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SA long-term valuation bases

This presentation to ASSA members, delivered on October 7th and 9th, 2003, in Johannesburg and Cape Town, focuses on the long-term insurance market in South Africa for the year 2002. It presents the FSB's data, outlines industry trends in statutory returns, and reviews key valuation assumptions, including management actions that reduced the capital adequacy requirements (CAR) for insurers. Additionally, the discussion covers mortality rates, morbidity trends, and other valuable indicators impacting the insurance landscape.

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SA long-term valuation bases

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Presentation Transcript

  1. SA long-term valuation bases Presented to ASSA members 7 October 2003 – Johannesburg 9 October 2003 – Cape Town

  2. Why are we here? • Display the information at the FSB’s disposal. • Orientate members as to the industry trends in statutory returns.

  3. What will we show you? • Give you brief overview of the LT Insurance market in 2002. • Discuss the impact of management action to reduce the CAR of insurers. • Review some valuation assumptions in the LT2000 and compare these with the resulting AOS.

  4. Overview of LT Insurance market in 2002

  5. Overview of LT Insurance market in 2002 • FSB classification: • G – General insurers (30 active in 2002) • L – Linked insurers (12 active in 2002) • R – Reinsurers (5 active in 2002) • A – Assistance insurers (6 active in 2002) • N – Niche insurers (7 active in 2002) • C – Cell captive insurers (4 active in 2002)

  6. Overview - some key indicators

  7. Overview – where are the assets invested?

  8. Overview – where are the assets invested?

  9. Overview - the liabilities and CAR…

  10. Overview – remarks • Industry funding factor of 1.11 (excluding CAR). • Industry funding factor of 1.06 (including CAR). • Industry CAR cover of 2.18.

  11. Management action in CAR

  12. Management action in CAR • For the top 10 insurers, management action was used to reduce the investment resilience risk in the CAR by 65%. • We acknowledge the freedom of PGN104 in setting CAR requirements but we contrast this with the need for a prudent approach when setting statutory reserves.

  13. Management action in CAR • Types of management actions used by the 10 biggest general insurers: • Removal of non-vested bonuses. • Removal of interim bonuses. • Declaration of lower future bonus rates. • Reduction in surrender values. • Revision of mortality and expense charges. • Reduction in second tier margins.

  14. Valuation assumptions in the LT2000

  15. Valuation assumptions in the LT2000 • The results we are about to show represent a mix of greatly different insurers. • The dangers of interpreting industry results should be kept in mind. • We suggest the results to be an orientation exercise and nothing more.

  16. Mortality - Assurance • Most popular table is the SA85/90. • SA72/77, SA56/62 and internal experience are also used. • The types of adjustments vary: • A form of proportional adjustment is most popular. • The addition of constants and age adjustments are also used.

  17. Mortality - Assurance • The following is separate weighted average mortality rates for males and females as disclosed in statement G11. • Used a benchmark of SA85/90 ultimate 100% heavy to place weighted rates in perspective.

  18. Mortality – Assurance males (Linear scale)

  19. Mortality – Assurance females (Linear scale)

  20. Mortality – Assurance males (Log scale)

  21. Mortality – Assurance females (Log scale)

  22. Mortality - Annuities • Most popular table is a(55). • SA56/62, PA(90) and own experience are also used. • The types of adjustments vary: • A form of proportional adjustment is most popular. • Improvement in mortality rates in the future and age adjustments are also used. • Used a benchmark of a(55) to put weighted average rates in perspective.

  23. Mortality – Annuities males (Linear scale)

  24. Mortality – Annuities females (Linear scale)

  25. Mortality – Annuities males (Log scale)

  26. Mortality – Annuities females (Log scale)

  27. Mortality – AOS results

  28. Morbidity – Income disability • Most popular table is GLTD. • SA85/90 and own experience are also used. • A proportional adjustment is often used. • Data for lump sum disability was fragmented. • We decided to omit results for lump sum disability.

  29. Morbidity – Income disability males (Linear scale)

  30. Morbidity – Income disability females (Linear scale)

  31. Morbidity – Income disability males (Log scale)

  32. Morbidity – Income disability females (Log scale)

  33. Morbidity – AOS results

  34. Discount rates • Observed rates from 6% to 18% between the classes of business. • Observed inflation assumption between 2% and 11%. • Weighted average inflation assumption of 9.6%.

  35. Discount rates

  36. Discount rates – AOS results

  37. Expenses – Variable costs

  38. Expenses – Fixed costs

  39. Expenses – AOS results

  40. Lapse and surrender rates – Recurring premium

  41. Lapse and surrender rates – Single premium

  42. Questions? Thank you for your time Contact details: Hantie van Heerden (012) 422 2801 hantiev@fsb.co.za André Jansen van Vuuren (012) 428 8103 andrej@fsb.co.za

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