ADAPTING FS MODEL RISK MANAGEMENT PRACTICES FOR EMERGING AI/ML MODEL RISKS
Andre Blaauw
October 6 – 8, 2020
Relevant practice area: Data Analytics
Suggested audience knowledge level: Intermediate
Artificial intelligence (AI) and machine learning (ML) are evolving at lightning speed with ever increasing applications across many areas of a financial institution’s business activities. Whilst FS firms have actively pursuing maturation of their model risk management (MRM) practises over the last 10 years, the emerging analytical technology developments create new challenges and model risks that require a review of some key elements of the MRM framework. Given the enhanced predictive power of AI and ML algorithms compared to traditional statistical modelling techniques currently in practice, significant business value can be generated through improved quality of decisions informed by AI/ML model outputs. FS institutions that take a pro-active approach in comprehensively re-designing and re-tooling their MRM practices will be well prepared to mitigate AI/ML model risks, developed trust in these technologies and achieve the potential business benefits. However, given the inherent complexities in modelling practices compounded by increased complexity of AI/ML algorithms, adaptations of MRM practices will have to overcome many challenges. A focused approach, building on existing MRM practices holistically with enhancements to address the incremental risks introduced by AI/ML, can fast track implementation of the enhanced framework. Such a MRM framework adaptation programme should contain the following core elements:
* An AI/ML risk appetite policy
* Enhanced model definitions and risk tiering
* Minimum level of AI/ML MRM training enterprise wide
* Implementing tools and techniques to mitigate AI/ML incremental model risks
* Enhancements to the model development life cycle key affected activities
In this presentation, we examine some of the intricacies involved in these adaptation activities and offer recommendations to address issues.
Practical outcomes:
* An appreciation of differences in AI/ML algorithmic techniques compared to traditional statistical modeling techniques
* An awareness of the key incremental model risks inherent in AI/ML model solutions – such as bias, explainability and robustness
* An appreciation of the importance and value of an AI/ML risk appetite statement and the contents of such a statement
* Insight into criteria that can be used for AI/ML model risk tiering
* Awareness of independent model validation and change management practices required for AI/ML
* Appreciation of data quality and open source software risks
* Awareness of the importance of ongoing AI/ML model risk and performance monitoring and insight into required content of such monitoring system outputs
DOWN THE RABBIT HOLE: HOW MUCH FURTHER IS THERE TO FALL? THE NCD TRAJECTORY FOR SOUTH AFRICA
Marc Burgess, Michael Porter and Shivani Ranchod
October 6, 2020, 1:15 PM – 3:15 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Intermediate
Percept and RGA have been working together with support from ASSA to produce research on the burden of non-communicable diseases in South Africa. A number of public-domain research briefs will be produced as a result.
We propose to present some important findings from the research to cover topics including:
* Trends and drivers of NCD incidences in SA, and how they compare to the rest of the world
* How do insured and population outcomes compare?
* Comparisons between mortality and morbidity-driven experience, and discussion of the drivers
* HIV impacts – how does this influence NCDs as a percentage of all-cause mortality and morbidity?
* What are South Africa’s successes and weaknesses in dealing with NCDs?
* Interactions with comorbidities
* Bonus: have the particularities of SA’s NCD burden affected the CoViD19 epidemic here?
Practical outcomes that the audience can expect to gain:
* A more detailed understanding of the non-communicable disease burden in South Africa and how it is evolving
* The risks associated with NCDs, and how they affect different sectors of the SA population and economy.
* Experience of practical solutions that have been rolled out in various jurisdictions.
* A solutions framework to allow actuaries to consider how to manage the impacts of NCDs in their areas of practice.
LESSONS LEARNED IN MODELLING COVID-19
Barry Childs
October 6, 2020, 10:15 AM – 12:15 PM
Relevant practice area: Healthcare
Suggested audience knowledge level: Intermediate
This presentation will discuss the development and evolution of the ASSA Covid-19 model. We will discuss dealing with risk and uncertainty in the modelling process and the challenges of widely ranging views. By the time of the convention we will know with greater certainly how South Africa has fared compared to other countries. We will discuss what aspects of the model we got right, what we got wrong, and suggest lessons for endeavours of epidemiology model building in the future.
IFRS 17: DECISION MAKING WITHIN AN AMBIGUOUS AND COMPLEX ENVIRONMENT – VARIABLE FEE APPROACH AND LOSS COMPONENT
Renaldo de Gouveia and Lloyd Balshaw
October 6, 2020, 10:15 AM – 12:15 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Intermediate
Insurers are generally making good strides in readying themselves for IFRS 17. However, one of the pitfalls we believe companies need to avoid is making both design and accounting policy decisions based on what is perceived to be allowed by the standard rather than which choices are best or most relevant for each insurer.
So far there has been a significant focus on the methods to determine the Contractual Service Margin (CSM) under the General Measurement Model, as well as methods for locked-in interest rates and choices of coverage units. Equally important and relatively poorly understood are the roll-forward of the CSM under the Variable Fee Approach (VFA) as well as the Loss Component.
The purpose of our presentation is to explore two separate areas where key design decisions need to be made:
- Calculation methods of the CSM at each subsequent measurement date under the Variable Fee Approach
- Calculating the Loss Component at each subsequent measurement date
The presenters will look through these topics and make the audience aware of the consequences of their IFRS 17 design and accounting decisions. Being aware of these pitfalls will aid in making informed design decisions, help prevent unintended outcomes and will accelerate the knowledge and familiarity of those implementing the Standard.
VFA calculation methods
The requirements of the roll-forward of the VFA CSM are defined in IFRS 17 paragraph 45 and a method is demonstrated in Illustrative Example 9. However there is no clear link between the example and the wording in paragraph 45. The presenters will describe an equivalent transfer-and-cash-flow-approach to roll forward the CSM in which the model is aligned to the wording in the standard and is more intuitive to understand. They will describe the accounting implications of using each of the illustrative example and equivalent approaches.
Loss Component approach
While the definition of the creation of a Loss Component in the Standard is well understood, the requirements of the approach to rolling the Loss Component through time is principle based. The illustrative examples show one application of these principles. The presenters will explore the alternative methods of calculating the Loss Component at subsequent measurement and will explore:
- The effect of using locked in vs. current rates when determining the change in estimates of fulfilment cash flows
- Methods for deriving the systematic allocation of the Loss Component
- Deferred acquisition cost decisions and implications thereof.
