1. Developing life annuity products in Africa
AIO 2010 – “The Art of Life”
Willem Boshoff - FIA

2. Agenda 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

3. Introduction Introduction: Developing life annuity products in Africa
Definitions & assumptions made
“Annuity”
“Life annuity”

4. Types of annuities Fixed & variable annuities Living annuities
Guaranteed annuities
Joint annuities

5. Need for life annuities
Longevity risk – life expectancy

6. Need for life annuities
Longevity risk – select populations
Improvement in life expectancy

7. Need for life annuities
Longevity risk – ageing populations

8. Need for life annuities
Investment return – income certainty

9. Need for life annuities
Savings

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. Closing & Thank you