International Actuarial Association
Building up the Actuarial Profession in Africa
The Actuarial Profession in Kenya
Sundeep K Raichura
Presented at 3rd International Meeting of Leaders of
the Actuarial Profession in Africa
8 June 2007
Agenda

About The Actuarial Society of Kenya




History
Objectives
Structure
The actuarial profession in Kenya




Numbers and areas of practice
Actuarial education
Statutory roles
Pensions and insurance sectors in Kenya

Challenges facing the actuarial profession in Kenya and industry
issues

Update on some relevant TASK initiatives
About TASK
The Actuarial Society of Kenya





Registered 1993
Launched in 2005
Brings together qualified and trainee actuaries in
professional, educational and research organisations
with an aim of promoting the actuarial profession in
Kenya and E Africa
TASK functions through its governing Council and
Committees (functional, administrative and ad hoc)
Work on three year Strategic Plan in progress
TASK Vision
“To position the Actuarial Profession in Kenya and the
region as the leading profession in the areas of
modeling and management of financial risks and
contingent events”
Key TASK Objectives
–
–
–
–
–
–
–
–
To develop and strengthen the actuarial profession in
Kenya
To create a forum for members of the actuarial profession to
meet and exchange ideas
To support and protect members and present common
professional interests to Government and policymakers
To play an active role in actuarial education and the
development of local actuarial expertise, professional
standards and guidance
To encourage research in the development of actuarial ideas
To improve the education of financial consumers and raise
public interest issues
To broaden the scope of the actuarial profession and promote
our contribution in wider fields
To establish links with other professional associations in Kenya
and internationally with similar objects
TASK Progress to Date

Revised constitution still in draft
–
–

Considerable time spent on membership categorisation
Strong pressure to include special Associate categorisation for nonstatutory work
Intent to become full member of IAA by end 2007
–
–
–
–
Committee working on professional code of conduct, which includes
IAA common principles of GCAE
And Disciplinary process
Formal process for adoption of standards of practice
Borrowing heavily from other actuarial associations for code of
conduct and guidance notes
TASK Progress to Date

No of working committees
–
–
–

Membership & PR, Retirement and other Employee Benefits,
Insurance and Health Care, Professionalism, Education and
Research, Investments and Wider Fields, Secretarial Finance
and Fund Raising
Disciplinary and Appeals
Performance erratic
Strategic Plan – needs wider input
The Actuarial Profession in Kenya
Numbers

4 qualified actuaries
–
–

40 partly qualified currently working in field
–
–
–
•
3 Fellows of the Institute of Actuaries
1 Associate of the Society of Actuaries
Excludes those who have graduated from local Unis with actuarial
science degrees
Many have given up on actuarial examinations
Good number has dropped actuarial examinations for CFA
Over 500 actuarial students at three local Unis:
–
–
–
UoN - started 2000, currently about 240 students, intake of 60 per
year, 60ish already graduated
JKUAT - started 2002, currently over 500, intake of 200
Maseno – started 2006, first intake of 30 students
Actuarial Education

Degree programmes aim to teach full core technical subjects
excluding ACC
–
–
–
–
–
–
–

Programme attracting brightest and talented students
But still need to assess minimum entry standards
Large streams
Academic staff likely to be strained
Bigger issue of capacity of market to absorb actuarial graduates in traditional
fields (life insurance companies and consulting firms)
Uni programmes not accredited
Also undergrads seem not to be able to register with IoA and do IoA exams
whilst in college
TASK committed to supporting local Uni programmes
–
–
–
Resource and time constraint
Two qualified actuaries have offered to teach
& Participate in course reviews and examination marking
Areas of employment

Actuarial work as employee of:
–
–
–
–
–
–
–
–

Life insurers
Health care organisations
General insurers
National social security schemes
Complementary pensions
Investment company
Regulator or Govt Departments
Banks
:
:
:
:
:
:
:
19
3
None
None
None
3
6
15
Consulting actuary working mainly in:
–
–
–
–
–
–
Life insurance
Heath care
General insurance
Social security
Pensions
Investment
:
:
:
:
:
3
2 (part of time)
Not much
2 (part of time)
12
3
Statutory Roles & Issues – Insurance