ACTUARIAL REMUNERATION LANDSCAPE – A RECRUITERS PERSPECTIVE
Wilhelm de Wet, Henda Pretorius and Jurie Gouws
October 7, 2020, 7:15 AM – 8:15 AM
Relevant practice area: Wider Fields
Suggested audience knowledge level: Foundational
SA3 has successfully conducted a salary survey amongst actuarial professionals in South Africa for the past 4 years. We aim to dig into these results from 2016 – 2019 to cover the following in our presentation:
* Introduction to survey methodology and disclaimers
* Trends in Guaranteed and Variable remuneration over the last 4 years – Split between: Qualified actuaries and Students
* We will also give an overview of the demographics of actuaries that contributed to the survey. We look at the breakdown of: Practice Area, Gender, Location, BEE Status
* The single most difficult thing to manage as a recruiter – unrealistic expectations
* Different strategies for salary negotiations from both the employer and employee’s perspective
REFLECTING ON MODELLING THE HIV AND AIDS EPIDEMIC IN THE TIME OF COVID-19
Peter Doyle
Paper with Presentation
October 6, 2020, 1:15 PM – 3:15 PM
Relevant practice area: Healthcare
Suggested audience knowledge level: Intermediate and Advanced
About 30 years after starting to work on the HIV & AIDS epidemic and model, I had started to write a paper on modelling epidemics and contrasting our experiences in the 1980’s and 1990’s with the current application of data analytics.
By the end of 2019 I had completed several sections of that original paper when the news of Covid-19 was first starting becoming news.
Subsequently during the early part of 2020 I spent a significant amount of time researching and understanding the Covid-19 epidemic, with a particular focus on policy choices.
In so doing I examined the outcomes of many Covid-19 models and also studied many data sources and scientific papers.
This work heightened the contrasts and similarities between modelling HIV & AIDS and Covid-19.
Possible Outcomes:
- Highlight the need to really understand data before using it.
- Highlight the need to really understand the key dynamics of an epidemic before modelling it.
- Provides some insight into framing policy choices in the light of serious epidemics and perhaps other complex issues.
DON’T LEAVE MONEY ON THE TABLE. OPTIMISE YOUR CAPITAL
Panelists: Lafras Eksteen, Philip Beytel, AJ Klaasen, Peter Ford
Chair: Gerrit Conradie
October 8, 2020, 12:00 PM – 2:00 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Intermediate
We’re about two years into SAM and the dust has settled with many life insurers finding a steady rhythm of submitting regulatory returns. The industry now has an opportunity to improve beyond just reporting efficiently and in this presentation we will explore capital optimisation within the SAM regime.
We will look at everything from modelling optionality in the Prudential Standards (e.g. illiquidity premium and iterative risk margin calculation) and reinsurance structures (e.g. mass lapse reinsurance), all the way to more sophisticated corporate finance solutions (subordinated debt and letters of guarantee). We will consider the advantages and disadvantages of the different approaches, learnings from Europe, as well as the products and circumstances where they provide the greatest benefit.
The presenters will be supplemented by a panel consisting of seasoned insurance practitioners, with practical capital optimisation experience across all of these aspects.
Key outcomes:
1) Gain an overview of capital optimisation approaches available to life insurers
2) Understand the advantages and disadvantages of different approaches
3) Develop more detailed knowledge of selected approaches
4) Learn what worked and what didn’t work in Europe’s Solvency II regime
5) Insight from panel discussion including BSM and reinsurance experts, plus an opportunity for questions
THE CASE FOR ALTERNATIVE INVESTMENTS FOR RETIREMENT FUNDS IN SOUTH AFRICA WITH A PARTICULAR FOCUS ON INFRASTRUCTURE INVESTMENTS
Panelists: Heleen Goussard, Johan Oliphant and one other
Chair: Johan Human
October 6, 2020, 10:15 AM – 12:15 PM
Relevant practice area: Investments
Suggested audience knowledge level: Foundational
This presentation will consider
* The current South African Macro Economic and Social Environment and Context
* The influence, role and impact of Institutional Investors in this Environment
* The roles and responsibilities of Actuaries in Institutional Investment
* A definition of Alternative Investments vs Traditional Investments for Contractual Savings Institutions
* Characteristics of Alternative Investment classes when considered from the perspective of Institutional Investors
* The relative Risks of Alternative Asset Classes when compared to Traditional Asset Classes
* Impediments to Institutional Investors when considering Alternative Asset Classes
The presentation seeks to challenge actuaries to consider their role in the broader South African community, as well as the impact of the decisions made my actuaries in the allocation of Institutional Assets in this context.
COVID-19: ARE WE THERE YET?
Ricardo Govender and Lafras Eksteen
October 8, 2020, 10:00 AM – 11:00 AM
Relevant practice area: Short Term Insurance
Suggested audience knowledge level: Intermediate
With financial markets in turmoil, many economies on the brink of failure, social distancing the new norm and the foot shake gaining traction, more and more companies are asking the dreaded question – Are we there yet? This presentation aims to assess the frequency at which we expect an event like Covid 19 to occur, i.e. is this a one-in-x-year event when considering the underlying calibrations of the Standardised Formula SCR and empirical evidence seen to date? In this presentation we make use of illustrative life and non-life insurers to demonstrate the change in SCR cover ratio as Covid-19 unfolds. This illustration also aims to highlight the likely impact that Covid-19 continues to have when compared to the Standardised Formula. The presentation considers the effect on various components of the BSCR, i.e. Non-life underwriting risk, Life underwriting risk and Market risk.
Key outcomes:
- * Receive an overview of Covid-19 economic and underwriting experience to date.
- * Understand the potential impact of the Covid-19 pandemic on insurers when compared to the Standardised Formula SCR.
- * Appreciate the consequences of the Covid-19 pandemic to better aid insurers in their business planning processes.
- * Recognise potential areas where Covid-19 has highlighted shortfalls in the Standardised Formula SCR for consideration in the insurers’ economic capital calculation and broader ORSA process.
OPTIMISING THE PERFORMANCE OF ACTIVE INVESTMENTS
Wade Gunning
Paper with Poster Presentation
October 6 – 8, 2020
Relevant practice area: Investments
Suggested audience knowledge level: Intermediate
Active portfolios subject to tracking error constraints are the typical setup for active managers tasked with outperforming a benchmark. The risk and return relationship of such constrained portfolios is described by an ellipse in traditional mean-variance space and the ellipse’s flat shape suggests an additional constraint which improves the performance of the active portfolio. Although subsequent work isolated and explored different portfolios subject to these constraints, absolute portfolio risk has been consistently ignored. A different restriction – maximisation of the traditional Sharpe ratio on the constant tracking error frontier in absolute risk/return space – is added here to the existing constraint set, and a method to generate this portfolio is explained. The resultant portfolio has a lower volatility and higher return than the benchmark, it satisfies the tracking error constraint and the ratio of excess absolute return to risk is maximised (i.e. maximum Sharpe ratio in absolute space). The sign and magnitude of the tracking error frontier’s main axis slope influences portfolio performance and may anticipate market behaviour – thereby acting as an early warning flag. The Ω ratio (a portfolio performance metric which considers both down and upside portfolio potential without the limiting assumption of normality) may be applied to the problem of active investment performance optimisation. Recent work has established a technique to determine optimal Ω ratio portfolios under the passive investment approach – we have applied the identification of optimal Ω ratio portfolios to the active arena (i.e. to portfolios constrained by a TE).
