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Transcript of International Actuarial Association Building up the Actuarial Profession in Africa The Actuarial...
International Actuarial Association Building up the Actuarial Profession in Africa
The Actuarial Profession in Kenya
Sundeep K Raichura
Presented at 3rd International Meeting of Leaders of the Actuarial Profession in Africa
8 June 2007
Agenda
About The Actuarial Society of Kenya History Objectives Structure
The actuarial profession in Kenya Numbers and areas of practice Actuarial education Statutory roles Pensions and insurance sectors in Kenya
Challenges facing the actuarial profession in Kenya and industry issues
Update on some relevant TASK initiatives
The Actuarial Society of Kenya
Registered 1993 Launched in 2005 Brings together qualified and trainee actuaries in
professional, educational and research organisations with an aim of promoting the actuarial profession in Kenya and E Africa
TASK functions through its governing Council and Committees (functional, administrative and ad hoc)
Work on three year Strategic Plan in progress
TASK Vision
“To position the Actuarial Profession in Kenya and the region as the leading profession in the areas of modeling and management of financial risks and contingent events”
Key TASK Objectives
– To develop and strengthen the actuarial profession in Kenya– To create a forum for members of the actuarial profession to meet
and exchange ideas– To support and protect members and present common
professional interests to Government and policymakers – To play an active role in actuarial education and the development
of local actuarial expertise, professional standards and guidance– To encourage research in the development of actuarial ideas– To improve the education of financial consumers and raise public
interest issues– To broaden the scope of the actuarial profession and promote our
contribution in wider fields– To establish links with other professional associations in Kenya
and internationally with similar objects
TASK Progress to Date
Revised constitution still in draft– Considerable time spent on membership categorisation– Strong pressure to include special Associate categorisation for non-
statutory work
Intent to become full member of IAA by end 2007 – Committee working on professional code of conduct, which includes
IAA common principles of GCAE– And Disciplinary process– Formal process for adoption of standards of practice– Borrowing heavily from other actuarial associations for code of
conduct and guidance notes
TASK Progress to Date
No of working committees – Membership & PR, Retirement and other Employee Benefits,
Insurance and Health Care, Professionalism, Education and Research, Investments and Wider Fields, Secretarial Finance and Fund Raising
– Disciplinary and Appeals– Performance erratic
Strategic Plan – needs wider input
Numbers
4 qualified actuaries – 3 Fellows of the Institute of Actuaries– 1 Associate of the Society of Actuaries
40 partly qualified currently working in field– Excludes those who have graduated from local Unis with actuarial science
degrees – Many have given up on actuarial examinations– Good number has dropped actuarial examinations for CFA
• Over 500 actuarial students at three local Unis:– UoN - started 2000, currently about 240 students, intake of 60 per year, 60ish
already graduated– JKUAT - started 2002, currently over 500, intake of 200 – Maseno – started 2006, first intake of 30 students
Actuarial Education
Degree programmes aim to teach full core technical subjects excluding ACC
– Programme attracting brightest and talented students– But still need to assess minimum entry standards– Large streams – Academic staff likely to be strained– Bigger issue of capacity of market to absorb actuarial graduates in traditional
fields (life insurance companies and consulting firms)– Uni programmes not accredited– Also undergrads seem not to be able to register with IoA and do IoA exams
whilst in college
TASK committed to supporting local Uni programmes– Resource and time constraint – Two qualified actuaries have offered to teach – & Participate in course reviews and examination marking
Areas of employment
Actuarial work as employee of:– Life insurers : 19– Health care organisations : 3– General insurers None– National social security schemes : None– Complementary pensions : None– Investment company : 3– Regulator or Govt Departments : 6– Banks : 15
Consulting actuary working mainly in:– Life insurance : 3– Heath care : 2 (part of time)– General insurance : Not much– Social security 2 (part of time)– Pensions : 12– Investment : 3
Statutory Roles & Issues – Insurance
Insurance Act Cap 487– Actuarial certification of long term insurance premium rates– Annual statutory actuarial valuations of life funds– Independent actuary report on mergers, acquisitions– Actuary defined a FIA or FFA or such other as approved by
Commissioner– Note Dept upgraded as Insurance Regulatory Authority from 1
May 2007– Full review of Insurance Act underway – RBC and RB solvency
margins
– No statutory actuarial role for non-life or health care currently– Position paper lobbying for actuarial certifications of technical
provisions and of insurer financial condition submitted– TASK hopes to play key role in review of Insurance Act
