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November 2012 Overview of the experience of long-term insurers in South Africa for 2011
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November 2012
Overview of the experience of long-term insurers in
South Africa for 2011
FinancialServices
Board
2
To provide information to industry on representative South African Statutory Valuation Method bases reported in 2011, including comparisons with previous years’ data and some comparisons with actual experience.
Why are we here?
FinancialServices
Board
3
What will we show you?
● Brief overview of the LT insurance market in 2011
● Review the representative:o Reported AOS results (C7)o Reported valuation assumptions (C10) o Reported actual experience (B - statements) for
certain key elements in a valuation basiso High level stress test resultso Top risks (Qualitative return)
FinancialServices
Board
5
Rankings
Insurer Industry% of total
assetsRank based on Assets
2011 2010 2009
Old Mutual Life Typical 25% 1 1 1
Sanlam Life Typical 16% 2 2 2
Momentum Group Typical 12% 3 3 3
Liberty Life Typical 11% 4 4 4
Investment Solutions Linked 9% 5 5 5
Metropolitan Life Typical 4% 6 6 6
Allan Gray Linked 4% 7 7 7
Investec Assurance Linked 4% 8 8 8
Coronation Life Linked 2% 9 9 11
ABSA Life Typical 1% 10 10 10
FinancialServices
Board
6
Number of insurers & total assets, split by year-end
4
12
17
13
6
1
35
0
5
10
15
20
25
30
35
40
0
200
400
600
800
1 000
1 200
Feb Mar Jun Jul Aug Sep Nov Dec
Nu
mb
er
of
ins
ure
rs
As
se
ts i
n R
'bn
Month of year-end
Total assets Number of insurers
FinancialServices
Board
7
Business class
886
86
308
215
0
100
200
300
400
500
600
700
800
900
1000
0
50
100
150
200
250
Investments Risk Annuities Universal Life
Ass
ets
R
'bn
Pre
miu
ms
an
d b
enef
its
R'b
nR314bn premiums | R254bn benefits
Gross premiums Gross benefits Total Policyholder Assets
FinancialServices
Board
8
Insurance licence
5 8
142
4
146
9 2 5
129
2
110
5
0
20
40
60
80
100
120
140
160
Assistance Disability Fund Health Life Sinking Fund
R'b
n
R314bn premiums | R254bn benefits | 92% retention
Gross premiums Gross benefits
FinancialServices
Board
9
Growth per licence
3%
14%
7%
9%
11%
26%
10%
1%
18%
-3%
12%
-1%
12%
-1%
-5%
0%
5%
10%
15%
20%
25%
30%
Assistance Disability Fund Health Life Sinking Fund Total
Growth from 2010 to 2011
Gross premiums Gross benefits
FinancialServices
Board
10
Key indicators
Amounts in R’bn 2011 2010 2009 2008
Total assets 1,652 1,530 1,384 1,340
Total liabilities 1,529 1,416 1,276 1,240
Excess assets 123 114 108 100
CAR before management action
74 82 84 76
CAR after management action
36 33 32 32
Funding factor (excl. CAR)
1.08 1.08 1.09 1.08
CAR Cover 3.45 3.46 3.39 3.14
CAR after / CAR before
48% 40% 38% 42%
FinancialServices
Board
11
Key indicators
IndustryTotalR'bn2011
TotalR'bn2010
TotalR'bn2009
t l r a n c
Number of active insurers
28 15 7 8 9 7 74 75 76
Net new premiums received
59.2% 37.0% 1.2% 0.7% 0.7% 1.2% 156 147 179
Net total premiums received
72.1% 23.8% 2.0% 0.5% 0.6% 1.0% 289 268 294
