Overview of Experience for Overview of Experience for LongLong-term -term insurers in SA insurers in SA
20052005
Presented to ASSA members14 November 2006 – Cape Town
16 November 2006 – Johannesburg
Why are we here?Why are we here?
To provide information to practicing life actuaries on representative SA Statutory Valuation Method bases reported in 2005.
What will we show you?What will we show you?
Brief overview of the LT Insurance market in 2005.
Review the representative:
– Reported AOS results (C7),
– Reported valuation assumptions (G10.x) and
– Reported actual experience (B - statements)
for certain key elements in a valuation basis.
Overview of the LT Insurance Overview of the LT Insurance market in 2005market in 2005
Overview - some rankingsOverview - some rankings
2005 2004 2003 2002
Old Mutual g 29.2% 1 1 1 1
Sanlam g 17.8% 2 2 2 2
Liberty g 11.8% 3 3 4 4
Momentum g 10.4% 4 4 3 3
Investment Solutions l 6.8% 5 5 5 5
Metropolitan Life g 4.1% 6 6 6 6
Investec Assurance l 1.8% 7 8 10 10
Capital Alliance Life g 1.7% 8 9 8 9
Investec Employee Benefits g 1.7% 9 7 7 7
Allan Gray Life l 1.5% 10 13 22 22
Rank using total Assets
Insurer Industry
% of market assets
01,000
Feb Mar Jun Aug Sep Nov DecYear-end month
A s s e t 050 N u m b e
Total assets Number of insurers
R160b premiums, R169b benefits, 95% retention
050100
AssistanceDisability Fund Health Life SinkingFund
Gross premiums Gross benefits
R160b premiums, R169b benefits, R905b assets
050100
With-profit
With-profit
Without-profit
Linked Marketrelated
Other
P r e m i 0500A s s e tGross premiums Gross benefits Total Assets
OverviewOverview - by year-end - by year-end
9 915
3 51
33
0100200300400500600700800
Feb Mar Jun Aug Sep Nov Dec
Year-end month
As
se
ts in
Rb
0
10
20
30
40
Nu
mb
er
of
ins
ure
rs
Total assets Number of insurers
OverviewOverview - by license - by licenseR177b premiums, R169b benefits, 94% retention
3 4
76
2
88
52 2
80
1
77
7
0
50
100
Assistance Disability Fund Health Life SinkingFund
Gross premiums Gross benefits
OverviewOverview - by business class - by business classR177b premiums, R169b benefits, R1,064b assets
248
59 78
346
159
67
0
50
100
With-profitbusiness
With-profitannuities
Without-profit
annuities
Linked Marketrelated
Other
Pre
miu
ms
an
d
be
ne
fits
in R
b
050100150200250300350400
As
se
ts in
Rb
Gross premiums Gross benefits Total Assets
Overview Overview - across time- across timeAmounts in R billionAmounts in R billion 20052005 20042004 20032003 20022002 20012001
Total assetsTotal assets 1,0691,069 906906 817817 783783 750750
Total liabilitiesTotal liabilities 975975 817817 736736 706706 668668
Excess assetsExcess assets 9494 8989 8181 7777 8282
CAR before management CAR before management actionaction 6565 6363 7373 8282 7777
CAR after management CAR after management actionaction 2727 2727 3232 3535 2929
Funding factor (Excl CAR)Funding factor (Excl CAR) 1.101.10 1.111.11 1.111.11 1.111.11 1.121.12
CAR CoverCAR Cover 3.483.48 3.283.28 2.552.55 2.182.18 2.822.82
CAR after / CAR beforeCAR after / CAR before 41%41% 43%43% 44%44% 43%43% 38%38%
Overview – Overview – Spread of CAR coverSpread of CAR cover
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
0 1 10 100 1,000 10,000 100,000 1,000,000Assets in R'million
CA
R C
ov
er
Assistance business only Cell Captive General Insurer
Linked Niche Reinsurer
Overview – Distribution of CAROverview – Distribution of CAR
82%
1%
16%
0%
20%
40%
60%
80%
MCAR TCAR OCAR
% of Active Insurers % of Total CAR
TCAR - BreakdownTCAR - Breakdown
LAPSE RISK41%
SURRENDER RISK59%
LAPSE RISK
SURRENDER RISK
