1. The Actuarial Review & Unfunded Liabilities - The Trustee’s Side Algernon Cargill Director, Bahamas National Insurance Board Atlantic Connection July 11 th, 2012 1

2. AGENDA 1. About NIB Bahamas 2. My introduction to Social Security 3. Good Governance 4. Working with your Actuary 5. Asset Liability Matching 2

3. 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

4. RESERVES

5. INCOME & EXPENDITURE

6. RESERVE-EXPENDITURE RATIO

7. Expenditure > ContributionsAll years Expenditure > Income2019 to 2024 Reserves Depleted2029 to 2035 General Average Premium15.2% to 19.0% Pay-as-you-go 206625% to 32% 8 TH ACTUARIAL REVIEW PROJECTION RESULTS 7

8. UNFUNDED LIABILITY $7.9 billion 115% of GDP

9. In the private sector these would be awful numbers..…… but I have come to appreciate that social security is (or maybe?) different!

10. 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”?

11. ONLY ONE SOLUTION Good Governance Practices 11

12. 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

13. GOOD GOVERNANCE PRACTICES 4.Everyone has their role: –The Minister –The Chairman –The Board –The Director –Executive Team

14. 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 –2 nd opinions seldom hurt

15. 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

16. 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

17. CONCLUSION Be a good Steward Follow Good Governance Practices Embrace actuarial review Be transparent Share information Embrace reform