Presented to the Institute of Actuaries Students' Society

on 5th January 1982

THE ACTUARY'S ROLEIN DEVELOPING COUNTRIES

by

M.Arnold BSc, FIA

THE ACTUARY'S ROLE IN DEVELOPING COUNTRIES

Presented to

The Institute of Actuaries Students1 Society

5th January, 1982

INTRODUCTION

1. Each year in the Institute of Actuaries Year Book a table

is printed providing "An analysis of the occupations

followed by Fellows and Associates of the Institute of

Actuaries". Using the figures in the most current Year

Book which provides an analysis as at 31st July, 1980

I have estimated that less than 5% of fellows and students

of the Institute will have any experience of actuarial

practice outside the U.K., the U.S. and Europe.

The principle objective of this paper is to provide some

insight for some of the remaining 95% or so of members of

the Institute into both the technical and practical

difficulties of working as an Actuary, either as a

consultant or a resident, in a developing country.

2. The term "developing country" is one which has become

widely used in recent years and, to my mind, is just as

vague an expression as "The Third World" which, as I

understand it, is meant to represent broadly a similar

group of countries. I propose to be more specific and

limit the comments and observations in this paper to the

experience I have gained in those East African territories

I have visited in the course of acting as a consulting

actuary to local financial institutions and other

organisations. These are Kenya, Uganda, Zambia,

Zimbabwe and also Mauritius and the Seychelles which,

of course, although neighbours, are not Africa.

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3. To "set the scene" a little, all these countries are

ex-British colonies and are currently members of the

Commonwealth. The local legislation pertaining to

insurance, pensions and social services is based very

much on the corresponding U.K. legislation of fifteen

to twenty years ago. The legislation was enacted in

ore-independence days and has been amended very little

since then. The relevant Acts make actuarial valuations

of insurance company liabilities and pension funds,

actuarial solvency certificates and actuarial reports

a legal requirement at regular intervals. Furthermore,

the minimum professional qualifications required for

acceptance by the Authorities as an actuary are defined

in the Acts and these are invariably, if not exclusively,

in the areas referred to, Fellowship of either the

Institute or Faculty of Actuaries.

4. At the last count, I think that in the whole of the black

African continent the number of persons who qualify for

the status of "Actuary" could be counted on the fingers

of one hand and in East Africa there is just one Actuary

working on a contract basis. In these circumstances,

by far the majority of local insurance companies, pension

funds and even Government Statistical and Social Service

departments are forced to turn to the U.K. to obtain

the necessary actuarial services.

South African actuaries used to supply most of the

actuarial services for the Rhodesias. However, since

Zambia and now Zimbabwe have gained their independence

because of their quite natural dislike of apartheid,

there has been a movement away from South African

actuaries towards the U.K.

5. The major group of organisations requiring actuarial

assistance are insurance companies, and these vary

enormously in size and method of operation. At one

extreme there are the very large nationalised monopoly

insurance companies and at the other extreme the very

snail indigenous companies operating in a highly competitive

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and saturated market. The majority of comments in this paper

will relate to the activities and problems of insurance

companies but there are many other varied organisations,

such as Pension Funds, Provident Funds, Workmen's Compensation

Funds, Social Security and other Government Departments

who also use actuarial services. Where appropriate, I

shall refer to the specific problems that they have to

contend with.

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TECHNICAL CONSIDERATIONS

6. Almost all aspects of technical actuarial work, wherever

it is practised, are based on the analysis and monitoring

of trends in statistics; in the main, demographic

statistics. This is most obviously the case in the

analysis and creation of mortality, morbidity and birth

rates. It is equally true in the particular field of

life assurance where lapse rates, new business rates

and expense ratios are analysed in great detail using

past experience.

In the more developed Western countries the population

statistics required to analyse the various demographic

factors have been developed over a number of years, even

centuries, and a well monitored trend of experience has

been gained. The situation in most developing countries,

and most certainly the situation in East Africa, could not

be more different. Quite simply there are virtually

no demographic statistics at all which go back further than

fifteen years and even the few that have been produced

in this period are often quite meaningless inasmuch as

they are based on totally inadequate data. It has to be

recognised that until recently there has been virtually

no system for recording births and deaths in most of

the developing African countries and an extremely high

proportion of the population do not know their date of

birth and when asked could only give a range of years.