OCAR - BreakdownOCAR - Breakdown
INVESTMENT RISK94.8%
FOREIGN EXCHANGE RISK
0.0%
ASSUMPTION RISK1.8%
LAPSE RISK1.8%
SURRENDER RISK1.2%
FLUCTUATION RISK0.4%
LAPSE RISK
SURRENDER RISK
FLUCTUATION RISK
ASSUMPTION RISK
INVESTMENT RISK
FOREIGN EXCHANGE RISK
Overview - key indicatorsOverview - key indicators
gg ll rr aa nn ccTotaTotall R’b R’b 20020055
TotaTotall R’b R’b 20020044
TotaTotall R’b R’b 20020033
Number of Number of active active insurersinsurers
2828 1212 77 99 1111 44 7171 7070 6767
Net Net premiums premiums receivedreceived
71%71% 26%26% 1.6%1.6% 0.4%0.4% 0.5%0.5% 0.7%0.7% 166166 151151 165165
Net benefits Net benefits paidpaid
76%76% 22%22% 1.2%1.2% 0.2%0.2% 0.3%0.3% 0.3%0.3% 160160 162162 157157
Acquisition Acquisition expensesexpenses
94%94% 1%1% 1.7%1.7% 0.7%0.7% 0.8%0.8% 1.8%1.8% 1515 1212 1111
Operational Operational expensesexpenses
93%93% 3%3% 1.8%1.8% 0.9%0.9% 0.7%0.7% 0.7%0.7% 1010 88 88
InvestmentInvestment yieldyield
22.722.7%%
16.0%16.0% 9.5%9.5% 12.4%12.4% 26.1%26.1% 1.4%1.4% 21.521.5%%
17.417.4%%
8.0%8.0%
Overview – Overview – PH asset allocationPH asset allocation
R961 billion
44%4%
22%
8%13% 9%
Equities andconvertibledebenturesProperty
Fixed interest
Cash and deposits
CollectiveinvestmentschemesOther
Overview – Overview – SH asset allocationSH asset allocation
R108 billion
59%
1%
8%
10%20%2%
Equities and convertibledebenturesProperty
Fixed interest
Cash and deposits
Collective investmentschemesOther
Overview –Overview – assets assets per per industryindustry
As % of ColumnsAs % of Columns gg ll rr aa nn cc
Equities and Equities and convertible convertible debenturesdebentures
47%47% 45%45% 5%5% 4%4% 59%59% 9%9%
Fixed interestFixed interest 22%22% 9%9% 65%65% 7%7% 30%30% 20%20%
Collective investment Collective investment schemesschemes 10%10% 21%21% 0%0% 46%46% 1%1% 7%7%
OtherOther 10%10% 10%10% 9%9% 14%14% 3%3% 41%41%
Cash and depositsCash and deposits 7%7% 14%14% 21%21% 27%27% 7%7% 23%23%
PropertyProperty 4%4% 0%0% 0%0% 2%2% 0%0% 0%0%
Total (R'b)Total (R'b) 889 889 161 161 8 8 1 1 7 7 4 4
Overview - liabilities and CAOverview - liabilities and CARRgg ll
Total Total (R'b)(R'b) 20052005
Total Total (R'b)(R'b) 20042004
Total Total (R'b)(R'b) 20032003
Linked liabilitiesLinked liabilities 56.2%56.2% 42.8%42.8% 373373 303303 253253
Non-linked liabilitiesNon-linked liabilities 98.0%98.0% 0.0%0.0% 563563 477477 454454
Total liabilitiesTotal liabilities 81.8%81.8% 16.4%16.4% 975975 817817 736736
Excess assetsExcess assets 97.0%97.0% 0.6%0.6% 9494 8989 8181
CAR before CAR before management actionmanagement action
98.6%98.6% 0.1%0.1% 6565 6363 7373
CAR after CAR after management actionmanagement action
97.8%97.8% 0.2%0.2% 2727 2727 3232
23% ↑
18% ↑
Overview Overview - AOS- AOSAmounts in R billionAmounts in R billion 20052005 20042004 20020033
Start excess assetsStart excess assets 8989 76.276.2
New business New business (1.6)(1.6)
Change in valuation basisChange in valuation basis (0.8)(0.8) (0.8)(0.8)
Release of marginsRelease of margins 5.75.7
Investment experienceInvestment experience 24.924.9 20.220.2 5.75.7
Mortality experience Mortality experience 2.42.4 1.61.6 1.61.6
Morbidity experience Morbidity experience 1.11.1 0.80.8 0.70.7
Expense experience Expense experience (0.7)(0.7) (0.5)(0.5) (0.1)(0.1)
Early withdrawalsEarly withdrawals 0.10.1
TaxTax (3.8)(3.8) (4.5)(4.5)
OtherOther (9.8)(9.8) 1.61.6
Income from subsidiariesIncome from subsidiaries 1.11.1
Dividends paidDividends paid (12.8)(12.8) (5.9)(5.9)
End excess assetsEnd excess assets 9494 8989
Major Items in AOSMajor Items in AOS
-40%
-20%
0%
20%
40%
60%
80%
100%