Net benefits paid 78.0% 19.0% 1.8% 0.3% 0.4% 0.4% 240 247 281
FinancialServices
Board
12
Asset composition
8% 10%6% 8% 9%
7% 9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
t l r a n c All
Other Property Cash CIS Fixed interest Equities Investment Yield
FinancialServices
Board
14
● In the graphed rates, we tried to determine representative mortality rates
● For assured lives we used 100% of the SA85/90 (heavy) ultimate table to place weighted rates into perspective
● For annuitants we used 100% of the a(55) table to put weighted average rates into perspective
Mortality
FinancialServices
Board
15
Assurance mortality
0.001
0.010
0.100
1.00020 25 30 35 40 45 50 55 60 65 70 75 80
Male smokers without AIDS loading
a c l n r t SA85-90 (Heavy)
FinancialServices
Board
16
Change in mortality of assured lives
80%
85%
90%
95%
100%
105%
110%
20 30 40 50 60 70 80 90 100
Smokers without AIDS loading
Males (2010 to2011)
Females (2010 to2011)
Males (2009 to2010)
Females (2009 to2010)
FinancialServices
Board
17
AIDS loading comparison
0%
20%
40%
60%
80%
100%
120%
140%
20 25 30 35 40 45 50 55 60 65 70 75 80
Mortality for assured livesMale non-smokers
2011 2010 2009
FinancialServices
Board
18
AIDS loading by industry
0%
100%
200%
300%
400%
500%
600%
20 25 30 35 40 45 50 55 60 65 70 75 80
Mortality for assured livesMale non-smoker
a c n r t
FinancialServices
Board
19
Annuitant mortality by industry
0.0010
0.0100
0.1000
1.000020 25 30 35 40 45 50 55 60 65 70 75 80
Male smoker without AIDS loading
r t a(55)
FinancialServices
Board
20
Change in assurance mortality (2011/2006)
75%
80%
85%
90%
95%
100%
105%
110%
20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Without AIDS loading With AIDS loading
FinancialServices
Board
21
Change in annuitant mortality (2011/2006)
75%
80%
85%
90%
95%
100%
105%
110%
115%
60 65 70 75 80 85 90 95 100
Without AIDS loading With AIDS loading
FinancialServices
Board
22
Mortality: Actual vs. expected
● Assurance productso Individual: 89% (88%)o Group: 89% (89%)
● Annuity productso Individual: 113% (105%) o Group: 102% (117%)
FinancialServices
Board
23
Morbidity: Actual vs. expected
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011
Individual -Lump sumdisability
Group -Lump sumdisability
Individual -Incomedisability
Group -Incomedisability
FinancialServices
Board
25
Assumed central discount rate
11.10% 11.10% 11.05% 11.05%
6.46%
5.62% 5.66%
8.10%
8.95%
8.28%
8.80%
9.48%
4%
5%
6%
7%
8%
9%
10%
11%
12%
Investments Risk Annuities Universal Life
Maximum Minimum Average
FinancialServices
Board
27
Observed lapse rates for individual business
0%
10%
20%
30%
40%
50%
60%
a c t n All
2009 2010 2011
FinancialServices
Board
28
Observed surrender rates for individual business
0%
2%
4%
6%
8%
10%
12%
14%
c t l n All
2009 2010 2011
FinancialServices
Board
29
Observed withdrawal rates for group business
0%
5%
10%
15%
20%
25%
a c t l n All
2009 2010 2011
FinancialServices
Board
31
Expense experience(Statement C7)
-2.5
-2
-1.5
-1
-0.5
0
0.5
Individual Business Group Business Shareholders
R'b
n
2009 2010 2011
FinancialServices
Board
32