Insurance Act Cap 487
– Actuarial certification of long term insurance premium rates
– Annual statutory actuarial valuations of life funds
– Independent actuary report on mergers, acquisitions
– Actuary defined a FIA or FFA or such other as approved by
Commissioner
– Note Dept upgraded as Insurance Regulatory Authority from 1
May 2007
– Full review of Insurance Act underway – RBC and RB solvency
margins
–
–
–
No statutory actuarial role for non-life or health care currently
Position paper lobbying for actuarial certifications of technical
provisions and of insurer financial condition submitted
TASK hopes to play key role in review of Insurance Act
Statutory Roles & Issues – Pensions

Retirement Benefit Act No 3 of 1997
– Triennial actuarial valuations of DB schemes
– Minimum funding actuarial valuations (no prescribed basis) and statutory
remedial plans
– Actuarial certifications of amendments effecting financial health
– Actuarial evaluation on winding up
– Actuarial certifications of transfer values and commutation terms
– Initial statutory requirement for actuarial reviews of DC schemes dropped in 2004
– Regulations on scheme conversions being prepared
– Actuary defined as person recognised as such by IoA, FoA, SoA, CIA, AIA, JIA
–
Some provisions in Income Tax Rules on treatment of actuarial surpluses and
deficits
Snapshot of Insurance Industry in Kenya



46 companies of which 23 transact life
Most life companies composite
Estimated total annual premium 2007 of K Shs 40bn (US$ )
comprising:
–
–

–

K Shs 12bn (US$ )
K Shs 28bn (US$ )
Estimated total assets of K Shs 100bn (US$ )
–

Life
Non –life
Life
Non-life
K Shs 55bn (US$ )
K Shs 45bn (US$ )
Total aggregate share capital 2005 estimated at K Shs 30bn with
total disclosed profit of K Shs 4bn
No company has resident qualified actuary and only a handful
have actuarial departments
Snapshot of Retirement Industry in Kenya

Sector comprises:
–
–
–





Unfunded PAYG PSSA
NSSF – DC provident fund (K Shs 60bn est)
Occupational schemes (K Shs 170bn est)
Legislation has focused on enhancing protection of members’
benefits and improving governance of schemes
Pronounced trend to DC – particular concerns re contribution rates,
distribution and equity of allocation of returns to member accounts,
conservative investment strategies, member communication
Re-engineering of public service schemes
Dichotomy of debate re pensions reform
National Pensions Policy proposed with co-ordinated strategy
–
–
–
Studies to introduce universal zero pillar social assistance programme
Reform of NSSF
Proposed conversion of PSSA to NDC for new entrants
Challenges facing Actuarial
Profession in Kenya










Lack of understanding and hence appreciation by industry and regulators of the
whole set of services that actuaries can offer
Most life insurance companies will only call actuaries to undertake yearly actuarial
valuations and certify rates for new life products
Trend to DC limiting traditional DB actuarial role
Perceived high cost of actuarial services
Effective implementation of actuarial recommendations
Actuarial education, resource and capacity constraints and lack of accreditation
Capacity of market to absorb actuarial science graduates in traditional fields –
frustration and disillusionment of actuarial graduates
Challenge from other courses – CFA
Mentoring and training of students
Wider fields not happening and hard sell, but some individual actuarial graduates
have done well in banks, investment houses and IT
Challenges facing Insurance and
Pension Sectors in Kenya

Insurance Industry
– Low level of penetration of insurance particularly life insurance
– Customer focus, marketing and distribution strategies, product innovation
– Trained man-power across the insurance value chain
– IT and processes
– Operational, financial and risk management strategies
– Pricing and reserving
– Lack of data and statistics
– Fierce competition and rate under-cutting
–
–
–
Insolvencies and financial distress of insurers and HMOs
Move to fair value accounting and risk based capital
Insurance company taxation
Challenges facing Pension Sectors
in Kenya