In all East African countries there is now a Registrar of

Birth and Deaths and statistics are being properly

collated. However, one can never be absolutely sure that

everyone is "caught in the net" and there must be a strong

possibility that significant proportions of the population,

particularly in the rural areas, are not included.

7. Set against the inadequacy of demographic statistics is

the, perhaps natural, nationalistic desire of most local

insurance companies to base their premium rates on

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"African Mortality Tables". In the colonial days some

British insurance companies operating in the region had

different sets of premium rates, one for Europeans and

another for Africans. However, the African rates were

invariably calculated by using an arbitrary addition

to the age. Needless to say, since independence, this

practice has virtually disappeared but in the absence of

a genuine African mortality table the premium rates are

based on European or Asian mortality tables of fifty or

more years ago. (A24/29 is a mortality table commonly

used.)

Whilst the appropriate statistics are gradually building

up to enable a genuine African mortality table to be

produced, it will be some years before a meaningful and

reliable African assured lives mortality table could be

used and in the meantime the current practice will probably

have to continue. However, in the eyes of an African

life assurance manager or managing director this can

appear to "smack" of colonialism and so great care is

required by the Actuary in explaining the reasons for

this approach.

8. As I am sure you will all appreciate this lack of statistical

data is a considerable handicap to an actuary operating

in this area. What kind of advice can he give to a

National Provident Fund or Social Services department of

a Government who are wishing to introduce the basics of

a social security system with, perhaps, some old age

pension payments, funeral grants and maternity benefits

if he has virtually no statistics on which to base any

calculations? The natural tendency for an actuary faced

with this set of circumstances is to be as conservative

as possible in as many aspects as possible. However, this

could well result in conclusions which are simply not

acceptable. An actuary in this situation has to temper

his natural desire to be conservative in the absence of

sufficient statistical evidence to support his judgement

with practicality and produce results which are acceptable

both to himself and to the recipient of his advice. This

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is probably a situation that many actuaries find themselves

in from time to time, in whatever sphere they are working,

but it is unlikely that an actuary working in a more

conventional field will be confronted with problems of

this scale.

9. The second general technical problem which the actuary must

contend with in almost all spheres of his activity relates

to the investment conditions that apply.

It is not just the fact that there are no active invest-

ment markets in the same way that there are in the

developed economies but also that on the few types of

investments that are available the returns are invariably

inadequate and bear little or no relationship to other

economic factors and in particular the rate of inflation.

The main type of investment that is available are loans

to the Government. Many of the larger financial institutions

in a developing economy are required by law to invest

certain minimum proportions of their assets in Government

loans and the rate of interest payable is determined by

the Government. There is little or no market in any such

loans, they simply have to be held by the institution until

they are redeemed. The rates of interest payable by

Government naturally varies from country to country but

at the current time the rates vary between 5% and 11.5%

per annum. These must be viewed in the context of

inflation rates currently pertaining in this part of the

world, at a minimum rate of 15% and ranging up to 3O%-35%

in some countries. Furthermore, this is not a particularly

temporary phenomenon. Such large negative "real" rates of

return have been pertaining in the region now for the last

ten years or more and naturally cause considerable concern

to the actuary. They do so most particularly to the

actuary to pension funds with liabilities linked to

final salary but also to the actuary of an insurance

company attempting to market competitive with-profit

contracts.

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It is difficult for the actuary to persuade the appropriate

powers of the consequences of this situation without becoming

rapidly involved in the local politics (about which another

paper could be written that would not be wholly appropriate

in the present context). However in recent months I have

detected a greater air of realism in some countries, and

Governments are having to raise interest rates a little

to attract sufficient resources, though they still fall

far short of providing "real" rates of return to investors.

10. There is hardly any equity market in any of the countries

of East Africa. The shares of one or two companies are

usually available but once again their marketability is

extremely limited if not non-existent.

Furthermore, in some countries much of the local industry

is either wholly or partly nationalised, which considerably

limits the scope for the creation of an equity market.

Generally when, considering the problem of equity invest-

ment there are, once again, political overtones that have

a bearing. The political climate is not always commensurate

with the encouragement of equity participation in industry.

