Overview of Experience for Long -term insurers in SA 2005

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



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



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


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


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


IndividuIndividualal GroupGroup Total Total

20052005Total Total 20042004


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


IndividuaIndividuall

GroupGroup Total Total 20052005



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


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


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


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

Overview of Experience for Long -term insurers in SA 2005

Documents