense of the future”, do now to prepare our businesses for such changes? Join me in this session and together let’s discuss the impact that this research could have on the actuarial profession in the near future, as well as wider considerations such as the environment and our lifestyles.

The future belongs to the curious.

EXPOSURE MANAGEMENT IN SHORT-TERM INSURANCE: THE IMPACT OF CHANGE IN EXPOSURE, DATA AND REGULATION

Bridget Bernon, Carla Fasana, Hannes van Rensburg

Presentation only (audio clip)

Wednesday, 23 November | 03:00 PM | Meeting Room 1.4

Relevant practice area(s): Short-term Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Whether the way you assess your company’s exposure is in line with the industry.
  • Better understand the impact of changes in exposure.
  • The impact that exposure data has on modelled results.
  • Understand examples of what we have achieved with geocoding data.
  • Better understand the SAM parameterisation and the impacts on regulatory capital.
  • Understand how SAM has changed company behaviour.

Abstract

Catastrophe risk is defined as “the risk of loss, or of adverse change in the value of insurance liabilities, resulting from significant uncertainty of pricing and provisioning assumptions related to extreme or exceptional events”.

Exposure management is the process in managing the financial impact by managing accumulations. The implementation of SAM, along with some large natural catastrophe events, has brought a thorough focus on the management of exposures.

Exposure management has become a key focus of insurance companies, but also a key focus of regulators as catastrophes have been a major factor for insurance company and market wide liquidity issues.

As most companies in the market will be using the standard formula for capital setting, regulatory capital in South Africa is almost synonymous to economic capital. The paper will investigate the impact of the regime, the limitations of the formula and parameters as well as the sensitivity of capital results to changes in data and alternative parameter sets.

There has also been considerable focus by the market, largely driven by regulatory pressure and capital results, to improve the data quality for risks underwritten. This includes ensuring that all insurers have access to the detailed policy level data from brokers and underwriting management agencies (UMAs).

With improved technology, insurers are moving towards capturing the detailed geocoded information of risks insured. Lack of data granularity can impact (re)insurers’ ability to model their catastrophe risk on an economic basis. Specifically, there are circumstances where modelling is benefited through the use of more detailed data. 

The SAM standard formula is a far more detailed approach to capital calculation compared to the previous Interim Measures calculation. The added complexity opens up an opportunity for companies to optimise their capital.  There are many changes in culture of companies due to SAM, which is likely to have a positive impact on the market as a whole, although this also comes with a cost, all of which not entire seen.

ORSA IN BUSINESS UNUSUAL

Francois Berry, Susan Hunt

Presentation only (audio clip)

Thursday, 24 November | 01:00 PM | Meeting Room 1.4

Suggested audience knowledge level: All levels

Relevant practice area(s): ERM, Life Insurance, Short-term Insurance, Banking

Expected outcomes:

  • Understand what an out-of-cycle ORSA is, the requirements and tips on how to perform one.
  • Understand how risk appetites, tolerances, limits, triggers and management actions are set and their significance in ORSAs.
  • Appreciate the structure of the business as usual cycle.
  • Understand the importance of modelling methods, proxy models and methodologies in ORSAs.

Abstract:

The implementation of the Own Risk and Solvency Assessment (ORSA) process is a critical issue raised by Pillar II of the SAM framework. Moreover, the major aim of the ORSA process is to create an internal process which links the company’s risk management framework to its business strategy and decision making framework. 

This presentation aims to study the value of the ORSA process from a business perspective, more particularly the usefulness of the ORSA process in a business unusual environment.

The research done analyses the present risk, strategic and capital management processes used by insurance undertakings to inform their reported risk profile and how quickly these processes can be updated to reflect a change in the operating environment.

In the presentation we consider ways of improving the: risk communication; risk governance structures; relationship between risk, capital and strategy; the calculation of capital requirements and capital adequacy assessments of an undertaking in order for the ORSA process to significantly aid in enhancing the robustness of risk reporting in a business unusual environment.

THE BUSINESS CASE FOR COMPULSORY THIRD PARTY MOTOR PROPERTY INSURANCE IN SOUTH AFRICA

Nick Bizos, Junaid Khan, Nico Esterhuizen

Presentation only

Thursday, 24 November | 01:00 PM | Meeting Room 1.6

Relevant practice area(s): Data Analytics, Short-term Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • The considerations needed before implementing compulsory insurance.
  • The South African market’s perspective on such a scheme.
  • A global comparison.
  • The results of a costing methodology.
  • The potential positive and negative impacts of introducing such a scheme.

Abstract:

Given the cost of comprehensive motor insurance premiums, and general issues related to the affordability of insurance in South Africa, the number of insured vehicles is low and decreasing. This poses a threat to the insurance industry through declining business volumes as well as increased non-recoveries from these non-insured parties. This presentation considers the case for Compulsory Third Party Motor Property Insurance to be introduced in the South African context using international comparisons, and aims to understand the potential cost of this insurance.

ACTUARIES IN CORPORATE SOCIAL INVESTMENT

Ryan Boyd

Presentation only

Thursday, 24 November | 01:00 PM | Auditorium 1

Relevant practice area(s): Professional Matters

Suggested audience knowledge level: All levels

Expected outcomes:

  • Creating awareness about what Corporate Social Investment (CSI) means and what it involves.
  • Instilling a responsibility in actuaries as professionals to help those around us.
  • Understanding that CSI is incorporated into every aspect of the work actuaries do.
  • Understanding why actuaries are extremely well suited to organise CSI initiatives and not just participate in these initiatives.

Abstract

Corporate Social Investment (CSI) is not necessarily a term that is well-known within the actuarial community, but it is just as important as more technical terms such as IBNR, Embedded Value or even life expectancy.

This presentation seeks to describe what CSI is and how it affects all stakeholders in our ever-growing actuarial world. CSI initiatives span from helping communities around us to the way we conduct our day-to-day working life, with the primary aim being to make a positive impact on all those around us.

I will be expounding upon what is currently happening in the actuarial world regarding CSI initiatives by showcasing what large CSI players in the actuarial market are doing as well as sharing the CSI initiatives that the Actuarial Society of South Africa is currently involved in.

Finally, this presentation will elaborate on why it is an actuary’s responsibility to participate in CSI initiatives, as well as why actuaries are extremely well suited to be involved in CSI initiatives. This is given the actuarial profession’s strong emphasis on numerical and project planning skills which are embedded within the well-known Actuarial Control Cycle.

CAN RETIREMENT SAVINGS SAVE SOUTH AFRICA?

Guy Chennells, Keagan Kistan

Paper with presentation (audio clip)

Wednesday, 23 November | 10:40 AM | Auditorium 1

Relevant practice area(s): Life Insurance, Healthcare

Suggested audience knowledge level: All levels

Expected outcomes:

  • An understanding of the South African national savings landscape.
  • An appreciation for the importance of this statistic for individuals and the nation.
  • Insight into the major savings vehicles that can/do contribute to national savings and where there is scope for higher contribution.
  • Practical ideas for how industry and government can encourage a higher national savings rate.
  • An appreciation for the likely impact on GDP growth of various levels changes to current savings rates in various product classes.

Abstract:

The hypothesis has been well made that increasing South Africa’s national savings rate is a key to sustainable GDP growth at levels that can lead to falling unemployment and inequality. A figure of 25% for investment as a percentage of GDP is quoted in the National Development Plan as a hurdle rate for South Africa in order for it to exceed the targeted 5.4% GDP growth. It is also well accepted that any increase in national savings will need to come from households – Corporates already save as much as could be hoped for and Government is unlikely to be able to make such a policy move. What is less well explored is how increasing household savings might be accomplished. While that is a meaty question indeed, this paper demonstrates what capacity there might exist within retirement savings for households to reach the required levels of saving. It defines the impact that could be achieved through retirement fund reform (as driven by government and by the industry itself).