However, I do believe that there is, to some extent, a

"chicken and egg" problem with regard to equity investment.

Investment managers of life funds, pension funds and the

like often bemoan the fact that there is no equity market

for them to invest in but, on the other hand, the managers

of local industry are probably not at all aware of the

quite significant amount of finance which could be made

available to them.

To some extent this is another aspect of the "education"

problem I refer to later, but the actuary should have a

significant role to play in bringing the two sides together

which should go some way to encouraging the right

atmosphere for the creation of a more meaningful equity

market.

11. In addition to Government loans the only other major area

of investment available to long term funds is investment

— 8 —

in property and property developments. In many of the

capital cities and major towns in East Africa practically

all of the office blocks, shopping precincts and major

developments are owned or financed by local insurance

companies, provident funds or other long term financial

institutions. Once again, there are problems of

marketability and in the absence of a truly free market

of willing sellers and willing buyers valuers have great

difficulty in placing realistic values on property and

property development. In addition, rents are often

unrealistically low and are also often controlled by law.

Perhaps the greatest danger in property investment,

though, is the political risk - it is not unheard of for

Governments to nationalise buildings and land "overnight".

The effect on life funds and pension funds of such action

does not bear thinking about by the actuary!

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SOME SPECIFIC TECHNICAL PROBLEMS

(i) Insurance Companies

12. Turning now to some specific problems faced by the

different organisations summarised in paragraph 5

of the paper I shall consider the type of problems

that confront the actuary working in, or advising,

an insurance company.

Firstly a brief description of the insurance markets

follows.

The life insurance markets in different countries

within East Africa vary considerably and the main

factor which determines the nature of the market

is the role that the Government, through a

Government owned company, plays.

In Zambia, for instance, there is just one insurance

corporation operating and that is State owned.

In the early 1970s legislation was passed under

which all local insurance companies and branches

of multinational companies had to transfer their

assets and liabilities to the Zambia State Insurance

Corporation.

In Kenya, the Government has adopted a totally

different approach. In addition to a number of local

companies there is a State, owned direct writing

company and. also a State reinsurance corporation.

Furthermore, there is legislation which requires each

direct writing company to cede a certain proportion

of its business to the State owned reinsurance

corporation and this gives rise to some interesting

situations vis-a-vis the two State owned companies.

Legislation was passed in the mid-1970s requiring

all branch operations to be converted into a

locally owned company or transferred to such a

company.

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In Uganda there is a State owned direct writing

insurance company which competes with other

indigenous insurance companies. However, the

competition is not strictly "fair" inasmuch as

the State owned company is exempt from any

taxation whereas the other insurance companies do

pay tax.

At the other extreme, the insurance market in

Mauritius, which is an island with a population of

just a little over one million persons, has more

than twenty insurance companies of which over one-

half transact life and pensions business. None

of these companies are State owned though there

is one company which commands more than 70% of

the market.

All these markets have their own particular problems.

Most insurance companies are composite offices

and, on the life side, write both individual life

and pensions business. The types of contract issued

in the individual life branch are, almost exclusively,

conventional contracts such as whole life, endowment

and term assurance with the main emphasis being

placed on with-profit contracts. On the pensions

side the majority of business is written on a

deferred annuity or combination of endowment and

pure endowment basis, though there is a move

towards deposit administration type of contracts,

expecially for the larger schemes.

The investment conditions referred to earlier

virtually preclude the marketing of unit-linked

policies, with the possible exception of a

property-linked policy.

I believe that perhaps the main problems, in addition

to those general ones I have already described, arise

from the legacies left by the various U.K., Australian,

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American and South African multinational companies

which operated in East Africa before independence.

Many of these companies had treated their operations

in Commonwealth territories simply as a branch of

their home operations, charging similar premium

rates and declaring similar bonuses for with-profit

contracts. Even those companies who did not go this

far and differentiated, perhaps, in the rate of

bonus declared in different territories still did

not reflect fully the local conditions with regard

to return on investments and the local costs of

administration. The result has been that the level

of with-profit premium rates and bonus declarations

in these markets have been particularly advantageous

to the local policyholders and correspondingly

difficult for indigenous companies to justify.

