South African Actuarial Journal Volume 14 (2014)

The paper(s) immediately below are web versions of the corresponding papers accepted for publication and being prepared for the printed version in slightly modified format.

Authentic Professional Development: Key to Quality Service Delivery

Authors: MW Lowther and WJ McMillan
The Actuarial Society of South Africa (‘Actuarial Society’) requires its members to honour their
professional promise to deliver specialist and up-to-date actuarial expertise that is ethical and
subject to professional oversight. The purpose of this study is to investigate how the Actuarial
Society can encourage its members to develop and maintain the capability to deliver this
professional promise through continuing professional development (‘CPD’). Current concepts
of and approaches to professional development were identified from the literature and various
professions’ CPD requirements. Thereafter, the opinions of South African actuaries on the
insights from the literature were sought by means of an online survey. Analysis of the literature
indicates that CPD is most effective when it takes place through a development cycle of planning,
action, results and reflection. Further, professional development is associated with competently
completing tasks that are required in the workplace. Data from the survey supported these insights.
It is concluded that the Actuarial Society’s CPD requirements should be designed to encourage
members to develop and maintain their capabilities, and it is therefore suggested that members be
required to engage in work-based development cycles.
Keywords: Professionalism; continuing professional development; CPD; professional development cycle;
professional practice; work-based learning
Authentic professional development: Key to Quality Service Delivery (pdf)

Estimating Long-term Volatility Parameters for Market-Consistent Models

Authors: EJ Flint, ER Ochse and DA Polakow
Contemporary actuarial and accounting practices (APN 110 in the South African context) require the use of market-consistent models for the valuation of embedded investment derivatives. These models have to be calibrated with accurate and up-to-date market data. Arguably, the most important variable in the valuation of embedded equity derivatives is implied volatility. However, accurate long-term volatility estimation is difficult because of a general lack of tradable, liquid medium- and long-term derivative instruments, be they exchange-traded or over the counter. In South Africa, given the relatively short-term nature of the local derivatives market, this is of particular concern. This paper attempts to address this concern by:
— providing a comprehensive, critical evaluation of the long-term volatility models most commonly used in practice, encompassing simple historical volatility estimation and econometric, deterministic and stochastic volatility models; and
— introducing several fairly recent nonparametric alternative methods for estimating long-term volatility, namely break-even volatility and canonical option valuation.
The authors apply these various models and methodologies to South African market data, thus providing practical, long-term volatility estimates under each modelling framework whilst accounting for real-world difficulties and constraints. In so doing, they identify those models and methodologies they consider to be most suited to long-term volatility estimation and propose best estimation practices within each identified area. Thus, while application is restricted to the South African market, the general discussion, as well as the suggestion of best practice, in each of the evaluated modelling areas remains relevant for all long-term volatility estimation.
Keywords: Long-term volatility modelling; market-consistent valuation, historical volatility, deterministic
volatility models, GARCH, stochastic volatility, break-even volatility, canonical valuation
Estimating Long-term Volatility Parameters for Market-Consistent Models (pdf)

An Investigation into South African General Equity Unit Trust Performance During Different Economic Periods

Authors: DE Bertolis and M Hayes
This paper investigates the performance of South African general equity unit trusts relative to the FTSE/JSE All Share Index during the period January 1994 to December 2012. The period under investigation was split into six further sub-periods each having a specific economic cycle: a downturn, average growth or robust growth. Unit trusts are shown to have underperformed in economic downturns and outperformed in periods of robust growth, while no conclusions can be made about unit trust performance during periods of average growth. Overall, unit trusts showed slight outperformance, but this was not found to be persistent.
Keywords: South Africa; unit trusts; equity; economy; unit trust investment managers; alpha; beta
An Investigation into South African General Equity Unit Trust Performance During Different Economic Periods (pdf)

The Prevalence of Chronic Conditions Associated with Modifiable Health Risk Factors in Corporate Employees in South Africa

Authors: R da Silva, K Milner , TL Kolbe-Alexander, M Greyling and D Patel
The Sunday Times Discovery Healthiest Company Index Survey collected a dataset of 13 578 responses from corporate employees in 101 companies. This dataset has been used to assess the prevalence of self-reported modifiable health-risk factors and the association with chronic conditions. The analysis indicates that there is a greater likelihood of an individual reporting a chronic condition where their lifestyle risk factors are outside of the healthy range. This suggests that there are opportunities to manage the costs of health insurance, medical expenses and productivity losses by applying risk management tools aimed at addressing modifiable risk factors.
Keywords: Chronic condition, disease management programme, modifiable health risk factors
The Prevalence of Chronic Conditions Associated with Modifiable Health Risk Factors in Corporate Employees in South Africa (pdf)