The paper focuses on retirement savings because a) they are long term in nature, and so are more likely to meet the necessary condition of productive investment than other forms, b) Government is devoting significant political and policy effort towards improving retirement savings levels and coverage, c) there is a well-established retirement savings industry in South Africa that can be leveraged and is already, and increasingly, seeking holistic solutions to the problem of under-saving, and d) most individuals save not nearly enough for a secure retirement, making it an almost humanitarian objective at the level of the individual.

The paper approached the problem by using current national statistics from the South African Reserve Bank, FSB data on retirement fund contributions and benefits, and LOA statistics. Where assumptions were needed in order to segment the data further than the information provided, this was provided from survey data and in some cases proprietary data from a large retirement fund administrator. By segmenting the data into component parts, it was possible to show the individual and combined impacts of a few key policy and behavioural levers on household and national savings.

What was found is that while saving for retirement is good for the individual, if all working individuals saved appropriately, it would provide a savings source that, if productively and domestically invested (by no means a given in South Africa, unfortunately), could pull South Africa out of the economic doldrums that it is in. There are few areas of effort for which one could say the same. Specifically, it was found that through increased retirement fund contributions national savings as a percentage of GDP could be increased from the actual 16.4% in 2015 to the targeted 25% in the same year under certain circumstances.

The paper thus confirms that the retirement savings industry is a worthy recipient of Government and Corporate focus, and suggests which policy and behaviour changes would have the greatest impact. Practical ways to unlock those opportunities can then be explored.

Retirement savings cannot save South Africa alone. It is the view of this paper, however, that if a team of heroic structural, economic, policy and societal factors were ever to assemble in pursuit of a prosperous future for all South Africans, a retirement savings system that encouraged and supported high levels of savings across the working population would be an invaluable member of the team.

ASSET FINANCE: THE ACTUARIAL IMPERATIVE

Kudzai Chigiji

Presentation only

Wednesday, 23 November | 10:40 AM | Meeting Room 1.4

Relevant practice area(s): Banking

Suggested audience knowledge level: All levels

Expected outcomes:

  • It is possible to enter a completely new environment as an actuary and find areas to add value to.
  • It is an absolute necessity to work closely with all teams in a new environment if the business is going to buy into the value of an actuary and to learn and understand the business.
  • Learning about the overall business is essential to adding value to a new area despite the predisposition of actuaries to want to analyse every piece of data they come across.
  • Several areas where actuaries are currently working on within the asset finance business.
  • Strong considerations in developing a loyalty programme from scratch.
  • The value of the three Qs (EQ, PQ (passion quotient) and CQ (curiosity quotient)) in working in wider fields where others may not be as interested in detailed numerical analyses as the actuary and varied teams are more common.
  • The overlap between asset finance (contractual in nature) with transactional banking and how to leverage the data from the transactional side to add value to the asset finance business imperative.

Abstract:

Actuaries within transactional have traditionally been involved in the credit space. But what does an actuary at an asset-finance bank do outside of the credit team? After more than three years of working with WesBank, a member of First Rand Group and the largest asset finance company in Africa, it is clear to the author that the areas of involvement and scope for adding value are widespread and growing exponentially.

The skills which actuaries have developed can be applied to:

  • Development and pricing of a loyalty programme as seen in the development of driva which has dove-tailed off of eBucks.
  • Campaign analytics which influences the key interactions with customers post-sale.
  • Development of joint-venture partnerships across original equipment manufacturers, dealerships and vendors.
  • Providing and translating customer insights for digital platform development to unify customer interactions.
  • Building business cases to test the soundness of and inform the bank’s strategic projects.

Working in a non-traditional environment where there is no dedicated actuarial team requires a high level of interaction with a wide range of inter-disciplinary teams. In this case, this has resulted in frequent (and at times daily) interaction with IT, sales, marketing, credit, ‘business’, senior management, call centre agents, dealers, partners and other sister companies. The need for PQ and CQ are required, well over the need for EQ in an area where the actuary is not the specialist and often the “new kid” in the room. Applying the actuarial skills, which the traditional actuarial players have become accustomed to, is a daily combination of a professional marketing exercise, scavenger hunt for the pockets of value-add, and creativity on how best to apply basic actuarial skills to an environment that almost doesn’t even expect it, but sorely requires it.

As the business (and industry) enters into a new era of innovation and considers disrupting its own operating model, the demand on the data has increased significantly in a short space of time. The need for strong actuarial skills has increased with the business now looking to the actuary in the room to give insights into the business very quickly to drive overall business strategies and innovative solutions that speak directly to the different stakeholders.

INCORPORATING HEALTHCARE DATA INTO LIFE INSURANCE PRODUCT DESIGN AND PRICING

Hannah Chivaka

Presentation only

Wednesday, 23 November | 10:40 AM | Auditorium 1

Relevant practice area(s): Life Insurance, Healthcare

Suggested audience knowledge level: All levels

Expected outcomes:

  • An appreciation of the data available from different sources.
  • An understanding of the how the design of life insurance products may be impacted.
  • An understanding of how this data can be used to improve the risk management process.
  • An appreciation of how the relationship between life insurers and policyholders may change in future.

Abstract:

In a world in which the number and variety of diseases is increasing, life insurers are faced with the challenge of staying abreast of new diseases, diagnostics and treatments to enable them to make the right underwriting decisions. In order to improve the accuracy and efficiency of the process by which life insurers assess the risks they take on, they need to use techniques that are data driven and precise.

This presentation will look at a number of examples of sources of health data, e.g. data from wearable technology, healthcare data from medical aid providers and data from wellness programmes. Examples of the ways in which this data can be incorporated into the design, pricing and management of life insurance products will be covered. This will include innovations already occurring in the life insurance industry in other countries. Ways in which policyholders are being encouraged to be more engaged with life insurance products will also be explored.

The use of this type of data within the life insurance industry is not without challenges. These challenges will be highlighted in both the South African context and that of other countries

CRITICAL ILLNESS TRENDS IN ASIA AND AUSTRALIA: LESSONS FOR SOUTH AFRICA

Jason Cooper-Williams, John-Craig Clur

Presentation only

Thursday, 24 November | 09:20 AM | Auditorium 1

Relevant practice area(s): Life Insurance, Short-term Insurance

Suggested audience knowledge level: Intermediate level

Expected outcomes:

  • To learn about critical illness experience in Asia.
  • Differences in Asian critical illness products compared to South Africa.
  • Trends in critical illness experience in Asia and potential implications for South Africa.
  • Update on other global issues in critical illness.

Abstract:

This presentation will provide an overview of experience in critical illness in Australia, China, Hong Kong, Indonesia, Malaysia, Singapore and South Korea from the most recent release of Gen Re’s Dread Disease Survey for the region.

The survey covers the period 2008-2012 and covers approximately 1.2 million claims and 270 million life-years of exposure. The presentation provides an overview of the results of the survey, the new trends identified as a result and the key lessons for South African critical illness insurers.

#INSURTECH

Dewald Ferreira

Presentation only (audio clip)

Thursday, 24 November | 01:00 PM | Ballroom West (TED Venue)

Relevant practice area(s): Wider Fields, Data Analytics

Suggested audience knowledge level: All levels

Expected outcomes:

  • An overview of recent InsurTech start-ups.
  • We will speculate what insurance will look like in the future. If you could start from scratch building your data and reporting systems using today’s technology, how will this change the actuarial function and impact your organisation.
  • A call to action! A call to constantly reinvent so we can change insurance from a necessary evil to a force for social good.

Abstract:

Technology is fast changing every industry in the world, yet the Insurance industry is moving slower than dialup internet. In fact, the Insurance industry has been described as “laggard in adopting new technology” and “staid and ripe for disruption”.

