1. Actuaries in Wider Fields. Nairobi 2008

2. ©2006 Deloitte & Touche Actuaries in wider fields 2 What is an actuary? General Insurance Banking Risk Management Workforce modeling Actuaries in Wider Fields Agenda

3. ©2006 Deloitte & Touche Actuaries in wider fields 3 What is an actuary? The traditional view

4. ©2006 Deloitte & Touche Actuaries in wider fields 4 What is an actuary? The modern view

5. ©2006 Deloitte & Touche Actuaries in wider fields 5 What is an actuary? An actuary is what an actuary does… We do math We have business skills We have IT skills We understand data WE ADD VALUE

6. ©2004 Deloitte Touche Tohmatsu 6 General Insurance Financial Condition Reporting (FCR) IFRS Jaco van der Merwe 20 June 2008

7. ©2006 Deloitte & Touche Actuaries in Wider fields General Insurance - Brief overview of FCR What ? A proposed regulatory framework for South African Short Term Insurers Driven by the FSB AIS calibrated the framework Why ? Improve risk management in Insurers Align with international risk-based regulatory approaches More efficient use of capital

8. ©2006 Deloitte & Touche Actuaries in Wider fields General Insurance - Brief overview of FCR When ? Calibration commenced in 2005 Completed early 2006 Implementation: –Initially: 2008 –Update: >= 2009 How ? Prescribed model (AIS calibration) Certified model Internal model

9. ©2006 Deloitte & Touche Actuaries in Wider fields General Insurance - Brief overview of FCR How exactly ? Insurance & Asset risk Risks: –Underwriting risk –Reserving risk –Matching & liquidity –Market risk –Credit risk – not explicit Features –1 year horizon –VaR: 98%, 99%, 99.5% –New business –Run-off to ultimate –Advanced Diversification & Correlation allowance

10. ©2006 Deloitte & Touche IFRS for General Insurers - June 2008 10 General Insurance – IFRS impact Phase II timeline Discussion Paper Exposure draft Final standard Implementation (earliest) Publication End of comment period May 2007 November 2007 Sept 2009?Sept 2010 (+12 months) 2012 / 2013

11. ©2006 Deloitte & Touche IFRS for General Insurers - June 2008 11 General Insurance – IFRS impact The Proposed Current Exit Value Model 3 building blocks to measure insurance liabilities : Explicit, unbiased, market-consistent, probability weighted and current estimates of the contractual cash flows; Current market discount rates that adjust the estimated cash flows for the time value of money; An explicit and unbiased estimate of the margin that market participants require for: Bearing risk (a risk margin); and Providing other services (a service margin)

12. Key issues for general insurers

13. ©2006 Deloitte & Touche IFRS for General Insurers - June 2008 13 PREMIUMACQ D1RMDCFDP ACQ: Acquisition Costs DCF: Discounted Cash Flow SC: Service Cost RM: Risk Margin D1: Day 1 Profit DP:Deferred Profit General Insurance – IFRS impact Premium Allocation SC

14. ©2006 Deloitte & Touche Banking. Actuarial Solutions for Business June 2008

15. Banking - Value management The traditional view Traditionally banks have been able to report and monitor their net asset value Assets Liabilities Net Asset Value

16. ©2006 Deloitte & Touche Actuaries in wider fields 16 Banking - Value management The full picture Using actuarial techniques banks are able to measure: Net asset value, plus The value of profits expected to be generated from existing customers, and The value of profits expected to be generated from new customers.