Apart from this fact there are additional difficulties

for a new private local company. It not only has to

compete against contracts which are difficult to

justify in the local conditions, but also has the

added disadvantage of "newness" with associated

"new business strain' problems and the lack of large

accumulated funds to provide additional investment

margins.

13. Of course, the two general technical problems I have

referred to earlier are of particular significance

for the life assurance market; the absence of any

reliable statistics makes the compilation of mortality

tables and the offer of any conversion options

particularly difficult and the lack of adequate

investment opportunities aggravates the bonus

earning power of life funds and makes it extremely

difficult to declare bonuses that can keep pace

with the devaluation, in real terms, of fixed

monetary amounts.

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Furthermore, there are other difficulties peculiar

to local markets. The economic and social environment

is not always conducive to long term planning, a

particular example of this being the current

uncertainties of the Asian community in East Africa.

All this makes the selling of long term life insurance

policies extremely difficult and an analysis of

the average term of the portfolio of most life

insurance companies operating in East Africa would

reveal that the average term of the business on the

books would not exceed 15 years. Furthermore,

products which provide for anticipated payments of

the sums assured, that is where the sum assured

is paid in instalments in advance of the maturity

date of the policy are particularly prevalent in

markets such as Kenya and Uganda and these shorten

the mean maturity date of the portfolio still

further.

Another factor which serves to effectively shorten

the average term of the products still further is

the fact that many individual life products are

sold by life assurance salesmen on the strength

of the policyholder being able to obtain loan

values from the insurance company as soon as the

policy acquires a surrender value. It is not

unusual to find in an insurance company's life

fund balance sheet loans to policyholders amounting

to some 20%-30% of the total assets. This would not

be so bad if realistic rates of interest were charged

to policyholders on such loans but this is most

certainly not always the case.

I suppose that, in the relatively uncertain future

in which most companies are operating, it may be

positively advantageous to keep the average

outstanding term of life funds relatively short but

all these factors aggravate the investment matching

problem and bonus earning power of life funds.

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On the other hand, life insurance is relatively new

in the region as far as the majority of the population

is concerned and so it would not be unreasonable to

expect all the life companies and the life funds of

the companies to grow fairly rapidly for a long time

to come. In such circumstances, matching becomes

less important, and one can recommend investing

longer.

14. Under the "extended family system" which tends to

operate in most African territories (and certainly

in East Africa) whereby a member of the family who

falls upon hard times looks to other members of

his/her immediate and extended family to provide

the basic necessities of life, the need for

conventional life assurance protection has been

somewhat limited. However, with more and more

European influence resulting in extensions to

social security systems and with the continued moves

towards urbanisation the extended family system is

tending to disintegrate. This should create a

better environment for life assurance companies

to market whole of life and term assurance policies

and this is certainly happening in Zambia and Kenya.

It will enable insurance companies to achieve a much

more balanced portfolio of business and thereby

alleviate some of the investment problems I have

outlined.

15. One further technical problem, which admittedly is

not particular to developing countries in general

or East Africa in particular, is the problem created

by extremely high rates of inflation. Other than

a limited amount of hydro-electric power and coal

resources, East Africa has no internal source of

energy and imports all its oil and other energy

sources. The dramatic increase in oil prices

the whole world has experienced in the last eight

years has adversely affected the East African

economies more than most. The result has been

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extremely high rates of inflation.

The high rates of inflation have had the expected

effect on salary levels which, in turn, have had

dramatic effects on the expense ratios of life

insurance operations. In many ways, life insurance

is conducted in East Africa in a way more akin to

industrial assurance in the U.K.; the average size

of policies is relatively low, premiums are often

paid in cash or collected by an agent, all of

which makes the business highly dependent on human

resources and not susceptible to mechanisation.

The continued attack that is needed on expense ratios

in order to contain them within acceptable levels,

whilst being no different in principle the world

over, is, I suggest, more acute in markets such as

East Africa.

16. Some practical problems that arise in providing actuarial

assistance from overseas to insurance companies

in East Africa are dealt with in later sections of

this paper but many of them emanate from the lack

of qualified personnel to run the life departments.

This same problem reveals itself in dealings with

the authorities who are monitoring and supervising

the activities of insurance companies generally.

They too suffer from lack of qualified personnel.