Low coverage
Move to DC and associated challenges
Public sector scheme actuarial deficits
Pensions policy dichotomy
Challenges can in fact be opportunities for
actuarial profession in Kenya
Update on some relevant TASK
initiatives














Strategic Plan
IAA membership – code of conduct etc
Formal internship programmes
Actuaries to volunteer to teach at local Uni programmes
Proposal to regulate role of actuarial profession in Kenya and TASK as
statutory professional body
Forum for regulators and policy makers
Forum for CEOs of insurance companies
Work done by actuarial firms on developing mortality tables for insured
lives and testing of motor insurance rates for Association of Kenya
Insurers
Project ideas and sponsorships for students
Project on comparison of international insurance and pensions regulations
Two position papers to date to Ministry of Finance
Actuarial appreciation course in the local insurance syllabus
Need for more member meetings and forums – two monthly forums
Professionalism course for actuarial practitioners
TASK Vision 2010






Achieve full IAA membership – 2008
Vibrant and dynamic actuarial profession
Strengthen statutory roles in traditional fields
Local universities accreditation – 2010
Participate actively in International Congress of
Actuaries in SA 2010
Help we need and suggestions
–
–
–
Collaboration with IAA and African actuarial associations
IAA assistance on education strategy
Regular interaction with peers in Africa and other countries
INSURANCE INSTITUTE OF KENYA
20th ANNUAL CONFERENCE
Paradigm Shift : Managing for High Performance
Redefining our Core Business: An Underwriters Perspective
Sundeep K Raichura
18 Nov 2005
Paradigm Shift:
Managing for High
Performance
How do we define high performance
from an insurer’s perspective?
Managing for High
Performance

Questions to a ‘high performing’ composite insurer:
–
–
–
–
–
–
–
–
–
–
–
–
–
What was increase in gross premiums?
To what extent did increase in gross premium translate to increase in
profitability?
What was relative performance of life/non-life business?
What was underlying profitability of individual products? Lines of business?
Which areas did well? Which did not? Why? Which products are adding value?
Which products are being subsidised?
What was relative performance of ‘offices’?
Were actual premiums consistent with pricing basis?
Was profit underwriting, investment, other? By class? If underwriting, source?
What was expense ratio? Expense overruns? Were profits due to lapses?
Trade-off between profitability v solvency?
What was year on year return on shareholders’ equity? Did it meet shareholders’
hurdle rate?
How was profitability measured? Statutory? Realistic?
Is the capital adequate given the level of business? Etc etc etc
Insurance business a complex business; multi-faceted, multi-risk carrier
TABULATED PRÉCIS OF THE INSURANCE INDUSTRY
.
YEAR
AMOUNT
Shareholders' funds
Assets
Gross Direct Premium written
Net Direct Premium written
Invested assets
Investment income
Claims incurred (Non-life business)
Expenses of management
Commissions
Expense ratio (by NP)
Operating profit/loss
Underwriting results (Non-life business)
1997
K sh '000'
1998
K sh '000'
1999
K sh '000'
2000
K sh '000'
2001
K sh '000'
2002
K sh '000'
2003
K sh '000'
13,203,059.0
21,067,241.0
20,747,543.0
21,026,280.0
20,281,561.0
20,332,880.0
26,923,695.0
56,417,196.0
62,399,429.0
64,932,378.0
67,624,928.0
66,352,084.0
72,350,428.0
87,157,032.0
18,398,461.0
19,380,748.0
21,032,191.0
20,867,645.0
23,195,308.0
25,912,418.0
29,215,744.0
11,850,795.0
13,141,135.0
14,923,299.0
15,647,198.0
16,799,511.0
18,597,906.0
21,236,698.0
47,644,311.0
49,632,790.0
51,133,519.0
53,551,478.0
53,320,718.0
59,000,385.0
70,714,150.0
5,214,426.0
6,454,448.0
5,016,847.0
4,400,794.0
4,587,193.0
4,883,535.0
2,455,714.0
8,285,791.0
8,437,786.0
8,073,543.0
8,939,723.0
7,044,033.0
765,510.0
7,933,129.0
3,887,820.0
4,439,161.0
5,330,223.0
5,380,743.0
5,654,857.0
5,999,316.0
7,009,998.0
2,232,782.0
2,331,290.0
2,499,853.0
2,591,675.0
2,422,253.0
2,620,406.0
3,201,677.0
0.52
0.52
0.52
0.51
0.48
0.46
0.48
1,623,178.0
1,938,458.0
1,180,117.0
1,433,121.0
1,654,413.0
1,951,719.0
2,843,659.0
(576,398.0)
(113,494.0)
(136,608.0)
(579,835.0)
218,669.0
296,520.0
250,842.0
Market penetration (I.e gross premiums to GDP has remained around 3% for the last
five years
Source : Report of the Commissioner of Insurance for y/e 31 Dec 2003
LIFE VS NON LIFE PREMIUM INCOME
LIFE INSURANCE
NON-LIFE INSURANCE
3,581,574
14,816,887
LIFE INSURANCE
NON-LIFE INSURANCE
Total
41,393,512
116,610,104
4,321,770
15,058,978
4,978,063
16,054,131
5,682,596
7,072,594
7,236,900
15,185,049 16,123,814 18,675,518
Average
5,913,359
16,658,586
LIFE INSURANCE
NON-LIFE INSURANCE
Average life : non-life premium ratio : 1:4
Life insurance penetration : 0.7%
cf SA approx 16%; Zim 2%; UK/US 10%
8,520,015
20,695,727
When was the last time we
sharpened our axe as an industry?
Challenges Facing the
Insurance Industry (1)













