An Alternative Solvency Regime for Medical Schemes in South Africa - PowerPoint PPT Presentation

An Alternative Solvency Regime for Medical Schemes in South Africa Gary Scott and Adam Lowe Actuarial Society 2015 Convention 17 – 18 November 2015

Medical Scheme Balance Sheet Revaluation reserve Scheme 25% reserves solvency Market value of assets Technical Reserves Liabilities 2 Actuarial Society 2015 Convention 17 – 18 November 2015

SAM Regulatory Balance Sheet Free assets SCR MCR Market value of assets Technical Reserves 3 Actuarial Society 2015 Convention 17 – 18 November 2015

Proposed Regulatory Balance Sheet Asset Risk Reserve Scheme reserves SCR Market value of assets Technical Reserves Liabilities 4 Actuarial Society 2015 Convention 17 – 18 November 2015

Calculation of SCR SCR Provision for operating deficit 𝑄𝑠𝑝𝑤𝑗𝑡𝑗𝑝𝑜 𝑔𝑝𝑠 𝑐𝑣𝑒𝑕𝑓𝑢𝑓𝑒 𝑒𝑓𝑔𝑗𝑑𝑗𝑢 = 𝑁𝐵𝑌 −𝑄𝑠𝑗𝑝𝑠 𝑧𝑓𝑏𝑠 𝑝𝑞𝑓𝑠𝑏𝑢𝑗𝑜𝑕 𝑞𝑝𝑡𝑗𝑢𝑗𝑝𝑜 + 𝑇𝑓𝑏𝑡𝑝𝑜𝑏𝑚𝑗𝑢𝑧 𝑏𝑚𝑚𝑝𝑥𝑏𝑜𝑑𝑓 , 0 Claims (and expenses) variability risk Catastrophe risk - arena or stadium accident - office block accident Outstanding claims reser ve risk Operational risk 5 Actuarial Society 2015 Convention 17 – 18 November 2015

Calculation of SCR SCR Provision for operating deficit Claims (and expenses) variability risk 𝑇𝐷𝑆 𝐷𝑊 = 𝑂𝐷 ∗ 𝜍 ( 𝜏 𝐷𝑊 ) 𝑥ℎ𝑓𝑠𝑓 𝑂𝐷 = 𝑏𝑜𝑜𝑣𝑏𝑚 𝑜𝑓𝑢 𝑑𝑝𝑜𝑢𝑠𝑗𝑐𝑣𝑢𝑗𝑝𝑜 𝑗𝑜𝑑𝑝𝑛𝑓 Catastrophe risk 𝜏 𝐷𝑊 = 𝑡𝑢𝑏𝑜𝑒𝑏𝑠𝑒 𝑒𝑓𝑤𝑗𝑏𝑢𝑗𝑝𝑜 𝑝𝑔 𝑑𝑚𝑏𝑗𝑛𝑡 𝑠𝑏𝑢𝑗𝑝 ( 𝑏𝑡 𝑒𝑓𝑔𝑗𝑜𝑓𝑒 𝑐𝑓𝑚𝑝𝑥 ) - arena or stadium accident 𝜍 𝜏 𝐷𝑊 = 𝑓 𝑂 0.995 ∗ ln 𝜏 𝐷𝑊 2 +1 − 1 - office block accident 𝜏 𝐷𝑊 2 + 1 𝑥ℎ𝑓𝑠𝑓 𝑂 0.995 = 99.5 𝑢ℎ 𝑞𝑓𝑠𝑑𝑓𝑜𝑢𝑗𝑚𝑓 𝑝𝑔 𝑏 𝑡𝑢𝑏𝑜𝑒𝑏𝑠𝑒 𝑜𝑝𝑠𝑛𝑏𝑚 𝑒𝑗𝑡𝑢𝑠𝑗𝑐𝑣𝑢𝑗𝑝𝑜 1 1 1 2 Outstanding claims reser ve risk 𝜏 𝐷𝑊 = ∗ 𝑂 − 1 ∗ ∗ 𝑆𝐷𝑚 𝑧𝑓𝑏𝑠 − 𝑂𝐷 𝑧𝑓𝑏𝑠 ∗ 𝐵𝐷𝑆 𝑂𝐷 𝑏𝑤𝑓 𝑂𝐷 𝑧𝑓𝑏𝑠 𝑧𝑓𝑏𝑠𝑡 𝑥ℎ𝑓𝑠𝑓 𝑂𝐷 = 𝑜𝑓𝑢 𝑑𝑝𝑜𝑢𝑠𝑗𝑐𝑣𝑢𝑗𝑝𝑜 𝑗𝑜𝑑𝑝𝑛𝑓 𝑆𝐷𝑚 = 𝑠𝑗𝑡𝑙 𝑑𝑚𝑏𝑗𝑛𝑡 𝑗𝑜𝑑𝑣𝑠𝑠𝑓𝑒 Operational risk 𝑂 = 𝑜𝑣𝑛𝑐𝑓𝑠 𝑝𝑔 𝑧𝑓𝑏𝑠𝑡 ′ 𝑒𝑏𝑢𝑏 𝐵𝐷𝑆 = 𝑏𝑤𝑓𝑠𝑏𝑕𝑓 𝑑𝑚𝑏𝑗𝑛𝑡 𝑠𝑏𝑢𝑗𝑝 𝑏𝑑𝑠𝑝𝑡𝑡 𝑏𝑚𝑚 𝑧𝑓𝑏𝑠𝑡 6 Actuarial Society 2015 Convention 17 – 18 November 2015

