The Actuarial Review & Unfunded Liabilities - The Trustee’s Side Algernon Cargill
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Transcript of The Actuarial Review & Unfunded Liabilities - The Trustee’s Side Algernon Cargill
The Actuarial Review & Unfunded Liabilities -
The Trustee’s Side
Algernon CargillDirector, Bahamas National Insurance Board
Atlantic ConnectionJuly 11th, 2012
1
AGENDA
1. About NIB Bahamas
2. My introduction to Social Security
3. Good Governance
4. Working with your Actuary
5. Asset Liability Matching
2
ABOUT NIB BAHAMAS
• Started in 1974• Comprehensive income-replacement
benefits package • Contribution rate – 8.8% from 10/1974 to 5/2010– 9.8% from 6/2010 (when unemployment added)
• 96% of Investments local
RESERVES
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
20110
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
1,800,000,000
INCOME & EXPENDITURE
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
20110%
2%
4%
6%
8%
10%
12%
14%
Contribution Rate Expenditure Rate
RESERVE-EXPENDITURE RATIO
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
2011 -
2
4
6
8
10
12
14
16
Expenditure > Contributions All years
Expenditure > Income 2019 to 2024
Reserves Depleted 2029 to 2035
General Average Premium15.2% to
19.0%
Pay-as-you-go 2066 25% to 32%
8TH ACTUARIAL REVIEW PROJECTION RESULTS
7
UNFUNDED LIABILITY
$7.9 billion
115% of GDP
In the private sector these would be awful numbers..……
but I have come to appreciate that social security is (or maybe?)
different!
REFLECTIVE QUESTIONS
• Does a financial deficit reflect poorly on trustees/management?
• Should we just live with a large unfunded liability?
• As a trustee and good steward, what can I do to make these numbers look better?
• What is the actuary thinking when he says “don’t increase the contribution rate just yet”?
11
ONLY ONE SOLUTION
Good Governance Practices
GOOD GOVERNANCE PRACTICES
1. Change the rules– Reduce benefits and/or increase contributions
• Adequate and affordable promises
2. Investments– Current Investment Policy Statement
3. Effective & Efficient Administration– Collect what is due, – Pay only the entitled, – With lean staff using available technology
GOOD GOVERNANCE PRACTICES
4. Everyone has their role:– The Minister– The Chairman– The Board– The Director– Executive Team
STEWARDING THE ACTUARIAL REVIEW• Actuarial Standards of Practice – Know what report should contain
• Assumptions– Have some input
• Scenarios– Ask for the “what ifs” you want to see
• Peer Review– 2nd opinions seldom hurt
THE ACTUARIAL REPORT
• Make it public – Don’t hide the facts, findings &
recommendations
• Build consensus behind key recommendations
• Be persistent with policymakers re need for reforms
• Fix the things you can
ASSET-LIABILITY ISSUES
• Difficult when investment options limited– Long-term liabilities– Few options for long-term assets
• Always balance Risk & Return • Keep Investment Policy current• Manage your investment managers
CONCLUSION
• Be a good Steward• Follow Good Governance Practices• Embrace actuarial review• Be transparent• Share information• Embrace reform