Expense inflation assumption
8.00%
9.50%
8.25%
7.30% 7.20%
3.50%4.00%
4.25%4.70%
4.00%
6.00% 6.12%6.38%
5.79% 5.94%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2007 2008 2009 2010 2011
Ex
pe
ns
e In
fla
tio
n
Individual Business
Maximum Minimum Weighted Average
FinancialServices
Board
33
Actual expense inflation
17.4
10.1
19.2
9.1
0
5
10
15
20
25
Total Acquisition Expenses Total Operating Expenses
R'b
nIndividual Business
2007 2008 2009 2010 2011
4%
11%-10%
10%
FinancialServices
Board
34
Actual expense inflation
4.8
10.1
4.9
9.1
0
2
4
6
8
10
12
Total Acquisition Expenses (excl. commission) Total Operating Expenses
R'b
nIndividual Business
2007 2008 2009 2010 2011
-5%
11%
1%
-10%
FinancialServices
Board
35
Actual initial expense(individual business)Average initial expense per new policy
Industry 2011 2010 2009
Assistance R 328 R 399 R 254
Cell Captive R 1,146 R 852 R 555
Linked R 13,219 R 14,013 R 13,660
Niche R 82 R 138 R 187
Typical R 1,803 R 1,870 R 1,631
All R 1,597 R 1,723 R 1,460
FinancialServices
Board
36
Renewal expense assumption(per policy)
Recurring premium policies
Single premium policies
Paid-up policies
Disability income policies in payment
Annuities in payment
R 0
R 50
R 100
R 150
R 200
R 250
R 300
R 350
R 400
Renewal Expense per Policy (Individual Business)
2009 2010 2011
FinancialServices
Board
37
Actual operating expense(individual business)
Industry
Average Operating Expense
per policy
Operating Expenses as a % of Total Net Premium
2011 2010 2009 2011 2010 2009
Assistance R 116 R 152 R 141 13% 17% 24%
Cell captive R 82 R 68 R 61 10% 10% 9%
Linked R 223 R 269 R 502 0.5% 0.2% 0.4%
Niche R 115 R 101 R 42 11% 11% 10%
Typical R 212 R 256 R 243 6% 8% 8%
All R 212 R 246 R 231 6% 7% 7%
FinancialServices
Board
39
Overview CAR Cover
0
1
2
3
4
5
6
7
8
9
10
1 10 100 1 000 10 000 100 000 1 000 000
CA
R C
ove
r
Assets (R'm) Log scale
Assistance Cell Linked Niche Reinsurer Run-off Typical
FinancialServices
Board
40
Distribution of CAR
3.2%6.4%
90.4%
0%
20%
40%
60%
80%
100%
MCAR TCAR OCAR
% of Active Insurers (2011) % of Total CAR (2011) % of Total CAR (2010)
FinancialServices
Board
41
TCAR
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011
Lapse Risk Surrender Risk
FinancialServices
Board
42
IOCAR
-60% -40% -20% 0% 20% 40% 60% 80%
Lapse Risk
Surrender Risk
Fluctuation Risk
Assumption Risk
Investment Risk
Credit Risk
Negative BSR
Operational Risk
Other risks
Diversification factor
FinancialServices
Board
43
Operational risk and credit risk
● Operational risk o Total amount of ± R6.6bn o Comprises 18.4% of total CAR held o Comprises 0.4% of total assets
● Credit risk o Total amount of ± R4.9bn o Comprises 13.9% of total CAR held o Comprises 0.3% of total assets
FinancialServices
Board
44
Proportion of insurers using management action
IndustryNumber of insurers using management
action
Total number of insurers
Proportion
Assistance 1 8 13%
Cell Captives 1 7 14%
Niche 2 9 22%
Linked 0 15 0%
Typical 13 28 46%
Reinsurers 0 7 0%
Run-off 0 5 0%
Total 17 79 22%
FinancialServices
Board
45
Effect of management action
0%
