Page 200 - CJ 2019 INTEGRATED REPORT

198
NOTES TO THE FINANCIAL
STATEMENTS 31 DECEMBER 2019 (CONTINUED)
3 MANAGEMENT OF INSURANCE RISK (CONTINUED)
Long term insurance contracts (Continued)
(b) Sources of of uncertainty in in in the estimation of of future benefit payments and premium receipts (Continued)
The LABS’s actuary actuary determines the the the the the position of of of the the the the the life fund yearly and then declares bonus accordingly Cost of of of all new products is determined by the the the the the actuary actuary after thorough consideration of of of the the the the the mortality tables as per actuarial guides (c) Process used to decide on on assumptions
Assumptions used to work work out out future future liabilities under long-term insurance contracts are are estimated by the LABS and and its actuaries Firstly best estimate estimate assumptions
are are are worked out out based on on on on on on past experience and and and expectations of future future developments These are are then adjusted with prescribed margins as as as as per per the the FSC solvency rules and and actuarial guidance notes • Mortality
Estimates are are made as as to to the the the the expected number of of of deaths for each of of of the the the the years in in which the the the the LABS is is exposed to to risk These estimates are are based on on on on South African mortality tables (in the the the the the the absence of of of of local local ones) adjusted where appropriate (e g g g for for for AIDS) to to to reflect the the the the local local experience For contracts that insure the the the the risk of of longevity prudent allowance is is made for for for expected mortality improvements Prescribed and additional margins are built into these estimates to to to allow allow for for for future uncertainty • Morbidity
Given the the the low financial significance of morbidity morbidity morbidity morbidity on the the the LABS and its predictability morbidity morbidity morbidity morbidity tables are are not used used to to model morbidity morbidity morbidity morbidity morbidity claims claims A A simpler approach used used by the the the the the actuaries is is is to to compare morbidity morbidity morbidity morbidity morbidity premiums premiums against morbidity morbidity morbidity morbidity claims claims claims and work out any inadequacy in in in in the the the the the premiums premiums premiums charged For the the the the the last three years this exercise has shown that the the the the premiums premiums are enough to to cover expected claims claims Any major change to to morbidity morbidity experience in in in in the the the the industry will however be modeled differently • Expenses
Expenses
Expenses
are are are estimated on on on a a a a a a a a a a a going concern basis Per policy expenses expenses are are are split between acquisition and renewal expenses expenses expenses Expenses
Expenses
incurred for for the the the the benefit of of policies to be be be sold in in in in in the the the the future future future are are are amortised over the the the the relevant future future future period Provision is is is made for for the the the impact of of future future business volumes and inflation on on on expenses expenses • Investment Income
Future investment return return return is is is is estimated for for each asset class and and split between income return return return and and capital gains The starting point for for this estimate estimate is is is is is is the the the risk risk free rate of of return return return (government bonds) reflecting expectations of of future economic and and financial developments The risk risk risk premium corresponding to the the the the different asset asset types is is is is is is then added based on on on the the various risk risk profiles asset asset term capital growth and and comparable yielding investments • Inflation
Investment income and and and inflation inflation assumption are inter-twined The gap between risk free returns and and and inflation inflation over the the last 20 years is worked out and and projected into the future • Persistency
Policy lapse/surrenders are are estimated from historical company and and industry available data These are are adjusted to to to reflect changes in in in in in the legal tax tax and and business environment (e g g g removal of tax tax incentives or or inability to to to surrender surrender pension plans) Uncertainty in in in in in the the the estimation of of of future benefit payments and and premium receipts for long-term insurance contracts arises from the the the unpredictability of of of long long term term changes in in in in in overall levels of of of mortality and and the the the variability in in in in in contract contract holder’s behaviour The LABS LABS uses appropriate base tables of of of standard mortality according to to to the the the the the type of of of contract being written and and and the the the the the territory in in in in in in which the the the the the the the the insured person resides An investigation into the the the the the the the the actual actual experience experience of of of of the the the the the the the the LABS LABS is is carried out and and and statistical methods are are are used to to to to to compare the the the the the the the the the the fit fit of of of the the the the the the the the the the mortality mortality mortality tables with the the the the the the the the the the actual actual claims experience experience Adjustments to to to the the the the the the the selected standard mortality mortality mortality table table are are are then worked out to to to optimise the the the the the the the fit fit of of the the the the the the the mortality mortality mortality model CURRIMJEE JEEWANJEE AND COMPANY LIMITED