In comes InsurTech and all the hype that surrounds it. But why do we need #InsurTech? What is currently broken in Insurance and who is leading the way to fixing it?

We will look at some specific companies reinventing the insurance game, using tech to go back to the core principles of insurance – and taking the millennial market with them.

ANALYTICS IN INSURANCE: PARTNERING FOR PURPOSE

Dewald Ferreira, Karl Meissner-Roloff

Presentation only (audio clip)

Thursday, 24 November | 09:20 AM | Meeting Room 1.4

Relevant practice area(s): Data Analytics

Suggested audience knowledge level: All levels

Expected outcomes:

  • Improved understanding of the use of analytics in insurance.
  • Practical strategies for the use of data for insurance applications.
  • A consideration of data science techniques applied to traditional actuarial problems.

Abstract:

Numerous studies have shown that the effective use of data is the next competitive advantage for insurers. As such, in South Africa and abroad, insurers are looking towards new practical ways of enhancing current processes (pricing, underwriting, reserving, retention, experience analysis) using advanced analytic techniques.

In this presentation, we will explore the breadth of knowledge and expertise required to deliver a successful analytics based project. No longer can the actuary act in isolation. Partnering with key stakeholders internally and potentially external data providers is essential to ensure:

  • Easy access to high quality and flexible data.
  • Effective communication of results.
  • Ultimate delivery of value to the customer.

Much has been said about analytics in insurance, in fact it has become quite a buzzword in recent times. We will take a practical look at analytics as an enabler to enhance traditional actuarial applications through effective data use and innovative thinking.

ESTIMATING OPTION-IMPLIED DISTRIBUTIONS IN ILLIQUID MARKETS AND IMPLEMENTING THE ROSS RECOVERY THEOREM

Emlyn Flint

Paper with presentation (audio clip)

Wednesday, 23 November | 01:25 PM | Meeting Room 1.4

Relevant practice area(s): Investments

Suggested audience knowledge level: Intermediate level

Expected outcomes:

  • This is not a derivative-specific topic. It is just showcasing a way to estimate general portfolio and risk information (expected return, volatility, etc.) from a different market.
  • Show how to extract this information as risk-neutral return distributions from current implied volatility skews.
  • Describe a robust implementation of the Ross Recovery Theorem which allows one to extract real-world return distributions from derivatives markets.
  • Outline some ideas on how this information can be used practically in portfolio and risk management.
  • Implement the recovered distribution statistics in a simple Tactical Asset Allocation framework.

Abstract:

We describe how forward-looking information on the statistical properties of an asset can be extracted directly from options market data and how this can be used practically in portfolio management. Although the extraction of a forward-looking risk-neutral distribution is well-established in the literature, the issue of estimation in an illiquid market is not. We use the deterministic SVI volatility model to estimate weekly risk-neutral distribution surfaces. The issue of calibration with sparse and noisy data is considered at length and a simple but robust fitting algorithm is proposed. Furthermore, we attempt to extract real-world implied information by implementing the recovery theorem introduced by Ross (2015). Recovery is an ill-posed problem that requires careful consideration. We describe a regularization methodology for extracting real-world implied distributions and implement this method on a history of SVI volatility surfaces. We analyse the first four moments from the implied risk-neutral and real-world implied distributions and use them as signals within a simple tactical asset allocation framework, finding promising results.

FIVE-YEAR UPDATE ON “A CRITIQUE OF THE UMBRELLA FUND CHARGING MODEL” PRESENTED TO THE 2011 CONVENTION

David Gluckman

Presentation only (audio clip)

Wednesday, 23 November | 10:40 AM | Ballroom West

Relevant practice area(s): Retirement Matters

Suggested audience knowledge level: All levels

Expected outcomes:

  • Some knowledge of the wider retirement reform debate.
  • Improved knowledge of commercial umbrella funds.
  • Improved knowledge of charges within commercial umbrella funds.
  • Better placed to evaluate commercial umbrella funds versus alternative retirement savings vehicles.

Abstract:

Megan Esterhuysen and I presented a paper at the Actuarial Society of South Africa’s 2011 Convention in which we analysed actual data from the Sanlam Umbrella Fund (a commercial umbrella retirement fund sponsored by Sanlam), and by so doing attempted to answer the question ‘how cost effective are umbrella funds?’ and hence to comment on the wider retirement fund reform policy direction. The 2011 paper also analysed how the charges were apportioned between members, and on the implied level of cross-subsidy between members, and the extent to which such cross-subsidies were equitable and/or desirable. Alternative methods to recover charges were also considered in an attempt to recommend possible improvements taking account of factors such as equity and socially desirable outcomes.

Five years down the line, it is apparent that there has been massive growth in the commercial umbrella fund market with many employers choosing such funds as their vehicle of choice for employees’ retirement savings. In theory, this consolidation should result in economies of scale and cost savings to retirement fund members. But has it? How do umbrella fund charges compare between 2011 and 2016? This paper presents 2016 results on a comparable basis with the previously published 2011 results, and attempts to not only compare charges over time but also to comment on any insights arising from the analysis that can contribute towards the wider retirement reform debate.

PREDICTIVE MODELLING: HOW MUCH IS TOO MUCH?

Mary Hosford, Paul Braithwaite

Robert F Conger (Moderator)

Panel Discussion (audio clip)

Thursday, 24 November | 11:00 AM | Ballroom East

Relevant practice area(s): Short-term Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Understand the ways in which short-term insurance target marketing, underwriting and pricing are evolving in the US.
  • Gain greater perspective on some of the implications of “Big Data” use in the underwriting and pricing of short-term insurance.
  • Understand points of view on the merits and downsides of predictive modelling.
  • Strengthen your preparedness to be a participant in the public conversation on this topic.

Abstract:

Is there such a thing as too much predictive modelling? Might we reach a point at which predictive models become so good that certain individuals or businesses become uninsurable? If so, does that point undermine the whole risk-sharing concept of insurance? Or should we continue to refine our predictive models using all available data and technology? And how about price optimisation, charging higher prices to people who are not as sensitive to price and price change – how fair is that? Please join us for a lively debate on these topics which are currently facing actuaries in the United States.

DATA AND RISK AGGREGATION AND REPORTING: LESSON LEARNED FROM BCBS239, A BEST PRACTICE APPROACH FOR INSURANCE COMPANIES

Susan Hunt, Francois Berry

Presentation only

Thursday, 24 November | 01:00 PM | Meeting Room 1.4

Relevant practice area(s): ERM, Life Insurance, Short-term Insurance, Banking

Suggested audience knowledge level: All levels

Expected outcomes:

  • Understand at a high level what the BCBS239 Principles are and how these relate to ORSA.
  • What the scope of data is for SAM and what the data requirements are. What is included in risk data.
  • Understanding that effective risk management is underpinned by data, processes and reporting.
  • How BCBS239 can help an insurer answer the key questions “What is the state of risk management and what are short, medium and long-term priorities?”.

Abstract:

Regulatory and reporting requirements are likely to be very high on management’s agenda for the foreseeable future, taking considerable time, budget and resources across an organisation. It is important to understand all the upcoming changes to ensure program delivery can meet compliance but also maximise business value. We will take a look at the overlapping requirements in the Insurance and Banking sectors.

The overriding objective of SAM is encapsulated in the Own Risk and Solvency Assessment (ORSA), the implications of which are broad and deep reaching covering the whole organisation. ORSA reporting covers all internal risk and capital management reporting that enables and delivers an effective Enterprise Risk Management Framework with full integration between risk, capital and solvency. While individual pieces of regulation are being delivered by an organisation, will they really come together for delivering effective risk and capital management? 

