Actuarial Valuation

An actuarial valuation is a key monitoring tool for the successful management of a benefit-providing programme to its members. “Successful management” is especially vital for running of social security schemes as these provide benefits and welfare assistance at a national level to a large membership base – failure to have adequate funds in operating these schemes can be not only a financial burden but also a political incumbrance to the government

By performing a scheme valuation, our consultants will “answer“ the following key items to help the scheme trustees/management (who are ultimately responsible to the government) understand and appropriately act upon the financial health of their scheme:

Knowledge of the liabilities on a cashflow basis (that is, how much is expected to be paid each year in the form of benefits over, say, a generational period of the next 50-75 years)

• Actuarial value of the liabilities at the valuation date/present time
• Sensitivity of the liability value to changes in assumptions (e.g. nominal and real rates, inflation(s), demographic etc.)
• Comparison of the liability value against the value of assets to determine the funded status and quantify the level of deficit/surplus
• Determine the contribution policy to maintain the scheme in a sustainable position

An actuarial valuation also includes a comparative analysis to ascertain the differences between actual and assumed experience of the scheme since the previous actuarial valuation; such differences are defined as “actuarial gains/losses”.

Through continuous engagement with the client and key stakeholders, we will deliver an Actuarial Valuation Report which will include information on data used (membership and asset data); assumptions applied – both financial and demographic; methodology employed; our valuation results; reconciliation of results and experience of the scheme compared with the previous valuation report (if any); sensitivities; and our recommendations (e.g. a funding plan to reduce unfunded deficit, if any).

Asset-liability Study

An ALM (asset-liability modelling) study allows decision makers to bring an assessment of risk to the quantification of value from an actuarial valuation. The results from an ALM study help to:

• Identify the client’s risk profile and tolerance level
• Understand the future impact of existing policies (benefits, pension increases, contributions, investments, etc.) and the risks inherent in the existing policies
• Determine the strategic asset allocation
• Facilitate the decision-making process concerning policy change (an actuarial valuation quantifies the cost of a policy change)

The output of an ALM will be a Fund Management Strategy Report which will provide results of the asset-liability modelling; proposed investment strategy; review of the current strategy; analysis of past performance; recommendation for funding and asset allocation policies; and analysis for other policy decisions.

It should be noted that an actuarial valuation provides the starting point and input for an ALM (ie through provision of liability cashflows) and as such we would recommend that, when undertaking a scheme actuarial valuation, we also perform an ALM study – both of which will be in the client’s best interest.

Benefit Reform

Our consultants work with governments to help identify a set of parametric, structural, and systemic reforms to enable their social security schemes achieve long-term sustainability and inter-generational fairness.

• Consultation and discussions with government and social security scheme representatives and relevant stakeholders to identify a set of principles and reforms to enable the scheme to achieve long-term sustainability
• Cost/Benefit Analysis or Feasibility Study
• Modelling of the implications of the identified parametric and structural reforms
• Design of a reform package for the scheme, based on the modelling results
• Drafting technical details of reform measures for inclusion in any proposed legislation
• Member education and communication
• Work with relevant stakeholders to put together a plan to implement the benefit reform; and assist with its roll-out

Benefit Design

A good social security programme is one of the key indicators of the “quality of life” of a country’s population. Our team of social security experts are highly experienced in advising governments on the design and roll-out of state benefits and social welfare plans.

Our consultants will help with:

• Stakeholder consultations
• National-level research and surveys
• Designing the structure and features of the proposed benefit plan
• Funding and investment strategies
• Assess the financial implications of introducing the proposed benefit plan and how this could be funded
• Drafting technical details of benefit design for inclusion in any proposed legislation
• Member education and communication; and planning the benefit roll-out
• Post-benefit implementation follow-up studies

Actuarial Audit

Sometimes a second professional opinion is needed; we are here to provide this where requested. Our consultants are experienced in conducting actuarial reviews and audits. For example, our audit on a previously conducted actuarial valuation will include:

• Assessing the accuracy and validity of data. As part of the audit process we will first request the client to provide data and information that was used in the original valuation for us to provide a fair and impartial assessment on the completeness and accuracy of the data
• Undertaking an independent review of the actuarial assumptions and methodology used
• Checking calculations (including the cashflow projections) that the original results have been derived from and carrying out overall reasonableness checks on those results
• Reviewing the options and recommendations provided in the original valuation report to reduce unfunded deficit (if any)

More information

Please contact Darshan Ruparelia or Ruan van Rensburg if you need any further information on our services, or if you would like to speak to one of our specialists to determine the scope of your work or an estimate of timescales and fees. We can provide client references on request.