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South African Actuarial Journal Volume 13 (2013)

 

The construction of a price index for contributions to South African open medical schemes

Author(s): S Ramjee, A Kooverjee and KA Dreyer
Abstract
An accurate measure of the change in the price of medical-scheme cover over time is necessary to inform health and social-security policy, and would provide consumers, employers and the regulator with a useful benchmark. A medical-scheme contribution index based on gross contributions to open medical schemes is constructed using the Paasche formula and a sample of schemes for the period 2006 to 2010. The results of the index indicate a 17,48% increase in real contributions over the period.
Keywords: South Africa; medical schemes; price index
The construction of a price index for contributions to South African open medical schemes (pdf)

 

The gender profile of the South African actuarial profession

Author(s): S Ramjee, FG Sibiya and KA Dreyer
Abstract
The aim of this paper is to contextualise the gender status of the South African actuarial profession, both historically and relative to elsewhere in the world, as well as to establish the current level of representation of women in the profession. The authors have investigated the extent to which women are represented in different age groups and at various stages of the qualification process. They find that 85% of Fellow members of the Actuarial Society in 2010 are male but that women represent at least 30% of student members and younger cohorts. Given that people enter the profession primarily from undergraduate degrees in actuarial science, the authors have analysed the relative performance of female students enrolling for an Actuarial Science degree at the University of Cape Town. They find that the proportion of entrants who are female has increased over time but that persistency rates for female students are lower than for male students. They identify the need for further research to establish the underlying reasons for the gender differentials in entrants to university programmes and persistency, and conclude that universities, actuarial employers and the profession have a role to play in improving the perception of the profession and the experiences of women in the classroom and workplace.
Keywords: Actuarial science; exemption rates; gender diversity; persistency
The gender profile of the South African actuarial profession (pdf)

 

Operational Risk Management: Practical implications for the South African Insurance Industry

Author(s): M Martin and M Hayes
Abstract
Like its European counterparts, the South African insurance industry is moving towards its own risk-based regulatory regime, Solvency Assessment and Management (SAM). As a result greater focus is being placed on the appreciation of risks facing firms, of which operational risk forms a significant part. This paper aims to review operational risks as they pertain to South African insurers, both in internal risk-management practices and for the purposes of regulatory compliance. It presents principles and initiatives that have the potential to assist insurers in their identification and management of operational risks. A framework for the management of operational risk is discussed, as is the use of operational-loss data in this framework. Through an industry survey, this paper assesses perceptions towards operational risk, as well as views on the SAM regulations for the calculation of operational risk capital. Furthermore, high-level feasibility of an industry-wide operational-risk consortium database is studied.
Keywords: Operational risk; Risk management framework; Solvency Assessment and Management; Operational Risk Consortium; ORIC; Risk Event Database; RED
Operational Risk Management: Practical implications for the South African Insurance Industry (pdf)

 

The mortality of members of group schemes in South Africa

Author(s): KA Schriek, PL Lewis, JC Clur and RE Dorrington

Abstract
In this paper, the mortality of members of group schemes underwritten by South African life insurance companies is investigated. The research provides some indication of the level or mortality of this population as a whole, which apart from being useful for costing group schemes in future could be used, to the extent that these data represent the mortality of those in formal employment, in the costing of a national retirement scheme. Rates of mortality are investigated by several demographic factors such as age, sex, salary and industry of employment.
Keywords: Mortality; group life insurance; formally employed; group schemes
The mortality of members of group schemes in South Africa (pdf)

 

Modelling the mortality of members of group schemes in South Africa

Author(s): JC Clur, RE Dorrington, KA Schriek and PL Lewis
Abstract
In this paper, the methodology underlying the graduation of the mortality of members of group schemes in South Africa underwritten by life insurance companies under group life-insurance arrangements is described and the results are presented. A multivariate parametric curve was fitted to the data for the working ages 25 to 65 and comparisons are made with the mortality rates from the SA85–90 ultimate rates for insured lives and the ASSA2008 AIDS and demographic model. The results show that the mortality of members of group schemes is lower than that of the general population, mortality decreasing with increasing salary, as would be expected. For males it was found that there were differences in mortality rates by industry for a given salary band, whereas for females these differences only occurred in the lower salary bands. Furthermore, there is evidence of the healthy-worker effect at ages 60 and above, where the mortality rates appear to level off or even decrease as age increases. This contrasts with the mortality rates from the SA85–90 ultimate rates for insured lives and the ASSA2008 AIDS and demographic model, which increase exponentially.
Keywords: Parametric graduation; mortality laws; mortality rates; force of mortality; occupational mortality; group life insurance; group schemes; ASSA2008 model
Modelling the mortality of members of group schemes in South Africa (pdf)

 

A comparison of probability of ruin and expected discounted utility as objective functions for choosing a post-retirement investment strategy

Author(s): MBJ Butler, B Hu and D Kloppers
Abstract
Individuals in defined-contribution retirement funds currently have a number of options as to how to finance their post-retirement spending. The paper considers the ranking of selected annuitisation strategies by the probability of ruin and by expected discounted utility under different scenarios. ‘Ruin’ is defined as occurring when income falls below a given threshold, but does not relate to the extent of that deficit. If there is insufficient money to buy an inflation-linked annuity at retirement, then the minimisation of the probability of ruin tends to result in living annuities with a high equity content. This is because the objective function does not reflect the extent of shortfall of income or the investor’s level of risk aversion. The authors argue that this is a limitation to using the minimisation of the probability of ruin. Expected discounted utility may be more difficult to apply in practice, because of the complexity of explaining the approach to investors and the need to estimate a greater number of parameters explicitly. The authors argue that the use of expected discounted utility is, however, likely to be more representative of most investors’ perception of risk, and illustrate its use by applying an extended discounted utility model that caters for the bequest motive and different reference income levels.
Keywords: Annuities; income drawdown; ruin theory; discounted utility
A comparison of probability of ruin and expected discounted utility as objective functions for choosing a post-retirement investment strategy (pdf)

 

The Capital-Asset Pricing Model Reconsidered: Tests in real terms on a South African market portfolio comprising equities and bonds

Author(s): RJ Thomson and TL Reddy
Abstract
This paper extends previous work of the authors to reconsider the capital-asset pricing model (CAPM) in South Africa in real terms. As in that work, the main question this study aimed to answer remains: Can the CAPM be accepted in the South African market for the purposes of the stochastic modelling of investment returns in typical actuarial applications? To test the CAPM in real terms, conventional and index-linked bonds were included both in the composition of the market portfolio and in tests of the securities market line. For the investigation, quarterly total returns from the FTSE/JSE all-share index listed on the JSE Securities Exchange from 30 September 1964 to 31 December 2010 were used, together with yields on government bonds and consumer price indices over the same period. As expressed in the securities market line, the CAPM suggests that higher systematic risk, as measured by beta, is associated with higher expected returns, and that the relationship between expected return and beta is linear. In this investigation the above-mentioned predictions of the CAPM were tested for the South African market. Regression tests both of the zero-beta and standard versions of the CAPM were made, using both prior betas and in-period betas. Hotelling’s test was also applied, as well as a regression analysis. These tests were made for individual periods as well as for all periods combined.
Keywords: Beta; bonds; capital-asset pricing model; excess return; South Africa
The Capital-Asset Pricing Model Reconsidered: Tests in real terms on a South African market portfolio comprising equities and bonds (pdf)

 

Other Articles

Editorial (pdf)

Abstracts of recent postgraduate theses and dissertations at South Africa universities (pdf)

Abstract of articles in other South Africa journals (pdf)

Book review (pdf)

Cumulative Index (pdf)