GeneralInsurers
Linked Reinsurers Assistance Niche CellCaptive
Change invaluation basis
New business
Earlywithrdrawals
Morbidity
Mortality
Expense
Release ofmargins
Investment
AOS SplitAOS Split
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
GeneralInsurers
Linked Reinsurers Assistance Niche Cell Captive
Individual Group Shareholder
Release of Margins - AOSRelease of Margins - AOS
Weighted Average Weighted Average in Millionsin Millions
20052005 20042004 % % ChangeChange
AllAll 1,0711,071 875875 22%22%
gg 1,1091,109 907907 22%22%
ll 55 44 23%23%
rr 4242 6868 -38%-38%
aa 33 33 -10%-10%
nn 22 33 -31%-31%
Representative valuation Representative valuation basis - Expensesbasis - Expenses
Expenses - AOSExpenses - AOS
Profit Profit (R’m)(R’m)
IndividuIndividualal GroupGroup ShareholdSharehold
ererTotal Total 20052005
Total Total 20042004
Min (201)(201) (192)(192) (193) (193) (201) (201) (180) (180)
Max 137 137 115 115 2 2 137 137 106 106
Total (98)(98) (95)(95) (554)(554) (747) (747) (589)(589)
Average (2) (2) (3) (3) (18)(18) (7) (7) (6) (6)
Weighted average (22) (22) (86) (86) (80)(80) (61) (61) (22)(22)
Expenses – AOSExpenses – AOSTotal expense loss splitTotal expense loss split
R’000R’000
-75,305
-25,525
-386,704
Individual Group Shareholders
-97,587
-95,461
-553,518
20042004 20052005
Expenses – AOSExpenses – AOSMax and Min per categoryMax and Min per category
50
-17
-102
137115
2
-201 -192 -193
-22
-86 -80
-250
-200
-150
-100
-50
-
50
100
150
200
Individual Group Shareholders
Expenses – Expense inflation Expenses – Expense inflation assumptionassumption
11.0%
9.0%9.5%
7.5%
2.0%
5.0%
3.4%3.9%
9.6%
7.2%
5.0%5.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2002 2003 2004 2005
Expenses – Actual expense Expenses – Actual expense inflation (individual business)inflation (individual business)
10
3
11
5
13
5
-
2
4
6
8
10
12
14
Total individual acquisition expenses Total individual operating expenses
Rb
2003 2004 2005
8%8% 20%20%
3%3%79%79%
Per policy recurring expense Per policy recurring expense assumptionassumption
- - Individual BusinessIndividual Business
Annuities in payment Paid-up policiesDisability income
policies in payment
Single premium policies
Recurring premium policies
-100
-
100
200
300
400
500
600
700
800
900
2005 2004 2003
Initial expense assumptionInitial expense assumptionIndividual businessIndividual business
LinkedWith-profits
With-profit annuitiesOther
Market-related
Without-profit annuities
0
500
1000
1500
2000
2500
3000
2004 2005
Actual initial expensesActual initial expensesIndividual business per industryIndividual business per industry
Industry 2005 (Rand)Increase from
2004 2005 (Rand)Increase from
2004Assistance business 26 -87% 18 -47%Cell 776 24% 24 -75%General insurers 2,550 13% 791 11%Linked 8,673 142% 44,621 -2%Niche 71 -10% 21 -72%Total 1,766 -8% 580 -11%
Industry 2005 2004 2005 2004Assistance business 12% 49% 9% 15%Cell 270% 54% 43% 24%General insurers 27% 27% 15% 15%Linked 2% 1% 2% 1%Niche 28% 9% 24% 9%Total 25% 25% 15% 14%
Average init exp per new policy
Average monthly premium per policy
Init exp as % of net new bus premium
Init exp as % of total net premium
Actual initial expensesActual initial expensesIndividual business per class of businessIndividual business per class of business
New Bus Total New Bus TotalWith-profit business 104% 11% 84% 12%With-profit annuities 2% 2% 0% 0%Without-profit annuities 2% 2% 2% 2%Linked 5% 5% 5% 4%Market-related 23% 14% 26% 14%
Other 68% 36% 57% 34%
Total 25% 15% 24% 14%
Business class
Init exp as % of net premium20042005