PRACTICAL OUTCOMES
- * We identify an optimised risk-adjusted return portfolio on the tracking error frontier (analagous to the optimal portfolio on the efficient frontier under the passive investment approach)
- * We explore some interesting properties of this portfolio and the mathematics of its derivation
- * We examine the changing long axis slope (magnitude and sign) under various market conditions and explore investment consequences of the results
- * We investigate the Ω ratio first under passive (and then active) investment strategies.
- * We identify (for the first time) the optimal Ω ratio on the tracking error frontier and discuss investment strategies which make use of this ratio under different market conditions
CYRIL 1000 DAYS ON, COVID, AND A BIG-UP TO SOME UNSUNG LOCKDOWN STARS
Ferial Haffajee
Plenary Address
October 6, 2020, 08:30 AM – 09:45 AM
Ferial will cover the following during her address:
- 1000 days of President Cyril Ramaphosa – the good, the bad, the so-so
- Covid-19 – the pandemic to reshape health – thoughts on the NHI
- Amazing South Africans who helped us through South Africa 2021
CONVERSATIONS WITH ACTUARIES: SHARING OUR UNIQUE EXPERIENCES TO SUPPORT TRANSFORMATION
Panelists: Roseanne Harris, Pieter du Preez, Kenosi Magosha and Margaret Carey
Chair: Sphe Msane
October 8, 2020, 10:00 AM – 11:00 AM
Relevant practice area: Professional Matters
Suggested audience knowledge level: Foundational
Transformation was the hottest topic at the Convention last year, and this topic is likely to remain as important over the coming years. Last year I was one of the speakers in the session “Conversations with actuaries: our unique journeys to become Fellows.” We had great feedback through attendance and audience participation as well as very positive and sincere feedback after the session. I would like to continue a similar session, Chair it and again invite speakers from diverse backgrounds to share sincerely their unique journeys. I’d also like to take forward some of the feedback we received by broadening the topic this time. That is, not just covering the journey towards qualifying but also post-qualification, in navigating the working world and curving out a suitable career path.
What I’m hoping will come out from this presentation is the following.
* Broader perspectives, promote emphathy, raise awareness and help drive transformation.
* Provide invaluable insights, through the presentation and the discussions these prompt, useful in identifying possible improvements in transformation initiatives (by ASSA, our different organisations, personal, etc.).
* Provide insights into what drives choices of different career paths, from the wide range available to Actuaries.
* This could also open up mentorship opportunities, which otherwise wouldn’t have formed, as members of the audience connect with the speakers whose stories they identified with and seek a mentor.
ECONOMIC INDICATORS INFLUENCING LAPSE EXPERIENCE – FROM AN INTERESTING TOOL TO A BUSINESS IMPERATIVE?
David Hatherell
October 8, 2020, 08:30 AM – 09:30 AM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Foundational and Intermediate
Last year we used machine learning techniques to showcase a model that combines policy variables and economic data to predict lapse experience. Economic conditions in South Africa made such models an interesting addition to insurers toolboxes for business planning – COVID-19 has made it an imperative. This presentation is expanded to give a view of how significant variations in economic indicators influence prior projections. Machine learning techniques are used to understand lapse experience and consideration to the impact of different scenarios is shown in future projections.
The techniques considered are:
– Generalised linear models
– Lasso regression techniques
– Extreme gradient boosting algorithms
With a changed world we now find ourselves in a situation where past experience may not also not apply in the future. Areas where this is prevalent will be highlighted in this presentation.
Key Outcomes:
– Gain an understanding of how machine learning techniques can be used to understand lapse experience
– Understand and be able to discuss the shortcomings of a model
– Gain insights into considerations needed when developing projections
– Determine why certain variables (that were predictive) may not add value when predicting future experience
SHOULD WE TAX THE ANTI-VAX? ETHICAL AND OTHER CONSIDERATIONS OF USING VACCINATION HISTORY AS A RATING FACTOR IN LIFE INSURANCE UNDERWRITING
Pamela Hellig
Paper with Presentation
October 8, 2020, 10:00 AM – 11:00 AM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Foundational
Vaccinations are accessible, affordable, and highly effective, but vaccination coverage is lower than it should be, and hundreds of thousands of adults, who constitute the majority of the insured population, are still dying annually of vaccine-preventable diseases. In addition to the human toll, there are huge financial costs associated with treating affected patients.
This paper explores the ethical and practical considerations of using vaccination history as a rating factor for life insurance products. Insurers have an interest not only in accurate pricing and assumption of risk, but also in minimising the significant mortality and morbidity implications of these diseases.
While it is not expected that vaccination history as a rating factor will take on the statistical significance of age, sex or smoking in premium discrimination, the financial and social benefits of encouraging better vaccination behaviour may very well outweigh the costs. And, if so, do the insurance industry and actuarial profession not have an ethical duty to play their part in the prevention of unnecessary disease and the improvement of quality of life?
It is hoped that the ideas introduced and conclusions drawn will spark discussion on this topic. The paper is not intended as a technical work but rather as a thought experiment, combining ethics, healthcare, politics, culture, actuarial science and medical science.
Recent events have shone a spotlight on the issue of vaccination, which makes now an opportune time start the conversation. On the one hand, the world desperately awaits a Covid-19 vaccine. On the other, there is a vocal and growing anti-vax movement based largely on “fake news”, which has led to the resurgence of diseases once assumed to be virtually eradicated. These two opposing forces raise many interesting points to be discussed, including the ethics of mandatory vaccination, the financial burden of infectious diseases, and the role the insurance industry has to play in their containment.
The topics in this paper have been examined in a South African context where possible. While incidence of disease, attitudes towards vaccination and resources available may differ between countries, the insurance and ethical concepts considered are universal.
MODEL RISK IN THE TIME OF COVID-19
Idelia Hoberg
October 6, 2020, 1:15 PM – 3:15 PM
Relevant practice area: Enterprise Risk Management
Suggested audience knowledge level: Foundational
One could argue that in the history of the world, it has never before depended on models as much for life and death decision-making as it has during the last couple of months as a result of COVID-19.
Pandemic or epidemiological models have heavily informed governments and driven their decisions with regard to their response to and preparation for COVID-19. These models are used in multiple areas, for example to decide on intervention measures (e.g. length of and easing of lockdown), budgeting for National Treasury, surge / peak planning to determine resource shortfalls and tactical resource allocation. Model risk events in any of these areas can have massive implications for society as a whole.
COVID-19 forecasts are subject to significant uncertainty, given how new this disease is, how different the disease has played out in the various countries and how sensitive the model outputs are to these highly debatable assumptions. As a result, these models have been widely criticized.
Given the above, model risk is very much present in the new reality that we are living in today. What if the models are wrong? How wrong might they be? What if the resulting decisions taken by governments are not optimal? Were the models being used for the various decisions fit for purpose? Did the users really understand the limitations of the underlying model outputs?
This presentation will focus, with reference to and using examples of various COVID-19 models, on why it is important to manage model risk as well as the key principles that need to be adhered to in order to manage model risk, especially where the consequences of not doing so and the uncertainties in the models used are so significant. The proposal is for this to be an interactive session, using Menti to engage the audience.