Under the terms of the legislation pertaining to

insurance companies in all East African countries,

there is a "Registrar of Insurance". In no case,

that I am aware of, is he an actuary nor does he

have any local actuarial expertise on which to

draw though in some countries the services of the

G.A.D. in the U.K. are used. In a country with no

actuarial expertise available to the Registrar

the actuary to an insurance company has to assume,

at least to some extent, the role of the supervisory

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authority as well as advising the company directly.

This should not normally give rise to any conflicts

but can place considerable additional burdens on

the actuary.

17. Some particular problems that arose during and since

the nationalisation of insurance in Zambia are worthy

of mention.

The Zambia State Insurance Corporation was a small

State owned company transacting non-life business

which eventually started to write life business.

About a year later, before it had assembled an

adequate staff to cope, it had to take over

the business of 23 other insurance companies and

branches operating in the country. The Nationalisation

of Insurance Act and the Valuation Regulations which

prescribed the actuarial basis for the valuation of

the liabilities were hastily drafted. There were

shortcomings in the legislation, particularly with

regard to the valuation of assets, which could

have been financially damaging to the new Corporation

had it not been for the goodwill of the insurance

companies previously operating in the market.

The administrative complications of the nationalisation

were considerable with the Corporation staff having

to deal with up to 23 different types of products,

bonus systems and policy conditions. It has taken

many years for these problems to be overcome.

(ii) Pension Funds

18. In most ex-British colonies, the Civil Service enjoy

pension arrangements which are very much akin to

the Civil Service Pension Scheme in the U.K.

Naturally this scheme has been used as a model by

private industry and by the insurance companies who

market pensions policies. This has resulted in the

majority of pension schemes In East Africa being

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based on a fraction of 'final salary' accruing for

each year of service. Widows pensions and death-

in-service benefits are not so prevalent as they

are in the U.K. and this may be due to the operation

of the "extended family system".

The main technical problem which an actuary faces

when advising pension funds in East Africa

emanates from the adverse investment conditions.

Advance funding for pension liabilities which are

related to final salaries is extremely difficult

to monitor and control in "unreal" investment

conditions where negative real rates of return

persist over a long period. The result is that it

is often extremely difficult for the actuary to

explain his methods and results to laymen trustees

of pension schemes.

19. An additonal problem in some countries, particularly

Kenya, is that a different tax treatment is applied

to pension funds operated through insurance companies

from those which are directly self-invested and

self-managed. In Kenya the contributions paid to

pension schemes administered by insurance companies

and the "roll-up" of these funds are allowed tax-

free whereas the company contributions to self-

invested schemes have to be made out of taxed profits

and the "roll-up" of self-invested pension fund

monies is also taxed.

Though there are supervisory authorities in the various

tax departments who are responsible for the operation

of "approved" pension funds there are the same

difficulties with regard to lack of experience and

knowledge. It is extremely difficult to explain

to such people the basic inequities of a system which

discriminates between pensions effected with insurance

companies and those which are self-invested.

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(iii) General Actuarial Work and Social Security Schemes

20. The type of work I refer to here includes the sort

of work undertaken by the Government Actuaries

Department in the U.K. The most difficult technical

problems arise from the lack of adequate population

and demographic statistics. Clearly it is extremely

difficult to advise on the introduction of a basic

State pension scheme without adequate population

statistics with regard to age, rates of mortality

and birth rates.

Another main cause of many of the difficulties arises

from the fact that expectations are very much

greater than the ability to fulfil them. I have

lost count of the number of times comparisons have

been made between the Social Security provisions

in the U.K. and those provided in an East African

country. The fact that we here can hardly afford

them, let alone whether Fast Africa can, does not

seem to enter into it.

21 An additional problem I have encountered in countries

where basic State social security is provided by a

National Provident Fund for all employees is the

total inadequacy of the administrative procedures

to handle the volumes of data that arise. This is

not only because of the inexperience of tne staff

in the offices of the Provident Fund but also because

of the lack of understanding of such arrangements

and systems by local employers and employees.

It has taken us many years in the U.K. to develop

our social security systems to their current levels

yet Governments, employers and employees in East

Africa seem to expect similar development overnight.

