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Those assumptions

27 February 2006 Angelo Coppola

Financial advisor Bill Els has some thoughts and suggestions in terms of assumptions, in light of the PFA comments on actuarial assumptions.

He has, by his own admission been, in the life insurance/EB business for 40 years and during that timehe has, to paraphrase Simon & Garfunkel, seen many actuaries come and go.

Very few actuaries will calculate outside their "their house view".

In the past a number of insurers used to publish their mortality experience on disabilities and retirements. Those statistics revealed that many disabled persons / pensioners died during the first 5 to 10 years after retirement.

I suspect that some of the pensioners may also have been ill-health early retirements.

The LOA may easily obtain data from their members and compile a set of mortality tables that will give more accurate basis for calculating disabled members benefits.

Alternatively, the information may be compiled from the reinsurers databases because almost all the life companies lay off some of the risk with international reinsurers.

Actuarial science is based on the principle of large numbers in order to make assumptions that will, over time, be borne out by the experience of the group.

Assumptions based on the experience one scheme, even a large one, cannot produce averages that will be as accurate as those calculated from a national SA data base.

Of course each insurer's experience will also be influenced by how well they assess claims. A weak claims process will result in the admission of dubious claims where the life expectancy is not significantly impaired by the cause of disablement.

Consequently, the average life expectancy for such an insurer may be greater than the average for the industry as a whole.

Perhaps the LOA should be addressed by the Adjudicator on this matter?

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