BCBS239 sets out principles for effective risk data aggregation and risk reporting for banks. Some South African insurers will need to comply with BCBS239 if they are part of a group categorised by the South African Reserve Bank (SARB) as a domestic systemically important bank. Even if compliance is not a requirement the principles could provide a best practice list of requirements which enable an insurer to meet their obligations under ORSA.

Applying BCBS239 to an insurance entity provides a unique way of looking at risk and capital management effectiveness which is not achieved by applying current SAM regulatory requirements, despite the objectives of both being overlapping. It can answer the key questions: “What is the state of risk management/reporting and what are the short, medium and long-term priorities?”.

We will discuss some key themes from BCBS239/SAM including implementing a SAM compliant Data Policy and a Single Source of the Truth for data.

DIVIDEND POLICY AS A KEY PART OF CAPITAL MANAGEMENT FOR INSURERS

David Kirk

Presentation only (audio clip)

Thursday, 24 November | 11:00 AM | Auditorium 1

Relevant practice area(s): ERM, Life Insurance, Short-term Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Refresher on theory of dividend policies and how these are used across industries.
  • Understand the role Dividend Policy plays in Capital Management.
  • Understand the link between Dividend Policy and Risk Appetite.
  • Be able to consider the Dividend Policy of a particular company with greater insight and the basic tools to develop models to understand the implication of a particular Dividend Policy.

Abstract:

Dividend Policies are often an overlooked component of effective capital management. SAM has prompted insurers to review many of their existing policies, write new policies and determine Risk Appetite Targets and Risk Bearing Capacity in significant detail. However, many Dividend Policies are disconnected from this risk and capital management framework, if they exist at all.

The misperception that any modelling needs to be extremely complex in order to be useful means that often little to no quantitative analysis is performed, with rules of thumb and past practices continuing. Dividends are viewed differently for listed entities with a diverse shareholder basis compared to a privately or closely held insurer or subsidiary of a wider group where the dividends may already be earmarked for other purposes. Without a clear framework for when ordinary and special dividends could be paid, other attempts at capital management can be ineffective.

The presentation will cover Dividend Policy theory before introducing a simple model to connect dividends with Risk Appetite and Capital Management. The limitations of the modelling approach will be covered along with potential extensions to more advanced approaches.

Some counter-intuitive results will be explained along with a discussion of the implications of these results.

SEDUCTIONS OF THE BLOCKCHAIN

David Kirk

Presentation only (audio clip)

Wednesday, 23 November | 01:25 PM | Ballroom East

Relevant practice area(s): Banking, Wider Fields

Suggested audience knowledge level: All levels

Expected outcomes:

  • Understand Blockchain and how it relates to Bitcoins.
  • Appreciating other uses of Blockchain.
  • Gaining a basic understanding of the pros and cons of Blockchain and the ability to ask sensible questions if Blockchain comes up in a professional or work situation.

Abstract:

Significant capital has been raised to support FinTech and InsurTech start-ups. Several established financial services players are exploring new approaches to providing financial services, to defend their existing business against “disruptors” and to gain a competitive advantage against other established players.

It remains to be seen whether the reality will match the hype, but it may be imprudent to ignore the developments.

Blockchain technology is a key part of many recent FinTech ideas. More widely known through Bitcoins, the technology goes far beyond cryptocurrencies, let alone just Bitcoins. Blockchain has been proposed as a technological base for currency, payments, international trade, stock exchanges, share registers, smart contracts, private equity funding and even accounting systems.

The presentation will provide an objective evaluation of the current and possible future uses of Blockchain technology, mostly in areas that are relevant to actuaries.

  1. A technical but very basic explanation of Blockchain technology.
  2. Comparison of permissioned vs. permission-less systems.
  3. Bitcoins, Ether and other cryptocurrencies and their link to the Blockchain.
  4. Established uses, emerging uses and speculated future uses of the technology.
  5. Criticisms and limitations.
  6. Speculative views on how actuaries might be affected by Blockchain.

2011 POPULATION MORTALITY TABLES FOR QUANTUM OF DAMAGE CALCULATIONS

Frans Koning, Christelle van der Merwe

Paper with presentation (audio clip)

Thursday, 24 November | 11:00 AM | Meeting Room 1.4

Relevant practice area(s): Wider Fields, Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • New population tables based on 2001 and 2011 census data.
  • Some insight into movements on mortality due to HIV and ARV usage.
  • Potential trends in the tables.
  • Comparisons to other mortality tables.

Abstract:

In this study, population mortality tables for the 2001 and 2011 South African population are constructed. The 2001 and 2011 census data as well as the vital registration data on deaths for the period 2001 to 2011 were utilised to perform this task. The purpose of this study is to provide an up-to-date tool for quantum of damage calculations and strategic planning, which might be based on population mortality. The various applications also include calculations for state compensation schemes, insurance and demographic studies. The paper also considers possible trends and patterns, in particular the effects of HIV and the use of antiretroviral drugs on population mortality. It does not make predictions as to what future mortality levels might be. Various comparisons to other South African tables are made, as well as comparisons to population tables from other countries, to consider changes over time and differences between populations. The produced tables also bridges the critique of using 30-year old, and non-representative of our population SALT85 tables, currently still the norm for many quantum of damage calculations in industry.

SMART BETA OR DUMB ALPHA (THE SOUTH AFRICAN PERSPECTIVE)

Shaun Levitan

Presentation only

Thursday, 24 November | 09:20 AM | Meeting Room 1.6

Relevant practice area(s): Investments

Suggested audience knowledge level: All levels

Expected outcomes:

  • An understanding of what smart-beta is.
  • The rationale for smart-beta.
  • The historical evidence of smart-beta (South Africa and international).
  • The caveats of smart-beta investing.
  • An appreciation that not all smart-beta approaches are created equal.

Abstract:

The size, value, and profitability premiums have been documented in equity markets around the world. In addition, previous work has shown that these dimensions of higher expected returns can be targeted in a focused and controlled manner in an effort to increase the expected returns of a well-diversified equity portfolio. In this paper, we document the realized premiums in the South African stock market. Then we examine how targeting these dimensions could increase the expected returns of a simulated South African all-cap equity strategy.

THE INCREDIBLE CURIOUS ADVENTURE – THE MOVIE

Paul Lewis, Ursula Torr

Presentation only (audio clip)

Thursday, 24 November | 11:00 AM | Meeting Room 1.6

Relevant practice area(s): Wider Fields

Suggested audience knowledge level: All levels

Abstract:

In April this year, Gen Re embarked on an Incredible Curious Adventure! We sought out and spoke to insurance industry leaders, futurists, digital specialists, brand experts and fintech players. We asked them about the future and captured their thinking on film. What we found is powerful, insightful and thought provoking. This screening session at the Actuarial Society of South Africa’s 2016 Convention gives you a front-row seat to it all.

PROFESSIONALISM SYMPOSIUM

Mickey Lowther, Ben Kemp, Andrew Gladwin

Nico van der Colff (Moderator)

Panel Discussion (audio clip)

Wednesday, 23 November | 04:10 PM | Auditorium 1

Relevant practice area(s): Professional Matters

Suggested audience knowledge level: All levels

Expected outcomes:

  • Understanding the new CPD requirements for members of the Actuarial Society of South Africa.
  • Key insights on professionalism issues arising when practicing across national borders.

Abstract:

From 1 December 2016, the Actuarial Society will offer actuaries a focussed way to develop their careers. In terms of a new trial option for doing your CPD, numbers of hours and structured or verified events are no longer prescribed. Instead, cycles of professional development support you in your career. “You decide where you need to improve, do it, and then assess yourself,” reports a user of the revised approach.

The Professional Promise in the Actuarial Society’s Code of Professional Conduct requires members to develop and maintain the ability to deliver a quality professional service in their chosen field. The revised CPD requirements give you techniques for remaining professionally competent.