Increasing level of penetration, but huge potential
Are customer needs being met?
Customer focus, marketing and distribution strategies, product innovation
Trained man-power across the insurance value chain
As well as appropriate KPI
IT and processes
Operational, financial and risk management strategies
Pricing and reserving
Lack of data and statistics
Fierce competition and rate under-cutting
Underwriters vs intermediaries ought to have synergistic relationship – is there?
Fraud (ambulance chasers, collusion, malpractices)
Professionalism across the insurance value chain
Challenges Facing the Insurance
Industry (2)










Insolvencies and financial distress of insurers and HMOs
Image
Review of Insurance Act and regulation
Move to fair value accounting and risk based capital
Insurance company taxation
Economic growth and wealth
Conservatism vs innovation (bancassurance) – are we too steeped in
tradition?
Do we see the big picture?
Some external, but most internal
Challenges are in fact opportunities for managing for high
performance and paradigm shift
Paradigm Shift:
Managing for High
Performance
If necessity is the mother of invention,
discontent is the father of progress
David Rockfeller, American businessman
Redefining Our Core
Objective
Insurance is all about undertaking risk
Isn’t risk our raison d’etre?
But do we understand the true nature of the
risks we face?
Do we understand the true nature of our
business?
What level of risk is acceptable?
Managing for High
Performance
The
word is ERM - Enterprise Risk
Management
“The discipline by which an organisation (in any industry)
assessed, controls, exploits, finances and monitors risk
from all sources for the purpose of increasing the
organisation’s short and long term value to its stakeholders”
Casualty Actuarial Society

Risk management is as much about identifying
opportunities as avoiding or mitigating losses
ASNZS 4360 –1995
Implementing ERM
– Internal Environment
–
Internal environment is the context within which the enterprise
functions:







–
–
–
Governance structure
Effective and dynamic leadership
Reporting structure
Assignment of authority
Management style
Ethical values
Risk culture
This foundation and culture will set the course for how risk will be
handled across the enterprise
The independence and involvement of the Board and the tone set
by management have a critical influence on the internal environment
The Board and senior management must determine their risk
objectives, risk appetite, risk tolerances and agree on risk
management roles and responsibilities

