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Overview of the Experience of Long-term Insurers in SA for 2008. Tienie Hamman 17/19 November 2009. Why are we here?. - PowerPoint PPT Presentation
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Tienie HammanTienie Hamman
17/19 November 200917/19 November 2009
Overview of the Experience of Long-term Insurers in SA for
2008
FinancialServices
Board
2
17/19 Nov 2009
To provide information to industry on representative SA Statutory Valuation
Method bases reported in 2008, including comparisons with previous years’ data and some comparisons with actual experience.
Why are we here?
FinancialServices
Board
3
17/19 Nov 2009
● Brief overview of the LT insurance market in 2008
● Review the representative:○ Reported valuation assumptions (G10.x) and○ Reported actual experience (B - statements) for certain key
elements in a valuation basis
What will we show you?
FinancialServices
Board
5
17/19 Nov 2009
Overview: Rankings
1110101.2%LinkedCoronation Life
9991.4%TypicalCapital Alliance Life
7782.9%LinkedInvestec Assurance
8873.0%LinkedAllan Gray Life
6664.5%TypicalMetropolitan Life
5559.4%LinkedInvestment Solutions
34411.3%TypicalLiberty Life
43313.0%TypicalMomentum
22215.7%TypicalSanlam
11126.6%TypicalOld Mutual
200620072008
Rank on Assets% of
Market
Assets
IndustryInsurer
1110101.2%LinkedCoronation Life
9991.4%TypicalCapital Alliance Life
7782.9%LinkedInvestec Assurance
8873.0%LinkedAllan Gray Life
6664.5%TypicalMetropolitan Life
5559.4%LinkedInvestment Solutions
34411.3%TypicalLiberty Life
43313.0%TypicalMomentum
22215.7%TypicalSanlam
11126.6%TypicalOld Mutual
200620072008
Rank on Assets% of
Market
Assets
IndustryInsurer
FinancialServices
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17/19 Nov 2009
Overview: Number of insurers & total assets, split by year-end
4
1113
14
6
32
10
1000
Feb Mar Jun Jul Aug Sep Nov Dec
Month of year-end
As
se
ts in
R'b
n
05
10152025
3035
Nu
mb
er
of
ins
ure
rs
Total assets Number of insurers
FinancialServices
Board
7
17/19 Nov 2009
Overview: Business class
R268bn premiums | R265 bn benefits | R1,215 bn assets
0
50100
150
200
With-profitbusiness
With-profitannuities
Without-profit
annuities
Linked Marketrelated
OtherPrem
ium
s an
d be
nefit
sR'
bn
0100200300400500600
Asse
ts R
'bn
Gross premiums Gross benefits Total Assets
FinancialServices
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17/19 Nov 2009
Overview: Insurance license
R289 bn premiums | R280 bn benefits | 93% retention
4 5 3
129
42 3 1
106
7
144160
020406080
100120140160
Assistance Disability Fund Health Life SinkingFund
R'b
n
Gross premiums Gross benefits
FinancialServices
Board
9
17/19 Nov 2009
Overview: Growth per business class
Growth from 2007 to 2008 per type of business
123%
28% 19%14%0%
20% 15% 16%14%-1%-18%
15%4%-13% -2% -3%0%
-14%
-45%
5%
55%
105%
155%
With-profitbusiness
With-profitannuities
Without-profitannuities
Linked Market related Total
Gross premiums Gross benefits Total Assets
FinancialServices
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17/19 Nov 2009
Overview: Growth by license
Growth from 2007 to 2008 by type of licence
19%
24%
11% 12%
18%18%
6% 5%8%
15%
-10%
24%
-22%
24%
-25%
-15%
-5%
5%
15%
25%
Assistance Disability Fund Health Life SinkingFund
TotalGross
Gross premiums Gross benefits
FinancialServices
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11
17/19 Nov 2009
Overview: Key indicators
Amounts in R’bn 2008 2007 2006 2005
Total assets 1,340 1,391 1,281 1,069
Total liabilities 1,240 1,282 1,170 975
Excess assets 100 109 111 94
CAR before management action
76 79 69 65
CAR after management action