Key practical outcomes:
- Why do we need to manage model risk?
- How can we manage model risk when dealing with significant uncertainty in assumptions?
- What are the key model risks that need to be taken into account in decision making?
- How managing model risk change in the future as models become more complex?
RECOVERY PLANNING FOR INSURERS
Idelia Hoberg and Herman Kalmer
October 8, 2020, 12:00 PM – 2:00 PM
Relevant practice area: Enterprise Risk Management
Suggested audience knowledge level: Foundational
With “Twin Peaks” or the” Financial Sector Regulation Act” coming into effect in April 2018, the regulatory landscape in South Africa has shifted. The formation of the new Prudential Authority brings together the banking and insurance regulators. These changes are likely to result in some of the requirements for banking groups spilling over to insurance groups. One such requirement is likely to be Recovery and Resolution planning, as globally this is a requirement for Globally Systemically Important Insurers (GSII’s).
The Recovery and Resolution Planning Working Party, which reports to the ASSA ERM Committee, aims to provide society members with:
*Background to RRP in the form of a Research Paper
*Guidance to develop Recovery Plans for Insurers in South Africa including a Recovery Plan Outline / Template
*An sneak peek into the RRP readiness survey which will be conducted within the insurance industry later this year
The Working Party will also engage the regulator to get their views and input throughout the process.
This presentation will focus on sharing the outcomes of the Working Party.
SHOULD INSURERS START OPTIMISING THEIR CAPITAL NOW IN ORDER TO MAINTAIN A CREDIBLE INVESTOR STORY POST IFRS17?
Idelia Hoberg, Ernst Landsberg and Jaco Louw
October 6, 2020, 10:15 AM – 12:15 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Intermediate
South African insurers are generally well capitalised, with significant volumes of discretionary margins in their IFRS reserves and very healthy regulatory solvency ratios. However, given the new balance sheet measurement approach under IFRS17, buffers in reserves will flow through to their IFRS equity upon transition. This will have significant implications for how insurance companies’ performance is viewed by investors from a return on equity (RoE) perspective. In order to avoid a significant reduction in future RoE and consequently in shareholder value, insurers may need to consider a capital optimisation journey leading up to IFRS17, in order to move to a lean but resilient capital base.
To do so, we as an insurance industry will not only have to reconsider how we manage margins in IFRS reserves, but also how we build up resilience in our insurance business in order to ensure that solvency ratios do not constrain release of equity post IFRS17. This will require the use of appropriate decision criteria in order to enable an optimal balance between returns and equity/capital once IFRS17 applies, to ensure that RoE can be managed and maximised now and in the future.
Strategic balance sheet optimisation can enable this, however, it is not something that can be implemented in a short period of time. It requires the development of metrics that are fit for purpose, to get buy-in from all stakeholders who will use these, to setup reporting and monitoring processes and to amend how we measure performance internally. These are required in order to embed capital optimisation into all areas of the business, like product development and pricing, investment decision-making, capital management, business planning and M&As.
In this session, we will outline a range of outcomes by means of a case study of a life insurer under two scenarios:
1) It does not start making changes in its capital management approach under IFRS4 leading up to IFRS17, and
2) It implements strategic balance sheet optimisation techniques, covering assets and liabilities, throughout its IFRS17 implementation journey.
Outcomes:
1) How will IFRS17 impact insurers’ RoE if they do not start implementing changes in capital management now?
2) What does strategic balance sheet optimisation entail, what techniques can be applied and what could the impact of these be following the implementation of IFRS17?
3) How can insurers ensure they maintain a credible investor story post IFRS17?
ESTIMATION OF LIFE TABLES FOR INDIVIDUALS WITH CEREBRAL PALSY IN SOUTH AFRICA
Tashvir Khalawan
Paper with Poster Presentation
October 6 – 8, 2020
Relevant practice area: Damages
Suggested audience knowledge level: Intermediate
A component of the medical negligence litigation process involves calculating the loss of earnings and expected present value of future medical expenses to be incurred for the injured person. Due to the significant extent of the disability, individuals with cerebral palsy are expected to have significantly shorter life spans. Legal teams therefore instruct a life expectancy expert, in South Africa this is typically a paediatrician, to provide a life expectancy estimate. Actuaries are then instructed to use this estimate in their calculations.
Such calculations are a point estimate of life expectancy, either in terms of remaining number of years of estimated survival or percentage of normal mortality. It is left to the actuary’s discretion to formulate a life table to be used in their calculations. Current practice is to adjust a standard table, typically the SALT 84-86 (whites) table, to produce the required life expectancy.
This presentation provides a method to produce full life tables that better fit the unique survival probabilities for individuals with cerebral palsy. The results show that there is a significant difference in the shape of mortality compared to using an adjusted standard table. Due to other factors in the quantum calculation, this results in a difference in the final expected present values for loss of earnings and future medical expenses.
The key practical outcome is that the life tables produced can be used by actuaries who prepare expert reports in cerebral palsy matters.
ASSET ALLOCATION: DEMONSTRATING THE ADVANTAGE OF A SCENARIOS APPROACH
Bhekinkosi Khuzwayo and Teboho Tsotetsi
October 7, 2020, 12:30 PM – 2:00 PM
Relevant practice area: Investments
Suggested audience knowledge level: Intermediate
Asset allocation involves the balancing of portfolio risk vs. return by adjusting the allocation to each asset in an investment portfolio depending on the investor’s risk tolerance, goals and investment time frame. Unfortunately, in times of extreme market stress, traditional asset allocation approaches have continued to fail dismally as the correlations between assets converge to 1.0; limiting the benefits of diversification as noted by Thompson [2016]. The widespread global market sell-off during the COVID-19 pandemic outbreak has put a spotlight on the limitations of traditional asset allocation methods. In this study, we demonstrate the use of a more flexible scenarios approach to asset allocation in the SA market and show that it can lead to superior risk-adjusted returns.
The most widely used method of asset allocation is the mean-variance framework introduced by Markowitz [1952]. However, this framework has numerous shortcomings including the tendency to yield undiversified ‘optimised’ portfolios as highlighted by Michaud [1998].
To counter the shortcomings of mean-variance optimisation, numerous asset allocation methodologies have been introduced including Michaud [1998], Black and Litterman [1992] among others – however, their reliance on historical data in the estimation of inputs renders them impractical for investor implementation.
Purpose of study:
We demonstrate a scenario approach to asset allocation. We apply the approach to the SA market and compare it to traditional approaches in terms of risk-adjusted returns. Our study is similar to the study performed by Gosling [2010].
The major benefit of this approach is the richness of information that it provides and the understanding that it imparts. This is hard to achieve using traditional approaches that generally rely on summary measures of risk and diversification, such as correlations and variance, which tend to miss important information.
The key differentiators of the scenarios approach to asset allocation are:
* It maps uncertainty by describing what could happen,
* It substantially reduces the reliance on historical data,
* It forces the practitioner to consider alternative histories that may not be in the historical data,
* It is much more practical and easier to use for investors.