In the first half of this session, the new CPD requirements will be launched. For the upcoming CPD year, members will be asked to choose between the old or the new system. Based on commissioned research, the Society believes that “outcomes-based” cycles of professional development are more likely to bring about true professional development for many members than the existing requirements.

Additionally, Ben Kemp of the Institute and Faculty of Actuaries (IFoA) will relate how these new ideas are viewed internationally, and in particular for those members of the Actuarial Society who are partial or full members of the IFoA.

The second half of the session covers professionalism issues that may arise for members of the Actuarial Society who practice their trade across national borders, and/or are members of multiple actuarial organisations. The panel will give particular reference to the issues that arise for members of the Actuarial Society of South Africa practicing in other African countries.

TOWARDS BEST PRACTICE IN THE ACTUARIAL ASSESSMENT OF CLAIMS FOR MAINTENANCE AGAINST DECEASED ESTATES

Mickey Lowther, Jonathan Mort

Paper with presentation

Thursday, 24 November | 11:00 AM | Meeting Room 1.4

Relevant practice area(s): Wider Fields, Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Understanding the difference between maintenance and damages claims.
  • Adopting their practice accordingly.
  • Fulfilling their professional promise.
  • Being aware not to do these claims without experience or mentoring.

Abstract:

This paper begins to record best practice in the actuarial assessment of claims for maintenance against deceased estates in South Africa. Although this is a small field of actuarial practice, it is in the public interest that generally accepted standards be agreed upon. The paper applies an actuarial quality framework to identify aspects of the field, and then populates each aspect from the legal and actuarial experience respectively of the authors, and their interactions with other practitioners.

UNPACKING THE 2016 SANLAM BENCHMARK RESEARCH INTO THE SOUTH AFRICAN RETIREMENT FUNDING LANDSCAPE

Viresh Maharaj

Presentation only

Wednesday, 23 November | 03:00 PM | Meeting Room 1.6 (TED Venue)

Relevant practice area(s): Retirement Matters

Suggested audience knowledge level: All levels

Expected outcomes:

  • Understanding of the South African retirement funding landscape.
  • Insights as to where the industry is going.
  • Awareness of the changes necessary at different levels in order to deliver better outcomes.
  • A few laughs.

Abstract:

The Sanlam Benchmark™ research survey is a diagnostic tool that helps us to understand the retirement funding system in its totality so that we can collectively help more members reach better retirement outcomes. The 2016 Sanlam Benchmark™ research draws quantitative and qualitative findings from:

• 100 stand-alone funds;

• 100 participating employers of umbrella funds;

• 150 average pensioners;

• 100 affluent pensioners;

• Member focus groups; and

• Intermediary focus groups.

A systems thinking approach was applied to these findings to draw insights as to how to move more members to better retirement outcomes. Systems thinking is an approach to problem solving that contextualises challenges within a system of integrated linkages and influences. It acknowledges that outcomes are the result of a complex set of mechanisms and moves us beyond a narrow cause and effect mentality. This approach allows users to take intelligent views of the broader retirement funding landscape in order to appropriately identify key leverage points as well as downstream effects of interventions. Retirement funding is a complex system that is part of a wider network of socio-economic systems. If we as an actuarial body want to move more members to better retirement outcomes, we need to understand the system and its drivers in order to influence it. This presentation provides a summation of the key findings of the 2016 Sanlam Benchmark™ research with a view to highlighting the necessary intervention required.

MODELLING REAL TIME OLD AGE LONGEVITY USING WIKIPEDIA DATA

Francois Marais

Presentation only (audio clip)

Thursday, 24 November | 11:00 AM | Ballroom West (TED Venue)

Relevant practice area(s): Healthcare, Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • The analysis of a business case for modelling Wikipedia death entries guides the audience how to evaluate a proposed data projects.
  • By discussing the infrastructure, tools and problems, the audience is introduced to the variety of skills needed in a data office.
  • The investigation may deliver some interesting findings about longevity.
  • By reviewing the successes and failures of the project, the mental exercise of the lifetime of a data project is completed.

Abstract:

The term “data hackery” is sometimes used to describe the skills that traverse computer science and statistical science that are necessary for a big data project to work. With this project a database of Wikipedia death entries is built and some inferences made about the experience. The business case for modelling Wikipedia death entries is assessed. The data hackery needed and problems encountered are discussed. Some mention is made of infrastructure considerations. An algorithm for real time mortality analysis is described. The most interesting findings about longevity of an international population of notorious people are shared. The successes and failures of the project are assessed.

NEW TRENDS IN CAPITAL MANAGEMENT: POST SAM/SOLVENCY II IMPLEMENTATION

Karl Meissner-Roloff, Jaco van der Merwe

Presentation only (audio clip)

Wednesday, 23 November | 01:25 PM | Ballroom West

Relevant practice area(s): Short-term Insurance

Suggested audience knowledge level: Intermediate level

Expected outcomes:

  • What are some of the different approaches to Capital Management and how are companies doing it operationally (team structure, size, resource qualifications)?
  • What are local short-term insurers doing to optimise their capital under SAM?
  • What are UK insurers doing to optimise their capital under Solvency II?
  • How much effort are insurers spending on capital management, resource wise?
  • Places where we see opportunity to do capital management in short-term insurance.

Abstract:

As the South African short-term insurance industry nears the end of the SAM parallel run phase, companies are shifting their focus away from simple compliance and towards operational efficiency. A topic of growing interest in the European space of late has been capital efficiency in a Solvency II world. Similarly, the implications for South African insurers under SAM show a number of similarities.

In this talk we will discuss the results of a capital management survey conducted on South African short-term insurers, showing the latest trends and activities insurers are undertaking in their attempts to maximise efficiency in a post SAM implementation world. We will further compare and contrast the results of this survey with a similar survey done at the end of 2015 in the UK market.

FINANCIAL WELLNESS AND DEBT AS A PREDICTOR OF PHYSICAL WELLNESS AND CLAIMS

Nico-Louis Minnie, Ina Shaw, Johann van Tonder,

Paper with presentation (audio clip)

Wednesday, 23 November | 01:25 PM | Auditorium 1

Relevant practice area(s): ERM, Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Current level of financial wellness in South Africa.
  • Level of indebtedness of all income groups.
  • How does financial wellness affect mortality health as measured by medical assessments?
  • The impact of financial wellness on claims on life insurance, short-term and health.

Abstract:

For decades insurance companies have relied on many variations of financial underwriting to aid the pricing of risk. This suggests that there is a link between an individual’s finances and the underlying insurance risk. Research has confirmed this hypothesis but very little research has been undertaken in South Africa with regards to the underlying risk factors and how these relate to the finances of an individual. This study investigated the link between the Healthy Heart Score and financial stress (n = 20774), as well as chronic claims and unsecured debt (n = 3280), at one point in time. An analysis of the constituents of the Healthy Heart Score revealed a direct link with constituents of financial stress. The results also revealed positive relationships between financial stress and product persistency, as well as between chronic claims and a very high level of unsecured debt.

HEALTHCARE REFORM IN SOUTH AFRICA: INSIGHTS FROM INTERNATIONAL SYSTEMS STRIVING TOWARDS UNIVERSAL HEALTH COVERAGE

Roseanne Murphy da Silva, Sarika Besesar

Paper with presentation (audio clip)

Wednesday, 23 November | 03:00 PM | Ballroom West

Relevant practice area(s): Healthcare

Suggested audience knowledge level: Intermediate level

Expected outcomes:

  • Identify some ways in which universal coverage can be assessed.
  • Understand how health systems can be structured including funding and pooling mechanisms.
  • Compare the structure of health systems in a range of countries to the South African system.
  • Compare the health outcomes and challenges in these countries.
  • Consider the role that private health insurance has played in achieving universal coverage in these countries.