Statutory Roles & Issues – Pensions
Retirement Benefit Act No 3 of 1997– Triennial actuarial valuations of DB schemes– Minimum funding actuarial valuations (no prescribed basis) and statutory
remedial plans– Actuarial certifications of amendments effecting financial health– Actuarial evaluation on winding up– Actuarial certifications of transfer values and commutation terms– Initial statutory requirement for actuarial reviews of DC schemes dropped in 2004– Regulations on scheme conversions being prepared– Actuary defined as person recognised as such by IoA, FoA, SoA, CIA, AIA, JIA
– Some provisions in Income Tax Rules on treatment of actuarial surpluses and deficits
Snapshot of Insurance Industry in Kenya
46 companies of which 23 transact life Most life companies composite Estimated total annual premium 2007 of K Shs 40bn (US$ )
comprising:– Life K Shs 12bn (US$ )– Non –life K Shs 28bn (US$ )
Estimated total assets of K Shs 100bn (US$ )– Life K Shs 55bn (US$ )– Non-life K Shs 45bn (US$ )
Total aggregate share capital 2005 estimated at K Shs 30bn with total disclosed profit of K Shs 4bn
No company has resident qualified actuary and only a handful have actuarial departments
Snapshot of Retirement Industry in Kenya
Sector comprises:– Unfunded PAYG PSSA– NSSF – DC provident fund (K Shs 60bn est)– Occupational schemes (K Shs 170bn est)
Legislation has focused on enhancing protection of members’ benefits and improving governance of schemes
Pronounced trend to DC – particular concerns re contribution rates, distribution and equity of allocation of returns to member accounts, conservative investment strategies, member communication
Re-engineering of public service schemes Dichotomy of debate re pensions reform National Pensions Policy proposed with co-ordinated strategy
– Studies to introduce universal zero pillar social assistance programme– Reform of NSSF– Proposed conversion of PSSA to NDC for new entrants
Challenges facing Actuarial Profession in Kenya
Lack of understanding and hence appreciation by industry and regulators of the whole set of services that actuaries can offer
Most life insurance companies will only call actuaries to undertake yearly actuarial valuations and certify rates for new life products
Trend to DC limiting traditional DB actuarial role Perceived high cost of actuarial services Effective implementation of actuarial recommendations Actuarial education, resource and capacity constraints and lack of accreditation Capacity of market to absorb actuarial science graduates in traditional fields –
frustration and disillusionment of actuarial graduates Challenge from other courses – CFA Mentoring and training of students Wider fields not happening and hard sell, but some individual actuarial graduates
have done well in banks, investment houses and IT
Challenges facing Insurance and Pension Sectors in Kenya
Insurance Industry – Low level of penetration of insurance particularly life insurance– Customer focus, marketing and distribution strategies, product innovation– Trained man-power across the insurance value chain– IT and processes – Operational, financial and risk management strategies– Pricing and reserving – Lack of data and statistics– Fierce competition and rate under-cutting– Insolvencies and financial distress of insurers and HMOs– Move to fair value accounting and risk based capital– Insurance company taxation
Challenges facing Pension Sectors in Kenya
Low coverage Move to DC and associated challenges Public sector scheme actuarial deficits Pensions policy dichotomy
Challenges can in fact be opportunities for actuarial profession in Kenya
Update on some relevant TASK initiatives
Strategic Plan IAA membership – code of conduct etc Formal internship programmes Actuaries to volunteer to teach at local Uni programmes Proposal to regulate role of actuarial profession in Kenya and TASK as
statutory professional body Forum for regulators and policy makers Forum for CEOs of insurance companies Work done by actuarial firms on developing mortality tables for insured
lives and testing of motor insurance rates for Association of Kenya Insurers
Project ideas and sponsorships for students Project on comparison of international insurance and pensions regulations Two position papers to date to Ministry of Finance Actuarial appreciation course in the local insurance syllabus Need for more member meetings and forums – two monthly forums Professionalism course for actuarial practitioners
TASK Vision 2010
Achieve full IAA membership – 2008 Vibrant and dynamic actuarial profession Strengthen statutory roles in traditional fields Local universities accreditation – 2010 Participate actively in International Congress of
Actuaries in SA 2010 Help we need and suggestions
– Collaboration with IAA and African actuarial associations– IAA assistance on education strategy– Regular interaction with peers in Africa and other countries
INSURANCE INSTITUTE OF KENYA 20th ANNUAL CONFERENCE
Paradigm Shift : Managing for High PerformanceRedefining our Core Business: An Underwriters Perspective
Sundeep K Raichura18 Nov 2005
How do we define high performance How do we define high performance from an insurer’s perspective?from an insurer’s perspective?
