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Presented to the Institute of Actuaries Students' Society
on 5th January 1982
THE ACTUARY'S ROLEIN DEVELOPING COUNTRIES
by
M.Arnold BSc, FIA
THE ACTUARY'S ROLE IN DEVELOPING COUNTRIES
Presented to
The Institute of Actuaries Students1 Society
5th January, 1982
INTRODUCTION
1. Each year in the Institute of Actuaries Year Book a table
is printed providing "An analysis of the occupations
followed by Fellows and Associates of the Institute of
Actuaries". Using the figures in the most current Year
Book which provides an analysis as at 31st July, 1980
I have estimated that less than 5% of fellows and students
of the Institute will have any experience of actuarial
practice outside the U.K., the U.S. and Europe.
The principle objective of this paper is to provide some
insight for some of the remaining 95% or so of members of
the Institute into both the technical and practical
difficulties of working as an Actuary, either as a
consultant or a resident, in a developing country.
2. The term "developing country" is one which has become
widely used in recent years and, to my mind, is just as
vague an expression as "The Third World" which, as I
understand it, is meant to represent broadly a similar
group of countries. I propose to be more specific and
limit the comments and observations in this paper to the
experience I have gained in those East African territories
I have visited in the course of acting as a consulting
actuary to local financial institutions and other
organisations. These are Kenya, Uganda, Zambia,
Zimbabwe and also Mauritius and the Seychelles which,
of course, although neighbours, are not Africa.
- 2 -
3. To "set the scene" a little, all these countries are
ex-British colonies and are currently members of the
Commonwealth. The local legislation pertaining to
insurance, pensions and social services is based very
much on the corresponding U.K. legislation of fifteen
to twenty years ago. The legislation was enacted in
ore-independence days and has been amended very little
since then. The relevant Acts make actuarial valuations
of insurance company liabilities and pension funds,
actuarial solvency certificates and actuarial reports
a legal requirement at regular intervals. Furthermore,
the minimum professional qualifications required for
acceptance by the Authorities as an actuary are defined
in the Acts and these are invariably, if not exclusively,
in the areas referred to, Fellowship of either the
Institute or Faculty of Actuaries.
4. At the last count, I think that in the whole of the black
African continent the number of persons who qualify for
the status of "Actuary" could be counted on the fingers
of one hand and in East Africa there is just one Actuary
working on a contract basis. In these circumstances,
by far the majority of local insurance companies, pension
funds and even Government Statistical and Social Service
departments are forced to turn to the U.K. to obtain
the necessary actuarial services.
South African actuaries used to supply most of the
actuarial services for the Rhodesias. However, since
Zambia and now Zimbabwe have gained their independence
because of their quite natural dislike of apartheid,
there has been a movement away from South African
actuaries towards the U.K.
5. The major group of organisations requiring actuarial
assistance are insurance companies, and these vary
enormously in size and method of operation. At one
extreme there are the very large nationalised monopoly
insurance companies and at the other extreme the very
snail indigenous companies operating in a highly competitive
- 3 -
and saturated market. The majority of comments in this paper
will relate to the activities and problems of insurance
companies but there are many other varied organisations,
such as Pension Funds, Provident Funds, Workmen's Compensation
Funds, Social Security and other Government Departments
who also use actuarial services. Where appropriate, I
shall refer to the specific problems that they have to
contend with.
- 4 -
TECHNICAL CONSIDERATIONS
6. Almost all aspects of technical actuarial work, wherever
it is practised, are based on the analysis and monitoring
of trends in statistics; in the main, demographic
statistics. This is most obviously the case in the
analysis and creation of mortality, morbidity and birth
rates. It is equally true in the particular field of
life assurance where lapse rates, new business rates
and expense ratios are analysed in great detail using
past experience.
In the more developed Western countries the population
statistics required to analyse the various demographic
factors have been developed over a number of years, even
centuries, and a well monitored trend of experience has
been gained. The situation in most developing countries,
and most certainly the situation in East Africa, could not
be more different. Quite simply there are virtually
no demographic statistics at all which go back further than
fifteen years and even the few that have been produced
in this period are often quite meaningless inasmuch as
they are based on totally inadequate data. It has to be
recognised that until recently there has been virtually
no system for recording births and deaths in most of
the developing African countries and an extremely high
proportion of the population do not know their date of
birth and when asked could only give a range of years.