Abstract:

This literature review provides an international comparison of countries’ experiences as they strive towards universal coverage, examining the structural differences in design of healthcare systems and the implications thereof. The degree of universal coverage is measured using the WHO’s three dimensions of universal cover namely: the percentage of the population covered (breadth), the range of healthcare services that are provided (depth) and the degree of cost sharing (height). The various funding sources and pooling mechanisms adopted to collect and then distribute funds are examined to identify the effectiveness of these features on the degree of financial protection provided and the progressivity of the healthcare financing. Purchasing tools employed are studied to understand each system’s ability to deliver on the conflicting objectives of meeting patients’ demands and cost containment. The paper also includes a description of the role of private health voluntary insurance in these systems in facilitating universal coverage. The case studies selected for the analysis include systems from both higher and lower income countries, each at various stages on their trajectory towards universal coverage, providing insights into the key factors underlying each system’s achievements as well as the challenges that remain.

FRIENDS WITH BENEFITS

Neil Parkin

Presentation only (audio clip)

Wednesday, 23 November | 03:00 PM | Ballroom West

Relevant practice area(s): Healthcare

Suggested audience knowledge level: All levels

Expected outcomes:

  • A new perspective on drivers of health and behaviour.
  • Risks to future health (and why technology is not the complete answer).
  • How this can be used when underwriting and distributing our products.

Abstract:

The world is in the grip of a health crisis. In response we have countless new diets, sugar taxes, smart watches and other technological interventions, yet we are not winning. These risks affect which insurance products are offered and to whom – something increasingly relevant in the online world with simplified underwriting. But in our rush to solve this problem, have we missed something? Something that hasn’t received much consideration. A factor that is potentially as predictive as smoking and helps explain why obesity is contagious: Vitamin F.

THE WHY AND THE HOW OF FINANCIAL INCLUSION: WHY CORPORATES NEED TO BE INVOLVED AND THE KEY PILLARS OF PROVIDING A SUSTAINABLE FINANCIAL INCLUSION STRATEGY

Prega Ramsamy, Ruth E Benjamin-Swales, Soshan Soobramoney

Divya Babu (Moderator)

Panel discussion

Thursday, 24 November | 01:00 PM | Auditorium 1

Relevant practice area(s): Professional Matters

Suggested audience knowledge level: All levels

Expected outcomes:

  • The landscape of financial inclusion in Southern Africa.
  • Key pillars of a financial inclusion strategy that Corporate entities can incorporate.
  • A framework for integrating financial inclusion into the business.
  • Partnerships with government, the public and other bodies as a means for achieving the necessary outcomes.
  • Role of actuaries in driving social objectives, particularly financial inclusion.

Abstract:

Financial inclusion is increasingly playing a key role in driving market growth and social development across the sub-continent and the world. As an ever important agenda item for governments and social policy agencies, the question is raised as to whether there exists a case for Corporates and the actuarial profession within this ever-important growth lever within Southern Africa.

The panel discussion, by industry and policy experts, will look to address the active and pivotal role Corporates can play in driving financial inclusion initiatives, for the benefit of their business growth, whilst addressing sustainability.

LET’S HAVE A FRANK CONVERSATION ABOUT TRANSFORMATION

Shivani Ranchod

Presentation only

Wednesday, 23 November | 01:25 PM | Meeting Room 1.6 (TED Venue)

Relevant practice area(s): Education

Suggested audience knowledge level: All levels

Expected outcomes:

  • Being challenged on their understanding of transformation.
  • Understanding of key concepts related to transformation.
  • Introduction to key semantic issues related to racism and sexism.
  • An opportunity/safe space to voice any concerns with the profession’s current approach to transformation.

Abstract:

The Actuarial Society of South Africa has indicated that transformation is high on its agenda. With a demographic profile that is 80% white and male, this is no small task. In the aftermath of #feesmustfall the need for serious reflection has never been more urgent. In this presentation I explore issues of institutional culture, the role of conflict in driving transformation, notions of otherness and actuarial identity, and the semantics of racism and sexism. My thesis is that we need bold and direct discussion of these issues. The intention of this presentation is to open up a space for conversation, and to draw on a range of experiences (my own and others) to voice some of what has been unspoken.

 

MORTALITY RATES AND IMPROVEMENT OVER TIME AT ADVANCED AGES IN SOUTH AFRICA – INSIGHTS FROM THE NATIONAL-LEVEL DATA

Ronald Richman, Rob Dorrington

Paper with presentation (audio clip)

Wednesday, 23 November | 10:40 AM | Ballroom East

Relevant practice area(s): Life Insurance

Suggested audience knowledge level: Advanced level

Expected outcomes:

  • An understanding of the uses of national-level data in South Africa and the issues that need to be considered.
  • Actuaries will be introduced to the demographic techniques needed for mortality investigations in developing countries with incomplete mortality data, as is the case in most of Africa.
  • Actuaries practicing in both life and short-term insurance will gain insight into how actuarial techniques can be adapted and used for demographic investigations.
  • The professional knowledge of the audience on the state of mortality at the older ages in the South African population will be enhanced.
  • Actuaries will gain a better understanding of the issues to be considered when setting a mortality basis and when valuing longevity contingent obligations.

Abstract:

Actuaries rely on population mortality rates to determine compensation in cases of damages. Trends in population mortality rates inform the modelling of mortality risk and valuation of insurance companies and pension schemes and, not least, actuarial calculations of population mortality contribute to wider societal debates.

Estimating the level and trend in population mortality rates at advanced ages in South Africa is complicated by potential problems with both the population and death data. Population and death data, particularly in developing countries, often suffer from age misreporting – age exaggeration and digit preference. In addition, censuses may under or overestimate the population and registration of deaths is usually incomplete in developing countries (Dorrington, Moultrie et al., 2004).

In this research, we use the Death Distribution methods (Moultrie, Dorrington et al., 2013) to correct the death data for incomplete registration of deaths and the Near Extinct Generation methods (NEG) (Thatcher, Kannisto et al., 2002) to estimate the population by projecting future deaths of nearly extinct cohorts. In applying the NEG methods to the South African data, we exploit the theoretical connection between the NEG methods and actuarial methods for the calculation of IBNR and propose an adapted NEG method based on the chain-ladder model of Renshaw and Verrall (1998) to smooth the digit preference in the death data. We use this model to re-estimate the population at each age from 70 and above and to calculate mortality rates since 1996.

We find that both the population and death data suffer from the same pattern of digit preference and that the population data are affected by age exaggeration, leading to underestimated mortality rates if the census counts are used as exposures. The level and trend in mortality rates are discussed and compared to the mortality rates in the Human Mortality Database, other studies of South African mortality and insured lifetables.

RETIREMENT FUND DEATH BENEFIT DISTRIBUTION PROCESS

Martin Riekert, Hettie Joubert

Presentation only

Wednesday, 23 November | 03:00 PM | Meeting Room 1.6 (TED Venue)

Relevant practice area(s): Retirement Matters

Suggested audience knowledge level: All levels

Expected outcomes:

  • Understand the legal requirements of trustees as it relates to death benefit distributions.
  • Relevant PFA cases, outcomes and implications.
  • Overview of how this is treated in some South African funds.
  • Possible frameworks to consider in deciding death benefit distributions.

Abstract:

Contrary to popular belief, a retirement fund member does not have the right to determine who should get his benefit in the fund if he passes away. Section 37C of the Pension Funds Act provides that death benefits do not form part of the assets in the deceased member’s estate, but should be dealt with by the trustees of the fund in a specific manner. It prescribes who the trustees must consider as potential beneficiaries, the different modes of payment and the period within which the benefit should be paid. 

The trustees are obliged to consider the member’s legal, factual and future dependants, taking into account their level of dependency and other relevant factors. They should also give consideration to nominated beneficiaries who are not dependants. The nominated beneficiary is merely one stakeholder that needs to be considered, and it is possible that these nominated beneficiaries might not receive any allocation.