SOME PRACTICAL PROBLEMS FOR THE CONSULTING ACTUARY

22. I have already referred to the lack of qualified

staff in East Africa and many of the practical

difficulties the actuary has to cope with arise because

of the lack of qualified and experienced personnel.

This lack of experience is evident in practically all

spheres of any insurance company's operations

including the technical aspects of underwriting/

investment and accounting right through to general

management skills.

There are doubtless many reasons for the current state

of affairs in this respect and doubtless also "blame"

could be apportioned in many ways. I do not propose

to attempt to delve into either of these areas but it

is sufficient to say that because of the lack of any

qualified support the actuary operating in East Africa

finds himself undertaking many different tasks which in

no way could be described as "actuarial".

23. Perhaps the main non-technical aspect of the actuary's

work in East Africa relates to the training of indigenous

staff.

Great emphasis is placed on the training of staff

throughout industry and commerce and it is encouraged

by the authorities throughout the region. One very rarely

hears a political speech without some emphasis being

placed on the need to train people in skills that are

required locally, and significant amounts of Government

resources are channelled into such training.

Reinsurance companies do provide considerable training

facilities and the assistance that is expected from

actuaries in this area is not restricted to actuarial

training, but covers all aspects of life assurance and

pensions management and day-to-day operations of an

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insurance company. This involves finding appropriate

courses in the U.K. and America for staff to attend

and arranging, where possible, for secondments to

U.K. insurance companies for periods of up to six

months and even more so that the members of staff can

gain some practical experience of more advanced

administration systems.

Training is not restricted to junior members of staff

and another important aspect, particularly for senior

management, is provided by attending the various

conferences that are held for the insurance industry

in the region. In most countries local insurance

organisations have been formed which have grouped

together to form regional organisations. In addition,

there is an All Africa insurance organisation operating

under the umbrella of the O.A.U. Conferences and

regional meetings are held quite frequently and these

are often used as opportunities to provide education

in new fields as well as providing members of the organ-

isations with an opportunity to learn from each others

experiences. The actuary is quite frequently asked to

present papers and encourage discussions on such

occasions.

24. In spite of the relative dearth of qualifed personnel

in the region there is still a great move towards

"Africanisation" whereby most, if not all, senior

management jobs are being occupied by indigenous people.

However, there are still a number of opportunities for

ex-patriate staff particularly in the areas of training

and junior management. It is very likely that any

such ex-patriate appointment to any position in the life

department would involve the actuary in interviewing

and vetting the candidates. This can be, and often is,

an extremly time-consuming exercise.

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25. Computerisation in East Africa is very much in its

infancy.

As a result of this and also because of the inexperience

of the staff, extremly large administration

departments in insurance companies have evolved,

particularly in the nationalised monopolies. One of

the main reasons for the fact that the actuary has to

cope with relatively large expense ratios is that the

administrative systems are almost exclusively manual

even for companies handling individual policies in

excess of 100,000; and many times that number of

members of group pension schemes.

Therefore,any assistance that the consulting actuary can

provide in the form of computerised administration

records is more than welcome and it is quite common for

him to hold quite detailed computer records of each

individual policy (far more than would be required simply

for actuarial valuation purposes) and for him to effect

the various updating and movement of these records.

The print-outs which emanate from these movements are

often used by the administration department of the

company as their basic record for day-to-day operations,

such as calculation of surrender values, maturity values

and paid-up values. Furthermore, the same systems and

computer print-out can be used for the accounting of

premium collection and from there on to the calculation

of commission payments that are due.

Turning now to the pensions business, as the majority of

this class in East Africa is still sold on a deferred

annuity or combination of endowment and pure endowment

basis, the use of computerised methods is even more

relevant. Here the basic actuarial records are extended

so that renewal statements can be automatically prepared.

These would be passed on directly to the employer who

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would provide the fluctuating statistics such as revised

salary and contributions so that the normal renewal

calculations can be made easier. This also facilitates

the provision of reinsurance and valuation statistics.

Naturally, efforts are being made to mechanise more of

the administrative procedures of life and pensions

departments of insurance companies (and indeed this must

be done if companies operating in this area are to

achieve acceptable expense ratios) but here again

experienced personnel are simply not available in the field

of systems analysis or programming and it is more than

likely that the actuary would be called on to provide

assistance in this area if at all possible.