In all East African countries there is now a Registrar of
Birth and Deaths and statistics are being properly
collated. However, one can never be absolutely sure that
everyone is "caught in the net" and there must be a strong
possibility that significant proportions of the population,
particularly in the rural areas, are not included.
7. Set against the inadequacy of demographic statistics is
the, perhaps natural, nationalistic desire of most local
insurance companies to base their premium rates on
- 5 -
"African Mortality Tables". In the colonial days some
British insurance companies operating in the region had
different sets of premium rates, one for Europeans and
another for Africans. However, the African rates were
invariably calculated by using an arbitrary addition
to the age. Needless to say, since independence, this
practice has virtually disappeared but in the absence of
a genuine African mortality table the premium rates are
based on European or Asian mortality tables of fifty or
more years ago. (A24/29 is a mortality table commonly
used.)
Whilst the appropriate statistics are gradually building
up to enable a genuine African mortality table to be
produced, it will be some years before a meaningful and
reliable African assured lives mortality table could be
used and in the meantime the current practice will probably
have to continue. However, in the eyes of an African
life assurance manager or managing director this can
appear to "smack" of colonialism and so great care is
required by the Actuary in explaining the reasons for
this approach.
8. As I am sure you will all appreciate this lack of statistical
data is a considerable handicap to an actuary operating
in this area. What kind of advice can he give to a
National Provident Fund or Social Services department of
a Government who are wishing to introduce the basics of
a social security system with, perhaps, some old age
pension payments, funeral grants and maternity benefits
if he has virtually no statistics on which to base any
calculations? The natural tendency for an actuary faced
with this set of circumstances is to be as conservative
as possible in as many aspects as possible. However, this
could well result in conclusions which are simply not
acceptable. An actuary in this situation has to temper
his natural desire to be conservative in the absence of
sufficient statistical evidence to support his judgement
with practicality and produce results which are acceptable
both to himself and to the recipient of his advice. This
- 6 -
is probably a situation that many actuaries find themselves
in from time to time, in whatever sphere they are working,
but it is unlikely that an actuary working in a more
conventional field will be confronted with problems of
this scale.
9. The second general technical problem which the actuary must
contend with in almost all spheres of his activity relates
to the investment conditions that apply.
It is not just the fact that there are no active invest-
ment markets in the same way that there are in the
developed economies but also that on the few types of
investments that are available the returns are invariably
inadequate and bear little or no relationship to other
economic factors and in particular the rate of inflation.
The main type of investment that is available are loans
to the Government. Many of the larger financial institutions
in a developing economy are required by law to invest
certain minimum proportions of their assets in Government
loans and the rate of interest payable is determined by
the Government. There is little or no market in any such
loans, they simply have to be held by the institution until
they are redeemed. The rates of interest payable by
Government naturally varies from country to country but
at the current time the rates vary between 5% and 11.5%
per annum. These must be viewed in the context of
inflation rates currently pertaining in this part of the
world, at a minimum rate of 15% and ranging up to 3O%-35%
in some countries. Furthermore, this is not a particularly
temporary phenomenon. Such large negative "real" rates of
return have been pertaining in the region now for the last
ten years or more and naturally cause considerable concern
to the actuary. They do so most particularly to the
actuary to pension funds with liabilities linked to
final salary but also to the actuary of an insurance
company attempting to market competitive with-profit
contracts.
- 7 -
It is difficult for the actuary to persuade the appropriate
powers of the consequences of this situation without becoming
rapidly involved in the local politics (about which another
paper could be written that would not be wholly appropriate
in the present context). However in recent months I have
detected a greater air of realism in some countries, and
Governments are having to raise interest rates a little
to attract sufficient resources, though they still fall
far short of providing "real" rates of return to investors.
10. There is hardly any equity market in any of the countries
of East Africa. The shares of one or two companies are
usually available but once again their marketability is
extremely limited if not non-existent.
Furthermore, in some countries much of the local industry
is either wholly or partly nationalised, which considerably
limits the scope for the creation of an equity market.
Generally when, considering the problem of equity invest-
ment there are, once again, political overtones that have
a bearing. The political climate is not always commensurate
with the encouragement of equity participation in industry.