The application of this section is at times not easy to apply in practice, yet trustees are faced with this obligation each time a member of a retirement fund passes away.

This presentation will provide a summary of section 37C and its implications for retirement fund trustees. We will also consider how this is currently being applied in the South African context by focussing on how some of the biggest umbrella funds in the industry deal with the distribution of death benefits. A high-level framework for the death benefit distribution process will also be considered, referring to guidelines provided by the pension fund adjudicator and case law. Finally, we will give an example of a real scenario faced by trustees and how they dealt with that particular case.

THE BOTS ARE COMING

Louis Rossouw

Presentation only (audio clip)

Thursday, 24 November | 01:00 PM | Ballroom West (TED Venue)

Relevant practice area(s): Wider Fields, Data Analytics

Suggested audience knowledge level: All levels

Expected outcomes:

  • Conversational/chat interfaces for products and services.
  • Robo-advice models from the US.
  • Limitations and opportunities of these technologies.
  • Opportunities for this technology in South Africa and the rest of Africa.

Abstract:

There are technological shifts happening. One of them is the increasing trend to use “bots”. In the financial services “robo-advice” is also a new buzzword. There are also huge shifts in what is possible with artificial intelligence and conversational interfaces. All this combined with the fact that people are also spending more time on instant message platforms makes for an interesting future.

This presentation will explore these trends as well as highlight some of the possibilities for life insurance, especially in the context of emerging markets where traditional or expensive advice models may not be effective and/or scalable.

GEN A – Z: WHAT IMPACT WILL MILLENNIALS HAVE ON THE FUTURE OF INSURANCE?

Adriaan Rowan

Presentation only (audio clip)

Thursday, 24 November | 01:00 PM | Ballroom West (TED Venue)

Relevant practice area(s): Wider Fields, Data Analytics

Suggested audience knowledge level: All levels

Expected outcomes:

  • What are the different generations and what makes millennials different?

Abstract:

Millennials, Generation Y, 20-somethings, Echo-Boomers, Generation Next, Generation We, the Global Generation, Digital Natives, and Born Frees: regardless of the label, we have all heard of these young consumers.

The Millennial generation — born between 1980 and 2000 — totals 2.5 billion people globally but fewer than one in three of them has a life insurance policy. As the customer of the future they will wield tremendous power and demand attention. Why are they in no rush to buy despite grasping the importance of a stable financial future? Their unique attitudes and behaviours require a fresh approach to marketing financial services. Millennials would benefit from doing better financial planning. Insurers wishing to attract them face a challenge to understand and engage with them as consumers.

A PRAGMATIC OVERVIEW OF PREDICTIVE ANALYTICS APPLICATIONS

Lee Sarkin, Greg Becker

Presentation only (audio clip)

Thursday, 24 November | 01:00 PM | Meeting Room 1.6

Relevant practice area(s): Data Analytics, Short-term Insurance

Suggested audience knowledge level: Intermediate level

Expected outcomes:

  • High-level understanding of the different machine learning and other statistical learning methods available to actuaries, i.e. a simple, pragmatic overview of complex methods.
  • The benefits and limitations of these in practice.
  • An understanding of how to integrate these methods with conventional methods.

Abstract:

Actuaries and analytics professionals seek valid truths from data in making sense of complexity.

Promises of value through predictive analytics remain high, but has delivery stacked up? We explore this variance between actual and expected, and revisit the predictions, helping you recalibrate your views as to the future of predictive analytics.

We offer a balanced view of the potential for new technologies and tools in better understanding complexity. We look at the fast-evolving field of statistical learning/machine-learning methods and the shift from a data modelling to an algorithmic modelling culture. These methods have many application opportunities across the insurance value chain.

A pragmatic but critical overview of algorithmic methods for experience analysis, predictive underwriting, etc. will be provided along with case studies, limitations, implementation failures worth looking out for and more.

WHAT THE REST OF THE WORLD HAS BEEN LOOKING AT WHILE SOUTH AFRICA HAS BEEN FOCUSSED ON SAM

Marc Slutzky, David Kirk

Presentation only (audio clip)

Wednesday, 23 November | 03:00 PM | Ballroom East

Relevant practice area(s): Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Learn about how International Capital Standards are being developed and implemented.
  • Learn how these standards may affect South African insurers, and how companies in the rest of the world are reacting

Abstract:

As a result of the 2008-2009 financial crisis, the G-20 countries asked the Financial Stability Board (which was established to co-ordinate at the international level the work of national financial authorities and international standard-setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability), and the IAIS (International Association of Insurance Supervisors), to develop a global capital standard (ICS) to apply to Global Systemically Important Insurers (G-SIIs) and Internationally Active Insurance Groups (IAIGs). The standards being developed will apply to these institutions in the near future.

This process is important to actuaries in South Africa. The 2015 South African Financial Services Board SAM Update stated “If SAM is significantly different to the ICS, there may be an unlevel playing field for South African IAIGs or subsidiaries of IAIGs operating in South Africa compared to the rest of the South African insurance sector. It is thus in South Africa’s best interest for SAM to align to the ICS. Given the potential impact that such a standard may have on the South African market, the FSB has been actively involved in the development of the ICS. The ICS is still at an early stage of development, with the first field testing exercise conducted in 2014 and the second exercise scheduled for 2015. Although the development is at an early stage, it is encouraging to note that there are many similarities between SAM and some of the aspects of the ICS.”

At this session we will discuss:

  • Background to International Capital Standards
  • Global Systemically Important Insurers (G-SIIs), assessment methodology, policy measures
  • Capital requirements – BRC, HLA, ICS
  • ComFrame (Common Framework for the Supervision of IAIGs
  • Timeline and next steps
  • Field Testing and Consultation Document
  • Relationship between ICS, Solvency II and SAM
  • Developments in other countries
  • Implementation issues

SCALING THE STEEPEST PEAK: AN ANALYSIS OF THROUGHPUT IN THE UCT ACTUARIAL SCIENCE PROGRAMME

Dave Strugnell, Shivani Ranchod

Paper with presentation

Wednesday, 23 November | 01:25 PM | Meeting Room 1.6 (TED Venue)

Relevant practice area(s): Education

Suggested audience knowledge level: All levels

Expected outcomes:

  • An understanding of the throughput rates in UCT’s Actuarial Science programme.
  • Insight into the nature of the balancing act for universities between throughput rates and access at first-year level.
  • Insight into how throughput rates are influenced by educational indicators and by demographic variables, and the challenges this poses for the universities and the profession.
  • Food for thought on how the universities and the profession need to rise to those challenges.

Abstract:

The future growth and demographic transformation of the actuarial profession in South Africa depend critically on the profile of suitably-skilled graduates produced by the university system. We employ survival analysis to investigate throughput rates, and the demographic and educational factors that exert a significant influence on them, in the Actuarial Science programme at the University of Cape Town. The results contextualise the huge transformation challenge facing the profession, and also point to some of the features of the educational landscape which have the power to overcome them.

 

THE EARTH, HUMANITY, THE ECONOMY AND THE ACTUARIAL PROFESSION

Rob Thomson, Taryn Reddy, Sam Gutterman

Roseanne Murphy da Silva (Moderator)

Panel Discussion (audio clip)

Wednesday, 23 November | 10:40 AM | Meeting Room 1.6 (TED Venue)

Relevant practice area(s): ERM, Wider Fields

Suggested audience knowledge level: All levels

Expected outcomes:

You may expect to get a better idea of the issues involved in the interplay between environment, society and the global economy from an actuarial point of view, and how the actuarial profession is getting involved.