Paradigm Shift:Paradigm Shift: Managing for High Managing for High PerformancePerformance
Paradigm Shift:Paradigm Shift: Managing for High Managing for High PerformancePerformance
Questions to a ‘high performing’ composite insurer:– What was increase in gross premiums?– To what extent did increase in gross premium translate to increase in profitability?– What was relative performance of life/non-life business?– What was underlying profitability of individual products? Lines of business? Which
areas did well? Which did not? Why? Which products are adding value? Which products are being subsidised?
– What was relative performance of ‘offices’?– Were actual premiums consistent with pricing basis?– Was profit underwriting, investment, other? By class? If underwriting, source?– What was expense ratio? Expense overruns? Were profits due to lapses?– Trade-off between profitability v solvency? – What was year on year return on shareholders’ equity? Did it meet shareholders’
hurdle rate?– How was profitability measured? Statutory? Realistic?– Is the capital adequate given the level of business? Etc etc etc– Insurance business a complex business; multi-faceted, multi-risk carrier
TABULATED PRÉCIS OF THE INSURANCE INDUSTRY
YEAR 1997 1998 1999 2000 2001 2002 2003AMOUNT K sh '000' K sh '000' K sh '000' K sh '000' K sh '000' K sh '000' K sh '000'Shareholders' funds 13,203,059.0 21,067,241.0 20,747,543.0 21,026,280.0 20,281,561.0 20,332,880.0 26,923,695.0
Assets 56,417,196.0 62,399,429.0 64,932,378.0 67,624,928.0 66,352,084.0 72,350,428.0 87,157,032.0
Gross Direct Premium written 18,398,461.0 19,380,748.0 21,032,191.0 20,867,645.0 23,195,308.0 25,912,418.0 29,215,744.0
Net Direct Premium written 11,850,795.0 13,141,135.0 14,923,299.0 15,647,198.0 16,799,511.0 18,597,906.0 21,236,698.0
Invested assets 47,644,311.0 49,632,790.0 51,133,519.0 53,551,478.0 53,320,718.0 59,000,385.0 70,714,150.0
Investment income 5,214,426.0 6,454,448.0 5,016,847.0 4,400,794.0 4,587,193.0 4,883,535.0 2,455,714.0
Claims incurred (Non-life business) 8,285,791.0 8,437,786.0 8,073,543.0 8,939,723.0 7,044,033.0 765,510.0 7,933,129.0
Expenses of management 3,887,820.0 4,439,161.0 5,330,223.0 5,380,743.0 5,654,857.0 5,999,316.0 7,009,998.0
Commissions 2,232,782.0 2,331,290.0 2,499,853.0 2,591,675.0 2,422,253.0 2,620,406.0 3,201,677.0
Expense ratio (by NP) 0.52 0.52 0.52 0.51 0.48 0.46 0.48
Operating profit/loss 1,623,178.0 1,938,458.0 1,180,117.0 1,433,121.0 1,654,413.0 1,951,719.0 2,843,659.0
Underwriting results (Non-life business) (576,398.0) (113,494.0) (136,608.0) (579,835.0) 218,669.0 296,520.0 250,842.0
.
Market penetration (I.e gross premiums to GDP has remained around 3% for the last five years
Source : Report of the Commissioner of Insurance for y/e 31 Dec 2003
3,581,574 4,321,770 4,978,063 5,682,596 7,072,594 7,236,900 8,520,01514,816,887 15,058,978 16,054,131 15,185,049 16,123,814 18,675,518 20,695,727
Total Average41,393,512 5,913,359
116,610,104 16,658,586
LIFE INSURANCENON-LIFE INSURANCE
LIFE INSURANCENON-LIFE INSURANCE
LIFE VS NON LIFE PREMIUM INCOME
LIFE INSURANCE
NON-LIFE INSURANCE
Average life : non-life premium ratio : 1:4
Life insurance penetration : 0.7%cf SA approx 16%; Zim 2%; UK/US 10%
When was the last time we When was the last time we sharpened our axe as an industry?sharpened our axe as an industry?
Challenges Facing the Insurance Industry (1)
Increasing level of penetration, but huge potential Are customer needs being met? Customer focus, marketing and distribution strategies, product innovation Trained man-power across the insurance value chain As well as appropriate KPI IT and processes Operational, financial and risk management strategies Pricing and reserving Lack of data and statistics Fierce competition and rate under-cutting Underwriters vs intermediaries ought to have synergistic relationship – is there? Fraud (ambulance chasers, collusion, malpractices) Professionalism across the insurance value chain
Challenges Facing the Insurance Industry (2)
Insolvencies and financial distress of insurers and HMOs Image Review of Insurance Act and regulation Move to fair value accounting and risk based capital Insurance company taxation Economic growth and wealth Conservatism vs innovation (bancassurance) – are we too steeped in
tradition? Do we see the big picture?