Enterprise Risk Management Specialty Guide Society of Actuaries
Underwriting risk
Underwriting process risk
Pricing risk
Product design risk
Claims risk
Economic environment risk
Net retention risk
Policyholder behaviour risk
Credit risk
Business credit risk
Invested asset risk
Political risk
Counterparty risk
Sovereign risk
Market risk
Interest rate risk
Equity and property risk
Currency risk
Basis risk
Reinvestment risk
Concentration risk
Asset/liability mgt risk
Off-balance sheet risk
Liquidity risk
Operational risk
Human capital risk
Management control risk
System risks
Strategic risks
Legal risk
Insurance Risks








Eg
Underwriting
Riskloss related to selection
Underwriting
process risk – eg financial
and approval of risks to be insured
Pricing risk – eg financial loss due to insufficient premium
charged for a risk undertaken
Product design risk – eg exposure to events not anticipated in
the design and pricing of a product
Claims risk – eg more than/higher than expect claims
Economic environment – eg adverse effect on the company
due to changes in socio-economic conditions
Net retention risk – eg losses due to catastrophic or
concentrated claims experience due to higher risk retention
Policyholder behaviour risk – eg unanticipated behaviours of
policyholders adversely effecting company
Reserving risk – eg inadequate provision in company accounts
for policy liabilities
Risk Management Strategy (1)

Identify all risks
–
–
–

Formal consideration of all facets of business
How and Why risk can occur?
“What if” considerations?
Quantify the risk
–
–
–
–
Source
Consequence and severity
Likelihood
Sensitivity analysis
Risk Management Strategy (2)

Evaluate the risk
–
–

Risk treatment – weigh up the risk and
–
–
–
–
–

Rating – qualitative and quantitative analysis
Consider controls or treatment
Retain
Avoid
Reduce likelihood of occurrence
Reduce the consequences
Transfer the risk (eg reinsure)
Establish controls

In respect of risks retained:
Risk
Management
Strategy
(3)
– Ensure capital is provided to cover risk

–
Price properly for the risk









If no capital, then don’t accept the risk
Be wary of strategies aimed at improving policy returns where
shareholders have to put up capital without extra reward
If the market cannot bear the price, avoid the risk
Scenario test
Be wary of combinations of events
Be wary of undercutting without appreciating impact on overall
business
Ensure all parties are aware of risks being undertaken
Ensure coordination between all parts of business
Continually review
Integrated approach is key to successful ERM
Planning mindset

Consider following key questions as part of insurance business
planning and review to add focus to all areas of insurer’s business, all
new initiatives or ventures:
–
–
–
–
–
–
–
–
–
How much capital is required and what is timing of these capital
requirements?
What are the options for funding (debt, equity,o/d)?
What impact does undertaking this have on our P&L?
What are the potential returns under the different funding options?
What risks does undertaking this impose on the company?
Is the return consistent with the risk and the shareholders’ hurdle return?
Where and how will this create value?
How does this fit strategically with the company’s existing business; how
does this contribute to the company’s vision and goals?
Are there non-financial benefits to the company?
Paradigm Shift:
Marketing
–
–
–
–
Who are our customers?
How are we going to sell to them and service them?
What are we going to sell them?
Product is the final element since insurance “sold
and not bought”
Paradigm Shift:
Marketing

Who are our customers?
–
–
–
Analyse the population and its insurance needs
Analysis of current and potential customers critical
Divide into groups which have different characteristics



–
–
Same product need or group of product needs
Distribution channel
Population segments
Consider whether any competitive advantage over others
Have we thought of crop insurance, rural population needs,
cooperatives, AIDS/HIV solutions
Paradigm Shift:
Marketing

How do we reach them- Distribution channels?
–
Brokers
Tied agents
Direct sales force
Other direct sales routes
Telemarketing and call centres
Other innovative structures
–
Internet?
–
–
–
–
–
Paradigm Shift:
Marketing