Abstract:

Every time you think you’ve heard it all before, something crops up that makes you think again. If you want a wider field you ain’t seen nothin’ yet! So the Actuarial Society has decided to host a panel discussion on the subject at the Convention.

Sam will outline the major international players in the field of resources and the environment in the face of climate change and what the International Actuarial Association (IAA) is attempting to do. He will also address issues of relevance to actuaries as actuaries, members of actuarial associations, and as citizens, like the effects of climate change on mortality and a research project he’s working on for the Society of Actuaries on social discount rates.

Rob will explore some of the new perspectives on economics, particularly from ecological economics, that relate to the environment, society and the economy itself: where and why, he will ask, does new thinking burst the old wineskins?

Taryn presented a paper on sustainability at the 2014 Convention. But it’s a big field and the more you dig the more you find. So now she’ll give us an update on that work.

The panel discussion will be moderated by Roseanne Murphy da Silva, the President of the Actuarial Society.

THE AFRICAN INSURANCE TRAP

Peter Tripe

Presentation only (audio clip)

Thursday, 24 November | 01:00 PM | Ballroom East

Relevant practice area(s): Short-term Insurance, Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Insight into the African insurance market, particularly Kenya.
  • Better understanding of the benefits of achieving economies of scale and the pitfalls of not managing to.
  • Understanding the benefits of using alternative business models used in the Kenyan market.
  • Examples of alternative business models used in the Kenyan market.

Abstract:

One of the attractions of investing in insurance companies across Africa is the low rate of product penetration and the consequent prospects for growth. However this same attraction results in many of these insurers finding themselves in a ‘trap’ in the sense that their markets have not yet achieved economies of scale. Distribution and operational expenses can, and in many cases do, constitute 40-50% of premiums. The value delivered to customers is diluted significantly as a result of this, calling into question the value-add of the insurance market in these countries. This in turn inhibits the growth of the insurance industry and results in a vicious cycle. Insurers are exploring alternative business models to deliver their products and operationalise the industry. We will look at some examples of these alternative business models being explored in East Africa, and the rewards or pitfalls that await their success or failure.

IFRS 4: LESSONS LEARNT FROM INITIAL IMPLEMENTATION

Peter Tripe, Ryan Subotzky, Yura Kaliazin, Jan Hofmeyr

Presentation only (audio clip)

Thursday, 24 November | 09:20 AM | Ballroom East

Relevant practice area(s): Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Create awareness about the practical issues and challenges that insurers are likely to run into when implementing IFRS 4 Phase II.
  • Give an indication on the potential amount of effort required to adjust valuation models to provide the required IFRS 4 Phase II outputs.
  • Increase awareness of the various stakeholders and interconnected systems that are likely to be affected by the IFRS 4 Phase II implementation, beyond just the actuarial area.

Abstract:

IFRS 4 Phase II has been a buzzword in the insurance industry for a number of years, and is second only to SAM. A lot has been said and presented on the theory behind IFRS 4 Phase II and on what this theory might mean for an insurer’s liabilities, income statement and profit release. However, the practical implications and amount of effort required to actually implement this theory in real life is still a bit of a grey area.

This presentation seeks to shed some light on the practical side of implementing IFRS 4 Phase II on an actual life insurance product currently sold in the South African market, by looking at areas such as:

  • What historic information is needed on transition?
  • What needs to be added to administration or database systems?
  • What changes are required for actuarial systems?
  • How do financial systems need to be changed?
  • How much effort is it actually to amend the liability calculation models to provide all the required output?

The focus will not be on the impact on an insurer’s financials as such, but much more on the practical implementation issues and problems that we have discovered as part of our IFRS 4 Phase II implementation case study.

LEARNING FROM ACTUARIES IN LEADERSHIP ROLES

Peter Tripe

Presentation only (audio clip)

Wednesday, 23 November | 03:00 PM | Auditorium 1

Relevant practice area(s): Professional Matters

Suggested audience knowledge level: All levels

Expected outcomes:

  • Showcase leadership skills of experienced actuaries in prominent leadership roles.
  • Key insights on career and personal development.
  • Learn from different leadership journeys about the variety of career paths out there.
  • Learn about how to overcome key challenges on the leadership journey.

Abstract:

“It is a curious thing, Harry, but perhaps those who are best suited to power are those who have never sought it.” – Dumbledore

Actuaries have traditionally played the role of technical subject matter experts. However, many actuaries’ natural curiosity results in innovative business acumen surfacing. Industry has recognised this and placed these actuaries in prominent roles. We aim to showcase how and why actuaries are invaluable in various leadership roles in business.

The panel includes actuarial leaders with a great number of years of industry experience and have held a number of pivotal leadership roles within their organisations and the Actuarial Society of South Africa. They are passionate about developing leaders in the actuarial community.

All of the panel members come from a variety of different fields and backgrounds and are at different stages of their careers, which adds an extra element of timing and career development to the discussion.

THE APPLICATION OF DEMOGRAPHIC PROJECTIONS TO PROJECT CHANGES IN LIFE AND NON-LIFE INSURANCE PENETRATION RATES

Christine van Heerden, Lance Moroney

Paper with presentation (audio clip)

Thursday, 24 November | 01:00 PM | Ballroom East

Relevant practice area(s): Short-term Insurance, Life Insurance

Suggested audience knowledge level: All levels

Expected outcomes:

  • Become aware of the market penetration of various short-term and life insurance lines in key African countries.
  • Understand the reasons behind the current level of penetration in these countries.
  • Understand the usefulness of demographic projections in predicting an increase in insurance penetration: the case of five countries will be considered.
  • Understand the scope for market growth in each country for various short-term and life insurance lines of business.
  • Gain insight into the expected insurance market growth opportunities that exist in each country.
  • Understand some of the hurdles which must be overcome in order to increase the insurance market penetration in each country.

Abstract:

The current penetration rates of life and non-life insurance in South Africa, Kenya, Ghana, Zambia and Nigeria are considered along with influencing factors. The influence of economic, regulatory, industry, cultural and demographic factors on current penetration levels are considered. Given the projected levels of population growth in the selected countries, the paper explores how a wider set of demographic factors will be affected by this, and how this will affect future insurance demand. Publicly available population projections are used for the purpose of projecting a wider range of demographic factors including: disposable income levels per person; spread of income levels; unemployment; dependency ratios; and, poverty levels. This paper does not attempt to accurately quantify future penetration rates and all of the demographic factors considered, but rather explores limitations to insurance growth imposed by demographic factors of the selected countries. Finally, key challenges to improving insurance penetration in these markets are considered.

IFRS 9: HOW IS THE SOUTH AFRICAN BANKING INDUSTRY STACKING UP?

Matthew Walker

Presentation only

Wednesday, 23 November | 10:40 AM | Meeting Room 1.4

Relevant practice area(s): Banking

Suggested audience knowledge level: All levels

Expected outcomes:

  • Broad understanding of what IFRS 9 is.
  • Why IFRS 9 is important to the South African banking industry.
  • How South Africa compares to international markets in terms of IFRS 9 implementation.
  • How South Africa compares to international markets in terms of IFRS 9 modelling sophistication.
  • What some of the biggest challenges facing South African financial institutions are regarding IFRS 9.

Abstract:

The IFRS 9 deadline is fast approaching though many credit risk professionals around the world are still finalising some key modelling decisions. This presentation will focus on how South African financial institutions are faring in the modelling department, compared to their international counterparts. It will also cover the implementation strategies being considered and some of the practical challenges faced.

IFRS 9 has certainly brought new technical challenges to credit risk modelling. In particular, measuring Significant Increase in Credit Risk and incorporating forward-looking macro-economic information. These two issues will remain top of the modelling agenda long after the standard is implemented and will be a focus of the presentation.

This session will be of interest to all credit risk practitioners and those interested in the application of actuarial modelling skills in the banking industry.

Sponsors

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