32 31 29 27
Funding factor (excl. CAR)
1.08 1.08 1.10 1.10
CAR Cover 3.14 3.45 3.89 3.48
CAR after / CAR before
42% 40% 42% 41%
FinancialServices
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12
17/19 Nov 2009
Overview: Key indicators
IndustryTotal R'bn 2008
Total R'bn 2007
Total R'bn 2006tt ll rr aa nn cc
Number of active insurers
24 13 5 10 9 7 68 70 73
Net new premiums received
56.9% 41.3% 0.8% 0.3% 0.3% 0.5% 218 183 177
Net total premiums received
63.4% 33.6% 1.6% 0.3% 0.3% 0.7% 268 228 220
Net benefits paid 65.7% 32.5% 0.9% 0.3% 0.3% 0.2% 265 231 210
Acquisition expenses 92.3% 1% 2.1% 0.9% 0.9% 3% 19 17 16
Operational expenses 93.3% 2.1% 1.7% 0.9% 0.6% 1.1% 14 13 13
FinancialServices
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17/19 Nov 2009
Overview: Asset composition per industry
Asset classes t l r a n c All
Equities 38% 48% 1% 4% 45% 7% 39%
Fixed interest 25% 9% 72% 0% 27% 30% 23%
CIS 14% 16% 1% 22% 6% 16% 15%
Cash 10% 17% 11% 39% 20% 35% 11%
Property 5.5% 0.3% 0% 0.2% 0% 0% 4.4%
Other 8% 9% 15% 34% 2% 12% 8%
Total 100% 100% 100% 100% 100% 100% 100%
Investment Yield
-1.5% 5.5% 10.9% 2.2% -4.8% 8.7% -0.4%
Total Assets (R'bn)
1,058 258 9 1 9 4 1,340
FinancialServices
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17/19 Nov 2009
● In the graphed rates, we tried to determine representative mortality rates
● For assured lives we used 100% of the SA85/90 (heavy) ultimate table to place weighted rates into perspective
● For annuitants we used 100% of the a(55) table to put weighted average rates into perspective
Mortality
FinancialServices
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17/19 Nov 2009
Assurance mortality
Male smokers without AIDS loading
0.001
0.01
0.1
1
20 25 30 35 40 45 50 55 60 65 70 75 80
a
c
l
n
r
t
SA85-90(Heavy)
FinancialServices
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17/19 Nov 2009
Change in mortality of assured lives
Smokers without AIDS loading
104%106%108%110%112%114%116%118%120%122%124%126%
Males
Females
FinancialServices
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17/19 Nov 2009
AIDS loading comparison
Mortality for assured lives - male smoker
0%
50%
100%
150%
200%
250%
300%
20 25 30 35 40 45 50 55 60 65 70
2008
2007
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17/19 Nov 2009
AIDS loading by industry
Mortality of assured lives - male smoker
0%
50%
100%
150%
200%
250%
300%
350%a
c
l
n
r
t
FinancialServices
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17/19 Nov 2009
Annuitant mortality by industry
Male smoker without AIDS loading
0.001
0.01
0.1
1
1
a
l
n
r
t
a(55)
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17/19 Nov 2009
Change in mortality of annuitants from 2007 to 2008
0%
20%
40%
60%
80%
100%
120%
140%
160%
Males
Females
FinancialServices
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17/19 Nov 2009
Mortality: Actual vs. expected
● For assurance products:○ Individual: 83% (81%)○ Group: 89% (94%)
● For annuity products:○ Individual: 115% (114%) ○ Group: 97% (88%)
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17/19 Nov 2009
Morbidity: Actual vs. expected
● For lump sum disability:○ Individual: 74% (75%)○ Group: 66% (65%)
● For income disability:○ Individual: 42% (28%)○ Group: 68% (74%)
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17/19 Nov 2009
Page 25
Assumed central discount rate
Individual Business
Other
Market
Linked
Without-profit annuities
With-profit annuities
With-profit business
5%
6%
7%
8%
9%
10%
11%
12%
Ce
ntr
al D
isc
ou
nt
Ra
te
2006 2007 2008
FinancialServices
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17/19 Nov 2009