20%
40%
60%
80%
100%
t n l r run-off all
2009 2010 2011
FinancialServices
Board
46
Effect of management action
● Overall CAR was reduced by 52%
● TCAR was reduced by 4%
● Elements of OCAR reduced:
o Investment risk – 64% Worst investment return risk – 28% Resilience risk – 64%
o Annuitant mortality fluctuation risk –13%
o Morbidity fluctuation risk –10%
o Credit risk –13%
FinancialServices
Board
48
Overview: AOS
AOS Details2011 2010 2009 2008
R'bn
Excess assets at start 114.0 108.3 99.9 108.9
New business (4.3) (5.3) (6.1) (4.1)
Change in valuation basis (0.1) (0.7) 0.2 0.2
Release of margins 11.2 10.4 9.8 9.0
Investment experience 16.9 16.4 20.4 (6.2)
Mortality experience 3.4 2.9 3.2 3.6
Morbidity experience 0.8 1.0 0.8 1.4
Expense experience (2.8) (2.0) (1.5) (0.8)
Early withdrawals 1.2 0.5 0.2 0.1
Tax (3.9) (4.2) (4.4) (2.0)
Other (1.5) (2.3) (1.9) 5.2
Income from subsidiaries 0.7 0.7 1.0 0.3
Dividends paid (12.3) (12.1) (14.2) (15.0)
Excess assets at end 123.1 114.0 108.3 99.9
FinancialServices
Board
50
Economic Stress Tests
CAR Cover % Change
Base 3.48
Interest Rate Up 3.56 2.1%
Interest Rate Down 3.40 -2.3%
Equity Shock 2.99 -14.0%
Property Shock 3.51 0.7%
Exchange Rate Appreciation 3.45 -0.8%
Exchange Rate Depreciation 3.53 1.3%
Volatility Shock 3.48 -0.1%
Credit Risk Shock 3.33 -4.5%
Economic Scenario 2.81 -19.5%
FinancialServices
Board
51
Non-Economic Stress Tests
CAR Cover % Change
Base 3.48
Mortality and Morbidity Shock 2.51 -28%
Expense Shock 3.37 -3%
Withdrawals Shock 3.53 1%
FinancialServices
Board
52
Typical Insurers
3.23 3.05
2.43
3.20 3.06 3.20 3.04 2.90
2.16
3.11
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Interest RateUp
Interest RateDown
EquityShock
PropertyShock
ExchangeRate
Appreciation
ExchangeRate
Depreciation
VolatilityShock
Credit RiskShock
EconomicScenario
Economic Stress Tests
Base CAR Cover
FinancialServices
Board
53
Typical Insurers
2.42
2.97 3.28
3.11
1.00
1.50
2.00
2.50
3.00
3.50
Mortality and Morbidity Shock Expense Shock Withdrawals Shock
Non-Economic Stress Tests
Base CAR Cover
FinancialServices
Board
55
Top Risks
0%
20%
40%
60%
80%
100%
Credit Risk Market Risk Liquidity Risk InsuranceRisk
OperationalRisk
Legal &Regulatory
Risk
Strategic Risk
7
6
5
4
3
2
1
FinancialServices
Board
56
Top Risks: Typical
0%
20%
40%
60%
80%
100%
Credit Risk Market Risk Liquidity Risk InsuranceRisk
OperationalRisk
Legal &Regulatory
Risk
Strategic Risk
7
6
5
4
3
2
1
FinancialServices
Board
57
Top Risks: Assistance
0%
20%
40%
60%
80%
100%
Credit Risk Market Risk Liquidity Risk InsuranceRisk
OperationalRisk
Legal &Regulatory
Risk
Strategic Risk
7
6
5
4
3
2
1
FinancialServices
Board
58
Top Risks: Linked
0%
20%
40%
60%
80%
100%
Credit Risk Market Risk Liquidity Risk Operational Risk Legal &Regulatory Risk
Strategic Risk
7
6
5
4
3
2
1
FinancialServices
Board
59
Top Risks: Other
● HR Risko Key man dependencyo Recruiting and retaining skilled staff
● Operational Risk o IT systemso Fraud
● Regulatory Risk o Keeping abreast with all regulatory changeso SAM, Micro insurance, FAIS
● Strategic Risko Competition