Some external, but most internal Challenges are in fact opportunities for managing for high
performance and paradigm shift
If necessity is the mother of invention,If necessity is the mother of invention,
discontent is the father of progressdiscontent is the father of progressDavid Rockfeller, American businessmanDavid Rockfeller, American businessman
Paradigm Shift:Paradigm Shift: Managing for High Managing for High PerformancePerformance
Insurance is all about undertaking riskInsurance is all about undertaking riskIsn’t risk our raison d’etre?Isn’t risk our raison d’etre?
But do we understand the true nature of the risks we But do we understand the true nature of the risks we face?face?
Do we understand the true nature of our business?Do we understand the true nature of our business?What level of risk is acceptable? What level of risk is acceptable?
Redefining Our Core Redefining Our Core ObjectiveObjective
Paradigm Shift:Paradigm Shift: Managing for High Managing for High PerformancePerformance
The word is ERM - Enterprise Risk Management
“The discipline by which an organisation (in any industry) assessed, controls, exploits, finances and monitors risk from all sources for the purpose of increasing the organisation’s short and long term value to its stakeholders”
Casualty Actuarial Society
Risk management is as much about identifying opportunities as avoiding or mitigating losses
ASNZS 4360 –1995
Implementing ERM Implementing ERM – Internal Environment– Internal Environment
– Internal environment is the context within which the enterprise functions:
Governance structure Effective and dynamic leadership Reporting structure Assignment of authority Management style Ethical values Risk culture
– This foundation and culture will set the course for how risk will be handled across the enterprise
– The independence and involvement of the Board and the tone set by management have a critical influence on the internal environment
– The Board and senior management must determine their risk objectives, risk appetite, risk tolerances and agree on risk management roles and responsibilities
Enterprise Risk Management Specialty Guide Society of Actuaries
Insurance RisksUnderwriting risk
Underwriting process riskPricing riskProduct design riskClaims riskEconomic environment riskNet retention riskPolicyholder behaviour risk
Credit riskBusiness credit riskInvested asset riskPolitical riskCounterparty riskSovereign risk
Market riskInterest rate riskEquity and property riskCurrency riskBasis riskReinvestment riskConcentration riskAsset/liability mgt riskOff-balance sheet riskLiquidity risk
Operational riskHuman capital riskManagement control riskSystem risksStrategic risksLegal risk
Eg Underwriting Risk Underwriting process risk – eg financial loss related to selection and approval of risks to be insured
Pricing risk – eg financial loss due to insufficient premium charged for a risk undertaken
Product design risk – eg exposure to events not anticipated in the design and pricing of a product
Claims risk – eg more than/higher than expect claims Economic environment – eg adverse effect on the company due
to changes in socio-economic conditions Net retention risk – eg losses due to catastrophic or concentrated
claims experience due to higher risk retention Policyholder behaviour risk – eg unanticipated behaviours of
policyholders adversely effecting company Reserving risk – eg inadequate provision in company accounts
for policy liabilities
Risk Management Strategy (1)
Identify all risks– Formal consideration of all facets of business – How and Why risk can occur?– “What if” considerations?
Quantify the risk– Source– Consequence and severity– Likelihood– Sensitivity analysis
Risk Management Strategy (2)
Evaluate the risk– Rating – qualitative and quantitative analysis– Consider controls or treatment
Risk treatment – weigh up the risk and– Retain– Avoid– Reduce likelihood of occurrence– Reduce the consequences– Transfer the risk (eg reinsure)
Establish controls
Risk Management Strategy (3) In respect of risks retained:– Ensure capital is provided to cover risk
If no capital, then don’t accept the risk– Price properly for the risk
Be wary of strategies aimed at improving policy returns where shareholders have to put up capital without extra reward
If the market cannot bear the price, avoid the risk Scenario test Be wary of combinations of events Be wary of undercutting without appreciating impact on overall
business
Ensure all parties are aware of risks being undertaken Ensure coordination between all parts of business Continually review Integrated approach is key to successful ERM
Paradigm Shift: Paradigm Shift: Planning mindset
Consider following key questions as part of insurance business planning and review to add focus to all areas of insurer’s business, all new initiatives or ventures:
– How much capital is required and what is timing of these capital requirements?
– What are the options for funding (debt, equity,o/d)?– What impact does undertaking this have on our P&L?– What are the potential returns under the different funding options?– What risks does undertaking this impose on the company?– Is the return consistent with the risk and the shareholders’ hurdle return?– Where and how will this create value?– How does this fit strategically with the company’s existing business; how
does this contribute to the company’s vision and goals?– Are there non-financial benefits to the company?