In this study, we aim to show that:
* the scenarios approach can lead to superior risk-adjusted returns compared to the traditional asset allocation methods,
* the use of the scenarios approach gives investors a more insightful risk management framework by forcing them to consider ‘alternative histories’ which may not have happened before in history.
A CHAIR AT THE TABLE
Panelists: Maude Ledwaba, Colleen Larsen, Takalani Madzhadzhi & Brian Molefe
Chair: Mpho Mtsi
October 7, 2020, 08:30 AM – 09:30 AM
Relevant practice area: Professional Matters
Suggested audience knowledge level: Foundational and Intermediate
We will be unpacking the challenges faced by previously disadvantaged people and women in getting a chair at the senior management table and the pressure of being in that sit once there.
IMPACT INVESTING IN A POST COVID-19 WORLD
Panelists: Elias Masilela, Ndabezinhle Mkhize, Janina Slawski and Zomunoda Chizura
Chair: Darryl Moodley
October 6, 2020, 10:15 AM – 12:15 PM
Relevant practice area: Investments
Suggested audience knowledge level: Intermediate
Impact investors have crucial roles to play in responding to the COVID-19 crisis and helping communities build resiliency across the globe. Importantly, COVID-19 has presented opportunities to adjust and maximise impact activity to respond to the needs of the COVID-19 crisis, and to lay the groundwork for a resilient equitable future economy. During this panel discussion, we will aim to:
- explore with experts in the impact investing industry how they have been responsive to emerging impact investor needs
- discuss the influence COVID-19 has practically had on the impact investment industry
- understand how impact investors have been maintaining and expanding support for existing investee companies
- Understand the prospective investment case for institutional investors to adopt an impact investing philosophy
- explore ideas for creating a more sustainable social and economic system in the future, while still generation commercial returns to investors.
- Assess the unique case of impact investing in South Africa
UNDERSTANDING MEDICAL INFLATION AND THE NET DISCOUNT RATE FOR MEDICAL ITEMS ON DAMAGES CLAIMS
Ndumiso Mavimbela and Elphas Ndou
Paper with Poster Presentation
October 6 – 8, 2020
Relevant practice area: Damages
Suggested audience knowledge level: Intermediate
The amounts of negligence claims against the South African government are projected to rise substantially soon. We argue that the medical inflation should be striped of contributions which are not related to cases, hence there is need to strip out these drivers of medical inflation as per case. In addition, we argue that there is need to determine the stationarity of net discount rate because if rate exhibit a unit root process, then there would be significant forecast error associated with assuming a constant rate. A stationary net discount rate implies the average can be used while nonstationary implies the current value should be used. We also comment on the implied interpretation of stationarity based on some high profile cases. Third, we discuss if the total offset hypothesis is applicable in South Africa. We comment on how recent cases regarding provision as opposed to financial settlement are currently being handled and how this has happened in other jurisdictions.
ACTUARY ON FIRE (FINANCIAL INDEPENDENCE, RETIRE EARLY)
GJ Mellet
October 7, 2020, 12:30 PM – 2:00 PM
Relevant practice area: Retirement Matters
Suggested audience knowledge level: Foundational and Intermediate
The goal of the FIRE movement is to replace cost of living at early retirement. FIRE won’t be possible for the majority but the goal for these members is Financial Independence (FI), i.e. to replace cost of living at retirement. Actuaries, especially consulting pensions actuaries, have the skillset and access to members to actively lead and encourage FI and the FIRE movement. The presentation will consider the impact of the following on the retirement accumulation and harvesting phases:
* The double impact of reducing and maintaining cost of living to below your means (frugality), while increasing retirement funding (surplus from frugality)
* The impact of bringing forward the retirement savings start date
* The impact of delayed retirement.
The above factors will be considered at various levels and for a number of different ages and income bands. The impact will be reflected as the change in the Income Replacement Ratio (IRR) and how long after retirement cost of living can be maintained based on a certain set of assumptions. Consider back-testing of the available FIRE tools and appropriateness of these tools in the current economic environment.
Practical outcomes:
* Is FIRE possible?
* Are FIRE tools used appropriately (past and future)?
* Risks associated with FIRE movement
* Impact on retirement if living below your means (frugality)
* The role of actuaries to promote/stimulate FIRE
* The role of actuaries to promote/stimulate FI for the average member who can’t reach FIRE
ROLE OF CELL CAPTIVE FOR INCLUSIVE INSURANCE
Panelists: Theo Mokgatlhe, Anthony Miller and Matthew Dunn
Chair: David Kirk
October 7, 2020, 08:30 AM – 09:30 AM
Relevant practice area: Micro-Insurance
Suggested audience knowledge level: Foundational and Intermediate
Financial Inclusion is a key objective in building the financial services industry. Expanding access to appropriate and fair insurance products to unserved customer segments is an important part of the financial inclusion agenda. Cell captives can play a role in overcoming some of the barriers in inclusive insurance and supporting the growth of insurance markets. Cell owners may be able to tailor products to meet the needs of the specific customer base and to work with alternative distribution channels to reach unserved customers. The cell route can also be an incubator where cells can develop capacity in the area of insurance and may progress to obtaining a microinsurance license or insurance license over time. Our proposed panel provide perspectives this role from the perspective of the cell captive insurer and cell owner.
The panel will be comprise three speakers: representative of a cell captive insurer, representative of a cell owner and representative from Cenfri providing insights into their research in this area. The following aspects of using cell captive arrangement to support the development of inclusive insurance:
* Benefits, challenges and limitations of using a cell arrangement
* Operations of cells and expectations of cells from cell captive insurers
* Lessons learnt about inclusive insurance in working with cells
* Potential role in the expansion of inclusive insurance in South Africa
* Role of cell captive insurance relative to other insurance structures: microinsurance license, cell-captive microinsurer, insurer-distribution partner
* Wider role of cell captive insurance in supporting the development of insurance in sub-Saharan Africa
Practical outcomes:
* Identify how cell arrangements can ensure that products meet the needs of customers
* Discuss the advantages, risks, challenges and limits of cells for inclusive insurance business
* Understand the expectations of cell captive insurers from potential cell owners
* Consider key questions that an organisation should consider before entering into a cell arrangement
* Assess the advantages and disadvantages of the cell captive approach compared to the microinsurance license and insure-distribution partner approach
CSM.ZA – EXPLORATION OF THE DYNAMICS OF THE IFRS 17 CSM AND ITS APPLICATION IN A SOUTH AFRICAN CONTEXT
Keren Nieuwoudt and Brendon Thorpe
Paper with Presentation
October 6, 2020, 1:15 PM – 3:15 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Intermediate
The CSM will be a critical value in determining the profile of profit recognition of a company under IFRS 17. Unlike the prescriptive compulsory margin approach prescribed by SAP104 there are a number of areas in the practical application of the CSM methodology which are open to interpretation and choice. These can pose a unique challenge to South African Insurers who operate in a high interest rate environment where both premium increase rates and the impact of changes in financial assumptions can be material.