17. ©2006 Deloitte & Touche Presentation name (view/header footer) 17 Banking - Value management Profit measurement Interest margin The difference between borrowing & lending Expense margin The difference between costs incurred and fees earned Bad debts PD & LGD Tax Cost of capital The cost of holding money to support the business

18. ©2006 Deloitte & Touche Presentation name (view/header footer) 18 Banking - Value management Customer targeting The sweet spot

19. ©2006 Deloitte & Touche Presentation name (view/header footer) 19 Our experience has shown that there is often a term structure to default rates Banking - credit impairment Probability of default

20. ©2006 Deloitte & Touche Presentation name (view/header footer) 20 Our credit impairment model Behavioural analysis Behavioural analysis is key to the accuracy of the expected cash flows projected –Lump sum early settlements –Behavioural instalments –Rolls out of default Revolving credit facilities are particularly tricky –Requires establishment of priority of payment rules

21. ©2006 Deloitte & Touche Actuaries in wider fields 21 Risk Management

22. ©2006 Deloitte & Touche Risk Management What do actuaries know about risk management? Product design Underwriting Matching of assets and liabilities by nature, term etc. Prudence and other capital requirements Reinsurance Traditionally ERM has not been seen as an actuarial area Focus on Operational Risk But expanding More quantitative Collision! Actuaries in wider fields 22

23. ©2006 Deloitte & Touche Risk Management Response from the profession IAA Enterprise & Financial Risks Committee IAA ERM webinars and programs Institute&Faculty: FIRM working group set up ST9 from 2010 Practical manifestations New generation risk based capital requirements Simple accounting ratios Formula based on risk sensitive parameters SA, Mauritius (2007) Integrated measurement and management: UK ICAS and now Solvency II Actuaries in wider fields 23

24. ©2006 Deloitte & Touche Risk management is at the core of Solvency II –Risk based capital calculated in Pillar 1 for underwriting risk, market risk, credit risk and operational risk –Robustness of risk management framework considered in Pillar 2 with potential capital charge for other risk classes including group and strategic risk –Transparency of the risk management framework through Pillar 3 Management is different to measurement! –Holding additional capital is not the only answer to dealing with risk –A backroom model that calculates capital requirement will NOT be acceptable to regulatory authorities –Must be a ‘live’ system embedded in risk management processes and management information systems of company The importance of risk management Underwriting Risk Investment Risk Credit Risk Liquidity Risk Operational Risk Pillar 1 Minimum Standards Regulations on minimum capital requirements Reserving Investment Pillar 2 Supervisor Review Regulations on financial services supervision (Capabilities and powers of regulators, areas of activity) Pillar 3 Market Discipline Transparency Disclosure requirements Competition related elements SOLVENCY II Risk Management Enterprise Risk Management Strategic Risk Management Risk management culture Risk Control Processes Extreme Events Management Risk & Economic Capital Models Rating agencies Standard & Poors, Moody’s and Fitch have indicated that they will consider the effectiveness of an institutions enterprise risk management explicitly in their rating approach.

25. Strategic Workforce Planning A statistical approach to human capital planning Ashleigh Theophanides Actuarial & Insurance Solutions at Deloitte April 2008 Strategic Workforce Planning A statistical approach to human capital planning

26. ©2006 Deloitte & Touche Strategic Workforce Modelling 26 The world around us…. These statistics illustrate that there is a battle for brainpower…

27. ©2006 Deloitte & Touche Strategic Workforce Modelling 27 The problem… A company needs to ensure that it has a sufficient supply of the required skills that it needs a to meet its business objectives. This may seem simple …or is it? What will the effect of globalisation and emigration have? What will the effect of globalisation and emigration have? Considering the impact of staff movements, trends in skills movements, the effect of the ageing population, the effect of exogenous factors like HIV/AIDS and other diseases compounds the issue. ??? Are there sufficient resources for the Specific skills in the market now.

28. ©2006 Deloitte & Touche Strategic Workforce Modelling 28 Statistics – using predictive modelling Human capital is regarded as a significant asset in businesses today Workforce planning models facilitate a more scientific approach to managing the human capital needs of an organization Predictive Workforce Modeling allows an organisation to: –Consider what its staffing needs are going to be in the future –Project its expected supply of staff in the future –Identify shortages or surplus of staff for these years (GAP) –Put plans in place to satisfy the Human Capital needs that are expected to arise.

29. A member firm of Deloitte Touche Tohmatsu