Paradigm Shift:Paradigm Shift:Marketing
– Who are our customers?– How are we going to sell to them and service them?– What are we going to sell them?
– Product is the final element since insurance “sold and not bought”
Paradigm Shift:Paradigm Shift: Marketing
Who are our customers?– Analyse the population and its insurance needs– Analysis of current and potential customers critical– Divide into groups which have different characteristics
Same product need or group of product needs Distribution channel Population segments
– Consider whether any competitive advantage over others – Have we thought of crop insurance, rural population needs,
cooperatives, AIDS/HIV solutions
Paradigm Shift:Paradigm Shift: Marketing
How do we reach them- Distribution channels?– Brokers– Tied agents– Direct sales force– Other direct sales routes– Telemarketing and call centres– Other innovative structures
– Internet?
Paradigm Shift:Paradigm Shift: Marketing
Products and product development– What products appropriate?– How does this compare with current offering?– Any niche?– Any unfilled needs?– Level of awareness of potential customers– Innovation– Yet simplicity
Paradigm Shift:Paradigm Shift: Competition Competition
Wave of competition - fierce under-cutting Competition not always on price alone Alternative strategies:
– Better customer focus and products which fit customer needs – Servicing, particularly after sales service– Customer retention strategies– Brand and brand awareness– Claims settlement – Niche marketing– Financial strength– Technology– Distribution channels– Better underwriting and controls– Investment performance– Efficient processes– Loyalty rewards CSR etc etc
Paradigm Shift: Paradigm Shift: Trained Manpower
Holds key to managing for high performance Training and education, with IT skills Provide information and exposure CPD Proper KPIs Get right people in right places And incentive structures – align interests of your
manpower with your business Internal environment Coherent team Communication
Paradigm Shift: Paradigm Shift: IT is the name of the game
No compromise on real-time online IT system Capturing all processes of the company Efficiency, integrity of information Checks, balances through system control Mitigates and guards against fraud and malpractices
But no good unless critically analyse information Don’t overlook potential of data mining to your business Monitor, analyse, trend, dissect data and information for all
processes Develop risk models, scenario tests Actuaries key here Invaluable tool for high performance!
Paradigm Shift: Paradigm Shift: Importance of the Actuarial Profession
Currently narrow utilisation in life insurance with some exceptions
Largely statutory valuation role and limited product pricing
Myth: Actuaries necessary evil in life, not needed in non-life, other parts of business and for risk management
Many of the issues addressed in this presentation look non-actuarial in nature
Myth: Actuaries too expensive– Do cost benefit analysis
Paradigm Shift: Paradigm Shift: Importance of the Actuarial Profession
Truth: Actuarial technical training/skill/approach/rigour/skillset is crucial in making a robust business case
Actuary/actuarial resource should be central to the planning process and should be key player in business planning, development, strategies for growth
– Can play crucial role in ERM process even if limited implementation– Actuary can assess and understand the complex interactions of insurance business
across all areas and communicate these to all parties, board, management, shareholders and regulators
– Can help evaluate implications of courses of action and hence enable more informed decisions
– Can make contribution in helping insurers to avoid making potentially costly mistakes No claim on monopoly on wisdom, but can contribute managerially and
technically as part of multi-disciplinary team Available and growing actuarial resource in Kenya The Actuarial Society of Kenya (TASK) will be doing its part Use this valuable resource to turn risk into opportunity!!!
Paradigm Shift:Paradigm Shift: Managing for High Managing for High PerformancePerformance
Will all this help?– Beating the odds through a disciplined, rigorous approach to
insurance business management based on a proper understanding of the business
– Risk/reward optimisation– Risk preparedness– Effective enterprise culture – Competitive advantage
– Isn’t this what our core business all about?– Isn’t this what high performance is all about?
Selected References
The Actuaries Role in Non-life Risk Management Issues, Jerry Miccolis, FCAS, MAAA, CAS Committee on Enterprise Risk Management
Overview of Enterprise Risk Management (2004), Casualty Actuarial Society Enterprise Risk Management Specialty Guide, Society of Actuaries Understanding Actuarial Management: the actuarial control cycle, Australian
Institute of Actuaries Risk Management for insurance companies and pension funds, Stuart Wason,
Stuart Wason Consulting Limited, 3rd Contractual Savings Conference, Washingon 2005
Risk Mangement in a Deregulated Environment, Peter Beck 2000 Life Insurance Business Planning, Andrew Brown, 2000, FICCI Conference Business planning by Stuart Wason, Edouard Merette and John Whitworth, 2000,
FICCI Conference,