Through our work with the IFoA CSM working group we have gained a global perspective of the challenges facing insurers with respect to the application of the IFRS 17 CSM. Performing our retrospective transition work has highlighted the challenges which have the potential to be uniquely impactful in life insurance markets like South Africa.
In our paper we explore these challenges and discuss potential solutions under a range of relevant scenarios, with a particular focus on the CSM under the General Measurement Model (GMM).
In particular, we discuss the implications of measuring the CSM at initial recognition rates and how this can result in first order earnings volatility through the use of different financial assumptions on the various components of the carrying value of the insurance contract liability. This in turn can lead to potentially material second order earnings volatility driven by differences in the capitalized value of changes in fulfilment cashflows relative to the release of CSM. This is an issue on any life insurance policy but in particular policies with escalating premiums, whether inflation linked or not. We explore how disaggregating insurance finance income and expenses using other comprehensive income (OCI) can be used as a tool to not only mitigate the first order impact, as expected, but also these potentially material second order impacts.
We also discuss the calculation of coverage units with a particular focus on discounting and investigate alternative approaches given the materiality of this decision in high interest rate environments like South Africa.
LETTING THE LIGHT SHINE: WHAT ACTUARIES AND DATA SCIENTISTS CAN LEARN FROM DESIGN THINKING AND THE WORLD OF INNOVATION
Kavi Pather
October 8, 2020, 12:00 PM – 2:00 PM
Relevant practice area: Wider Fields
Suggested audience knowledge level: Foundational and Intermediate
The lightbulb is often thought to be Edison’s most notable invention. However, it is not often understood that his real genius was understanding that it would have no impact without the electrical generation and transmission system, so he invented that too. Edison thought broadly of the invention and conceived of a fully developed market place. This approach is an exemplar of modern innovation practices and what some call ‘design thinking’. Today, these practices have evolved to a much greater maturity and we understand how to innovate reliably in many contexts.
In his masters dissertation, Kavi considers the future of innovation specifically with regard to data science, and by extension actuarial science.
Going beyond the usual A/B testing used in many innovative product management teams, modern data science practices have been used recently to allow innovators to consider many many more solutions to problems and, using artificial intelligence techniques such as neural networks, has helped them find innovative solutions by analogy completely unrelated fields. This is just one example of how data science is changing innovation practices.
On the other hand, there is much that actuaries and data scientists may gain from innovation practices. Applying these techniques is often a useful way to explore the question ‘How might we get more value from our data?’ a common question asked by CEO’s of financial services companies in 2020. The paper discusses these applications but goes further to consider how these techniques will benefit actuaries and data scientists is more day-to-day operations e.g. financial reporting. Case studies of local work that EY has done are used as examples.
Ultimately, in the face of automation, remote work, and other threats to the status quo of actuarial and data science practice, the time to embrace innovation is now. In developing his solution, Edison did more than light the world, he paved the way for generations of innovators. And perhaps now for actuaries and data scientists too.
ACTUARIAL RESERVING USING MACHINE LEARNING TECHNIQUES
Ronald Richman and Caesar Balona
Paper with Presentation
October 7, 2020, 08:30 AM – 09:30 AM
Relevant practice area: Short Term Insurance
Suggested audience knowledge level: Intermediate
Actuarial reserving techniques have evolved from the application of algorithms, like the chain-ladder method, to stochastic models of claims development, and, more recently, have been enhanced by the application of machine learning techniques. Despite this proliferation of theory and techniques, there is little guidance beyond heuristics on which reserving techniques should be applied and when. In this paper, we revisit traditional reserving techniques within the framework of supervised learning to define optimal techniques and hyper-parameter choices. We show that the use of optimal techniques can lead to more accurate reserves and investigate the impact on capital requirements.
Outcomes:
* Attendees will be introduced to the main ideas of machine learning, such as predictive accuracy and loss functions.
* We will also cover several different IBNr reserving techniques
* By understanding and using the framework we present, attendees will be potentially able to increase the predictive accuracy of their reserving work.
DISCRIMINATION-FREE INSURANCE PRICING
Ronald Richman
Paper with Presentation
October 8, 2020, 08:30 AM – 09:30 AM
Relevant practice area: Short Term Insurance
Suggested audience knowledge level: Intermediate
We consider the following question: given information on individual policyholder characteristics, how can we ensure that insurance prices do not discriminate with respect to protected characteristics, such as gender? We address the issues of direct and indirect discrimination, the latter meaning that we can learn protected characteristics from non-protected ones. We provide rigorous mathematical definitions for direct and indirect discrimination, and we introduce a simple formula for discrimination-free pricing, that avoids both direct and indirect discrimination. Our formula works in any statistical model. We demonstrate its application on a health insurance example, using a state-of-the-art generalized linear model and a neural network regression model. An important conclusion is that discrimination-free pricing in general requires collection of policyholders’ discriminatory characteristics, posing potential challenges in relation to policyholder’s privacy concerns.
– An overview and definition of discrimination in insurance pricing will be provided
– Methods for removing unwanted discrimination from pricing models will be discussed an illustrated
– Participants will come away with a deeper appreciation for the factors at play when considering discrimination in insurance pricing
– In addition, machine learning methods will be demonstrated in the presentation and paper.
MORTALITY IMPROVEMENTS IN SOUTH AFRICA: INSIGHTS FROM PENSIONER MORTALITY
Ronald Richman and Gary Velcich
Paper with Presentation
October 8, 2020, 12:00 PM – 2:00 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Intermediate
The study of mortality improvements in South Africa has been complicated by data limitations: from a population perspective, the data are incomplete and misreported whereas company data often span short time periods and exhibit significant heterogeneity. Notwithstanding these issues, accurate quantification of mortality improvement is critical for actuarial valuations of life insurers and pension funds. In this study, we analyse a unique pensioner dataset, covering the years 2000-2019, through the dual lenses of traditional actuarial analysis as well as deep learning techniques. We report on aggregate mortality improvements, as well as how mortality improvements differ depending on gender, pension amount, industry, access to medical aid and location within South Africa, and show the estimated impact of the observed improvements on pension liabilities. Finally, we calibrate models to provide uncertainty around the estimated mortality improvement rates, to benchmark the SAM longevity stress and provide a basis for IFRS 17 risk adjustment calculations.
Outcomes:
– Attendees will leave with knowledge of the current mortality improvement experience in South Africa.
– This will be helpful across a range of practice areas – retirement/life insurance/damages.
– Also, the participant’s knowledge of mortality improvement modelling will be enhanced.
WHY IS THE HAF NOT THE HEAD OF THE ACTUARIAL FUNCTION?