However, I do believe that there is, to some extent, a
"chicken and egg" problem with regard to equity investment.
Investment managers of life funds, pension funds and the
like often bemoan the fact that there is no equity market
for them to invest in but, on the other hand, the managers
of local industry are probably not at all aware of the
quite significant amount of finance which could be made
available to them.
To some extent this is another aspect of the "education"
problem I refer to later, but the actuary should have a
significant role to play in bringing the two sides together
which should go some way to encouraging the right
atmosphere for the creation of a more meaningful equity
market.
11. In addition to Government loans the only other major area
of investment available to long term funds is investment
— 8 —
in property and property developments. In many of the
capital cities and major towns in East Africa practically
all of the office blocks, shopping precincts and major
developments are owned or financed by local insurance
companies, provident funds or other long term financial
institutions. Once again, there are problems of
marketability and in the absence of a truly free market
of willing sellers and willing buyers valuers have great
difficulty in placing realistic values on property and
property development. In addition, rents are often
unrealistically low and are also often controlled by law.
Perhaps the greatest danger in property investment,
though, is the political risk - it is not unheard of for
Governments to nationalise buildings and land "overnight".
The effect on life funds and pension funds of such action
does not bear thinking about by the actuary!
- 9 -
SOME SPECIFIC TECHNICAL PROBLEMS
(i) Insurance Companies
12. Turning now to some specific problems faced by the
different organisations summarised in paragraph 5
of the paper I shall consider the type of problems
that confront the actuary working in, or advising,
an insurance company.
Firstly a brief description of the insurance markets
follows.
The life insurance markets in different countries
within East Africa vary considerably and the main
factor which determines the nature of the market
is the role that the Government, through a
Government owned company, plays.
In Zambia, for instance, there is just one insurance
corporation operating and that is State owned.
In the early 1970s legislation was passed under
which all local insurance companies and branches
of multinational companies had to transfer their
assets and liabilities to the Zambia State Insurance
Corporation.
In Kenya, the Government has adopted a totally
different approach. In addition to a number of local
companies there is a State, owned direct writing
company and. also a State reinsurance corporation.
Furthermore, there is legislation which requires each
direct writing company to cede a certain proportion
of its business to the State owned reinsurance
corporation and this gives rise to some interesting
situations vis-a-vis the two State owned companies.
Legislation was passed in the mid-1970s requiring
all branch operations to be converted into a
locally owned company or transferred to such a
company.
- 10 -
In Uganda there is a State owned direct writing
insurance company which competes with other
indigenous insurance companies. However, the
competition is not strictly "fair" inasmuch as
the State owned company is exempt from any
taxation whereas the other insurance companies do
pay tax.
At the other extreme, the insurance market in
Mauritius, which is an island with a population of
just a little over one million persons, has more
than twenty insurance companies of which over one-
half transact life and pensions business. None
of these companies are State owned though there
is one company which commands more than 70% of
the market.
All these markets have their own particular problems.
Most insurance companies are composite offices
and, on the life side, write both individual life
and pensions business. The types of contract issued
in the individual life branch are, almost exclusively,
conventional contracts such as whole life, endowment
and term assurance with the main emphasis being
placed on with-profit contracts. On the pensions
side the majority of business is written on a
deferred annuity or combination of endowment and
pure endowment basis, though there is a move
towards deposit administration type of contracts,
expecially for the larger schemes.
The investment conditions referred to earlier
virtually preclude the marketing of unit-linked
policies, with the possible exception of a
property-linked policy.
I believe that perhaps the main problems, in addition
to those general ones I have already described, arise
from the legacies left by the various U.K., Australian,
- 11 -
American and South African multinational companies
which operated in East Africa before independence.
Many of these companies had treated their operations
in Commonwealth territories simply as a branch of
their home operations, charging similar premium
rates and declaring similar bonuses for with-profit
contracts. Even those companies who did not go this
far and differentiated, perhaps, in the rate of
bonus declared in different territories still did
not reflect fully the local conditions with regard
to return on investments and the local costs of
administration. The result has been that the level
of with-profit premium rates and bonus declarations
in these markets have been particularly advantageous
to the local policyholders and correspondingly
difficult for indigenous companies to justify.
