Transcript Slide 1

Developing life annuity
products in Africa
AIO 2010 – “The Art
of Life”
Willem Boshoff - FIA
Agenda
1.
2.
3.
4.
5.
6.
7.
8.
Introduction: Developing life annuity products in Africa
Types of annuities
Need for life annuities
Business case to underwrite life annuities in Africa
Requirements to underwrite life annuities in Africa
Pricing, administrative & distribution capabilities
Regulatory & fiscal assistance
Closing
Introduction
Introduction: Developing life annuity products in Africa
Definitions & assumptions made
• “Annuity”
• “Life annuity”
Types of annuities
Fixed & variable annuities
Living annuities
Guaranteed annuities
Joint annuities
Need for life annuities
Longevity risk – life expectancy
Need for life annuities
Longevity risk – select populations
Improvement in life expectancy
Need for life annuities
Longevity risk – ageing populations
Need for life annuities
Investment return – income certainty
Need for life annuities
Savings
Business case to underwrite life
annuities in Africa
Holistic product range & Life company expertise
Market size – sales potential
Risk management: longevity
Risk management: investment
Operational & regulatory requirements
Profitability
Requirements to underwrite life
annuities in Africa
Calculation of life expectancy – pricing principle & actuarial
methods
• Probability of future payments being made
• Discounting of payment stream
Select population
National population & mortality statistics
Experience statistics
International reinsurance companies
Requirements to underwrite life
annuities in Africa
Appropriate investment instruments
• Long term liability – impact of investment return
• Biggest part of liability in 1st 10 or 15 years
• Most important consideration in ability to underwrite life
annuities
Matching – perfect hedge of investment liability
Immunisation – hedge interest rate movements: “duration
matching”
Investing to immunise biggest part of liability book
Requirements to underwrite life
annuities in Africa
Developing capital markets
The 1st essential requirement to enable the writing of annuity
products
• Competitive
• Liquid
Stakeholders
• Government
• Banks
• Life insurance companies
• Corporates
• Society at large
Requirements to underwrite life
annuities in Africa
Bond market
• Most important part of liability hedged with bonds / fixed
interest
• Development of bond market – government, banks,
corporates
• Quality of bonds (credit rating) – investment grade
• Yield
• Duration – 15+ years
• Derivatives
Requirements to underwrite life
annuities in Africa
Equity market
• “Tail” part of liability covered by equities
• Development of equity market – government, stock
exchange, banks, corporates
• Risk & return
• Liquidity
• Concentration risk
•Derivatives
Property
Cash
Other investments
Pricing, administrative &
distribution capabilities
Pricing calculations
• Actuarial methods
• Quality data
• Matching investments
Administration system & operational capabilities
• Payments
• Data capturing
• Linking with asset manager
• Etc.
Distribution – sales force
Regulatory & fiscal assistance
Development of capital markets
Data compilation & analysis
Tax incentives on pre- & post-retirement savings
Compulsory savings and purchase of annuities
Health of the financial system
Other
Closing
&
Thank you