Calculation of SCR SCR 𝑇𝐷𝑆 𝑑𝑏𝑢 , 𝑏𝑠𝑓𝑜𝑏 = 𝑇 ∗ 𝐽 𝑞 ∗ 𝑦 𝑞 ∗ 𝐹 𝑞 ∗ 𝑁𝑇 𝑞 Provision for operating deficit 𝑥ℎ𝑓𝑠𝑓 𝑇 = 50% 𝑝𝑔 𝑑𝑏𝑞𝑏𝑑𝑗𝑢𝑧 𝑝𝑔 𝑚𝑏𝑠𝑕𝑓𝑡𝑢 𝑡𝑢𝑏𝑒𝑗𝑣𝑛 𝑗𝑜 𝑢ℎ𝑓 𝑑𝑝𝑣𝑜𝑢𝑠𝑧 𝐽 𝑞 = 𝑗𝑜𝑡𝑣𝑠𝑏𝑜𝑑𝑓 𝑞𝑓𝑜𝑓𝑢𝑠𝑏𝑢𝑗𝑝𝑜 𝑦 𝑞 = 𝑞𝑠𝑝𝑞𝑝𝑠𝑢𝑗𝑝𝑜 𝑝𝑔 𝑏𝑔𝑔𝑓𝑑𝑢𝑓𝑒 𝑞𝑓𝑝𝑞𝑚𝑓 𝑗𝑜𝑘𝑣𝑠𝑓𝑒 Claims (and expenses) variability risk 𝐹 𝑞 = 𝑓𝑦𝑞𝑝𝑡𝑣𝑠𝑓 𝑗 . 𝑓 . 𝑏𝑤𝑓𝑠𝑏𝑕𝑓 𝑑𝑝𝑡𝑢 𝑝𝑔 𝑢𝑠𝑓𝑏𝑢𝑛𝑓𝑜𝑢 𝑁𝑇 𝑞 = 𝑛𝑏𝑠𝑙𝑓𝑢 𝑡ℎ𝑏𝑠𝑓 𝑝𝑔 𝑡𝑑ℎ𝑓𝑛𝑓 Catastrophe risk - arena or stadium accident - office block accident 2 + 𝑇𝐷𝑆 𝑑𝑏𝑢 , 𝑑𝑝𝑜𝑑 2 𝑇𝐷𝑆 𝑑𝑏𝑢 = 𝑇𝐷𝑆 𝑑𝑏𝑢 , 𝑏𝑠𝑓𝑜𝑏 Outstanding claims reser ve risk 𝑇𝐷𝑆 𝑑𝑏𝑢 , 𝑑𝑝𝑜𝑑 = 𝑇 ∗ 𝑦 𝑞 ∗ 𝐹 𝑞 𝑥ℎ𝑓𝑠𝑓 𝑇 = 𝑚𝑏𝑠𝑕𝑓𝑡𝑢 𝑑𝑝𝑜𝑑𝑓𝑜𝑢𝑠𝑏𝑢𝑗𝑝𝑜 𝑝𝑔 𝑛𝑓𝑛𝑐𝑓𝑠𝑡 𝑗𝑜 𝑏 𝑡𝑗𝑜𝑕𝑚𝑓 𝑐𝑣𝑗𝑚𝑒𝑗𝑜𝑕 Operational risk 𝑦 𝑞 = 𝑞𝑠𝑝𝑞𝑝𝑠𝑢𝑗𝑝𝑜 𝑝𝑔 𝑏𝑔𝑔𝑓𝑑𝑢𝑓𝑒 𝑞𝑓𝑝𝑞𝑚𝑓 𝑗𝑜𝑘𝑣𝑠𝑓𝑒 𝐹 𝑞 = 𝑓𝑦𝑞𝑝𝑡𝑣𝑠𝑓 𝑗 . 𝑓 . 𝑏𝑤𝑓𝑠𝑏𝑕𝑓 𝑑𝑝𝑡𝑢 𝑝𝑔 𝑢𝑠𝑓𝑏𝑢𝑛𝑓𝑜𝑢 7 Actuarial Society 2015 Convention 17 – 18 November 2015