Apart from this fact there are additional difficulties
for a new private local company. It not only has to
compete against contracts which are difficult to
justify in the local conditions, but also has the
added disadvantage of "newness" with associated
"new business strain' problems and the lack of large
accumulated funds to provide additional investment
margins.
13. Of course, the two general technical problems I have
referred to earlier are of particular significance
for the life assurance market; the absence of any
reliable statistics makes the compilation of mortality
tables and the offer of any conversion options
particularly difficult and the lack of adequate
investment opportunities aggravates the bonus
earning power of life funds and makes it extremely
difficult to declare bonuses that can keep pace
with the devaluation, in real terms, of fixed
monetary amounts.
- 12 -
Furthermore, there are other difficulties peculiar
to local markets. The economic and social environment
is not always conducive to long term planning, a
particular example of this being the current
uncertainties of the Asian community in East Africa.
All this makes the selling of long term life insurance
policies extremely difficult and an analysis of
the average term of the portfolio of most life
insurance companies operating in East Africa would
reveal that the average term of the business on the
books would not exceed 15 years. Furthermore,
products which provide for anticipated payments of
the sums assured, that is where the sum assured
is paid in instalments in advance of the maturity
date of the policy are particularly prevalent in
markets such as Kenya and Uganda and these shorten
the mean maturity date of the portfolio still
further.
Another factor which serves to effectively shorten
the average term of the products still further is
the fact that many individual life products are
sold by life assurance salesmen on the strength
of the policyholder being able to obtain loan
values from the insurance company as soon as the
policy acquires a surrender value. It is not
unusual to find in an insurance company's life
fund balance sheet loans to policyholders amounting
to some 20%-30% of the total assets. This would not
be so bad if realistic rates of interest were charged
to policyholders on such loans but this is most
certainly not always the case.
I suppose that, in the relatively uncertain future
in which most companies are operating, it may be
positively advantageous to keep the average
outstanding term of life funds relatively short but
all these factors aggravate the investment matching
problem and bonus earning power of life funds.
- 1J -
On the other hand, life insurance is relatively new
in the region as far as the majority of the population
is concerned and so it would not be unreasonable to
expect all the life companies and the life funds of
the companies to grow fairly rapidly for a long time
to come. In such circumstances, matching becomes
less important, and one can recommend investing
longer.
14. Under the "extended family system" which tends to
operate in most African territories (and certainly
in East Africa) whereby a member of the family who
falls upon hard times looks to other members of
his/her immediate and extended family to provide
the basic necessities of life, the need for
conventional life assurance protection has been
somewhat limited. However, with more and more
European influence resulting in extensions to
social security systems and with the continued moves
towards urbanisation the extended family system is
tending to disintegrate. This should create a
better environment for life assurance companies
to market whole of life and term assurance policies
and this is certainly happening in Zambia and Kenya.
It will enable insurance companies to achieve a much
more balanced portfolio of business and thereby
alleviate some of the investment problems I have
outlined.
15. One further technical problem, which admittedly is
not particular to developing countries in general
or East Africa in particular, is the problem created
by extremely high rates of inflation. Other than
a limited amount of hydro-electric power and coal
resources, East Africa has no internal source of
energy and imports all its oil and other energy
sources. The dramatic increase in oil prices
the whole world has experienced in the last eight
years has adversely affected the East African
economies more than most. The result has been
- 14 -
extremely high rates of inflation.
The high rates of inflation have had the expected
effect on salary levels which, in turn, have had
dramatic effects on the expense ratios of life
insurance operations. In many ways, life insurance
is conducted in East Africa in a way more akin to
industrial assurance in the U.K.; the average size
of policies is relatively low, premiums are often
paid in cash or collected by an agent, all of
which makes the business highly dependent on human
resources and not susceptible to mechanisation.
The continued attack that is needed on expense ratios
in order to contain them within acceptable levels,
whilst being no different in principle the world
over, is, I suggest, more acute in markets such as
East Africa.
16. Some practical problems that arise in providing actuarial
assistance from overseas to insurance companies
in East Africa are dealt with in later sections of
this paper but many of them emanate from the lack
of qualified personnel to run the life departments.
This same problem reveals itself in dealings with
the authorities who are monitoring and supervising
the activities of insurance companies generally.
They too suffer from lack of qualified personnel.
