The Actuarial Review & Unfunded Liabilities - The Trustee’s Side Algernon Cargill
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The Actuarial Review & Unfunded Liabilities -
The Trustee’s Side
Algernon CargillDirector, Bahamas National Insurance Board
Atlantic ConnectionJuly 11th, 2012
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AGENDA
1. About NIB Bahamas
2. My introduction to Social Security
3. Good Governance
4. Working with your Actuary
5. Asset Liability Matching
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ABOUT NIB BAHAMAS
• Started in 1974• Comprehensive income-replacement
benefits package • Contribution rate – 8.8% from 10/1974 to 5/2010– 9.8% from 6/2010 (when unemployment added)
• 96% of Investments local
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RESERVES
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
20110
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
1,800,000,000
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INCOME & EXPENDITURE
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
20110%
2%
4%
6%
8%
10%
12%
14%
Contribution Rate Expenditure Rate
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RESERVE-EXPENDITURE RATIO
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
2011 -
2
4
6
8
10
12
14
16
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Expenditure > Contributions All years
Expenditure > Income 2019 to 2024
Reserves Depleted 2029 to 2035
General Average Premium15.2% to
19.0%
Pay-as-you-go 2066 25% to 32%
8TH ACTUARIAL REVIEW PROJECTION RESULTS
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UNFUNDED LIABILITY
$7.9 billion
115% of GDP
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In the private sector these would be awful numbers..……
but I have come to appreciate that social security is (or maybe?)
different!
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REFLECTIVE QUESTIONS
• Does a financial deficit reflect poorly on trustees/management?
• Should we just live with a large unfunded liability?
• As a trustee and good steward, what can I do to make these numbers look better?
• What is the actuary thinking when he says “don’t increase the contribution rate just yet”?
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ONLY ONE SOLUTION
Good Governance Practices
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GOOD GOVERNANCE PRACTICES
1. Change the rules– Reduce benefits and/or increase contributions
• Adequate and affordable promises
2. Investments– Current Investment Policy Statement
3. Effective & Efficient Administration– Collect what is due, – Pay only the entitled, – With lean staff using available technology
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GOOD GOVERNANCE PRACTICES
4. Everyone has their role:– The Minister– The Chairman– The Board– The Director– Executive Team
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STEWARDING THE ACTUARIAL REVIEW• Actuarial Standards of Practice – Know what report should contain
• Assumptions– Have some input
• Scenarios– Ask for the “what ifs” you want to see
• Peer Review– 2nd opinions seldom hurt
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THE ACTUARIAL REPORT
• Make it public – Don’t hide the facts, findings &
recommendations
• Build consensus behind key recommendations
• Be persistent with policymakers re need for reforms
• Fix the things you can
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ASSET-LIABILITY ISSUES
• Difficult when investment options limited– Long-term liabilities– Few options for long-term assets
• Always balance Risk & Return • Keep Investment Policy current• Manage your investment managers
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CONCLUSION
• Be a good Steward• Follow Good Governance Practices• Embrace actuarial review• Be transparent• Share information• Embrace reform