Observed investment yieldIndividual Business
With-profit business
Market
Without-profit annuities
Linked
With-profit annuities
Other
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%In
ve
stm
en
t Y
ield
2006 2007 2008
FinancialServices
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17/19 Nov 2009
Investment yield assumed vs. actual
Individual Business
Other
Market
Linked
Without-profit annuities
With-profit annuities
With-profit business
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
% Y
ield
Investment Yield 2008 Central Discount Rate 2007
FinancialServices
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17/19 Nov 2009
Cumulative distribution of assumed real returns
% of Companies that assume specific real rates of interest in the valuation as at 2007 and 2008 respectively
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
<0.5
%
<1.0
%
<1.5
%
<2.0
%
<2.5
%
<3.0
%
<3.5
%
<4.0
%
<4.5
%
<5.0
%
<5.5
%
<6.0
%
<6.5
%
<7.0
%
<7.5
%
<8.0
%
<8.5
%
<9.0
%
<9.5
%
<10.
0%
<10.
5%
<11.
0%
% o
f C
om
pan
ies
2007 2008
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17/19 Nov 2009
Split of expense experience(Statement C7)
Split of expense losses between individual business, group business and shareholders
15%13%
-18% -33%
74% 82% 103% 129%
13% 14% 3%3%
-50%
0%
50%
100%
150%
2005 2006 2007 2008
Individual Business Group Business Shareholders
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17/19 Nov 2009
Expense inflation assumption
Individual Business
9.0% 9.5%
7.0% 7.0%8.0%
9.5%
2.0%
5.0%3.4% 3.9% 3.5% 4.0%
9.6%
7.2%
5.0% 5.5% 5.8% 6.0% 6.1%
11.0%
4.0%
0.0%2.0%
4.0%6.0%8.0%
10.0%12.0%
2002 2003 2004 2005 2006 2007 2008
Exp
ense
Infla
tion
Maximum Minimum Weighted Average
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17/19 Nov 2009
Actual expense inflation
9%
22%
4%
21%
8%
21%
3%79%
Individual Business
12.9
5.2
13.5
6.3
14.7
7.7
15.6
8.7
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Total Acquisition Expenses Total Operating Expenses
R'b
n
2005 2006 2007 2008
21%4%
9%7%
3%21%
22%13%
FinancialServices
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17/19 Nov 2009
Initial per policy expense assumption
Initial Expenses for Recurring Premium Policies (Individual Business)
Linked
With-profits Market-related Other
R 600
R 900
R 1,200
R 1,500
R 1,800
R 2,100
R 2,400
R 2,700
R 3,000
R 3,300
2005 2006 2007 2008
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17/19 Nov 2009
Actual initial expense(individual business)
Industry Average initial
expenseper new policy
Average premium per new policy
Average initial
expense as a % of
average recurring premiumRecurring
Non-recurring
Assistance business R 272 R 776 R 42,689 35%
Cell captives R 1,320 R 557 R 14,483 237%
Linked insurers R 9,052 R 2,762 R 595,149 328%
Niche insurers R 127 R 596 R 551 21%
Typical insurers R 1,582 R 1,425 R 289,648 111%
All R 1,458 R 1,356 R 69,391 107%
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Renewal expense assumption(per policy)
Renewal per Policy Expense (Individual Business)
Recurring premium policies
Single premium policies
Paid-up policies
Disability income policies in payment
Annuities in payment
R -
R 100
R 200
R 300
R 400
R 500
R 600
2005 2006 2007 2008
FinancialServices
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17/19 Nov 2009
Actual operating expense(individual business)
Industry
Average Operating Expense
per policy
Operating Expenses as % of
Total Net Premium
2008 2007 2006 2008 2007 2006
Assistance business R 122 R 76 R 42 21% 8% 17%
Cell captives R 544 R 994 R 114 11% 11% 5%
Linked business R 462 R 420 R 303 0% 0% 0%