Under the terms of the legislation pertaining to
insurance companies in all East African countries,
there is a "Registrar of Insurance". In no case,
that I am aware of, is he an actuary nor does he
have any local actuarial expertise on which to
draw though in some countries the services of the
G.A.D. in the U.K. are used. In a country with no
actuarial expertise available to the Registrar
the actuary to an insurance company has to assume,
at least to some extent, the role of the supervisory
- 15 -
authority as well as advising the company directly.
This should not normally give rise to any conflicts
but can place considerable additional burdens on
the actuary.
17. Some particular problems that arose during and since
the nationalisation of insurance in Zambia are worthy
of mention.
The Zambia State Insurance Corporation was a small
State owned company transacting non-life business
which eventually started to write life business.
About a year later, before it had assembled an
adequate staff to cope, it had to take over
the business of 23 other insurance companies and
branches operating in the country. The Nationalisation
of Insurance Act and the Valuation Regulations which
prescribed the actuarial basis for the valuation of
the liabilities were hastily drafted. There were
shortcomings in the legislation, particularly with
regard to the valuation of assets, which could
have been financially damaging to the new Corporation
had it not been for the goodwill of the insurance
companies previously operating in the market.
The administrative complications of the nationalisation
were considerable with the Corporation staff having
to deal with up to 23 different types of products,
bonus systems and policy conditions. It has taken
many years for these problems to be overcome.
(ii) Pension Funds
18. In most ex-British colonies, the Civil Service enjoy
pension arrangements which are very much akin to
the Civil Service Pension Scheme in the U.K.
Naturally this scheme has been used as a model by
private industry and by the insurance companies who
market pensions policies. This has resulted in the
majority of pension schemes In East Africa being
- 16 -
based on a fraction of 'final salary' accruing for
each year of service. Widows pensions and death-
in-service benefits are not so prevalent as they
are in the U.K. and this may be due to the operation
of the "extended family system".
The main technical problem which an actuary faces
when advising pension funds in East Africa
emanates from the adverse investment conditions.
Advance funding for pension liabilities which are
related to final salaries is extremely difficult
to monitor and control in "unreal" investment
conditions where negative real rates of return
persist over a long period. The result is that it
is often extremely difficult for the actuary to
explain his methods and results to laymen trustees
of pension schemes.
19. An additonal problem in some countries, particularly
Kenya, is that a different tax treatment is applied
to pension funds operated through insurance companies
from those which are directly self-invested and
self-managed. In Kenya the contributions paid to
pension schemes administered by insurance companies
and the "roll-up" of these funds are allowed tax-
free whereas the company contributions to self-
invested schemes have to be made out of taxed profits
and the "roll-up" of self-invested pension fund
monies is also taxed.
Though there are supervisory authorities in the various
tax departments who are responsible for the operation
of "approved" pension funds there are the same
difficulties with regard to lack of experience and
knowledge. It is extremely difficult to explain
to such people the basic inequities of a system which
discriminates between pensions effected with insurance
companies and those which are self-invested.
- 17 -
(iii) General Actuarial Work and Social Security Schemes
20. The type of work I refer to here includes the sort
of work undertaken by the Government Actuaries
Department in the U.K. The most difficult technical
problems arise from the lack of adequate population
and demographic statistics. Clearly it is extremely
difficult to advise on the introduction of a basic
State pension scheme without adequate population
statistics with regard to age, rates of mortality
and birth rates.
Another main cause of many of the difficulties arises
from the fact that expectations are very much
greater than the ability to fulfil them. I have
lost count of the number of times comparisons have
been made between the Social Security provisions
in the U.K. and those provided in an East African
country. The fact that we here can hardly afford
them, let alone whether Fast Africa can, does not
seem to enter into it.
21 An additional problem I have encountered in countries
where basic State social security is provided by a
National Provident Fund for all employees is the
total inadequacy of the administrative procedures
to handle the volumes of data that arise. This is
not only because of the inexperience of tne staff
in the offices of the Provident Fund but also because
of the lack of understanding of such arrangements
and systems by local employers and employees.
It has taken us many years in the U.K. to develop
our social security systems to their current levels
yet Governments, employers and employees in East
Africa seem to expect similar development overnight.