Actual operating expensesActual operating expensesIndividual business per industryIndividual business per industry
Industry 2005 (Rand)Increase
from 2004 2005 2004Assistance business 50 -59% 16% 40%Cell 31 -34% 4% 4%General insurers 220 3% 6% 7%Linked 302 -23% 0% 0%Niche 20 -30% 8% 4%Total 199 -1% 6% 7%
Average operating exp per policy
Operating exp as % of total net premium
Actual operating expensesActual operating expensesIndividual business per class of businessIndividual business per class of business
2005 2004 2005 2004With-profit business 9% 11% 19% 22%With-profit annuities 7% 6% 9% 6%Without-profit annuities 2% 2% 4% 4%Linked 3% 3% 8% 7%Market-related 3% 4% 17% 18%Other 13% 15% 49% 48%Total 6% 7% 21% 21%
Operating exp as % of total net premium
Total exp as % of total net premium
Business class
Representative valuation Representative valuation basis - Discount ratesbasis - Discount rates
Investment return - AOSInvestment return - AOS
Profit (R’m)Profit (R’m) IndividuIndividualal
GrouGroupp
ShareholdShareholderer
Total Total 20052005
Total Total 20042004
Min (51)(51) (2)(2) 0.00.0 (51)(51) 0.10.1
Max 1,5611,561 8888 9,9359,935 9,9359,935 7,5657,565
Total 4,2584,258 338338 20,30720,307 24,9024,9033
20,2020,2022
Average 9595 1212 294294 175175 297297
Weighted average 251251 5959 4,2564,256 1,8411,841 4,1684,168
Discount rate assumedDiscount rate assumedIndividual business Individual business Central discount rateCentral discount rate
With-profit annuities
With-profit business
Without-profit annuities
Linked Market
Other
0%
2%
4%
6%
8%
10%
12%
Rat
e
Real ReturnReal ReturnCumulative Distribution of Assumed Real ReturnCumulative Distribution of Assumed Real Return
0%
20%
40%
60%
80%
100%
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%
Assumed Real Return Normal distribution
Investment yield observedInvestment yield observedIndividual businessIndividual business
Investment yield observedInvestment yield observed
With-profit business
Market
With-profit annuities
Without-profit annuities
Linked Other
0%
5%
10%
15%
20%
25%
30%
35%
Ra
te
Future bonus ratesFuture bonus rates Vesting
– On sum assured Representative 3% for with-profit business Little spread for annuities and more for non-annuities
– On bonuses Representative 2% for annuities and 4% for non-annuities Greater spread for non-annuities
Non-vesting Representative 5% with greatest spread
Representative valuation Representative valuation basis – Mortality Ratesbasis – Mortality Rates
Mortality – AOS resultsMortality – AOS results
Profit Profit (R’m)(R’m)
IndividuIndividualal GroupGroup Total Total
20052005Total Total 20042004
Total Total 20032003
Min (11) (26) (26) (72) 18
Max 386 152 386 333 266
Total 1,980 447 2,426 1,630 1,588
Average 45 14 32 34 35
Weighted average
222 65 150 218 156
Male Assurance Mortality with 1σ confidence intervalsMale Assurance Mortality with 1σ confidence intervals
0.0001
0.001
0.01
0.1
1
10 20 30 40 50 60 70 80 90 100 110
Age
Mo
rta
lity
Average CI below CI above
0.0001
0.001
0.01
0.1
1
10 20 30 40 50 60 70 80 90 100 110
Age
Mo
rta
lity
Average CI below CI above
Female Assurance Mortality with 1σ confidence intervalsFemale Assurance Mortality with 1σ confidence intervals
Assurance Mortality without AIDS loadingAssurance Mortality without AIDS loading
0.0010
0.0100
0.1000
1.0000
10 20 30 40 50 60 70 80 90 100
Age
Mo
rta
lity
Male Smoker Male Non-SmokerFemale Smoker Female Non-Smoker
Assurance Mortality with AIDS loadingAssurance Mortality with AIDS loading
0.0010
0.0100
0.1000
1.0000
10 20 30 40 50 60 70 80 90 100 110
Age
Mo
rta
lity
Male Smoker Male Non-smokerFemale Smoker Female Non-smoker