Niche insurers R 21 R 24 R 22 6% 10% 7%
Typical insurers R 259 R 280 R 255 8% 7% 7%
All R 239 R 252 R 226 7% 7% 6%
FinancialServices
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17/19 Nov 2009
Overview – CAR cover
-
1
2
3
4
5
6
7
8
9
1 10 100 1,000 10,000 100,000 1,000,000
Assets (Rm) Log scale
CA
R C
over
Reinsurance Niche Linked Cell Assistance Run-off Typical
● Total CAR is 2.56% of total liabilities
● This is a 4.36% increase from the previous year
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17/19 Nov 2009
Distribution of CAR
82.9%
1.1%16.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
MCAR TCAR OCAR
% of Active Insurers (2008) % of Total CAR (2008)% of Total CAR (2007)
FinancialServices
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17/19 Nov 2009
TCAR Breakdown
37%
63%
0%
10%
20%
30%
40%
50%
60%
70%
Lapse Risk Surrender Risk
2006 2007 2008
FinancialServices
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17/19 Nov 2009
IOCAR Breakdown – Dec year-ends
-60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0%
Lapse Risk
Surrender Risk
Fluctuation Risk
Assumption Risk
Investment Risk
Credit Risk
Negative BSR
Operational Risk
Other risks
Diversification factor
FinancialServices
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17/19 Nov 2009
● Operational risk
○ Total amount of ± R4.6bn
○ Comprises 17% of total CAR held
○ Comprises 0.5% of total Assets
● Credit risk
○ Total amount of ± R2.9bn
○ Comprises 10.7% of total CAR held
○ Comprises 0.3% of total Assets
Operational and Credit risk
FinancialServices
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17/19 Nov 2009
Reduction in CAR by using Management action - over time
0%
10%
20%
30%
40%
50%
60%
a c t n l r run-off all
2006 2007 2008
FinancialServices
Board
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17/19 Nov 2009
Proportion of insurers applying management action
Industry
Number of insurers
using management
action
Total number of insurers
Proportion
Assistance 1 10 10%
Captives 4 7 57%
Niche 2 9 22%
Linked - 13 -
Typical 12 24 50%
Reinsurers 1 5 20%
Run-off 1 4 25%
Total 21 72 29%
FinancialServices
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17/19 Nov 2009
● TCAR wasn’t reduced by management action
● Elements of OCAR reduced:
○ Investment risk – reduced by 66%
• Worst investment return – reduced by 42%
• Resilience risk – reduced by 66%
○ Annuitant mortality fluctuation risk – reduced by 12%
○ Morbidity fluctuation risk – reduced by 11%
○ Operational risk - reduced by 3%
○ Credit risk – reduced by 23%
○ No reduction in Embedded Investment Derivatives Component
Management Action
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17/19 Nov 2009
Assumed lapses per business class
Individual Business
0%
5%
10%
15%
20%
25%
30%
1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd
With-Profit business Linked Market related Other
Assu
med
Lap
se R
ate
2005 2006 2007 2008
FinancialServices
Board
48
17/19 Nov 2009
Assumed surrenders per business class
Individual Recurring Premium Policies
0%
5%
10%
15%
20%
25%
2007 2008 2007 2008 2007 2008 2007 2008
With-Profit business Linked Market related Other
Ass
um
ed S
urr
end
er R
ate
FinancialServices
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17/19 Nov 2009
Assumed lapses per industry
Other Individual Business
0%
10%
20%
30%
40%
a c n t
Assu
med
Lap
se R
ate
1st year 2nd year 3rd year
FinancialServices
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17/19 Nov 2009
Observed withdrawals per industry
Individual Business
0%
10%
20%
30%
40%
a c g l n All a c g l n All
Lapse rates Surrender rate
Ob
serv
ed R
ates
2005 2006 2007 2008