SOME PRACTICAL PROBLEMS FOR THE CONSULTING ACTUARY
22. I have already referred to the lack of qualified
staff in East Africa and many of the practical
difficulties the actuary has to cope with arise because
of the lack of qualified and experienced personnel.
This lack of experience is evident in practically all
spheres of any insurance company's operations
including the technical aspects of underwriting/
investment and accounting right through to general
management skills.
There are doubtless many reasons for the current state
of affairs in this respect and doubtless also "blame"
could be apportioned in many ways. I do not propose
to attempt to delve into either of these areas but it
is sufficient to say that because of the lack of any
qualified support the actuary operating in East Africa
finds himself undertaking many different tasks which in
no way could be described as "actuarial".
23. Perhaps the main non-technical aspect of the actuary's
work in East Africa relates to the training of indigenous
staff.
Great emphasis is placed on the training of staff
throughout industry and commerce and it is encouraged
by the authorities throughout the region. One very rarely
hears a political speech without some emphasis being
placed on the need to train people in skills that are
required locally, and significant amounts of Government
resources are channelled into such training.
Reinsurance companies do provide considerable training
facilities and the assistance that is expected from
actuaries in this area is not restricted to actuarial
training, but covers all aspects of life assurance and
pensions management and day-to-day operations of an
- 19 -
insurance company. This involves finding appropriate
courses in the U.K. and America for staff to attend
and arranging, where possible, for secondments to
U.K. insurance companies for periods of up to six
months and even more so that the members of staff can
gain some practical experience of more advanced
administration systems.
Training is not restricted to junior members of staff
and another important aspect, particularly for senior
management, is provided by attending the various
conferences that are held for the insurance industry
in the region. In most countries local insurance
organisations have been formed which have grouped
together to form regional organisations. In addition,
there is an All Africa insurance organisation operating
under the umbrella of the O.A.U. Conferences and
regional meetings are held quite frequently and these
are often used as opportunities to provide education
in new fields as well as providing members of the organ-
isations with an opportunity to learn from each others
experiences. The actuary is quite frequently asked to
present papers and encourage discussions on such
occasions.
24. In spite of the relative dearth of qualifed personnel
in the region there is still a great move towards
"Africanisation" whereby most, if not all, senior
management jobs are being occupied by indigenous people.
However, there are still a number of opportunities for
ex-patriate staff particularly in the areas of training
and junior management. It is very likely that any
such ex-patriate appointment to any position in the life
department would involve the actuary in interviewing
and vetting the candidates. This can be, and often is,
an extremly time-consuming exercise.
- 20 -
25. Computerisation in East Africa is very much in its
infancy.
As a result of this and also because of the inexperience
of the staff, extremly large administration
departments in insurance companies have evolved,
particularly in the nationalised monopolies. One of
the main reasons for the fact that the actuary has to
cope with relatively large expense ratios is that the
administrative systems are almost exclusively manual
even for companies handling individual policies in
excess of 100,000; and many times that number of
members of group pension schemes.
Therefore,any assistance that the consulting actuary can
provide in the form of computerised administration
records is more than welcome and it is quite common for
him to hold quite detailed computer records of each
individual policy (far more than would be required simply
for actuarial valuation purposes) and for him to effect
the various updating and movement of these records.
The print-outs which emanate from these movements are
often used by the administration department of the
company as their basic record for day-to-day operations,
such as calculation of surrender values, maturity values
and paid-up values. Furthermore, the same systems and
computer print-out can be used for the accounting of
premium collection and from there on to the calculation
of commission payments that are due.
Turning now to the pensions business, as the majority of
this class in East Africa is still sold on a deferred
annuity or combination of endowment and pure endowment
basis, the use of computerised methods is even more
relevant. Here the basic actuarial records are extended
so that renewal statements can be automatically prepared.
These would be passed on directly to the employer who
- 21 -
would provide the fluctuating statistics such as revised
salary and contributions so that the normal renewal
calculations can be made easier. This also facilitates
the provision of reinsurance and valuation statistics.
Naturally, efforts are being made to mechanise more of
the administrative procedures of life and pensions
departments of insurance companies (and indeed this must
be done if companies operating in this area are to
achieve acceptable expense ratios) but here again
experienced personnel are simply not available in the field
of systems analysis or programming and it is more than
likely that the actuary would be called on to provide
assistance in this area if at all possible.