Ronald Richman, Edmond Vigoureux, Nicolai von Rummell and Mike Ilsley
Paper with Presentation
October 7, 2020, 12:30 PM – 2:00 PM
Relevant practice area: Professional Matters
Suggested audience knowledge level: Intermediate
In this paper we investigate the role of the Head of the Actuarial Function (HAF) and its implementation in the South African Insurance market, two years after the passing of the new Insurance Act in 2017. We compare the current role in South Africa to actuarial roles in other jurisdictions and the prior statutory actuary role based on the Long-term Insurance Act. Based on an industry survey we highlight the differences in the interpretation and implementation of the role in different segments of the market. We discuss areas that have been problematic when embedding the HAF role in an organisation and investigate those from a professional, organisational and regulatory perspective. Based on this analysis we propose best practices for the implementation of the HAF role including a minimally compliant interpretation for smaller insurers and outline how the role can be interpreted or changed to achieve further improvements for the South African insurance market.
Outcomes:
– Participants will have a good overview of the HAF role in South Africa, as well as comparable roles overseas
– The industry viewpoint on the role will be presented
– Some of the pitfalls and recommended resolutions will be covered
– Attendees will leave with increased knowledge of the HAF role and how this can be implemented successfully.
CAUGHT IN THE PERFECT STORM, DO WE THROW A LIFE LINE TO CURRENT INCOME PROTECTION PRODUCTS OR RATHER BUY A NEW BOAT?
Bruce Robertson and Zandile Gobe
October 8, 2020, 08:30 AM – 09:30 AM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Foundational
Income protection products face an uncertain future. Caught in the perfect storm of a pandemic tsunami, economic jagged rocks, leaks in the once water-tight design and a probable retrenchment flood, the future of this product as the life boat of South African private social security hangs in the balance.
This presentation covers a series of factors that have led to this perfect storm for disability products in South Africa. It includes product design characteristics, economic influences as well as views relating to the effect of COVID 19 and the recent credit rating downgrades. The discussions had will help the audience determine whether recent events require a major overhaul of these products.
Key Outcomes:
* Gain an understanding of disability product design in South Africa – and its short comings
* Investigate the traditional but find and discuss new drivers of experience
* Determine to what extent external factors influence the viability of disability products in South Africa altogether
* Dig deep into the changing workplace and the future relevance of a product designed to pay out on occupation
* Ponder the possibility of what a replacement vehicle could look like
MODELLING COVID-19 IN SOUTH AFRICA AT A PROVINCIAL LEVEL
Louis Rossouw
Paper with Presentation
October 6, 2020, 10:15 AM – 12:15 PM
Relevant practice area: Data Analytics
Suggested audience knowledge level: Foundational and Intermediate
This paper documents a model of the COVID-19 epidemic in South Africa. Mobility data is used to model the reproduction number of the COVID-19 epidemic over time using a Bayesian hierarchical model. This is achieved by adapting the work in by Imperial College London researchers for South Africa. In this case the model is calibrated to excess deaths and not case counts or reported COVID-19 deaths. The model uses mobility movement indexes by province produced by Google. Furthermore, the model includes a fixed effect for interventions introduced at the start of level 4 lockdown. The model and report are automatically generated on a regular basis using R. This version contains data available on 18 August 2020 however the model and report is updated regularly.
IMPLEMENTING ANALYTICS IN LIFE: END TO END EXAMPLE OF THE APPLICATION OF MACHINE LEARNING IN A LIFE INSURANCE COMPANY
Adriaan Rowan and Valerie du Preez
October 8, 2020, 08:30 AM – 09:30 AM
Relevant practice area: Data Analytics
Suggested audience knowledge level: Intermediate
Goal of the workshop is the give a practical example of an end-to-end data analytics project implementation.
Many workshops and presentations on analytics are either theoretical or use data from other industries to try and illustrate the benefits in a life insurance context. This leaves the audience often feeling like saying “so what”
This presentation aims to show the actual pricing of a GLA book using life insurance data. The presentation will show each step from importing and cleaning, model building and testing, to visualisation, interpreting and implementation. By doing this, the presenters aim to show the benefit of using analytics over traditional A/E methods. Instead of a detailed coding deep-dive, a high-level show and tell will be followed, in order to cover each of the main steps in the process.
The presenters will also discuss the strategic steps a life company can follow to turn their actuarial function into a team that can focus on analytics that delivers data-driven insights. This aims to give chief actuaries; CFOs and data officers the comfort of knowing that data analytics does not require a redesign of the data and actuarial teams, but can grow organically out of existing resources.
REGULATING SOUTH AFRICA’S RETIREMENT FUNDS: THE CASE FOR CLEARER OBJECTIVES
Rob Rusconi
Paper with Presentation
October 8, 2020, 12:00 PM – 2:00 PM
Relevant practice area: Retirement Matters
Suggested audience knowledge level: Intermediate
The rationale for regulating financial markets rests on a combination of their considerable complexity and their importance to society. Retirement funds are worthy of special regulatory attention because of the substantial role that they play in the lives of individuals and in society more broadly. This provides, in turn, strong rationale for the requirement that the system under which retirement funds are regulated is underpinned by a transparent, publicly-stated set of objectives.
This study builds the position that the objectives underpinning the regulation of South Africa’s retirement funds are stated with inadequate clarity. This in turn reduces the transparency and potentially the effectiveness with which this regulation is undertaken. It is the contention of the study that the most significant stumbling block to the development of sound regulatory objectives is the absence of clear policy direction regarding the role of retirement funds industry within the wider strategy for social security. The regulatory authority nevertheless has the mandate to make a considerable difference to the effectiveness with which the interests of retirement-fund members are looked after by the trustees of these funds and their service providers.
THE CONTRIBUTION OF SOUTH AFRICA’S INSURERS TO SYSTEMIC RISK: THOUGHTS FOR POLICYMAKERS
Albie Sachs and Lwando Xaso
Plenary Address
October 7, 2020, 2:30 PM – 3:30 PM
Although Justice Albie Sachs and Lwando Xaso were only introduced four years ago, they have always been somehow connected. At the core of their connection is their shared respect for the South African Constitution and the Constitutional Court. They have both served the Constitutional Court albeit at different times and in different capacities, one as an esteemed judge and the other as a law clerk. As a law student, Lwando admired Justice Sachs from afar and today because they are both involved in an historically significant project on Constitution Hill, they are colleagues and friends. From their intergenerational conversation you can gain insight into the following
-How does change happen?
-What makes South Africa great despite its challenges
-How each of us can serve our country as changemakers, from actuarial scientists to lawyers to creatives – we all have a role to play
THE CONTRIBUTION OF SOUTH AFRICA’S INSURERS TO SYSTEMIC RISK: THOUGHTS FOR POLICYMAKERS
Rob Rusconi
Paper with Poster Presentation
October 6 – 8, 2020
Relevant practice area: Enterprise and Risk Management
Suggested audience knowledge level: Intermediate
Such is the importance of financial markets and such is the potential impact of their failure on entities and households well outside these markets that careful regulation of these markets is called for. This regulation should be based on the foundation of a clearly-written publicly-stated set of objectives. One of these objectives ought to be the mitigation of systemic risk, that is the risk that the actions of a financial-sector entity could trigger widespread damage to large parts of the financial markets and to the real economy. Establishing and utilising an appropriate mix of regulatory methods, however, is rendered extraordinarily challenging by the intrinsic complexity, delicacy even, of these markets. This paper explores these issues, applies them to insurance markets, in general and then in South Africa, and asks whether more could be done by South Africa’s insurance regulators to mitigate the risk of systemic risk attributable to the country’s insurers.