Of course, the handling of large volumes of data is a

particular problem that National Provident Funds and

Social Security departments have to contend with.

Here again, computerisation is a necessity and if

acceptable rates of return are to be declared on

members' deposits or if an acceptable level of contri-

bution for a given level of benefit is to be achieved

then savings simply have to be made in administrative

costs.

26. All the national economies in the region have suffered

extremely badly in the last five years mainly as a

result of the world recession and the rapid increase in

oil prices in the same period. These two factors

have resulted in severe balance of payments problems

for all the countries and the majority of the Governments

are deeply in debt either to the International Monetary

Fund or International Banks or both. Those factors

have also resulted in pretty disastrous effects on the

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national currencies with an overall currency depreciation

in excess of 10% per annum over the last five years

throughout the region.

All this has led to great political and economic pressure

being applied by the authorities on the need to conserve

local currency and to reduce the importing of services

or goods (including Actuarial services).

The main facility that is imported by insurance companies

is their reinsurance facility and no doubt those members

here present who work in reinsurance companies can tell of

their difficulties in collecting reinsurance premiums.

Actuarial advice, when provided by a U.K. consultant,

is also an imported service and the economic environment

not only has implications on professional fees charged

by the actuary but can also result in his running an

"import/export business". It is perhaps natural for the

actuary to be asked to prepare, print and despatch rate

books, and policy documents and also to purchase text

books, etc., but I have been asked on several occasions

to arrange for the purchase and despatch of engine parts,

dresses, toothpaste, soap, cooking oil, etc!

27. No paper or discussion about the role of the consulting

actuary in a developing country could be completed without

reference to the hazards of visiting the territory. No

doubt many of you have heard various stories (some more

exaggerated than others) of all the different types of

travel, hotel, food and disease hazards that have to be

avoided or overcome - 'How to survive in the midst of

a coup' is essential pre-visit reading before travelling

to some African territories! I do not wish to dwell on

this aspect here but they certainly do add a little

'spice' to the ordinary working day of an actuary.

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SUMMARY

28. I am aware that this paper has been extremely general and

has covered a large number of areas but it is my hope that

it has given members some insight into the wide variety

of actuarial work and associated problems that can, and

often do, arise in a developing economy.

Whilst there are many technical and practical difficulties

in attempting to apply the various actuarial techniques

learnt during our training it does not lessen the need

for a professional actuarial approach in the fields of

life assurance, pensions practice and social security

provision.

29. There will probably be a number of years before sufficient

data can be accumulated and analysed to produce reliable

and accurate statistics and before there are sufficient

qualified personnel in all aspects of life assurance and

pensions work who could make proper use of such statistics.

Only then could the more sophisticated actuarial

techniques that are applied in the developed Western

economies also be applied in territories such as East

Africa.

In the meantime, though, there is much work for the

actuary to do and his contribution has been, and should

continue to be, highly valued by the various companies

and authorities in these territories.

30. The other major factor that will determine the rate of

development of the life assurance, pensions and long term

financial markets is the economic development of the area.

Many factors influence this, not the least of which being

the local politics and though there are many unknowns,

- 24 -

with the amount of human and natural resources that are

available in the area and on the assumption that these

can be properly harnessed, then there must be consider-

able long-term potential.

In this sphere, also, the actuary has his role to play

in terms of encouraging the creation of a well-ordered

and stable financial environment.

31. The use of life funds, pension funds and other long-term

funds held for the benefit of policyholders, workers

or members of the population generally, for social and

economic development opens up a whole new area for

discussion. Taking a purely technical 'text-book'

stance many 'socially-desirable' investments would not

be appropriate because the return provided is not

commensurate with the risk taken. However, unless

these funds do invest in schemes such as housing develop-

ments or industrial co-operatives then Governments will

simply take the money from the Institutions and do it

themselves. A longer term view must be adopted and

success in this area will not only create a more stable

and secure financial evironment but will also be to the

benefit of insurance companies and pension funds directly

in terms of an enhanced standing in society.

32. My thanks are due to colleagues in the office who have

assisted me and to my secretary who had to suffer many

re-draftings. I would like particularly to thank Clifford

Hymans for his valued comments. However, all comments,

observations and opinions are solely my own.