Calculation of SCR SCR Provision for operating deficit Claims (and expenses) variability risk 𝑇𝐷𝑆 𝐽𝐶𝑂𝑆 = 𝑂𝐷 ∗ 𝜍 ( 𝜏 𝐽𝐶𝑂𝑆 ) Catastrophe risk 𝑥ℎ𝑓𝑠𝑓 𝑂𝐷 = 𝑏𝑜𝑜𝑣𝑏𝑚 𝑜𝑓𝑢 𝑑𝑝𝑜𝑢𝑠𝑗𝑐𝑣𝑢𝑗𝑝𝑜 𝑗𝑜𝑑𝑝𝑛𝑓 - arena or stadium accident 𝜏 𝐽𝐶𝑂𝑆 = 𝑡𝑢𝑏𝑜𝑒𝑏𝑠𝑒 𝑒𝑓𝑤𝑗𝑏𝑢𝑗𝑝𝑜 𝑝𝑔 𝑔𝑝𝑠𝑓𝑑𝑏𝑡𝑢 𝑏𝑑𝑑𝑣𝑠𝑏𝑑𝑧 - office block accident 𝜍 𝜏 𝐽𝐶𝑂𝑆 = 𝑓 𝑂 0.995 ∗ ln 𝜏 𝐽𝐶𝑂𝑆 2 +1 − 1 𝜏 𝐽𝐶𝑂𝑆 2 + 1 Outstanding claims reser ve risk Operational risk 8 Actuarial Society 2015 Convention 17 – 18 November 2015

Calculation of SCR SCR Provision for operating deficit Claims (and expenses) variability risk Catastrophe risk - arena or stadium accident - office block accident Outstanding claims reser ve risk Operational risk 𝑇𝐷𝑆 𝑃 = 3% 𝑝𝑔 𝑕𝑠𝑝𝑡𝑡 𝑑𝑝𝑜𝑢𝑠𝑗𝑐𝑣𝑢𝑗𝑝𝑜𝑡 + 3% 𝑝𝑔 𝑏𝑜𝑧 𝑗𝑜𝑑𝑠𝑓𝑏𝑡𝑓 𝑗𝑜 𝑕𝑠𝑝𝑡𝑡 𝑑𝑝𝑜𝑢𝑠𝑗𝑐𝑣𝑢𝑗𝑝𝑜𝑡 𝑝𝑤𝑓𝑠 20% 9 Actuarial Society 2015 Convention 17 – 18 November 2015

Calculation of SCR 10 Actuarial Society 2015 Convention 17 – 18 November 2015

Calculation of Asset Risk Reserve Asset Risk Reserve Asset return risk Credit concentration risk 11 Actuarial Society 2015 Convention 17 – 18 November 2015

Proposed Regulatory Balance Sheet Asset Risk Reserve Scheme reserves SCR Market value of assets Technical Reserves 12 Actuarial Society 2015 Convention 17 – 18 November 2015

Proposed Economic Balance Sheet Asset Risk Reserve Reserve Scheme target reserves SCR Market value of assets Technical Technical Reserves Reserves 13 Actuarial Society 2015 Convention 17 – 18 November 2015

Proposed SCR versus Current Solvency 14 Actuarial Society 2015 Convention 17 – 18 November 2015

Next Steps? 15 Actuarial Society 2015 Convention 17 – 18 November 2015