0%
20%
40%
60%
80%
100%
120%
140%
160%
20 30 40 50
Age
Lo
ad
ing
Male Smoker Male Non-smoker
Female Smoker Female Non-Smoker
Assurance Mortality AIDS loadingAssurance Mortality AIDS loading
Annuity mortalityAnnuity mortality
0.0000
0.0001
0.0010
0.0100
0.1000
1.0000
10 20 30 40 50 60 70 80 90 100 110
Age
Mo
rta
lity
Male Female
PA (90) - Male PA (90) - Female
Actual : Expected MortalityActual : Expected Mortality
For assurance products:– Individual: 79% (79%) actual vs. expected – Group: 93% (97%) actual vs. expected
For annuity products:– Individual: 114% (115%) actual – Group: 93% (88%) actual vs. expected
Representative valuation Representative valuation basis – Morbidity Ratesbasis – Morbidity Rates
Morbidity – AOS resultsMorbidity – AOS results
Profit Profit (R’m)(R’m)
IndividuaIndividuall
GroupGroup Total Total 20052005
Total Total 20042004
Total Total 20032003
Min (4) (6) (6) (4) (10)
Max 274 136 274 249 289
Total 756 347 1,103 834 667
Average 32 19 26 36 30
Weighted average
71 65 68 114 117
0.0100
0.1000
1.0000
10 20 30 40 50 60
Age
Mo
rbid
ity
Male Smoker Female Smoker
Income disability morbidityIncome disability morbidity
0.0001
0.0010
0.0100
0.1000
1.0000
10 20 30 40 50 60 70
Age
Mo
rbid
ity
Male Smoker Male Non-smoker
Female Smoker Female Non-smoker
Lump sum morbidity without AIDS loadingLump sum morbidity without AIDS loading
0%
2%
4%
6%
8%
10%
12%
15 25 35 45 55 65
Age
Mo
rbid
ity
Male Smoker Male Non-smoker
Female Smoker Female Non-Smoker
Lump sum morbidity AIDS loadingLump sum morbidity AIDS loading
0.0001
0.0010
0.0100
0.1000
1.0000
10 20 30 40 50 60 70 80 90 100 110
Age
Ra
te
Male Smoker Male Non-smokerFemale Smoker Female Non-Smoker
Dread disease rates with AIDS loadingDread disease rates with AIDS loading
Actual : Expected MorbidityActual : Expected Morbidity
For lump sum disability:– Individual: 73% (70%)– Group: 80% (80%)
For income disability:– Individual: 43% (39%)– Group: 81% (70%)
Representative valuation Representative valuation basis - Withdrawal ratesbasis - Withdrawal rates
Withdrawal rates - AOSWithdrawal rates - AOSIndividual businessIndividual business
Profit (R’m)Profit (R’m) IndividuaIndividuall
GroupGroup Total Total 20052005
Total Total 20042004
MinMin (174)(174) 00 (174)(174) (145)(145)
MaxMax 8787 4343 8787 6161
TotalTotal 2020 7676 9696 (175)(175)
AverageAverage 11 1919 33 (6)(6)
Weighted Weighted averageaverage (6)(6) 4242 1212 (9)(9)
Assumed lapse ratesAssumed lapse ratesIndividual businessIndividual business
Max
Min
Weightedaverage
22%
11% 10%9%12%
16%10%8%
12% 14%
22%23%
0%
20%
40%
60%
1styear
2ndyear
3rdyear
1styear
2ndyear
3rdyear
1styear
2ndyear
3rdyear
1styear
2ndyear
3rdyear
With-Profitbusiness
Linked Market related Other
Assumed surrender ratesAssumed surrender ratesIndividual businessIndividual business
Max
Min
10%7%8% 7% 8% 7% 6%
Weighted
average
6%
0%
20%
40%
Recurring Single Recurring Single Recurring Single Recurring Single
With-Profit business Linked Market related Other
Observed withdrawal ratesObserved withdrawal ratesIndividual businessIndividual business
0%
10%
20%
30%
40%
a c g l n All a c g l n All
Lapse rates Surrender rate
2003 2004 2005
Observed withdrawal ratesObserved withdrawal ratesGroup BusinessGroup Business
0%
10%
20%
30%
40%
a c g l n All
2003 2004 2005
Questions?Questions?
Thank you for your timeThank you for your time
Contact details:Contact details:
Hantie van HeerdenHantie van Heerden(012) 422 2801(012) 422 2801
[email protected]@fsb.co.za
Sias EsterhuizenSias Esterhuizen(012) 422 2915(012) 422 2915
[email protected]@fsb.co.za