Of course, the handling of large volumes of data is a
particular problem that National Provident Funds and
Social Security departments have to contend with.
Here again, computerisation is a necessity and if
acceptable rates of return are to be declared on
members' deposits or if an acceptable level of contri-
bution for a given level of benefit is to be achieved
then savings simply have to be made in administrative
costs.
26. All the national economies in the region have suffered
extremely badly in the last five years mainly as a
result of the world recession and the rapid increase in
oil prices in the same period. These two factors
have resulted in severe balance of payments problems
for all the countries and the majority of the Governments
are deeply in debt either to the International Monetary
Fund or International Banks or both. Those factors
have also resulted in pretty disastrous effects on the
- 22 -
national currencies with an overall currency depreciation
in excess of 10% per annum over the last five years
throughout the region.
All this has led to great political and economic pressure
being applied by the authorities on the need to conserve
local currency and to reduce the importing of services
or goods (including Actuarial services).
The main facility that is imported by insurance companies
is their reinsurance facility and no doubt those members
here present who work in reinsurance companies can tell of
their difficulties in collecting reinsurance premiums.
Actuarial advice, when provided by a U.K. consultant,
is also an imported service and the economic environment
not only has implications on professional fees charged
by the actuary but can also result in his running an
"import/export business". It is perhaps natural for the
actuary to be asked to prepare, print and despatch rate
books, and policy documents and also to purchase text
books, etc., but I have been asked on several occasions
to arrange for the purchase and despatch of engine parts,
dresses, toothpaste, soap, cooking oil, etc!
27. No paper or discussion about the role of the consulting
actuary in a developing country could be completed without
reference to the hazards of visiting the territory. No
doubt many of you have heard various stories (some more
exaggerated than others) of all the different types of
travel, hotel, food and disease hazards that have to be
avoided or overcome - 'How to survive in the midst of
a coup' is essential pre-visit reading before travelling
to some African territories! I do not wish to dwell on
this aspect here but they certainly do add a little
'spice' to the ordinary working day of an actuary.
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SUMMARY
28. I am aware that this paper has been extremely general and
has covered a large number of areas but it is my hope that
it has given members some insight into the wide variety
of actuarial work and associated problems that can, and
often do, arise in a developing economy.
Whilst there are many technical and practical difficulties
in attempting to apply the various actuarial techniques
learnt during our training it does not lessen the need
for a professional actuarial approach in the fields of
life assurance, pensions practice and social security
provision.
29. There will probably be a number of years before sufficient
data can be accumulated and analysed to produce reliable
and accurate statistics and before there are sufficient
qualified personnel in all aspects of life assurance and
pensions work who could make proper use of such statistics.
Only then could the more sophisticated actuarial
techniques that are applied in the developed Western
economies also be applied in territories such as East
Africa.
In the meantime, though, there is much work for the
actuary to do and his contribution has been, and should
continue to be, highly valued by the various companies
and authorities in these territories.
30. The other major factor that will determine the rate of
development of the life assurance, pensions and long term
financial markets is the economic development of the area.
Many factors influence this, not the least of which being
the local politics and though there are many unknowns,
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with the amount of human and natural resources that are
available in the area and on the assumption that these
can be properly harnessed, then there must be consider-
able long-term potential.
In this sphere, also, the actuary has his role to play
in terms of encouraging the creation of a well-ordered
and stable financial environment.
31. The use of life funds, pension funds and other long-term
funds held for the benefit of policyholders, workers
or members of the population generally, for social and
economic development opens up a whole new area for
discussion. Taking a purely technical 'text-book'
stance many 'socially-desirable' investments would not
be appropriate because the return provided is not
commensurate with the risk taken. However, unless
these funds do invest in schemes such as housing develop-
ments or industrial co-operatives then Governments will
simply take the money from the Institutions and do it
themselves. A longer term view must be adopted and
success in this area will not only create a more stable
and secure financial evironment but will also be to the
benefit of insurance companies and pension funds directly
in terms of an enhanced standing in society.
32. My thanks are due to colleagues in the office who have
assisted me and to my secretary who had to suffer many
re-draftings. I would like particularly to thank Clifford
Hymans for his valued comments. However, all comments,
observations and opinions are solely my own.