Products and product development
–
–
–
–
–
–
–
What products appropriate?
How does this compare with current offering?
Any niche?
Any unfilled needs?
Level of awareness of potential customers
Innovation
Yet simplicity
Paradigm Shift:
Competition



Wave of competition - fierce under-cutting
Competition not always on price alone
Alternative strategies:
–
–
–
–
–
–
–
–
–
–
–
–
–
Better customer focus and products which fit customer needs
Servicing, particularly after sales service
Customer retention strategies
Brand and brand awareness
Claims settlement
Niche marketing
Financial strength
Technology
Distribution channels
Better underwriting and controls
Investment performance
Efficient processes
Loyalty rewards
CSR etc etc










Paradigm Shift:
Trained
Manpower
Holds key to managing for high performance
Training and education, with IT skills
Provide information and exposure
CPD
Proper KPIs
Get right people in right places
And incentive structures – align interests of your
manpower with your business
Internal environment
Coherent team
Communication











Paradigm
Shift:
No compromise on real-time online IT system
IT is all
the
name
ofcompany
the game
Capturing
processes
of the
Efficiency, integrity of information
Checks, balances through system control
Mitigates and guards against fraud and malpractices
But no good unless critically analyse information
Don’t overlook potential of data mining to your business
Monitor, analyse, trend, dissect data and information for all
processes
Develop risk models, scenario tests
Actuaries key here
Invaluable tool for high performance!
Paradigm Shift:
Importance of the Actuarial
Profession

Currently narrow utilisation in life insurance with some exceptions

Largely statutory valuation role and limited product pricing

Myth: Actuaries necessary evil in life, not needed in non-life, other
parts of business and for risk management

Many of the issues addressed in this presentation look non-actuarial in
nature

Myth: Actuaries too expensive
–
Do cost benefit analysis
Paradigm Shift:
Importance of the Actuarial
Profession

Truth: Actuarial technical training/skill/approach/rigour/skillset is
crucial in making a robust business case

Actuary/actuarial resource should be central to the planning process and
should be key player in business planning, development, strategies for
growth
–
–
–
–




Can play crucial role in ERM process even if limited implementation
Actuary can assess and understand the complex interactions of insurance business
across all areas and communicate these to all parties, board, management, shareholders
and regulators
Can help evaluate implications of courses of action and hence enable more informed
decisions
Can make contribution in helping insurers to avoid making potentially costly mistakes
No claim on monopoly on wisdom, but can contribute managerially and
technically as part of multi-disciplinary team
Available and growing actuarial resource in Kenya
The Actuarial Society of Kenya (TASK) will be doing its part
Use this valuable resource to turn risk into opportunity!!!
Managing for High
Performance

Will all this help?
–
–
–
–
–
–
–
Beating the odds through a disciplined, rigorous approach to
insurance business management based on a proper
understanding of the business
Risk/reward optimisation
Risk preparedness
Effective enterprise culture
Competitive advantage
Isn’t this what our core business all about?
Isn’t this what high performance is all about?
Paradigm Shift : Managing for High
Performance
,
)
Selected References








The Actuaries Role in Non-life Risk Management Issues, Jerry Miccolis, FCAS,
MAAA, CAS Committee on Enterprise Risk Management
Overview of Enterprise Risk Management (2004), Casualty Actuarial Society
Enterprise Risk Management Specialty Guide, Society of Actuaries
Understanding Actuarial Management: the actuarial control cycle, Australian
Institute of Actuaries
Risk Management for insurance companies and pension funds, Stuart Wason,
Stuart Wason Consulting Limited, 3rd Contractual Savings Conference, Washingon
2005
Risk Mangement in a Deregulated Environment, Peter Beck 2000
Life Insurance Business Planning, Andrew Brown, 2000, FICCI Conference
Business planning by Stuart Wason, Edouard Merette and John Whitworth, 2000,
FICCI Conference,
Questions and
Answers
Thank
You
Thank You