WORTH MORE DEAD THAN ALIVE
Brice Salence and Pedri le Roux
October 6 – 8, 2020
Relevant practice area: Life Insurance
Suggested audience knowledge level: Foundational
Suicide claims contribute to one of the leading claim cause categories, unnatural claims, in retail life insurance policies. The traditional approach to managing this risk is to underwrite policyholders both medically and financially and rely on a 2 year exclusion clause. Recently, there has been a general increase in suicide claims and more notably an increase in suicides with no clear history of pre-diagnosed mental illness. This leads us to question the current underwriting and risk management approach to suicide. It prompts us to delve into this sensitive area in more detail and to possibly find more optimal solutions to underwriting, particularly relevant today, where mental health care awareness is increasingly becoming a focus in view of the new pandemic world, following lockdowns and economic downturns.
The presentation will focus on the following:
Highlight the trend over time in suicide claims, and pose possible ways this could evolve due to the COVID pandemic.
Outline the recent phenomena of suicides that appear to be linked heavily with other distresses rather than a formally diagnosed mental health condition. This probes into a sensitive topic with a look at the medical slant, with input from medical experts.
Cover current risk mitigation options being used in South Africa, including how suicide risk is underwritten medically and financially. Suicide exclusion clauses will also be covered, including the history of the clause, the wording and how these compare to other markets.
Potential impacts of not changing our current process to pricing and underwriting, including costs, reputational issues and TCF principles. Possible solutions will be proposed, including exploring mental health campaigns that are increasingly being included in life insurance or wellness offerings.
Practical Outcomes
We aim to bringing to light the increasing trend in suicides, particular for those with no formally diagnosed mental illness history, in the South African life insurance environment. The audience will gain a deeper understanding of the very sensitive topic of suicide risk and how the risk is currently mitigated, this will be contrasted and compared to other global market practices.
By delving into the current practices, we aim to uncover whether we need to reconsider the current environment and if so, present a view to looking to action ethical solutions.
THE FUTURE IS AFRICAN: HOW TO AVOID THE PITFALLS, AND THRIVE WORKING THROUGHOUT AFRICA
Panelists: Takalani Sikhavhakhavha, Norman Kelly, Wycliffe Obutu and Moses Mutuli
Chair: Giles Waugh
October 8, 2020, 12:00 PM – 2:00 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Foundational
For many years, and now exacerbated by CoViD19, the world has struggled for economic growth. Many businesses have expanded into new markets to chase the inflation-beating returns that they so desire. Africa is an attractive proposition, and there is still large un-tapped potential within largely uninsured populations.
However, investing through Africa can come with many pitfalls that must be navigated. We aim to showcase learnings from decades of work across the continent in various capacities. These include; statutory/appointed actuary, internal actuarial function, auditor, due diligence and trusted business advisor.
Our panel will include experienced actuaries from South Africa, and across the rest of the continent that will share their experience and views on the future.
Panel to include representatives from Tier 1 SA insurer, Reinsurer, Consulting, Due Dilligence.
UNIVERSAL LIFE – A BOILING FROG PROBLEM?
Paul Truyens and Mike McDougall
Paper with Presentation
October 6, 2020, 1:15 PM – 3:15 PM
Relevant practice area: Life Insurance
Suggested audience knowledge level: Foundational
Universal Life policies dominated the market during the 1980’s and 1990’s. They introduced flexibility to the market as they replaced traditional with-profit reversionary bonus and unit linked endowment products. However this paper puts forward the argument that the industry, and by implication the actuaries involved did not use this flexibility to alleviate the negative consequences to policyholders of the steady and permanent reduction in investment returns that started with the birth of the new South Africa in 1994.
This paper is in three sections. Firstly, the review of the history and evolution of universal life policies as they evolved from being a vehicle for predominately savings purposes to dominating the risk cover market.
The second and most significant section focuses on the performance of these products and the impact on policyholders. While universal life policies introduced flexibility, they also transferred more of the risk of investment under performance from the insurer to the policyholder, than had been the case under the products that they replaced. The products were introduced during a period of sustained double digit nominal yields.
Once the whole life version of product had replaced the traditional re-inforced reversionary bonus policies as the most affordable risk policies, they were subject to intense price competition with the underlying investment growth assumptions becoming more and more optimistic, combined with ever shortening guarantee periods. The guarantee period being the term during which the insurer could not increase premiums to offset deteriorating investment performance. Any shortfall in performance would be carried forward to after the expiry of the guarantee period.
However, with declining inflation, economic and political challenges and the increased exposure to global markets, nominal yields fell to levels where policies were no longer earning the returns required to sustain themselves for the full policy term.
After the completion of the guarantee period and at regular intervals thereafter, insurers were able (and in some versions contractually promised) to review the policies and recommend premium or cover changes to ensure the policies remained sustainable and solvent. In practice few companies conducted these reviews until the value of the policy went negative. At this point the level of premium increase required to sustain the policy would be substantial. The paper models some options based on actual returns earned over the period.
The third section questions whether actuaries involved with universal life business fulfilled their professional obligations.
THE FUTURE ISN’T WHAT IT USED TO BE
Leon Wessels
October 6, 2020, 3:45 PM – 4:45 PM
Relevant practice area: Transformation
Suggested audience knowledge level: Foundational
BEYOND COVID-19: Mending fences between citizens and building bridges across old divides. The future is not what it used to be: we are not the equal, caring society we had hoped to be.
• Leaders have to promote the values of dignity, inclusivity and service in the spirit of our Constitution.
• We are charged (everyday) to overturn old embarrassments and embrace new opportunities.
• It’s time to overpower old ghosts.
ASSA ONLINE EXAMS: A DRAMA, A COMEDY, A THRILLER
Jeanine Wilson and Crystal Ham
October 7, 2020, 12:30 PM – 2:00 PM
Relevant practice area: Education
Suggested audience knowledge level: Foundational
The COVID-19 pandemic has caused a number of changes globally and one such change was the way that ASSA conducted the first semester exams of 2020. This presentation will provide information to the audience on these exams. The presentation will include:
- Details of what the online exam session actually looked like. Including details of what online exams entail and what was expected of students (there were requirements of mirrors and cameras)
- Details of some of the issues experienced and learnings from writing online exams
- Preparations and meetings that went into deciding how to handle these exams
- A summary of the results of the survey that went out to students prior to the exam
- Some information on the marking process, details on how this differed to previous sessions and additional investigations done to highlight cheating and to cater for IT issues.
- A summary of the results and a comparison to previous sessions
- Student feedback highlighting good and bad experiences.